SOURCE: Duke Realty Corporation

Duke Realty Corporation

April 27, 2011 16:30 ET

Duke Realty Reports First Quarter 2011 Results

Significant Progress on Asset Repositioning Strategy

Operating Metrics Remain Stable

2011 Earnings Guidance Reaffirmed

INDIANAPOLIS, IN--(Marketwire - Apr 27, 2011) - Duke Realty Corporation (NYSE: DRE), a leading industrial, medical office and suburban office property REIT, today reported results for the first quarter 2011.

"During the first quarter, we continued to make significant progress on the repositioning of our portfolio as evidenced by property disposition proceeds of over $456 million from the sale of primarily Midwest office assets," said Dennis D. Oklak, chairman and chief executive officer. "These dispositions in combination with our industrial acquisitions over the last few quarters are a major step in achieving our asset strategy. Operationally, our Core FFO of $0.28 cents per share was again solid, our total portfolio occupancy remained steady at 88.9 percent and we completed over 5 million square feet of leases. We continue to execute on all components of our strategic plan, despite a still challenging economy."

Quarterly Highlights

--  Core funds from operations per diluted share ("Core FFO") was $0.28
    for the quarter. Funds from Operations per diluted share ("FFO") as
    defined by the National Association of Real Estate Investment Trusts
    ("NAREIT") was $0.27 for the quarter.

--  Executing on asset and capital strategies:

    --  Over $456 million of proceeds generated primarily from Midwest
        office asset dispositions; including $274 million from the
        completion of the previously announced sale of office properties
        to the CBRE Realty Trust joint venture;
    --  Throughout the first quarter and in April, closed on the remaining
        buildings from the previously announced acquisition of primarily
        industrial buildings in South Florida;
    --  Retired $42.5 million of unsecured bonds in March with available
        cash;
    --  Balance on unsecured line of credit at zero and cash on hand of
        $167.1 million as of March 31, 2011;

--  Strong operating metrics and performance:

    --  Overall portfolio occupancy of 88.9 percent;
    --  Over 5.3 million square feet of leases completed during the
        quarter;
    --  Same property net operating income growth was positive 0.9 percent
        for the twelve months ended March 31, 2011 as compared to the
        period ended March 31, 2010.

Financial Performance

--  Core FFO for the first quarter of both 2011 and 2010 was $0.28 per
    share.  In June 2010, the company completed a common equity offering in
    conjunction with the acquisition of an industrial portfolio from a
    joint venture partner.  The impact on Core FFO from the additional
    shares outstanding in the first quarter of 2011 as a result of this
    common equity offering was offset by the additional rental operations
    FFO from the acquisition.

    A reconciliation of FFO as defined by NAREIT to Core FFO is included in
    the financial tables included in this release.

--  Net income per diluted share ("EPS") for first quarter 2011 was $0.19,
    as compared to a loss of $0.07 for the same quarter in 2010. The 
    overall improvement is attributable to increased gains from the sale
    of assets, which totaled $79.5 million ($0.31 per share) in the first
    quarter 2011 as compared to gains of $11.8 million ($0.05 per share)
    in the first quarter of 2010.

Operating Performance Highlights

--  Overall portfolio occupancy, including projects under development, was
    88.9 percent as of March 31, 2011, compared to 89.1 percent at year-end
    2010.  The company anticipated the slight decrease in overall occupancy
    because of known lease terminations, which were concentrated in the
    bulk distribution portfolio.

--  Occupancy in the bulk distribution portfolio at the end of the first
    quarter 2011 was 90.2 percent, down from 90.5 percent at year-end
    2010.  The portfolio was impacted by known terminations of both
    temporary space and longer term leases.  However, the company did
    execute over 1.2 million of new industrial leases during the quarter
    to mitigate the effects of these terminations.

--  Occupancy in the suburban office portfolio remained steady at 85.6
    percent.

--  Tenant retention for the first quarter was approximately 70 percent.

--  As anticipated, same-property net operating income for the three months
    ended March 31, 2011 was flat over the same period in 2010. For the
    twelve months ended March 31, 2011, same property net operating income
    increased by 0.9 percent over the same period in 2010.

