Duke Realty Reports Second Quarter 2012 Results

INDIANAPOLIS, IN--(Marketwire - Jul 25, 2012) - Duke Realty Corporation (NYSE: DRE), a leading industrial, suburban and medical office property REIT, today reported results for the second quarter of 2012.

"Strong operational results, high-quality new investments and efficient capital raising resulted in a very solid second quarter," said Denny Oklak, Chairman and CEO. "Core FFO was $0.26 per share. We completed 4.9 million square feet of leasing activity and maintained overall portfolio occupancy at 92.0 percent. We achieved very strong same-property net operating income growth of 3.7 percent as compared to the twelve months ended June 30, 2011. We also continued the momentum from the first quarter with significant build-to-suit development projects in both our industrial and our medical office business. To help reduce our cost of capital, we opportunistically issued $300 million of ten-year, senior unsecured notes at a company record low 4.375 percent coupon. The issuance pre-funded near-term debt maturities. Overall, we are pleased with a very successful second quarter."

Quarterly Highlights

Core Funds from Operations ("Core FFO") per diluted share was $0.26 for the quarter. Funds from Operations ("FFO") per diluted share, as defined by the National Association of Real Estate Investment Trusts ("NAREIT"), was $0.25 for the quarter.

Solid operating results:

• In-service portfolio occupancy of 92.2 percent and bulk industrial occupancy of 93.6 percent at June 30, 2012;
• Total leasing activity of approximately 4.9 million square feet in the second quarter of 2012;
• Same-property net operating income growth of 3.7 percent for the twelve months ended June 30, 2012 and 3.4 percent for the three months ended June 30, 2012, as compared to the comparable periods ended June 30, 2011.

Progress on asset and capital strategies:

• Completed $103 million of acquisitions during the quarter;
• Began nearly $128 million of new developments, consisting of three industrial developments totaling 872,000 square feet and two medical office buildings totaling 195,000 square feet;
• Completed $27 million of dispositions;
• Issued $300 million of 4.375 percent senior unsecured notes due 2022, with an effective rate of 4.47 percent;
• During the quarter, issued approximately 311,000 new shares of common stock under our ATM program, generating gross proceeds of $4.53 million and net proceeds of approximately $4.44 million. During the third quarter through July 11^th, 2012, we issued an additional 2,003,075 shares of common stock under our ATM program generating gross proceeds of approximately $29.45 million and net proceeds of approximately $28.86 million;
• At June 30, 2012, $107 million of cash on hand and no balance on the line of credit.

Financial Performance

• Core FFO for the second quarter of 2012 of $0.26 per share compared with $0.29 per share for the second quarter of 2011. The change is primarily attributable to lower service operations fees from the winding down of the Base Realignment and Closure ("BRAC") project. A reconciliation of FFO as defined by NAREIT to Core FFO is included in the financial tables included in this release.
  
  
• FFO as defined by NAREIT was $0.25 per share for the second quarter 2012 and $0.29 per share for the second quarter 2011. In addition to the impacts outlined in Core FFO above, FFO as defined by NAREIT was reduced by acquisition-related costs. A reconciliation of FFO as defined by NAREIT to Core FFO is included in the financial tables included in this release.
  
  
• Net loss of $0.11 per diluted share for the second quarter of 2012 compared to net loss of $0.12 per diluted share for the same quarter in 2011. 
  
  

Operating Performance Highlights

• In-service portfolio occupancy on June 30, 2012 of 92.2 percent, compared to 92.0 percent on March 31, 2012.
  
  
• In-service occupancy in the bulk distribution portfolio on June 30, 2012 of 93.6 percent, compared to 93.5 percent on March 31, 2012.
  
  
• In-service occupancy in the medical office portfolio of 90.7 percent on June 30, 2012, compared to 90.9 percent on March 31, 2012, and in-service occupancy in the suburban office portfolio of 85.9 percent at quarter end, compared to 85.5 percent on March 31, 2012.
  
  
• Tenant retention for the quarter of approximately 66 percent with overall positive rental rate growth of 0.6 percent.
  
  
• Same-property net operating income growth of 3.7 percent for the twelve months ended June 30, 2012 and 3.4 percent for the three months ended June 30, 2012, as compared to the comparable periods ended June 30, 2011. This positive same-property performance was primarily driven by lease-up of assets while rental rate growth improved modestly.

Real Estate Investment Activity

The company acquired $103 million (1.3 million square feet) of assets, substantially all of which were high-quality bulk industrial facilities located in strategic markets during the second quarter 2012. 

