SOURCE: Duke Realty Corporation

Duke Realty Corporation

October 28, 2009 20:20 ET

Duke Realty Corporation Reports Third Quarter Results

Liquidity Further Enhanced Through $500 Million Unsecured Debt Offering and Tender Offer for Near Term Bonds

2009 Guidance Reaffirmed

INDIANAPOLIS, IN--(Marketwire - October 28, 2009) - Duke Realty Corporation (NYSE: DRE), a leading industrial and office property REIT, today reported results for the third quarter 2009.

Operating Highlights

-- Funds from operations per diluted share ("FFO") for the quarter was
   income of $0.32, excluding the effects of impairment and related
   charges as well as losses on debt transactions. With the effects of
   these items, FFO for the quarter was a loss of $1.02, which includes
   the effects of $297.1 million of non-cash impairment and related
   charges and $13.6 million of losses on debt transactions.

-- Impairment charges primarily recognized as a result of further
   refinements in strategy including planned reductions in undeveloped
   land inventory in light of lower anticipated development volume and
   the targeting of non-strategic property dispositions to further
   align focus on high growth markets with an emphasis on industrial
   and medical properties.

-- Liquidity position was further enhanced during the quarter to
   $1.5 billion (based upon available line of credit balance and cash
   on hand):

   -- $500.0 million unsecured bonds issued in August;
   -- $351.9 million par value of unsecured debt obligations
      repurchased; and
   -- $114.0 million secured financing closed in July.

-- Capital raised year to date through September 2009 of nearly $1.5
   billion; all remaining 2009 and 2010 unsecured debt maturities
   addressed with available cash.

-- 2009 FFO guidance reaffirmed at the lower end of the $1.42 - $1.64 per
   share range as adjusted for the additional shares issued in the April
   2009 common stock offering.

"We have continued to access the capital markets, have now addressed all of our near-term obligations and remain focused on deleveraging our balance sheet," said Dennis D. Oklak, chairman and chief executive officer. "Our core operating portfolio has held up reasonably well during the last twelve months. We are focused on leasing our recently placed in-service development projects and strategically reducing our undeveloped land inventory in light of lower anticipated development volume for the foreseeable future."

Financial Performance

--  FFO for the third quarter of 2009 was a loss of $1.02 compared to
    income of $0.65 for the third quarter of 2008. Third quarter 2009 FFO
    included non-cash impairment and related charges of $297.1 million ($1.28
    per share), and $13.6 million ($0.06 per share) of losses on debt
    transactions.  Excluding the impact of these items, FFO was $0.32 for the
    third quarter of 2009.
--  Net income per diluted share (EPS) for third quarter 2009 was a loss
    of $1.44, as compared to earnings of $0.08 for the same quarter in 2008.
    The loss was primarily attributable to the impairment and other non-cash
    charges and losses on debt transactions recognized in the third quarter of
    2009.
    

Capital Markets

During the third quarter 2009, the company successfully refinanced, extended and obtained new financings, including:

-- Completed a $500 million unsecured debt offering consisting of $250
   million of 7.375% (7.50% effective interest rate) notes due 2015 and
   $250 million of 8.25% (8.375% effective interest rate) notes due 2019.

-- Repurchased $206.8 million face value of its December 2011
   exchangeable notes.

-- Repurchased $145.1 million of unsecured bonds through a tender offer
   comprised of the following:

   -- $39.3 million of its 7.75% November 2009 senior notes;
   -- $57.9 million of its 5.25% January 2010 senior notes; and
   -- $47.9 million of its 6.95% March 2011 senior notes

-- Closed on a $114 million, 10-year, interest only secured loan bearing
   interest at 7.75%. The loan is secured by a portfolio of suburban
   office and industrial assets.

-- Recognized $13.6 million of losses on debt transactions, comprised of a
   $6.5 million commitment fee paid to terminate a previously announced
   $280 million secured debt transaction, and approximately $7.1 million
   in book losses on unsecured notes repurchased either through a cash
   tender offer transaction or open market purchases during the quarter.

