Duke Realty Q2 FFO Beat, Shares Tumble on Market Concerns - Analyst Blog


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Despite reporting better-than-expected results in the second quarter, shares of Duke Realty Corp. ( DRE ) fell 19 cents during the last Thursday's regular trading session, owning to broader market concerns. The shares were just up a cent in Friday's session.

This real estate investment trust (REIT) reported second-quarter 2014 core funds from operations (FFO) per share of 30 cents, a penny ahead of the Zacks Consensus Estimate and 3 cents above the prior-year quarter figure. The performance was driven by a notable rise in revenues and occupancy growth.

Total revenue for second-quarter 2014 was $303.0 million, which rose 13.9% year over year and exceeded the Zacks Consensus Estimate of $232.0 million.

Quarter in Detail

Duke Realty leased around 9.0 million square feet of space in the quarter under review. Also, tenant retention was about 68% and the company experienced overall renewal rental rate growth of 7.6%. Overall, portfolio occupancy was 93.2%, marginally up from 93.1% in the prior-year quarter. Consequently, same-property net operating income increased 3.5% from the year-ago period.

As of Jun 30, 2014, in-service portfolio occupancy rose by 130 basis points year over year to 94.5%. By segment, in-service occupancy in the bulk distribution portfolio was 95.6% (up 120 bps year over year) while in the medical office and suburban office portfolios, it was 93.9% (up 120 bps year over year) and 87.7% (up 120 bps year over year), respectively, at the quarter-end.

In second-quarter 2014, Duke Realty purchased a modern bulk industrial facility in Pennsylvania for $73 million. On the other hand, the company shed buildings worth $278 million in the quarter. As of Jun 2014, Duke Realty had 27 wholly-owned and four JV industrial projects in its development pipeline.

Duke Realty exited the quarter with $21.2 million of cash and cash equivalents, up from $19.5 million as of Mar 31, 2014.

2014 Guidance Raised

Duke Realty increased its core FFO guidance for full year to $1.15 - $1.19 per share, from $1.12 - $1.18 per share guided earlier. The Zacks Consensus Estimate of $1.17 for the same also lies within this range.

Dividend Update

Concurrent with its earnings release, Duke Realty declared a quarterly cash dividend of 17 cents per share on its common stock. The second-quarter dividend will be paid on Aug 29, 2014 to shareholders of record as of Aug 14.

Our Viewpoint

After posting in line results in the past quarter, Duke Realty came up with positive results this quarter but broader market concerns kept investors cautious. Nevertheless, we expect the company's focus on key markets, improved operating portfolio performance and enhancement activity to drive growth going forward for this Zacks Rank #2 (Buy) stock.

Some better-ranked stocks in the REIT-Equity Trust - Other industry include Pebblebrook Hotel Trust ( PEB ), Ashford Hospitality Trust, Inc. ( AHT ) and W. P. Carey Inc. ( WPC ). 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.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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