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Duke Realty Reports Third Quarter 2017 Results

Quarterly Dividend Increased

Closed First Tranche of Significant Industrial Acquisition

Stabilized Occupancy of 98.0 Percent

15.9 percent Rent Growth on Leases

INDIANAPOLIS, Oct. 25, 2017 (GLOBE NEWSWIRE) -- Duke Realty Corporation (NYSE:DRE), the largest pure-play, domestic only, industrial REIT, today reported results for the third quarter of 2017.

Quarterly Highlights

• Net income per diluted share was $0.46 for the quarter. Funds from Operations (“FFO”) per diluted share, as defined by the National Association of Real Estate Investment Trusts (“NAREIT”), was $0.26 for the quarter while Core Funds from Operations (“Core FFO”) per diluted share was $0.30 for the quarter.

• Portfolio operating performance within the company's industrial portfolio:

  • Total stabilized occupancy at September 30, 2017 of 98.0 percent compared to 97.7 percent at June 30, 2017 and 98.2 percent at September 30, 2016

  • Total in-service occupancy at September 30, 2017 of 95.7 percent compared to 96.0 percent at June 30, 2017 and 97.4 percent at September 30, 2016

  • Total occupancy, including properties under development, of 93.2 percent at September 30, 2017 compared to 93.5 percent at June 30, 2017 and 95.2 percent at September 30, 2016

  • Tenant retention of 70.2 percent for the quarter

  • Same-property net operating income growth of 2.2 percent and 3.9 percent for the three and nine months ended September 30, 2017 compared to the same periods in 2016

  • Total leasing activity of 5.9 million square feet for the quarter

  • Overall rent growth on new and renewal leases of 15.9 percent for the quarter

• Successful execution of capital transactions:

  • Completed the sale of ten properties for a combined sales price of $301 million

  • Redeemed $129 million of 6.75 percent unsecured notes with a scheduled maturity of March 2020

  • Extension of the company's $1.2 billion unsecured revolving credit facility from January 2019 to January 2022 at a rate (subject to adjustment) of LIBOR plus .875 percent

  • Completed $390 million of acquisitions of nine bulk industrial buildings in Tier 1 markets during the quarter

  • Started new industrial development projects with expected costs of $230 million 

Jim Connor, Chairman and CEO said, "We enjoyed a successful third quarter of 2017, highlighted by closing on the first tranche of an acquisition, from Bridge Development Partners, LLC, that will ultimately include ten state-of-the-art bulk industrial buildings along with two parcels of undeveloped land (the "Bridge Portfolio"). We also closed on the sale of seven of our remaining nine medical office properties as well as three suburban office buildings, which were our last in the Indianapolis office market.

From an operational standpoint, we maintained a high level of stabilized occupancy, which slightly increased to 98.0 percent. Our lease renewal rate for the quarter was 70.2 percent.

We also continued to see significant rent growth across our portfolio, which we expect to continue in the near future, with rent growth on new and renewal leases executed during the quarter totaling 15.9 percent. We reported 2.2 percent growth in same property net operating income for the quarter which was driven almost entirely by rental rate growth, since we have been operating at peak occupancy levels in our same property portfolio for several quarters now. The previously disclosed hhgregg bankruptcy had a roughly 80 basis point drag on same store net operating income growth for the quarter."

Mark Denien, Executive Vice President and Chief Financial Officer, stated, "We continue to have significant on-balance sheet financing capacity, with $513 million of cash held in escrow for future 1031 exchanges, which should mostly be re-invested in property acquisitions and development projects by the end of this year. We also have $427 million in interest-bearing notes receivable, primarily from the medical office disposition, that will mature over the next three years.

The extension of our revolving credit facility that we just completed will provide us with a secure source of capital. We anticipate finishing the year at a lower-than-targeted level of leverage and in 2018 it is our intention to return to a leverage profile commensurate with our credit rating, which will provide a further source of growth.

Finally, we plan to finalize and announce our special dividend requirement, which should be consistent with our previously disclosed estimates, in early December."

Financial Performance

• A complete reconciliation, in dollars and per share amounts, 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 $0.46 per diluted share, or $167 million, for the third quarter of 2017 compared to $0.32 per diluted share for the third quarter of 2016. The increased net income per diluted share was primarily the result of gains on property sales. 