As a result of these and previously announced capital transactions, the company has nearly $1.5 billion of available liquidity as of September 30, 2009, including $1.3 billion of availability on its credit facility and $155 million of cash. All remaining 2009 and 2010 unsecured debt maturities will be repaid with available cash.

Portfolio Performance

--  Overall portfolio occupancy, including projects under development, was
    87.0 percent as of September 30, 2009, compared to 87.4 percent at June 30,
    2009.
    
--  Stabilized, in-service properties (130 million square feet) were 87.7
    percent leased at September 30, 2009, compared with 88.5 percent at June
    30, 2009.  This decrease is primarily attributable to the addition of 6
    recently developed properties aggregating nearly 1.5 million square feet
    which were 55.6 percent leased at September 30, 2009. The company
    classifies a property as stabilized upon the earlier of its reaching 90%
    occupancy or one year after its in-service date. The decrease in stabilized
    occupancy as a result of these newly developed assets was anticipated by
    the company.
    
--  Tenant retention for the third quarter of 2009 was 85.0 percent with a
    slight decrease in net effective rents on renewals of 0.8 percent.
    
--  Same property net operating income decreased by 5.6 percent for the
    third quarter of 2009, compared with the three-month period ended September
    30, 2008. Same property net operating income decreased by approximately 0.5
    percent for the 12-month period ended September 30, 2009, compared with the
    12-month period ended September 30, 2008. Core operations results were
    consistent with forecasts and in line with expectations.
    

Real Estate Investment Activity

Development

Wholly Owned Properties

--  The company's wholly owned development pipeline at September 30, 2009,
    consisted mostly of projects that are in the final stages of completion.
    The total estimated costs of these projects upon stabilization are $223.6
    million, with $71.1 million in costs remaining to be funded.  The pipeline
    is 1.4 million square feet comprised of 9 properties and one building
    expansion, which are 92 percent pre-leased in the aggregate.
    
--  The company placed into service two healthcare properties totaling
    250,000 square feet, which were 82% pre-leased in the aggregate, and a
    146,000 square foot, 100% pre-leased suburban office building.
    
--  The company began construction of one medical office property (45,000
    square feet) that is 62% pre-leased.
    

Joint Venture Properties

--  The company's joint venture development pipeline at September 30,
    2009, consists of three projects which total 1.1 million square feet and
    are 28 percent pre-leased. The total estimated costs of these projects upon
    stabilization are $337.9 million, with $95.4 million in remaining costs to
    be funded. Each joint venture has obtained third-party debt to finance
    construction of these properties. (All joint venture costs and square
    footage are reported at 100 percent ownership.)
    

Real Estate Valuation - Impairment and Other Charges

During the third quarter of 2009, the company recorded non-cash impairment and related charges of $297.1 million.

Components of these charges were as follows:

--  Impairment of land holdings targeted for disposition of $132.0
    million;
--  Impairment of operating and under development properties of $70.7
    million;
--  Impairment of investment in 3630 Peachtree joint venture in Atlanta,
    Georgia of $50.7 million;
--  Impairment of other real estate assets of $31.4 million; and
--  Reserves of deferred tax assets of $12.3 million.
    

These charges were primarily triggered as a result of further refinements in strategy including planned reductions in undeveloped land inventory in light of lower anticipated development volume and the targeting of non-strategic property dispositions. These impairment charges rely upon many subjective assumptions, such as intended holding periods, future capitalization rates and rental rates, used in applying relevant accounting rules. These non-cash charges have no effect on liquidity, and have no significant impact on compliance with the company's credit facility or unsecured bond covenants.

Dividends Declared

The company's board of directors declared a quarterly cash dividend on the company's common stock of $0.17 per share, or $0.68 per share on an annualized basis. The third quarter dividend will be payable November 30, 2009, to shareholders of record as of November 13, 2009. The company's policy is to pay aggregate annual dividends in 2009 in an amount generally equal to and not to exceed its estimated annual taxable income.

