Dominion Energy (D) and Duke Realty Corporation (DRE): Utilities and Industrial Real Estate for Investors Playing Defense

July 14, 2022

James (Jim) Connor is Chairman and Chief Executive Officer of Duke Realty (DRE) and John G. Ullman is President and Founder of John G. Ullman & Associates whose portfolio includes Dominion Energy (D).

Duke Realty (DRE) is one of the largest owners, developers and managers of industrial properties in the United States and a NYSE-listed company with a total enterprise value nearing $30 billion.

Mr. Connor serves as head of Duke Realty (DRE)’s Executive Committee, overseeing the strategic direction of the company, and its Investment Committee, with responsibility for approving major capital transactions.

He is a member of the Executive Board of Governors and Vice Chair for NAREIT, a member of the Real Estate Roundtable, and a member of the Society of Industrial and Office Realtors (SIOR). Mr. Connor is on the Advisory Board of the Marshall Bennett Institute for Advanced Real Estate Studies and serves on the Board of Trustees of Roosevelt University and EPR Properties.

In this interview, exclusively in the Wall Street Transcript, the Duke Realty (DRE) CEO exposes his strategy for success:

“We brand ourselves as the top U.S. logistics REIT.

We’re not in any of the international businesses, we’re exclusively an industrial logistics REIT, which differs from some of our peers.

Everybody has their own brand and their own mission, but we’re very focused on that. We’re actively developing and acquiring and operating properties in the top 19 markets across the country.

We’ve been in other markets and, for varying reasons, sold out of those markets, but we like the top 19 markets that we’re in.

Today, I would tell you our highest priority is the coastal Tier 1 markets, so that’s going to be Seattle, Northern California,

Southern California, Southern Florida, and then New Jersey. We’re also big players in the other Tier 1 markets, Chicago, Dallas and Atlanta, but really the growth focus is in the coastal markets today.

I will tell you, in terms of our strategy, for us it’s really all about value creation, because we can do any number of things. We’re very prolific developers.

We do greenfield development.

We do brownfield development.

We do acquisitions.

In the world of acquisitions, we will buy existing buildings and retrofit them. We’ll buy brand new buildings that other people have built and lease them up. We do build-to-suit development. We do spec development.

So our teams on the ground in these 19 different markets have virtually every opportunity to go out and create value for shareholders.

It’s not just about we’re only going to do greenfield development or we’re only doing brownfield development or we can only do acquisitions. We can do all of the above.

I like to tell our people, you have unlimited opportunity, you can look at any opportunity in the marketplace and if we can figure out how to make money — either through our expertise, our size and our scale, our balance sheet, our ability to lease and manage properties — then those are opportunities for us.

It’s been quite an exciting time.

This has been a great 13-year run.

Sitting here today, the company has about 165 million square feet, give or take.

Our largest market is Southern California, where we have about $5.5 billion invested. New Jersey is second, with about $3.4 billion. And then South Florida and Chicago would be the other top two, which would be about $2.2 billion or $2.1 billion.

So we’ve got size and scale across the country, and we’ve got great teams on the ground.

A couple of the characteristics of our portfolio which would differentiate us from all of our peers: Our buildings tend to be bigger, our average building size is about 275,000 square feet.

Our peers are probably much closer to 200,000.

Our average tenant size is bigger, our average tenant size is 175,000  feet. And because we’re such prolific developers, the average age of our portfolio is much younger than our peers.

The average age of our portfolio is 12 years, and our peers’ is about 20 years.

Because [Duke Realty (DRE)] is creating brand new product every year and placing it in service, we’re able to keep that average age down because we’re pruning less desirable assets and replacing them with brand new assets.”

Read the rest of the interview and how the Duke Realty (DRE) CEO plans to accommodate any potential recession.

John G. Ullman is the President and Founder of John G. Ullman & Associates

John G. Ullman, President and Founder, John G. Ullman & Associates

John G. Ullman is President and Founder of John G. Ullman & Associates whose portfolio includes Dominion Energy (D).

Earlier, he was President of USGM Securities, Inc., and at Corning Inc., he worked in financial management. He received a bachelor’s degree in economics from Johns Hopkins University.

He received an MBA from the University of Chicago, with a focus in financial management. He was named the Corning Chamber of Commerce Small Business Person of the Year in 1997.

“One specific company within the Utility sector that we like and own shares of is Dominion Energy (D). The utility company sold off its midstream assets in 2020 for $8.7 billion, and it also cut its dividends. It did a little restructuring.

The stock sold off at the time.

Generally, investors do not like it when dividends are cut.

The midstream assets were sold to Warren Buffett. It was seen as if Warren Buffett was getting a good deal in terms of value for the assets, but we liked the long-term strategic thinking of management at the time.

We also liked the valuation of the stock price, it having sold off because of these moves. And with that, we increased our position in Dominion Energy (D).

One of the strategic initiatives that Dominion’s management is taking is investing heavily in the renewable energy sector.

Management plans to spend $37 billion in renewable energy growth capex, so that is capital expenditure in renewable energy projects that will be in offshore wind.

The company plans to spend heavily in the offshore wind sector right off the coast of Virginia, in addition to onshore wind and solar farms.

These initiatives are supported by tax credits, and the company is protected by semi-automatic rate increases.

Therefore, we feel that this utility company is favorable in terms of a risk/reward scenario that would take place. In addition, we think the downside is fairly limited, while the company can grow along with these initiatives.

One other reason why we see the Renewable Energy sector to be favorable is that it is being supported at the state level. States are now mandating certain renewable energy goals to meet their climate change endeavors.

We view climate change as a long-term problem, and some of these solutions are being tackled by the utility companies themselves.

So, many renewable energy stocks are priced very, very high. We stay away from those.

But we found utilities such as Dominion Energy (D) to be a safer way to invest in the renewable energy sector, given the reasonable valuation.

The price of oil and natural gas is high right now; that is another reason to invest in renewable energy, given that it is an alternative source of energy.

But that said, the price of oil and natural gas can come down. It is very volatile, and it is really determined by geopolitical factors, in addition to overall supply/demand.

While climate change is a long-term problem, we see utility companies with their resources being a major player in tackling that problem. So overall, we like their management’s strategic thinking, their plans, their investments, in addition to the valuation of the stock.”

Get more information about Dominion Energy (D) and Duke Realty (DRE) and many more, only in these exclusive interviews in the Wall Street Transcript.

James Connor, Chairman & CEO, Duke Realty Corporation


John G. Ullman, President & Founder, John G. Ullman & Associates, Inc.