Indianapolis-based Duke Realty Corp. (NYSE: DRE) is reporting first quarter core funds from operations of $109 million, compared to $93 million a year earlier. Chief Executive Officer Denny Oklak says the company has sold more than $1.5 billion in “non-strategic” assets this year. April 29, 2015

News Release

INDIANAPOLIS, IN–(Marketwired – Apr 29, 2015) – Duke Realty Corporation (NYSE: DRE), a leading industrial, medical and suburban office property REIT, today reported results for the first quarter of 2015.

Quarterly Highlights

Core Funds from Operations (“Core FFO”) per diluted share was $0.31 for the quarter. Funds from Operations (“FFO”) per diluted share as defined by the National Association of Real Estate Investment Trusts (“NAREIT”) was $0.33 for the quarter.

Operating results:

Occupancy, excluding the property portfolio dispositions described in the “Significant Post Quarter Transactions” section below, in the total portfolio of 94.5 percent and the in-service portfolio occupancy of 96.0 percent;

Same-property net operating income growth of 6.8 percent for the quarter ended March 31, 2015 as compared to the quarter ended March 31, 2014 and 5.4 percent for the twelve months ended March 31, 2015 as compared to the twelve months ended March 31, 2014;

Adjusted Funds from Operations (“AFFO”) of $0.28 per diluted share, which results in a dividend payout ratio of 61 percent;

Total leasing activity, excluding leasing activity related to properties sold as part of the “Significant Post Quarter Transactions” section below, of 6.5 million square feet.

Successful execution of capital transactions during the quarter:

Began $80 million of new developments;

Completed $161 million of non-strategic building and land dispositions;

Repaid $250 million of unsecured notes that bore interest at an effective rate of 7.5 percent.

Denny Oklak, Chairman and CEO said, “We experienced continued strong operational results in the first quarter and further improved our in-service occupancy. Additionally, we executed 3.3 million square feet of renewal leases, representing a 77 percent renewal rate, during the quarter with a significant 8.4 percent growth in net effective rent. Same property net operating income growth for the quarter was also a very strong 6.8 percent.”

Commenting on first quarter dispositions of $161 million, Mr. Oklak stated, “I am happy to say that our first quarter dispositions included our last retail project and also all of our remaining office properties in Cleveland. In addition to the first quarter dispositions, in April we completed the previously announced $1.1 billion suburban office portfolio disposition to an affiliate of Starwood Capital and the second phase of the sale of non-strategic industrial properties located primarily in the Midwest for $270 million. When including these sales along with the disposition activity during the first quarter, we have already disposed of over $1.5 billion of non-strategic assets so far this year.”

Mark Denien, Chief Financial Officer, commented, “We immediately utilized a significant portion of the proceeds from our disposition activity to reduce our outstanding debt, including the repayment of $250 million of unsecured debt at its February maturity date, the early repurchase of $425 million of our unsecured notes as part of our previously announced tender offer, the repayment of over $137 million of secured debt and the repayment of $238 million of the outstanding balance on our unsecured line of credit. These actions resulted in an immediate and significant improvement to our leverage metrics.”

Financial Performance

The following table reconciles FFO per share, as defined by NAREIT, to Core FFO per share as measured by the company, for the three months ended March 31, 2015 and 2014:

Core FFO was $109 million for the first quarter of 2015, an increase of $16 million, or $0.03 per share, from the first quarter of 2014 as the result of having no ongoing preferred dividend obligations as well as improved property performance from increased occupancy, rental rate growth and the impact of new developments coming online. A reconciliation of net income to FFO as defined by NAREIT, as well as to Core FFO, is included in the financial tables included in this release.

Net income was $0.19 per diluted share for the first quarter of 2015 compared to $0.06 per diluted share for the same quarter in 2014. In addition to the factors driving the increase to Core FFO, the improved net income per share was due to increased gains on property and land sales and reduced depreciation expense resulting from a significant amount of properties being classified as held-for-sale during a portion of the first quarter 2015.

Portfolio Operating Performance

Strong overall operating performance across all product types:

In-service occupancy in the bulk distribution portfolio at March 31, 2015 of 96.8 percent compared to 96.4 percent at December 31, 2014.

In-service occupancy in the medical office portfolio of 94.2 percent at March 31, 2015 compared to 94.3 percent at December 31, 2014.

In-service occupancy in the suburban office portfolio of 86.0 percent at March 31, 2015 compared to 87.9 percent at December 31, 2014. Occupancy at March 31, 2015 for the suburban office portfolio was lower than December 31, 2014 as a result of excluding the properties sold on April 1, 2015 as part of the suburban office disposition from the March 31, 2015 occupancy.

Total occupancy, including properties under development, of 94.5 percent at March 31, 2015 compared to 93.8 percent at December 31, 2014.

Tenant retention of 77 percent for the quarter, with overall renewal rental rate growth of 8.4 percent.

Same-property net operating income growth of 5.4 percent for the twelve months ended March 31, 2015 and 6.8 percent for the three months ended March 31, 2015 as compared to the comparable periods ended March 31, 2014.

Real Estate Investment Activity


Jim Connor, Chief Operating Officer, stated, “We continued to increase our investment in high quality industrial properties, starting four new industrial projects totaling 1.3 million square feet. Our development pipeline under construction, which totals 5.2 million square feet and is 55 percent leased, is comprised of what we believe to be a strong mix of pre-leased developments and speculative developments in high-growth markets. We also have a strong pipeline and expect starts to accelerate in the second quarter.”

The first quarter included the following development activity:

Wholly-Owned Properties

During the quarter, the company started $60 million of wholly-owned industrial development projects totaling 836,000 square feet, which were 95 percent leased in total. These wholly-owned development starts consisted of two 100 percent pre-leased industrial projects in Chicago and one 57 percent pre-leased industrial project in Washington, DC.

Wholly-owned development projects under construction at March 31, 2015, excluding the one suburban office project that will be sold at completion as part of the suburban office disposition, consisted of nine industrial projects totaling 3.2 million square feet, five medical office projects totaling 247,000 square feet and two suburban office projects totaling 256,000 square feet. These projects were 62 percent pre-leased in the aggregate.

Four bulk industrial projects, which were 93 percent leased and totaled 1.7 million square feet, were placed in service. Additionally, two medical office projects, which were 89 percent leased and totaled 143,000 square feet, were placed in service.

Joint Venture Properties

During the quarter, a 100 percent pre-leased bulk industrial project, totaling 451,000 square feet was started in Indianapoli

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