The board also declared the following dividends on the company's outstanding preferred stock:

            NYSE     Quarterly
  Class    Symbol   Amount/Share      Record Date         Payment Date
--------   ------   ------------   -----------------   -----------------
Series J   DREPRJ    $0.414063     November 16, 2009   November 30, 2009
Series K   DREPRK    $0.406250     November 16, 2009   November 30, 2009
Series L   DREPRL    $0.412500     November 16, 2009   November 30, 2009
Series M   DREPRM    $0.434375     December 17, 2009   December 31, 2009
Series N   DREPRN    $0.453125     December 17, 2009   December 31, 2009
Series O   DREPRO    $0.523438     December 17, 2009   December 31, 2009

Earnings Guidance

The company reaffirmed FFO guidance for 2009 in the range of $1.42 - $1.64, as adjusted for the additional shares issued in the April 2009 common stock offering. As previously discussed in the second quarter of 2009, it is anticipated that the FFO per share will be at the lower end of guidance based upon current expectations of leasing volumes and the timing of potential transactions expected to occur in the fourth quarter of 2009. Guidance reflects $6.7 million ($0.035 per share) of severance costs incurred through September 30, 2009, and excludes the effects of impairment and other non-cash charges as well as gains or losses on debt transactions.

About Duke Realty Corporation

Duke Realty Corporation owns and operates approximately 136 million rentable square feet of industrial and office space in 20 U.S. cities. Duke Realty Corporation is publicly traded on the NYSE under the symbol DRE and is listed on the S&P MidCap 400 Index. More information about Duke is available at www.dukerealty.com.

Third Quarter Earnings Call and Supplemental Information

Duke is hosting a conference call tomorrow, October 29, 2009, at 3:00 p.m. EDT to discuss its third quarter operating results. All investors and other interested parties are invited to listen to the call. Access is available through the Investor Relations section of the company's Web site.

A copy of the company's supplemental information fact book will be available after 6:00 p.m. EDT today through the Investor Relations section of the company's Web site.

Cautionary Notice Regarding Forward-Looking Statements

This news release may contain forward-looking statements within the meaning of the federal securities laws. All statements, other than statements of historical facts, including, among others, statements regarding the company's future financial position, projected financing sources, future transactions with joint venture partners, future dividends, and future performance, are forward-looking statements. Those statements include statements regarding the intent, belief or current expectations of the company, members of its management team, as well as the assumptions on which such statements are based, and generally are identified by the use of words such as "may," "will," "seeks," "anticipates," "believes," "estimates," "expects," "plans," "intends," "should," or similar expressions. Forward-looking statements are not guarantees of future performance and involve risks and uncertainties that actual results may differ materially from those contemplated by such forward-looking statements. Many of these factors are beyond the company's abilities to control or predict. Such factors include, but are not limited to, (i) general adverse economic and local real estate conditions, including the current economic recession; (ii) the inability of major tenants to continue paying their rent obligations due to bankruptcy, insolvency or a general downturn in their business; (iii) financing risks, such as the inability to obtain equity, debt or other sources of financing or refinancing on favorable terms, if at all; (iv) the company's ability to raise capital by selling its assets; (v) changes in governmental laws and regulations; (vi) the level and volatility of interest rates and foreign currency exchange rates; (vii) valuation of joint venture investments, (viii) valuation of marketable securities and other investments; (ix) increases in operating costs; (x) changes in the dividend policy for the company's common stock; (xi) the reduction in the company's income in the event of multiple lease terminations by tenants; and (xii) impairment charges. Additional information concerning factors that could cause actual results to differ materially from those forward-looking statements is contained from time to time in the company's filings with the Securities and Exchange Commission. The company refers you to the section entitled "Risk Factors" contained in the company's Annual Report on Form 10-K for the year ended December 31, 2008. Copies of each filing may be obtained from the company or the Securities and Exchange Commission.

The risks included here are not exhaustive and undue reliance should not be placed on any forward-looking statements, which are based on current expectations. All written and oral forward-looking statements attributable to the company, its management, or persons acting on their behalf are qualified in their entirety by these cautionary statements. Further, forward-looking statements speak only as of the date they are made, and the company undertakes no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time unless otherwise required by law.