The second quarter included the following strategic acquisitions:

• A 498,000 square foot bulk industrial facility in La Mirada, CA that was 100 percent leased to Staples and Cotton On USA;
  
  
• A 570,000 square foot bulk industrial building in Atlanta, GA that was 100 percent leased to a global leader in the exhibit and display service business;
  
  
• A 257,000 square foot bulk industrial facility in Chicago, IL that was 100 percent leased to Brighton Best International.

Development

Oklak stated, "New development has continued its strong momentum at mid-year. After $121 million of starts in the last quarter, we commenced nearly $128 million of industrial and medical projects during the second quarter, consistent with our asset and operating strategies. In total, we have 3.4 million square feet across thirteen projects underway, with total budgeted costs of $459 million, that are 86 percent pre-leased in the aggregate."

The second quarter included the following development activity:

Wholly-Owned Properties

• During the quarter, three new industrial developments were started. Two 100 percent pre-leased buildings in Chicago and Atlanta totaling 441,000 square feet and one 431,000 square foot speculative bulk distribution facility in Chino, CA. Two medical office projects totaling 195,000 square feet were also started. They were both 100 percent pre-leased.
  
  
• Our wholly-owned development projects under construction on June 30, 2012 consisted of six medical office projects totaling 523,000 square feet, four industrial projects totaling 1.9 million square feet and one 344,000 square foot office project. These projects were 82 percent pre-leased in the aggregate.
  
  
• During the quarter, an 87,000 square foot medical office building located in Raleigh, NC that was 62 percent pre-leased was placed in service.

Joint Venture Properties

• Our joint-venture-owned development projects under construction at June 30, 2012 consisted of one industrial project totaling 376,000 square feet and one medical office project totaling 274,000 square feet. These projects are 100 percent pre-leased.

Dispositions

Proceeds from property dispositions totaled $27 million during the quarter, of which $15 million was from three non-core flex industrial assets (86 percent occupied), $11 million from one retail asset (80.5 percent occupied) and the remaining from undeveloped land. The retail and industrial dispositions comprised approximately 84,000 and 661,000 square feet, respectively, with a weighted average age of over 20 years.

2012 Earnings Guidance

The company tightened Core FFO guidance for 2012 from $0.94 to $1.06 to $0.98 to $1.06.

Dividends Declared

Our board of directors declared a quarterly cash dividend on our common stock of $0.17 per share, or $0.68 per share on an annualized basis. The second quarter dividend will be payable August 31, 2012 to shareholders of record on August 15, 2012. The board also declared the following dividends on our outstanding preferred stock:

Class		NYSE Symbol		Quarterly Amount/Share		Record Date		Payment Date
Series J		DREPRJ		$0.4140625		August 15, 2012		August 31, 2012
Series K		DREPRK		$0.40625		August 15, 2012		August 31, 2012
Series L		DREPRL		$0.4125		August 15, 2012		August 31, 2012
Series O		DREPRO		$0.523437		September 17, 2012		October 1, 2012

Information Regarding FFO

The company computes FFO in accordance with standards established by NAREIT. NAREIT defines FFO as net income (loss), excluding gains (losses) on sales of depreciable property, impairment charges related to depreciable real estate assets, 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 and FFO per share, 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.

Same Property Performance

The company includes same-property net operating income growth as a property-level supplemental measure of performance. The company does not believe same-property net operating income growth to be a primary measure of overall company operating performance. The company utilizes same-property net income growth as a supplemental measure to evaluate property-level performance, without differentiating or making adjustment as to whether a property is consolidated or jointly controlled.

A description of the properties that are excluded from our same-property measure is included on page 20 of our June 30, 2012 supplemental information. 

About Duke Realty Corporation

Duke Realty Corporation owns and operates approximately 140.6 million rentable square feet of industrial and office assets, including medical office, in 18 major 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 Realty Corporation is available at www.dukerealty.com.

Second Quarter Earnings Call and Supplemental Information

Duke Realty Corporation is hosting a conference call tomorrow, July 26, 2012, at 3:00 p.m. EDT to discuss its second 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 website.

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 website.

