Duke Realty Reports FFO Increase, Profit

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Indianapolis-based Duke Realty Corp. (NYSE: DRE) is reporting second quarter 2013 core funds from operations of $89.1 million, compared to $70.4 million for the same period in 2012. The company is also reporting net income of $61.5 million for the quarter, compared to a loss of $28.5 million the previous year.

August 1, 2013

News Release

Indianapolis, Ind. -- Duke Realty Corporation (NYSE: DRE), a leading industrial, suburban and medical office property REIT, today reported results for the second quarter of 2013.

"We saw excellent operational results in the second quarter led by strong demand on all fronts," said Denny Oklak, Chairman and CEO. "Core Funds From Operations of $0.27 per share reflects this strength along with same property net operating income growth of 3.4% for the quarter. We also increased our overall portfolio occupancy to 93.1%, the highest in many years. We continued to increase our investment in the bulk industrial business through acquisition of high quality assets in key distribution markets around the country."

Quarterly Highlights

•Core Funds from Operations ("Core FFO") per diluted share was $0.27 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:

•Total occupancy of 93.1 percent and in-service portfolio occupancy of 93.2 percent;

•Total leasing activity of approximately 6.2 million square feet;

•Same-property net operating income growth of 2.7 percent for the twelve months ended June 30, 2013 and 3.4 percent for the three months ended June 30, 2013, as compared to the comparable periods ended June 30, 2012.

•Adjusted Funds from Operations ("AFFO") of $0.24 per diluted share, which represents a dividend pay-out ratio below 71 percent.

•Progress on asset and capital strategies:

•Completed $405 million of modern bulk industrial acquisitions during the quarter;

•Began $82 million of new developments, consisting of one 206,000 square foot suburban office development and three medical office buildings totaling 114,000 square feet;

•Completed $202 million of dispositions, including $188 million in proceeds from the sale of a 391,000 square foot retail center in South Florida;

•Reduced our overall cost of borrowing through issuance of a $250 million term note, bearing interest at LIBOR plus 1.35 percent, due May 2018;

•Repaid $425 million of unsecured notes, which had an average effective interest rate of 6.4 percent, at maturity in May 2013;

•Executed a new At the Market ("ATM") plan in May 2013 that allows us to issue up to $300 million of common stock. During the quarter, between this new plan and the completion of our previous ATM program, we issued approximately 1.5 million new shares of common stock, at an average price of $18.33 per share, generating net proceeds of approximately $27.4 million.

Financial Performance

•Core FFO for the second quarter of 2013 of $0.27 per share compared with $0.26 per share for the second quarter of 2012. Overall Core FFO increased from the second quarter of 2012 due to improved rental operations and lower general and administrative expenses. 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 quarters of 2013 and 2012. In addition to the factors driving Core FFO performance, FFO as defined by NAREIT was lower during the second quarter of 2013 because of an impairment charge on a land sale and 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 earnings of $0.19 per diluted share for the second quarter of 2013 compared to net loss of $0.11 per diluted share for the same quarter in 2012. The improvement in earnings per share was primarily the result of gains on sales of properties during the second quarter of nearly $85 million, driven primarily by the aforementioned retail property sale.

Operating Performance Highlights

•In-service portfolio occupancy on June 30, 2013 of 93.2 percent compared to 92.1 percent on March 31, 2013.

•In-service occupancy in the bulk distribution portfolio on June 30, 2013 of 94.4 percent compared to 93.6 percent on March 31, 2013.

•In-service occupancy in the suburban office portfolio of 86.5 percent on June 30, 2013 compared to 84.5 percent on March 31, 2013.

•In-service occupancy in the medical office portfolio of 92.7 percent on June 30, 2013 compared to 90.9 percent on March 31, 2013.

•Tenant retention of nearly 74 percent for the quarter, with overall positive rental rate growth of 2.0 percent.

•Same-property net operating income growth of 2.7 percent for the twelve months ended June 30, 2013 and 3.4 percent for the three months ended June 30, 2013 as compared to the comparable periods ended June 30, 2012. The positive same-property performance was driven by increased occupancy and rent growth within our same property portfolio.

Real Estate Investment Activity

We acquired $405 million (5.9 million square feet) of high-quality modern bulk industrial facilities located in key distribution markets, during the second quarter 2013.

The second quarter included the following strategic acquisitions:

•A geographically diverse portfolio of eight modern bulk industrial buildings totaling 4.9 million square feet located in California, Eastern Pennsylvania, Houston, and New Jersey, all of which were 100 percent leased to major retail tenants including Home Depot, Kimberly Clark, Sears and JoAnn Stores;

•Two modern bulk industrial buildings totaling 950,000 square feet in Cranbury, NJ, which were 100 percent leased to Crate & Barrel through 2020;

•One industrial property totaling 123,000 square feet in Southern California, which was 100 percent leased.

Development

Oklak stated, "New development continued its strong momentum. After $139 million of starts in the first quarter, we commenced $82 million of suburban office and medical office projects during the second quarter. In total, we have 3.3 million square feet of development in progress across eighteen projects, that are 90 percent pre-leased in the aggregate, with total budgeted costs of nearly $513 million."

The second quarter included the following development activity:

Wholly-Owned Properties

•During the quarter, four new developments were started. We started one 206,000 square foot office building, on our land in Raleigh, North Carolina, which was 52 percent pre-leased when started and is 90 percent pre-leased today. We also started three 100 percent pre-leased medical office projects in various markets totaling 114,000 square feet.•Our wholly-owned development projects under construction at June 30, 2013 consisted of 12 medical office projects totaling 714,000 square feet, three industrial projects totaling 1.9 million square feet and two office projects totaling 406,000 square feet. •We placed in service two new industrial facilities, as well as one expansion to an existing industrial facility, totaling 860,000 square feet in the aggregate, all of which were 100 percent pre-leased. Two office projects, totaling 504,000 square feet, which were 97 percent pre-leased were also placed in service. Finally, we placed three medical office projects in service, totaling 147,000 square feet, which were 100 percent pre-leased.

Joint Venture Properties

•We had one 274,000 square foot medical office project, which was 100 percent pre-leased, under construction at June 30, 2013.

•During the quarter one new 600,000 speculative bulk industrial property in Indianapolis was placed in service with no leases currently in place.

Dispositions

•Proceeds from property dispositions totaled $202 million during