                          Duke Realty Corporation
                          Statement of Operations
                            September 30, 2009
                 (In thousands, except per share amounts)


                                Quarter Ended         Nine Months Ended
                            ----------------------  ----------------------
                                September 30,           September 30,
                            ----------------------  ----------------------
                               2009        2008        2009        2008
                            ----------  ----------  ----------  ----------
Revenues:
  Rental and related
   revenue                  $  224,013  $  215,264  $  669,713  $  638,512
  General contractor and
   service fee revenue         100,880      93,316     335,412     271,847
                            ----------  ----------  ----------  ----------
                               324,893     308,580   1,005,125     910,359
                            ----------  ----------  ----------  ----------
Expenses:
  Rental expenses               49,921      48,045     153,081     143,198
  Real estate taxes             30,096      25,750      89,181      77,012
  General contractor and
   service operations
   expenses                     96,241      96,155     319,352     266,878
  Depreciation and
   amortization                 87,647      74,229     254,325     225,358
                            ----------  ----------  ----------  ----------
                               263,905     244,179     815,939     712,446
                            ----------  ----------  ----------  ----------
Other Operating Activities
  Equity in earnings of
   unconsolidated companies      2,364         204       7,353      17,184
  Gain on sale of
   Build-for-Sale
   properties                        -      20,338           -      26,657
  Earnings from sales of
   land                              -       4,469         357       8,491
  Undeveloped land carrying
   costs                        (2,601)     (1,686)     (7,646)     (5,746)
  Impairment charges          (284,845)          0    (301,794)          0
  Other operating expenses        (323)     (2,474)       (843)     (5,273)
  General and
   administrative expense      (11,233)    (10,448)    (34,713)    (29,500)
                            ----------  ----------  ----------  ----------
                              (296,638)     10,403    (337,286)     11,813
                            ----------  ----------  ----------  ----------

      Operating income        (235,650)     74,804    (148,100)    209,726

Other Income (Expense)
  Interest and other income
   (expense), net                  796         205         924       1,223
  Interest expense             (57,719)    (50,071)   (161,746)   (146,001)
  Gain (loss) on debt
   transactions                (13,631)          -      20,880           -
  Loss on business
   combinations                      -           -        (999)          -
                            ----------  ----------  ----------  ----------
      Income (loss) from
       continuing
       operations before
       income taxes           (306,204)     24,938    (289,041)     64,948

  Income tax benefit
   (expense)                     4,326       4,239      10,220       4,915
  Valuation allowance on
   deferred tax asset          (12,273)          -     (12,273)          -
                            ----------  ----------  ----------  ----------
      Income (loss) from
       continuing
       operations             (314,151)     29,177    (291,094)     69,863

Discontinued Operations:
  Income before impairment
   and gain on sales                 -         466          36       3,092
  Impairment charges                 -           -        (772)          -
  Gain on sale of
   depreciable properties            0       1,299       5,168      11,940
                            ----------  ----------  ----------  ----------
      Income (loss) from
       discontinued
       operations                    -       1,765       4,432      15,032

Net income (loss)             (314,151)     30,942    (286,662)     84,895
Dividends on preferred
 shares                        (18,363)    (18,866)    (55,089)    (53,038)
Net (income) loss
 attributable to
 noncontrolling interests        9,632        (586)     11,583      (1,577)
                            ----------  ----------  ----------  ----------
      Net income (loss)
       attributable to
       common shareholders  $ (322,882) $   11,490  $ (330,168) $   30,280
                            ==========  ==========  ==========  ==========

Basic net income (loss) per
 Common Share:
  Continuing operations
   attributable to common
   shareholders             $    (1.44) $     0.07  $    (1.73) $     0.10
  Discontinued operations
   attributable to common
   shareholders             $     0.00  $     0.01  $     0.02  $     0.10
                            ----------  ----------  ----------  ----------
Total                       $    (1.44) $     0.08  $    (1.71) $     0.20
                            ==========  ==========  ==========  ==========

Diluted net income (loss)
 per Common Share:
  Continuing operations
   attributable to common
   shareholders             $    (1.44) $     0.07  $    (1.73) $     0.10
  Discontinued operations
   attributable to common
   shareholders             $     0.00  $     0.01  $     0.02  $     0.10
                            ----------  ----------  ----------  ----------
Total                       $    (1.44) $     0.08  $    (1.71) $     0.20
                            ==========  ==========  ==========  ==========





