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Duke Realty's (DRE) Q4 FFO Meets, Revenues Beat Estimates

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Duke Realty Corporation’s DRE fourth-quarter 2019 core funds from operations (FFO) per share of 38 cents came in line with the Zacks Consensus Estimate. Moreover, the bottom line increased 8.6% from the year-ago quarter.

Results indicate overall improved operations and increased investments in building projects. Moreover, strong rent growth drove the company’s same-property net operating income (NOI).

Rental and related revenues of $217.4 million increased 7.2% on a year-over-year basis. Also, the figure surpassed the Zacks Consensus Estimate of $216.6 million.

In full-year 2019, core FFO per share came in at $1.44, matching the Zacks Consensus Estimate. The figure improved 8.3% year over year. Moreover, rental and related revenues increased 9% to $855.8 million.

Quarter in Detail

Duke Realty leased 8.3 million square feet of space during the December-ended quarter. Tenant retention was 69.2%. Moreover, the company registered same-property NOI cash basis growth of 3.7% year over year. In fact, Duke Realty reported overall cash and annualized net effective rent growth on new and renewal leases of 11.9% and 32.1%, respectively, in the quarter.

As of Dec 31, 2019, the company’s total portfolio, including properties under development, was 94.3% leased, up 40 basis points (bps) from the prior-quarter end, and 50 bps from the prior-year end. In-service portfolio was 96.6% leased as of Dec 31, 2019, up from 96.2% leased on Sep 30, 2019 and from 96.3% on Dec 31, 2018.

Notably, during the fourth quarter, the company started five development projects aggregating 2.6 million square feet, with estimated costs of $307 million. Further, during the quarter, the company acquired two projects worth $68 million, which were fully leased. The company’s building dispositions totaled $110 million in the fourth quarter.

Duke Realty exited fourth-quarter 2019 with $110.9 million of cash and cash equivalents, up from $17.9 million as of Dec 31, 2018.

2020 Guidance

Duke Realty expects its core FFO per share to be in the range of $1.48-$1.54 for 2020. The projection is backed by the company’s efficiency in driving strong rental rate growth as well as lease-up of its new developments at better rental rates. The Zacks Consensus Estimate for the same is currently pegged at $1.44.

The company estimates same-property NOI growth to be 3.6-4.4%. The guidance for acquisitions of properties is $100-$300 million. The projection for building dispositions is $300-$500 million.

Our Viewpoint

Duke Realty’s year-over-year performance improved this quarter. The company is focusing on building a superior portfolio through acquisitions and development, on a speculative and build-to-suit basis, in high-barrier markets with solid growth potential. Along with this, the industrial real estate market is currently enjoying elevated demand for logistics infrastructure amid stable economy and e-commerce boom. Thus, with a solid operating platform and balance sheet strength, the company’s remains well poised to capitalize on this trend.

Nevertheless, with rising supply of industrial real estate space, scope for robust rent and occupancy growth is likely to be limited.

Duke Realty Corporation Price, Consensus and EPS Surprise


Duke Realty Corporation Price, Consensus and EPS Surprise

Duke Realty Corporation price-consensus-eps-surprise-chart | Duke Realty Corporation Quote

Zacks Rank

Currently, Duke Realty carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Release Date of Peers

We, now, look forward to the earnings releases of other REITs like Realty Income Corp. (O - Free Report) , Outfront Media Inc. OUT and Host Hotels & Resorts, Inc. HST, all of which are slated to report their quarterly numbers in February.

Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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