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Duke Realty (DRE) Up 0.4% Since Last Earnings Report: Can It Continue?

Zacks Equity Research

It has been about a month since the last earnings report for Duke Realty (DRE). Shares have added about 0.4% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Duke Realty due for a pullback? 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 drivers.

Duke Realty Q1 FFO Misses Estimates, Revenues Beat

Duke Realty’s first-quarter 2020 core FFO per share of 33 cents missed the Zacks Consensus Estimate of 35 cents. Nonetheless, the reported tally remained unchanged from the year-ago quarter.

In light of the coronavirus pandemic and the resultant economic disruptions, the company has revised its 2020 guidance. Further, amid the pandemic, Duke Realty had to increase collectability reserves for straight line receivables by $5 million and this impacted its core FFO per share by more than 1 cent. Nonetheless, decent leasing activities, and strong rent growth on new and renewal leases drove the company’s same-property net operating income (NOI).

Rental and related revenues of $218.76 million increased 4.2% on a year-over-year basis. Also, the figure surpassed the Zacks Consensus Estimate of $218.43 million.

Quarter in Detail

Duke Realty leased 4 million square feet of space during the March-end quarter. Tenant retention was 68.3%. Moreover, the company registered same-property NOI growth of 6.6% year over year. In fact, Duke Realty reported overall cash and annualized net effective rent growth on new and renewal leases of 17.1% and 32.7%, respectively, in the quarter.

As of Mar 31, 2020, the company’s total portfolio, including properties under development, was 94.3% leased, unchanged from the prior quarter end, and up 130 basis points (bps) from the prior-year end. In-service portfolio was 97.2% leased as of Mar 31, 2020, down from 97.8% leased on Dec 31, 2019, and from 98.4% on Mar 31, 2019.

Notably, during the first quarter, the company started two development projects, aggregating 991,000 square feet, with estimated costs of $96 million. Its building dispositions totaled $27 million in the first quarter.

Duke Realty exited first-quarter 2020 with $187.6 million of cash and cash equivalents, up from $110.9 million as of Dec 31, 2019.

2020 Guidance

Duke Realty revised its 2020 core FFO per share outlook to $1.41-$1.51 from the prior mentioned $1.48-$1.54.

The company estimates same-property NOI growth of 1.75-3.25%. The guidance for acquisitions of properties is upto $100 million. The projection for building dispositions is $125-$250 million. However, the company has ceased new speculative development starts and expects rent growth to diminish.

How Have Estimates Been Moving Since Then?

It turns out, estimates review flatlined during the past month.

VGM Scores

At this time, Duke Realty has a subpar Growth Score of D, however its Momentum Score is doing a lot better with an A. However, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Duke Realty has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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