                          Duke Realty Corporation
                    Statement of Funds From Operations
                            September 30, 2009
                 (In thousands, except per share amounts)


                                      Three Months Ended
                                        September 30,
                                          (Unaudited)
                    ------------------------------------------------------
                               2009                        2008
                    --------------------------  --------------------------
                                Wtd.                        Wtd.
                                Avg.     Per                Avg.     Per
                      Amount   Shares   Share     Amount   Shares   Share
                    ---------  ------- -------  ---------  ------- --------
Net Income (Loss)
 Attributable to
 Common Shares      $(322,882)                  $  11,490
Less: Dividends on
 share based awards
 expected to vest        (391)                       (409)
                    ---------                   ---------
Net Income (Loss)
 Per Common Share-
 Basic               (323,273) 223,952 $ (1.44)    11,081  146,966 $   0.08
Add back:
  Noncontrolling
   interest in
   earnings of
   unitholders              -                         605    7,638
  Other common
   stock
   equivalents                                                 232
                    ---------  -------          ---------  -------
Net Income (Loss)
 Per Common Share-
 Diluted            $(323,273) 223,952 $ (1.44) $  11,686  154,836 $   0.08
                    =========  =======          =========  =======

Reconciliation to
 Funds From
 Operations ("FFO")
Net Income (Loss)
 Attributable to
 Common Shares      $(322,882) 223,952          $  11,490  146,966
Adjustments:
  Depreciation and
   Amortization        87,647                      75,260
  Company Share
   of Joint
   Venture
   Depreciation
   and
   amortization         8,543                      14,450
  Earnings from
   depreciable
   property
   sales-wholly
   owned                    -                      (1,299)
  Earnings from
   depreciable
   property
   sales-JV                 -                           -
  Noncontrolling
   interest share
   of adjustments      (2,771)                     (4,363)
                    ---------  -------          ---------  -------
Funds From
 Operations-Basic    (229,463) 223,952 $ (1.02)    95,538  146,966 $   0.65
  Noncontrolling
   interest in
   earnings of
   unitholders         (9,545)   6,646                605    7,638
  Noncontrolling
   interest
   share of
   adjustments          2,771                       4,363
  Other common
   stock
   equivalents                                                 740
                    ---------  -------          ---------  -------
Funds From
 Operations-
 Diluted             (236,237) 230,598 $ (1.02)   100,506  155,344 $   0.65
  Add loss on debt
   transactions        13,631                           -
  Add impairment
   charges            284,845                           -
  Add valuation
   allowance on
   deferred tax
   asset               12,273                           -
  Other common
   stock
   equivalents                   1,073
                    ---------  -------          ---------  -------
Adjusted Funds
 From Operations-
 Diluted            $  74,512  231,671 $  0.32    100,506  155,344 $   0.65
                    =========  =======          =========  =======


                                       Nine Months Ended
                                        September 30,
                                          (Unaudited)
                    ------------------------------------------------------
                               2009                        2008
                    --------------------------  --------------------------
                                Wtd.                        Wtd.
                                Avg.     Per                Avg.     Per
                      Amount   Shares   Share     Amount   Shares   Share
                    ---------  ------- -------  ---------  ------- --------
Net Income (Loss)
 Attributable to
 Common Shares      $(330,168)                  $  30,280
Less income
 allocated to
 participating
 securities            (1,366)                     (1,218)
                    ---------                   ---------
Net Income (Loss)
 Per Common Share-
 Basic               (331,534) 193,520 $ (1.71)    29,062  146,680 $   0.20
Add back:
  Noncontrolling
   interest in
   earnings of
   unitholders              -                       1,615    7,727
  Other common
   stock
   equivalents                                                 216
                    ---------  -------          ---------  -------
Net Income (Loss)
 Per Common Share-
 Diluted            $(331,534) 193,520 $ (1.71) $  30,677  154,623 $   0.20
                    =========  =======          =========  =======

