Duke Realty Corp.
), a real estate investment trust (REIT), reported second quarter
2012 FFO (funds from operations) of $69.4 million or 25 cents per
share compared with $75.8 million or 29 cents in the year-ago
quarter. The decrease in year-over-year FFO was primarily due to
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Excluding certain one-time items, recurring FFO for the quarter was
$70.5 million or 26 cents per share compared with $76.4 million or
29 cents in the year-earlier quarter. The recurring FFO per share
for the reported quarter was in line with the Zacks Consensus
Total revenue during second quarter 2012 was $268.6 million
compared with $315.4 million in the prior-year period. Overall
portfolio occupancy of the company remained relatively high at
92.2% in the reported quarter. By segments, in-service occupancy in
the bulk distribution portfolio was 93.6%, while that in medical
office and suburban office portfolio was 90.7% and 85.9%,
Tenant retention for the quarter was about 66.0% with rental growth
of 0.6%. Same-store net operating income (NOI) for the overall
portfolio increased 3.4% during the quarter driven by solid
lease-up of assets and modest rental growth. The company completed
4.9 million square feet of leases during second quarter 2012.
In accordance with its asset repositioning strategy, which provides
for increasing investment in industrial and medical office assets,
Duke Realty sold non-strategic assets during the quarter,
generating proceeds of $27 million, of which $15 million came from
three industrial assets (86% occupied), $11 million from one retail
asset, and the remainder from undeveloped land.
At the same time, the company acquired industrial facilities
spanning 1.3 million square feet, worth $103 million in strategic
markets during the second quarter of 2012. These included 100%
leased properties, the first a 498,000 square foot bulk industrial
facility in La Mirada, California; another 570,000 square foot bulk
industrial building in Atlanta, Georgia; and a 257,000 square foot
bulk industrial facility in Chicago, Illinois.
The company entered into $128 million worth of new development
starts during the quarter. Presently, Duke Realty has 13 projects
underway spanning 3.4 million square feet at an estimated
investment of $459 million.
As of June 30, 2012, Duke Realty had two joint venture development
projects under construction, which consisted of one industrial
project totaling 376,000 square feet and one medical office project
totaling 274,000 square feet.
The company issued 311,000 shares during the reported quarter,
generating net proceeds of approximately $4.4 million. Subsequent
to the quarter-end, Duke Realty also issued over 2 million shares
generating net proceeds of approximately $28.9 million.
At the end of second quarter 2012, the company had nearly $107
million of cash with no balance on its line of credit. Duke Realty
narrowed its recurring FFO guidance for 2012 to 0.98 - $1.06 from
the earlier range of $0.94 - $1.06 per share.
Duke Realty currently retains a Zacks #3 Rank, which translates
into a short-term Hold rating. We maintain our long-term Neutral
recommendation on the stock. We also have a Neutral recommendation
and a Zacks #3 Rank for
Highwoods Properties Inc.
), one of the competitors of Duke Realty.
Note: FFO, 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.