Real Estate Investment Activity

Dispositions

Proceeds from first quarter 2011 building dispositions totaled $456.4 million and included the following:

--  $274 million from the completion of the previously announced sale of 13
    office assets to an existing joint venture. The assets sold in the
    first quarter 2011 totaled over 2 million square feet and are 93
    percent leased.

--  Sale of a portfolio of two CBD buildings in Cincinnati, OH and three
    suburban office assets in Nashville, TN.  The total portfolio was
    over 988,000 square feet and 86 percent leased.

--  Sale of two suburban office buildings totaling nearly 410,000 square
    feet located in Cincinnati, OH.  The assets were 100 percent leased to
    a single tenant and were originally developed by the company in its
    held-for-sale portfolio.

Acquisitions

The company completed the previously announced acquisition of the remaining buildings of a primarily industrial portfolio located in South Florida. The closings on the assets were completed throughout the first quarter and in April. Total acquisitions in the first quarter were $139 million.

Development

Wholly Owned Properties

--  The company's wholly-owned development projects under construction at
    March 31, 2011 consisted of six medical office projects totaling
    347,000 square feet and two bulk industrial buildings totaling 1.6
    million square feet.  These projects are 88 percent pre-leased in the
    aggregate.

--  During the first quarter 2011, the company started development of a
    medical office building totaling 48,000 square feet which is 80
    percent pre-leased.

Joint Venture Properties

--  The company had a single joint venture development project under
    construction at March 31, 2011.  The project is a 406,000 square foot
    expansion of an existing industrial building that is 100 percent leased
    to a single tenant.

--  During the quarter, the 460,000 square feet Baylor Cancer Center
    medical office asset was placed into service.  The asset is 93 percent
    leased.

2011 Earnings Guidance

The Company reaffirmed Core FFO guidance for 2011 of $1.06 to $1.18.

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 first quarter dividend will be payable May 31, 2011, to shareholders of record as of May 17, 2011.

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


                               Quarterly
    Class       NYSE Symbol   Amount/Share    Record Date   Payment Date
-------------  -------------  -------------  -------------  -------------
  Series J        DREPRJ        $0.414063    May 17, 2011   May 31, 2011
  Series K        DREPRK        $0.406250    May 17, 2011   May 31, 2011
  Series L        DREPRL        $0.412500    May 17, 2011   May 31, 2011
  Series M        DREPRM        $0.434375   June 16, 2011  June 30, 2011
  Series N        DREPRN        $0.453125   June 16, 2011  June 30, 2011
  Series O        DREPRO        $0.523438   June 16, 2011  June 30, 2011


Information Regarding FFO

The company computes FFO in accordance with standards established by the National Association of Real Estate Investment Trusts ("NAREIT"). NAREIT defines FFO as net income (loss) before non-controlling interest and excluding gains (losses) on sales of depreciable property and extraordinary items (computed in accordance with generally accepted accounting principles ("GAAP")); plus real estate related depreciation and amortization, and after similar adjustments for unconsolidated joint ventures. The company believes FFO to be most directly comparable to net income as defined by GAAP. The company believes that FFO is an operating measure and should be examined in conjunction with net income (as defined by GAAP) as presented in the financial statements accompanying this release. FFO does not represent a measure of liquidity, nor is it indicative of funds available for the company's cash needs, including its ability to make cash distributions to shareholders. A reconciliation of net income and net income per share, as defined by GAAP, to FFO, as defined by NAREIT, is included in the financial tables accompanying this release.

For information purposes, the company also provides FFO adjusted for certain items that are generally non-cash in nature and that materially distort the comparative measurement of company performance over time ("Core FFO"). The adjustments include impairment charges, tax expenses or benefits related to either changes in deferred tax asset valuation allowances or changes in tax exposure accruals that were established as the result of the adoption of new accounting principles, gains (losses) on debt transactions, adjustments related to the repurchase of preferred stock and gains on and related costs of acquisitions. Although the calculation of Core FFO differs from NAREIT's definition of FFO and may not be comparable to that of other REITs and real estate companies, the company believes it provides a meaningful supplemental measure of its operating performance. A reconciliation of FFO as defined by NAREIT to Core FFO is included in the financial tables accompanying this release.

About Duke Realty

Duke Realty owns and operates approximately 139 million rentable square feet of industrial and office assets, including medical office, in 18 major U.S. cities. Duke Realty is publicly traded on the NYSE under the symbol DRE and is listed on the S&P MidCap 400 Index. More information about Duke Realty is available at www.dukerealty.com.

