Duke Realty Corp.
), a real estate investment trust (REIT), reported third quarter
2012 FFO (funds from operations) of $71.2 million or 26 cents per
share compared with $72.3 million or 27 cents in the year-ago
quarter. The decrease in year-over-year FFO was primarily due to
lower property portfolio income resulting from asset
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Excluding certain one-time items, recurring FFO for the quarter
was $72.0 million or 26 cents per share compared with $76.1
million or 29 cents in the year-earlier quarter. The recurring
FFO per share for the reported quarter was in line with the Zacks
Total revenues during third quarter 2012 were $302.9 million
compared with $312.3 million in the prior-year period. Overall
portfolio occupancy of the company remained relatively high at
92.5% in the reported quarter. By segments, in-service occupancy
in the bulk distribution portfolio was 94.0%, while that in
medical office and suburban office portfolio was 91.9% and 86.1%,
Tenant retention for the quarter was about 90.1% with rental
growth of 1.0%. Same-store net operating income (NOI) for the
overall portfolio increased 2.0% during the quarter driven by
solid lease-up of assets and modest rental growth. The company
completed 7.4 million square feet of leases during third quarter
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 $34 million. Out of this, $9.4
million came from two industrial assets (12% occupied), $9.3
million from a joint venture medical office property (fully
occupied), $8 million from two office assets (73% occupied), and
the remainder from undeveloped land.
At the same time, the company acquired a medical office portfolio
of seven buildings spanning 334,000 square feet for $92 million.
Subsequent to the quarter-end, Duke Realty acquired 14 medical
office properties for $342 million, including the assumption of
$60 million of secured debt. The geographically diversified
portfolio (totaling over 1.2 million square feet) was 89.4%
The company started three new industrial projects during the
quarter. This included two 100% pre-leased expansion projects
(totaling 582,000 square feet) in Columbus and Chicago, and a
600,000 square foot bulk distribution facility in Indianapolis.
Duke Realty also started three 100% pre-leased medical office
projects (totaling 181,000 square feet) in Atlanta, Cincinnati,
and Indianapolis, along with a 158,000 square foot suburban
office project in Houston.
Presently, Duke Realty has seven medical office projects (537,000
square feet), six industrial projects (2.5 million square feet),
and two office projects (502,000 square feet) under various
stages of construction. These projects were 83 percent pre-leased
in the aggregate. As of September 30, 2012, Duke Realty had three
joint venture development projects under construction, which
consisted of two industrial projects totaling 976,000 square feet
and a medical office project totaling 274,000 square feet.
The company issued 5.8 million shares during the reported
quarter, generating net proceeds of approximately $85 million. At
the end of third quarter 2012, the company had nearly $113
million of cash with no balance on its line of credit. Duke
Realty narrowed its recurring FFO guidance for 2012 to $1.00 -
$1.04 from the earlier range of $0.98 - $1.06 per share.
Duke Realty currently retains a Zacks #4 Rank, which translates
into a short-term Sell rating. We maintain our long-term Neutral
recommendation on the stock. We also have a Neutral
recommendation and a Zacks #3 Rank (short-term Hold rating) 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.