Reconciliation to
 Funds From
 Operations ("FFO")
Net Income (Loss)
 Attributable to
 Common Shares      $(330,168) 193,520          $  30,280  146,680
Adjustments:
  Depreciation and
   Amortization       254,673                     230,956
  Company Share
   of Joint
   Venture
   Depreciation
   and
   amortization        28,013                      28,769
  Earnings
   (loss) from
   depreciable
   property
   sales-wholly
   owned               (5,168)                    (11,940)
  Earnings
   (loss) from
   depreciable
   property
   sales-JV                 -                        (495)
  Noncontrolling
   interest share
   of adjustments      (9,302)                    (12,351)
                    ---------  -------          ---------  -------
Funds From
 Operations-Basic     (61,952) 193,520 $ (0.32)   265,219  146,680 $   1.81
  Noncontrolling
   interest in
   earnings of
   unitholders        (11,410)   6,711              1,615    7,727
  Noncontrolling
   interest share
   of adjustments       9,302                      12,351
  Other common
   stock
   equivalents                                                 698
                    ---------  -------          ---------  -------
Funds From
 Operations-
 Diluted              (64,060) 200,231 $ (0.32)   279,185  155,105 $   1.80
  Less gain on
   debt
   transactions       (20,880)                          -
  Add impairment
   charges and net
   loss on
   business
   combination        303,208                           -
  Add valuation
   allowance on
   deferred tax
   asset               12,273                           -
  Other common
   stock
   equivalents                     883
                    ---------  -------          ---------  -------
Adjusted Funds
 From Operations-
 Diluted            $ 230,541  201,114 $  1.15    279,185  155,105 $   1.80
                    =========  =======          =========  =======





                          Duke Realty Corporation
                              Balance Sheet
                            September 30, 2009
                 (In thousands, except per share amounts)


                                            September 30,    December 31,
                                                 2009            2008
                                            --------------  --------------
ASSETS:

   Rental Property                          $    6,432,630  $    6,297,923
   Less: Accumulated Depreciation               (1,274,728)     (1,167,113)
   Construction in Progress                        144,748         159,330
   Land Held for Development                       666,175         806,379
                                            --------------  --------------
     Net Real Estate Investments                 5,968,825       6,096,519
                                            --------------  --------------

   Cash                                            155,914          22,532
   Accounts Receivable                              23,880          28,026
   Straight-line Rents Receivable                  132,763         123,863
   Receivables on Construction Contracts            32,446          75,100
   Investments in and Advances to
    Unconsolidated Companies                       483,882         693,503
   Deferred Financing Costs, Net                    45,997          47,907
   Deferred Leasing and Other Costs, Net           382,784         369,224
   Escrow Deposits and Other Assets                212,455         234,209
                                            --------------  --------------

     Total Assets                           $    7,438,946  $    7,690,883
                                            ==============  ==============

LIABILITIES AND SHAREHOLDERS' EQUITY:

   Secured Debt                             $      783,425  $      507,351
   Unsecured Notes                               3,133,879       3,285,980
   Unsecured Line of Credit                         15,299         483,659
   Construction Payables and Amounts due
    Subcontractors                                  66,790         105,227
   Accrued Real Estate Taxes                       114,529          78,483
   Accrued Interest                                 40,701          56,376
   Accrued Expenses                                 35,815          45,059
   Other Liabilities                               203,426         187,425
   Tenant Security Deposits and Prepaid
    Rents                                           37,142          41,348
                                            --------------  --------------

     Total Liabilities                           4,431,006       4,790,908
                                            --------------  --------------

   Preferred Stock                               1,016,625       1,016,625
   Common Stock and Additional Paid-in
    Capital                                      3,267,510       2,703,997
   Accumulated Other Comprehensive Income           (6,440)         (8,652)
   Distributions in Excess of Net Income        (1,313,103)       (867,951)
                                            --------------  --------------

     Total Shareholders' Equity                  2,964,592       2,844,019
                                            --------------  --------------

   Non-controlling Interest                         43,348          55,956
                                            --------------  --------------

     Total Liabilities and Equity           $    7,438,946  $    7,690,883
                                            ==============  ==============

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