• FFO, as defined by NAREIT, was $0.26 per diluted share for the third quarter of 2017, or $93 million, compared to $0.31 per diluted share for the third quarter of 2016. The decreased FFO per diluted share was primarily due to the loss on debt extinguishment related to the early redemption of $129 million of unsecured notes in July 2017. 

• Core FFO was $0.30 per diluted share, or $108 million, for the third quarter of 2017 compared to $0.31 per diluted share for the third quarter of 2016.

Real Estate Investment Activity

Mr. Connor further stated, “The Bridge Portfolio includes ten recently constructed state-of-the-art bulk distribution buildings in Northern New Jersey, South Florida and Southern California, which we believe to be the best industrial markets in the country, for a total purchase price of $516 million. The portfolio also includes two parcels of undeveloped land in Northern New Jersey, for a total purchase price of $62 million, upon which construction of two additional properties will commence later this year or early next year. The entire portfolio, when construction on the two land parcels is completed, will ultimately total 4.3 million rentable square feet with a total investment of slightly under $700 million. We agreed to the terms of the acquisition in April, at which point the properties were 58 percent leased in total. After assuming leasing responsibilities in July 2017, we executed additional leases to increase the portfolio to 69 percent leased. We believe that, since April, rental rates have continued to increase while cap rates have also further compressed.

During the third quarter we also started $230 million of developments, which were 54 percent pre-leased in total. We finished the quarter with an 11.1 million square foot development pipeline, with total expected project costs of $696 million, and a very solid pre-leasing level of 63 percent.

We believe that, on average, our acquisitions for the year will be executed at roughly the same stabilized cap rate that we achieved on the medical office disposition and also better future rent growth, while our development activity will ultimately generate significantly higher stabilized yields than our acquisition activity."

Acquisitions

The first tranche of the Bridge Portfolio closed at the end of September and consisted of two bulk distribution properties in Southern California, two in South Florida, and one in Northern New Jersey, all of which totaled $219 million and 1.7 million rentable square feet, and were 70 percent pre-leased. The remaining five buildings to be acquired in the Bridge Portfolio, with a total purchase price of $297 million, are all located in Northern New Jersey.

The company also acquired (i) two properties in Southern California totaling 1.0 million square feet, which were 100 percent leased, (ii) one parcel of land upon which construction immediately began on an expansion of one of these Southern California properties, (iii) a recently completed speculative property in Chicago and (iv) a 100 percent leased property in Northern New Jersey.

Development

The third quarter included the following development activity:

 Wholly Owned Properties

• During the quarter, the company started $166 million of wholly owned development projects totaling 2.4 million square feet, which were 66 percent pre-leased in total. These wholly owned development starts were comprised of a speculative development project in the Lehigh Valley of Pennsylvania totaling 832,000 square feet, a 100 percent pre-leased expansion project in Southern California totaling 736,000 square feet and a 100 percent pre-leased project in Dallas totaling 875,000 square feet.

• Nine projects totaling 3.4 million square feet, which were 80 percent leased, were placed in service during the quarter.

Joint Venture Properties

• During the quarter, a 50 percent-owned joint venture started a 708,000 square foot bulk industrial project in Indianapolis, which was 65 percent pre-leased at September 30, 2017 and subsequently fully leased, while another 50 percent-owned joint venture started a 674,000 square foot speculative project in Columbus.

• A 192,000 square foot project in Columbus, which was 100 percent pre-leased, was placed in service during the quarter by a 50 percent-owned joint venture. 

Building Dispositions

Building dispositions totaled $301 million in the third quarter and included the following:

Wholly Owned Properties

• Seven medical office buildings totaling 519,000 square feet

• Three suburban office properties in Indianapolis, Indiana, totaling 391,000 square feet, which completed the company's exit from the Indianapolis office market

Distributions Declared

The company's board of directors declared a quarterly cash distribution on its common stock of $0.20 per share, or $0.80 per share on an annualized basis. The third quarter dividend will be payable on November 30, 2017 to shareholders of record on November 16, 2017.