First Quarter Earnings Call and Supplemental Information

Duke Realty is hosting a conference call tomorrow, April 28, 2011, at 3:00 p.m. EDT to discuss its first 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 will be available by 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, 2010. 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
                              March 31, 2011
                 (In thousands, except per share amounts)

                                                     Three Months Ended
                                                  ------------------------
                                                          March 31,
                                                  ------------------------
                                                      2011         2010
                                                  -----------  -----------

Revenues:
  Rental and related revenue                      $   240,339  $   211,918
  General contractor and service fee revenue          146,547      113,641
                                                  -----------  -----------
                                                      386,886      325,559
                                                  -----------  -----------
Expenses:
  Rental expenses                                      56,890       51,336
  Real estate taxes                                    35,003       28,519
  General contractor and other services
   expenses                                           135,664      107,162
  Depreciation and amortization                        94,740       80,577
                                                  -----------  -----------
                                                      322,297      267,594
                                                  -----------  -----------
Other Operating Activities
  Equity in earnings of unconsolidated
   companies                                            1,073        4,929
  Gain (loss) on sale of properties                    67,856        2,069
  Undeveloped land carrying costs                      (2,309)      (2,251)
  Other operating expenses                                (85)        (277)
  General and administrative expense                  (11,197)     (13,544)
                                                  -----------  -----------
                                                       55,338       (9,074)
                                                  -----------  -----------

      Operating income                                119,927       48,891

Other income (expense)
  Interest and other income, net                           87          151
  Interest expense                                    (66,082)     (56,167)
  Loss on debt transactions                                 -         (354)
  Acquisition costs                                      (589)           -
                                                  -----------  -----------
      Income (loss) from continuing
       operations                                      53,343       (7,479)

Discontinued Operations:
  Income (loss) before gain on sales                     (157)         349
  Gain on sale of depreciable properties               11,603        9,778
                                                  -----------  -----------
      Income (loss) from discontinued
       operations                                      11,446       10,127

Net income                                             64,789        2,648
Dividends on preferred shares                         (15,974)     (18,363)
Adjustments for repurchase of preferred
 shares                                                  (163)           -
Net (income) loss attributable to
 noncontrolling interests                              (1,083)         451
                                                  -----------  -----------
      Net income (loss) attributable to
       common shareholders                        $    47,569  $   (15,264)
                                                  ===========  ===========

Basic net income (loss) per common share:
  Continuing operations attributable to
   common shareholders                            $      0.14  $     (0.12)
  Discontinued operations attributable to
   common shareholders                            $      0.05  $      0.05
                                                  -----------  -----------
Total                                             $      0.19  $     (0.07)
                                                  ===========  ===========

Diluted net income (loss) per common share:
  Continuing operations attributable to
   common shareholders                            $      0.14  $     (0.12)
  Discontinued operations attributable to
   common shareholders                            $      0.05  $      0.05
                                                  -----------  -----------
Total                                             $      0.19  $     (0.07)
                                                  ===========  ===========



                          Duke Realty Corporation
                    Statement of Funds From Operations
                              March 31, 2011
                 (In thousands, except per share amounts)



                                    Three Months Ended
                                        March 31,
                                        (Unaudited)
                ==========================================================
                            2011                          2010
                ============================  ============================
                            Wtd.                          Wtd.
                            Avg.      Per                 Avg.      Per
                 Amount    Shares     Share    Amount    Shares     Share
                --------  --------- --------- --------  --------- --------
Net Income
 (Loss)
  Attributable
  to Common
  Shareholders  $ 47,569                      $(15,264)
Less: Dividends
 on share based
 awards
 expected to
 vest               (799)                         (502)
                --------                      --------
Net Income
 (Loss) Per
 Common Share-
 Basic            46,770    252,406 $    0.19  (15,766)   224,153 $  (0.07)
Add back:
  Noncontrolling
   interest in
   earnings of
   unitholders     1,205      6,384                  -          -
  Other
   potentially
   dilutive
   securities                    47                             -
                --------  ---------           --------  ---------
 Net income
 (Loss) Per
 Common Share-
 Diluted        $ 47,975    258,837 $    0.19 $(15,766)   224,153 $  (0.07)
                ========  =========           ========  =========

