Duke Realty Corp.
) reported first-quarter 2014 core funds from operations (FFO)
per share of 28 cents, in line with the Zacks Consensus Estimate.
The results compared favorably with the prior-year quarter figure
of 26 cents.
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The performance of this real estate investment trust (REIT) was
aided by a rise in revenues, partly offset by higher expenses.
Total revenue for first-quarter 2014 was $293.2 million, which
rose 14.0% year over year and beat the Zacks Consensus Estimate
of $222.0 million. Total expenses for the quarter were $228.1
million, up 14.5% year over year.
Net income attributable to common shareholders in the quarter
declined significantly to $18.7 million.
Quarter in Detail
In the first quarter, same-property net operating income
increased 2.2% from the year-ago period. This was aided by
occupancy and rental rate hikes. However, same property net
operating income growth for the quarter suffered due to expenses
related to snow removal and utility costs.
Duke Realty leased around 6.1 million square feet of space. In
the reported quarter, tenant retention was about 65% and the
company experienced overall impressive renewal rental rate growth
of 7.9%. In the year-ago quarter, tenant retention was
approximately 49% and overall positive rental rate growth was
1.9%. Overall, portfolio occupancy was 93.6%, up from 91.8% in
the prior-year quarter.
As of Mar 31, 2014, in-service portfolio occupancy rose to 94.0%
from 92.1% as of Mar 31, 2013. By segment, in-service occupancy
in the bulk distribution portfolio was 95.0% (up 140 bps year
over year) while in the medical office and suburban office
portfolios, it was 93.7% (up 280 bps) and 88.1% (up 360 bps),
respectively, at the quarter-end.
Notable Developments and Redevelopments
In first-quarter 2014, five wholly-owned new developments were
initiated. Duke Realty initiated industrial development in
Baltimore, MD (346,000 square feet), Columbus, OH (744,000 square
feet) and expanded an industrial development in Atlanta, GA
(257,000 square feet). It also began two speculative industrial
developments in Houston, TX (combined 473,000 square feet).
As of Mar 2014, Duke Realty's joint venture development projects
under construction comprised two industrial projects, which were
100% pre-leased (totaling nearly 1.8 million square feet).
Acquisitions and Dispositions in Q1
During the reported quarter, Duke Realty acquired an
Atlanta-based 407,000 square-foot high-quality modern bulk
industrial facility for $18.0 million. This property is fully
Additionally, Duke Realty made dispositions worth $79 million in
first-quarter 2014. This included divestiture of two medical
office assets, a nine-building portfolio of flex-industrial
assets in Indianapolis, a 20%-owned suburban office property and
seven acres of undeveloped land.
Duke Realty exited the quarter with $19.5 million of cash,
compared with $307.2 million as of Mar 31, 2013.
The company provided its guidance for 2014. Core FFO per share is
expected in the range of $1.12 to $1.18 per share. The Zacks
Consensus Estimate for 2014 FFO per share of $1.15 also lies
within this range.
Duke Realty declared a quarterly cash dividend of 17 cents per
share on its common stock. The first-quarter dividend will be
paid on May 30, 2014 to shareholders of record as of May 15.
We expect Duke Realty's enhanced operating portfolio performance
and portfolio enhancement activity to drive growth. Moreover, the
company's focus on key markets will likely help to boost its top
At present, Duke Realty has a Zacks Rank #2 (Buy). Some
better-ranked stocks in the REIT-Equity Trust - Other industry
The GEO Group, Inc.
Sotherly Hotels Inc.
W. P. Carey Inc.
). All of these carry a Zacks Rank #1 (Strong Buy).
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.