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 or results, 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; (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) valuation of real estate; (x) increases in operating costs; (xi) changes in the dividend policy for the company's common stock; (xii) the reduction in the company's income in the event of multiple lease terminations by tenants; (xiii) impairment charges, (xiv) the effects of geopolitical instability and risks such as terrorist attacks; (xv) the effects of weather and natural disasters such as floods, droughts, wind, tornados and hurricanes; and (xvi) the effect of any damage to our reputation resulting from developments relating to any of items (i) - (ix). 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, 2011. 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
June 30, 2012
(In thousands, except per share amounts)
				Three Months Ended								Six Months Ended
				June 30,								June 30,
				2012				2011				2012				2011
Revenues:
	Rental and related revenue			$	205,008			$	180,009			$	407,678			$	370,438
	General contractor and service fee revenue				63,607				135,362				132,575				281,909
					268,615				315,371				540,253				652,347
Expenses:
	Rental expenses				34,795				32,712				71,846				73,136
	Real estate taxes				28,071				26,147				56,608				53,540
	General contractor and other services expenses				57,879				122,969				121,800				258,633
	Depreciation and amortization				92,721				83,351				184,084				161,057
					213,466				265,179				434,338				546,366
Other operating activities:
	Equity in earnings of unconsolidated companies				267				1,713				1,776				2,786
	Gain (loss) on sale of properties				119				492				(158	)			68,348
	Undeveloped land carrying costs				(2,168	)			(2,453	)			(4,466	)			(4,762	)
	Other operating expenses				(196	)			(26	)			(461	)			(111	)
	General and administrative expense				(11,594	)			(8,541	)			(23,433	)			(19,738	)
					(13,572	)			(8,815	)			(26,742	)			46,523
		Operating income			41,577				41,377				79,173				152,504
Other income (expenses):
	Interest and other income, net				98				284				244				371
	Interest expense				(61,220	)			(53,814	)			(122,138	)			(106,461	)
	Acquisition-related activity				(1,029	)			(594	)			(1,609	)			(1,183	)
		Income (loss) from continuing operations			(20,574	)			(12,747	)			(44,330	)			45,231
Discontinued operations:
	Loss before gain on sales				(249	)			(3,824	)			(1,079	)			(8,616	)
	Gain on sale of depreciable properties				3,095				2,713				9,571				14,316
		Income (loss) from discontinued operations			2,846				(1,111	)			8,492				5,700
Net income (loss)					(17,728	)			(13,858	)			(35,838	)			50,931
Dividends on preferred shares					(11,082	)			(15,974	)			(24,275	)			(31,948	)
Adjustments for redemption/repurchase of preferred shares					-				-				(5,730	)			(163	)
Net (income) loss attributable to noncontrolling interests					328				790				971				(293	)
	Net income (loss) attributable to common shareholders			$	(28,482	)		$	(29,042	)		$	(64,872	)		$	18,527
Basic net income (loss) per common share:
	Continuing operations attributable to common shareholders			$	(0.12	)		$	(0.11	)		$	(0.28	)		$	0.05
	Discontinued operations attributable to common shareholders			$	0.01			$	(0.01	)		$	0.03			$	0.02
Total				$	(0.11	)		$	(0.12	)		$	(0.25	)		$	0.07
Diluted net income (loss) per common share:
	Continuing operations attributable to common shareholders			$	(0.12	)		$	(0.11	)		$	(0.28	)		$	0.05
	Discontinued operations attributable to common shareholders			$	0.01			$	(0.01	)		$	0.03			$	0.02
Total				$	(0.11	)		$	(0.12	)		$	(0.25	)		$	0.07

Duke Realty Corporation
Statement of Funds From Operations
June 30, 2012
(In thousands, except per share amounts)
			Three Months Ended
			June 30,
			(Unaudited)
			2012										2011
			Amount				Wtd. Avg. Shares		Per Share				Amount				Wtd. Avg. Shares		Per Share
Net Loss Attributable to Common Shareholders			$	(28,482	)								$	(29,042	)
Less: Dividends on participating securities				(856	)									(806	)
Net Loss Per Common Share- Basic				(29,338	)		266,748		$	(0.11	)			(29,848	)		252,640		$	(0.12	)
Add back:
	Noncontrolling interest in earnings of unitholders			-			-							-			-
	Other potentially dilutive securities						-										-
Net Loss Attributable to Common Shareholders- Diluted			$	(29,338	)		266,748		$	(0.11	)		$	(29,848	)		252,640		$	(0.12	)
Reconciliation to Funds From Operations ("FFO")
Net Loss Attributable to Common Shareholders			$	(28,482	)		266,748						$	(29,042	)		252,640
Adjustments:
	Depreciation and amortization			92,943										100,113
	Company share of joint venture depreciation and amortization			8,640										8,639
	Earnings from depreciable property sales-wholly owned, discontinued operations			(3,095	)									(2,713	)
	Earnings from depreciable property sales-wholly owned, continuing operations			(119	)									(492	)
	Noncontrolling interest share of adjustments			(1,660	)									(2,802	)
Funds From Operations- Basic				68,227			266,748		$	0.26				73,703			252,640		$	0.29
	Noncontrolling interest in loss of unitholders			(466	)		4,569							(706	)		7,209
	Noncontrolling interest share of adjustments			1,660										2,802
	Other potentially dilutive securities						3,036										3,364
Funds From Operations- Diluted			$	69,421			274,353		$	0.25			$	75,799			263,213		$	0.29
	Acquisition-related activity			1,029										594
Core Funds From Operations- Diluted			$	70,450			274,353		$	0.26			$	76,393			263,213		$	0.29