 Reconciliation
  to Funds From
  Operations
  ("FFO")
 Net Income
  (Loss)
  Attributable
  to Common
  Shareholders  $ 47,569    252,406           $(15,264)   224,153
Adjustments:
  Depreciation
   and
   amortization   94,981                        84,168
  Company share
   of joint
   venture
   depreciation
   and
   amortization    7,628                         9,563
  Earnings from
   depreciable
   property
   sales-wholly
   owned,
   discontinued
   operations    (11,603)                       (9,778)
  Earnings from
   depreciable
   property
   sales-wholly
   owned,
   continuing
   operations    (67,856)                       (2,069)
  Earnings from
   depreciable
   property
   sales-joint
   venture
   share             (91)                       (2,304)
  Noncontrolling
   interest
   share of
   adjustments      (569)                       (2,278)
                --------  ---------           --------  ---------
Funds From
 Operations-
 Basic            70,059    252,406 $    0.28   62,038    224,153 $   0.28
  Noncontrolling
   interest in
   income (loss)
   of unitholders  1,205      6,384               (449)     6,607
  Noncontrolling
   interest
   share of
   adjustments       569                         2,278
  Other
   potentially
   dilutive
   securities                 3,086                         1,435
                --------  ---------           --------  ---------
Funds From
 Operations-
 Diluted        $ 71,833    261,876 $    0.27 $ 63,867    232,195 $   0.28
  Loss on debt
   transactions        -                           354
  Adjustments
   for
   repurchases
   of preferred
   shares            163                             -
  Acquisition
   costs             589                             -
                --------  ---------           --------  ---------
Core Funds
  From
  Operations-
  Diluted       $ 72,585    261,876 $    0.28 $ 64,221    232,195 $   0.28
                ========  =========           ========  =========



                          Duke Realty Corporation
                              Balance Sheet                                
                              March 31, 2011
                 (In thousands, except per share amounts)




                                                     March       December
                                                    31, 2011     31, 2010
                                                  ===========  ===========
ASSETS:
  Rental Property                                 $ 6,681,647  $ 7,032,889
  Less:  Accumulated Depreciation                  (1,334,574)  (1,406,437)
  Construction in Progress                             93,433       61,776
  Land Held for Development                           627,965      625,353
                                                  -----------  -----------
   Net Real Estate Investments                      6,068,471    6,313,581
                                                  -----------  -----------

  Cash                                                167,115       18,384
  Accounts Receivable                                  27,166       23,478
  Straight-line Rents Receivable                      132,106      135,294
  Receivables on Construction Contracts                37,570        7,564
  Investments in and Advances to Unconsolidated
   Companies                                          360,355      367,445
  Deferred Financing Costs, Net                        44,400       46,320
  Deferred Leasing and Other Costs, Net               500,505      545,787
  Escrow Deposits and Other Assets                    189,803      186,423
                                                  -----------  -----------

   Total Assets                                   $ 7,527,491  $ 7,644,276
                                                  ===========  ===========

LIABILITIES AND SHAREHOLDERS' EQUITY:

  Secured Debt                                    $ 1,147,158  $ 1,065,628
  Unsecured Notes                                   2,906,016    2,948,405
  Unsecured Line of Credit                             18,329      193,046
  Construction Payables and Amounts due
   Subcontractors                                      69,369       44,892
  Accrued Real Estate Taxes                            88,782       91,502
  Accrued Interest                                     36,211       62,407
  Accrued Expenses                                     34,384       63,175
  Other Liabilities                                   144,795      130,711
  Tenant Security Deposits and Prepaid Rents           56,597       54,607
                                                  -----------  -----------

   Total Liabilities                                4,501,641    4,654,373
                                                  -----------  -----------

  Preferred Stock                                     902,540      904,540
  Common Stock and Additional Paid-in Capital       3,582,163    3,576,242
  Accumulated Other Comprehensive Loss                   (661)      (1,432)
  Distributions in Excess of Net Income            (1,529,847)  (1,533,740)
                                                  -----------  -----------

   Total Shareholders' Equity                       2,954,195    2,945,610
                                                  -----------  -----------

  Non-controlling Interest                             71,655       44,293
                                                  -----------  -----------

   Total Liabilities and Equity                   $ 7,527,491  $ 7,644,276
                                                  ===========  ===========


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