It has been about a month since the last earnings report for Duke Realty . Shares have lost about 1.6% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Duke Realty due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Duke Realty Tops Q2 FFO Estimates, Raises '21 View
Duke Realty’s second-quarter 2021 core FFO per share of 44 cents surpassed the Zacks Consensus Estimate of 43 cents. The figure also increased 15.8% from the year-ago tally of 38 cents.
Results reflect improved occupancy, rental rate growth and new developments being leased. The company recorded its highest quarterly rent growth ever on second generation leasing activity. Moreover, backed by the impressive second-quarter performance and improved outlook for the rest of the year, Duke Realty raised the 2021 earnings and development guidance.
Revenues of $271.7 million climbed 13.9% on a year-over-year basis. The figure also surpassed the Zacks Consensus Estimate of $256.3 million.
Quarter in Detail
Duke Realty leased 7.6 million square feet of space during the June-end quarter. Tenant retention was 77.5% for the reported quarter and 93.9% after considering immediate backfills.
Additionally, the company registered same-property NOI growth of 5.5%, year over year. This upside was backed by rental rate growth and the expiration of free rent periods, partially offset by a 30-basis point contraction in occupancy within the company’s same-property portfolio.
Duke Realty reported overall cash and annualized net effective rent growth on new and renewal leases of 19.2% and 36.2%, respectively, during the second quarter.
As of Jun 30, 2021, the company’s total portfolio, including properties under development, was 94.6% leased, shrinking 90 basis points (bps) from the end of the previous quarter and 70 bps from end of the prior-year quarter. Stabilized in-service portfolio was 98.2% leased as of Jun 30, 2021, up 10 basis points sequentially and 90 bps from the prior-year quarter end.
Duke Realty exited second-quarter 2021 with $8.25 million of cash and cash equivalents, up from $6.3 million as of Dec 31, 2020.
The company issued 3.4 million shares during the quarter, reaping $156 million of net proceeds, under its ATM program at an average price of $46.35 per share.
During the April-June period, Duke Realty’s income producing real estate acquisitions totaled $260 million, while building dispositions aggregated $183 million.
The company started five new speculative development projects with expected costs of $197 million during the quarter. As of Jun 30, 2021, its development projects under construction were 49% leased, while 97% of the undeveloped land inventory was concentrated in coastal Tier One markets.
Duke Realty has revised the 2021 guidance for core FFO per share to $1.69-$1.73 from the $1.65-$1.71 provided earlier. At the mid-point, this projects a 12.5% increase year on year.
For the remainder of the year, the company anticipates continued strong leasing activity, and minimal bad debt expense and tenant defaults.
On anticipations of solid operational results, the company has revised the guidance for average percentage leased of its stabilized portfolio to 97.8-98.6% compared with the previous band of 97.2-98.6%.
Backed by these factors and along with strong rental rate growth on the recently-executed leases, management revised the same-property NOI growth estimates, on a cash basis, to 4.75-5.25% from 4.1-4.9%.
Property dispositions are projected in the range of $1-$1.2 billion compared with the previous outlook of $900 million-$1.10 billion, highlighting better-than-expected pricing. Property acquisitions are expected to be $350-$550 million compared with the $300-$500 million estimated earlier, focused on coastal in-fill markets.
Development starts for 2021 are now projected at $1.1-$1.3 billion compared with the prior guidance of $950 million-$1.15 billion.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates review.
Currently, Duke Realty has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. Notably, Duke Realty has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.