(DRE) Duke Realty Second Quarter 2011 Earnings Scorecard

Duke Realty Corp (DRE) reported second quarter 2011 FFO (fund from operations) of $75.7 million or 29 cents per share, up from $40.7 million or 17 cents per share delivered in the year-ago quarter. Fund from operations, 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. Reported FFO per share surpassed the Zacks Consensus Estimate by a penny.

We cover below the results of the recent earnings announcement, as well as the subsequent analyst estimate revisions and the Zacks ratings for the short and long-term outlook on the stock.

Second Quarter Review

Total revenue in the second quarter of 2011 was $363.0 million compared with $374.0 million in the year-ago quarter.

At quarter end, the overall portfolio occupancy of the company, including projects under development, was 89.3%. Tenant retention in the quarter was about 61%. Same-store net operating income (NOI) during the quarter inched up 0.5% on a year-over-year basis. The company leased approximately 8.1 million square feet of space during the reported quarter.

Earnings Estimate Revisions –– Overview

Fiscal 2011 earnings estimates for DRE have moved in both directions since the earnings release, which implies that the analysts are cautious about the current fiscal performance of the company. Let’s dig into the earnings estimate in details.

Agreement of Estimate Revisions

For the upcoming quarter, 3 out of the 13 analysts covering the stock revised the estimates upward, while none lowered the same in the last 30 days. For fiscal 2011, earnings estimates were increased by 5 out of the 14 analysts covering the stock while 1 analyst moved in the opposite direction over the last 30 days.

Magnitude of Estimate Revisions

Earnings estimates for the upcoming quarter increased from 28 cents per share to 29 cents per share in the last 30 days. However, earnings estimates for fiscal 2011 remained flat at $1.13 per share. Duke Realty reiterated its recurring FFO guidance in the range of $1.06 – $1.18 per share for fiscal 2011.

Moving Forward

Duke Realty is one of the largest commercial real estate companies in the U.S., operating as a fully integrated owner, manager, and developer of industrial, office, and healthcare properties.

Duke Realty continues to reposition its portfolio and has exited certain markets in an attempt to concentrate in areas where it already has a strong presence. The company has temporarily closed its operations in some of its newest markets including Austin, San Antonio, Seattle, and Newport Beach. The portfolio repositioning is likely to improve the internal growth metrics, enabling the company to emerge strongeronce the real estate markets fully recover.

However the company has a large development pipeline, which increases operational risks in the current credit-constrained market, exposing it to rising construction costs, entitlement delays, and lease-up risk.

Duke Realty currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. We are also maintaining our long-term Neutral recommendation on the stock. One of its competitors, Highwoods Properties Inc. (HIW) also holds a Zacks #3 Rank.

About Earnings Estimate Scorecard

Len Zacks, PhD in mathematics from MIT, proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrating stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These “Earnings Estimate Scorecard” articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements. Learn more about earnings estimates and our proven stock ratings at http://www.zacks.com/education/

DUKE REALTY CP (DRE): Free Stock Analysis Report

HIGHWOODS PPTYS (HIW): Free Stock Analysis Report

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