			Six Months Ended
			June 30,
			(Unaudited)
			2012										2011
			Amount				Wtd. Avg. Shares		Per Share				Amount				Wtd. Avg. Shares		Per Share
Net Income (Loss) Attributable to Common Shareholders			$	(64,872	)								$	18,527
Less: Dividends on participating securities				(1,708	)									(1,605	)
Net Income (Loss) Per Common Share- Basic				(66,580	)		262,556		$	(0.25	)			16,922			252,524		$	0.07
Add back:
	Noncontrolling interest in earnings of unitholders			-			-							499			6,798
	Other potentially dilutive securities						-										68
Net Income (Loss) Attributable to Common Shareholders- Diluted			$	(66,580	)		262,556		$	(0.25	)		$	17,421			259,390		$	0.07
Reconciliation to Funds From Operations ("FFO")
Net Income (Loss) Attributable to Common Shareholders			$	(64,872	)		262,556						$	18,527			252,524
Adjustments:
	Depreciation and amortization			185,199										195,094
	Company share of joint venture depreciation and amortization			17,226										16,267
	Earnings from depreciable property sales-wholly owned, discontinued operations			(9,571	)									(14,316	)
	Earnings from depreciable property sales-wholly owned, continuing operations			158										(68,348	)
	Earnings from depreciable property sales-JV			-										(91	)
	Noncontrolling interest share of adjustments			(3,720	)									(3,371	)
Funds From Operations- Basic				124,420			262,556		$	0.47				143,762			252,524		$	0.57
	Noncontrolling interest in income (loss) of unitholders			(1,277	)		5,160							499			6,798
	Noncontrolling interest share of adjustments			3,720										3,371
	Other potentially dilutive securities						2,987										3,276
Funds From Operations- Diluted			$	126,863			270,703		$	0.47			$	147,632			262,598		$	0.56
	Adjustments for redemption/repurchase of preferred shares			5,730										163
	Acquisition-related activity			1,609										1,183
Core Funds From Operations- Diluted			$	134,202			270,703		$	0.50			$	148,978			262,598		$	0.57

Duke Realty Corporation
Balance Sheet
June 30, 2012
(In thousands, except per share amounts)
				June 30,				December 31,
				2012				2011
ASSETS:
	Rental Property			$	6,177,333			$	6,038,107
	Less: Accumulated Depreciation				(1,206,158	)			(1,127,595	)
	Construction in Progress				165,940				44,497
	Undeveloped Land				622,457				622,635
		Net Real Estate Investments			5,759,572				5,577,644
	Cash				106,565				213,809
	Accounts Receivable				19,623				22,428
	Straight-line Rents Receivable				112,404				108,392
	Receivables on Construction Contracts				32,969				40,247
	Investments in and Advances to Unconsolidated Companies				368,000				364,859
	Deferred Financing Costs, Net				41,231				42,268
	Deferred Leasing and Other Costs, Net				460,903				463,983
	Escrow Deposits and Other Assets				166,823				170,807
		Total Assets		$	7,068,090			$	7,004,437
LIABILITIES AND SHAREHOLDERS' EQUITY:
	Secured Debt			$	1,101,195			$	1,173,233
	Unsecured Notes				2,915,155				2,616,063
	Unsecured Lines of Credit				20,293				20,293
	Construction Payables and Amounts due Subcontractors				60,931				55,916
	Accrued Real Estate Taxes				85,993				69,470
	Accrued Interest				59,506				58,904
	Accrued Expenses				37,536				60,230
	Other Liabilities				125,890				131,735
	Tenant Security Deposits and Prepaid Rents				42,213				38,935
		Total Liabilities			4,448,712				4,224,779
	Preferred Stock				625,638				793,910
	Common Stock and Additional Paid-in Capital				3,786,421				3,597,117
	Accumulated Other Comprehensive Income (Loss)				1,767				987
	Distributions in Excess of Net Income				(1,833,088	)			(1,677,328	)
		Total Shareholders' Equity			2,580,738				2,714,686
	Non-controlling Interest				38,640				64,972
		Total Liabilities and Equity		$	7,068,090			$	7,004,437