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Duke Realty (DRE) Q3 FFO Beats Estimates, Revenues Miss

Duke Realty Corporation’s DRE third-quarter 2017 core funds from operations (FFO) per share of 30 cents surpassed the Zacks Consensus Estimate of 29 cents. However, the figure came in lower than the year-ago figure of 31 cents.

Total rental and related revenues for the quarter of $169.6 million jumped 21.4% on a year-over-year basis. However, the figure missed the Zacks Consensus Estimate of $170.3 million.

Duke Realty Corporation Price, Consensus and EPS Surprise

Quarter in Detail

Duke Realty leased around 5.9 million square feet of space in the reported quarter. The company’s tenant retention for the quarter was 70.2%. Moreover, it registered same-property net operating income growth of 2.2% year over year, driven by rental rate increase. In fact, the company reported overall rent growth related to new and renewal leases of 15.9%.

As of Sep 30, 2017, the company’s total occupancy, including properties under development, was 93.2%, down 30 basis points (bps) from the prior-quarter end. In-service occupancy as of the same date was 95.7%, down 30 bps from the year-ago end.

Notably, the company concluded the third quarter with a solid development pipeline aggregating 11.1 million square feet of space, total expected project costs of $696 million and 63% pre-leased.

Duke Realty exited the reported quarter with $27.3 million of cash and cash equivalents, significantly up from $12.6 million as of Dec 31, 2016.

2017 Guidance

Duke Realty issued 2017 revised guidance for core FFO per share of $1.21-$1.25. The Zacks Consensus Estimate for the same is currently pegged at $1.22.

Furthermore, the company revised its current-year guidance for net income and estimates it in the range of $4.45-$4.60 per share.  

Dividend Update

Concurrent with its earnings release, Duke Realty announced a quarterly cash dividend on common stock of 20 cents per share. This marks a 0.5% sequential hike. The third-quarter dividend will be paid on Nov 30 to shareholders of record as of Nov 16, 2017.

Our Viewpoint

Considering the sell-off of seven medical office properties and three suburban office buildings, as well as the completion of the first tranche of the Bridge portfolio acquisition, the company has well positioned itself as a leading pure-play domestic industrial real estate investment trust (REIT).

However, the disposition efforts have had a near-term dilutive impact on the company’s quarterly results. In addition to this, significant competition from developers, owners and operators of commercial real estate adds to its concerns.

Currently, Duke Realty has a Zacks Rank #3 (Hold).

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

The stock has gained 8.4% year to date, outperforming 2% ascend of the industry it belongs to.

We now look forward to the earnings releases of other REITs like Ventas, Inc. VTR, Bostonproperties, Inc. BXP and Extra Space Storage Inc. EXR. While Ventas will release results on Oct 27, Boston Properties and Extra Storage are slated to report their numbers on Nov 1.

Note:  FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.

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