2017 Earnings Guidance

A reconciliation of the company's per share guidance for diluted net income per common share to FFO, as defined by NAREIT and to Core FFO is included in the financial tables to this release. The company revised its guidance for net income to $4.45 to $4.60 per diluted share from its previous guidance of $4.40 to $4.66 per diluted share. The company revised its guidance for FFO, as defined by NAREIT, to $1.22 to $1.29 per diluted share from its previous guidance of $1.20 to $1.33 and also revised its guidance for Core FFO to $1.21 to $1.25 per diluted share from its previous range of $1.20 to $1.26 per diluted share. 

FFO and AFFO Reporting Definitions

FFO: FFO is computed 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; 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 generally accepted accounting principles ("GAAP"). The company believes that FFO 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 the company’s ability to make cash distributions to shareholders.

Core FFO: Core FFO is computed as FFO adjusted for certain items that are generally non-cash in nature and that materially distort the comparative measurement of company performance over time. The adjustments include gains on sale of undeveloped land, impairment charges not related to depreciable real estate assets, tax expenses or benefits related to (i) changes in deferred tax asset valuation allowances, (ii) changes in tax exposure accruals that were established as the result of the adoption of new accounting principles, or (iii) taxable income (loss) related to other items excluded from FFO or Core FFO (collectively referred to as “other income tax items”), gains (losses) on debt transactions, gains (losses) on and related costs of acquisitions, gains on sale of merchant buildings, promote income and severance charges related to major overhead restructuring activities. Although the company’s 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.

AFFO: AFFO is a supplemental performance measure defined by the company as Core FFO (as defined above), less recurring building improvements and total second generation capital expenditures (the leasing of vacant space that had previously been under lease by the company is referred to as second generation lease activity) related to leases commencing during the reporting period and adjusted for certain non-cash items including straight line rental income and expense, non-cash components of interest expense and stock compensation expense, and after similar adjustments for unconsolidated partnerships and joint ventures.

Same-Property Performance

The company includes same-property net operating income growth as a property-level supplemental measure of performance. The company utilizes same-property net operating income growth as a supplemental measure to evaluate property-level performance, and jointly-controlled properties are included at the company's ownership percentage.

A reconciliation of net income from continuing operations to same property net operating income is included in the financial tables to this release. A description of the properties that are excluded from the company’s same-property net operating income measure is included on page 17 of its September 30, 2017 supplemental information.

About Duke Realty Corporation

Duke Realty Corporation owns and operates approximately 144 million rentable square feet of industrial assets in 21 major U.S. metropolitan areas. Duke Realty Corporation is publicly traded on the NYSE under the symbol DRE and is listed on the S&P 500 Index. More information about Duke Realty Corporation is available at www.dukerealty.com.

Third Quarter Earnings Call and Supplemental Information

Duke Realty Corporation is hosting a conference call tomorrow, October 26, 2017, at 3:00 p.m. ET to discuss its third 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. ET 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, tornadoes and hurricanes; and (xvi) the effect of any damage to our reputation resulting from developments relating to any of items (i) – (xv). 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, 2016. 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.

Contact Information:

Investors:
Ron Hubbard
317.808.6060

Media:
Helen McCarthy
317.708.8010

Duke Realty Corporation and Subsidiaries
Consolidated Statement of Operations
(Unaudited and in thousands, except per share amounts)
               
               
  Three Months Ended   Nine Months Ended
  September 30,   September 30,
    2017       2016       2017       2016  
Revenues:              
  Rental and related revenue   $169,611       $162,322       $507,123       $480,819  
  General contractor and service fee revenue   25,217       19,351       58,192       68,546  
    194,828       181,673       565,315       549,365  
Expenses:              
  Rental expenses   16,224       16,933       46,967       54,685  
  Real estate taxes   28,157       26,001       81,569       75,687  
  General contractor and other services expenses   24,079       17,182       54,077       60,330  
  Depreciation and amortization   67,992       61,820       197,028       182,489  
    136,452       121,936       379,641       373,191  
Other operating activities:              
Equity in earnings of unconsolidated companies   1,841       12,010       58,523       37,404  
Gain on dissolution of unconsolidated company     -          -          -        30,697  
Promote income     -        2,212       20,007       26,299  
Gain on sale of properties   21,952       82,698       93,339       137,589  
Gain on land sales   5,665       1,601       8,449       2,438  
Other operating expenses   (770 )     (1,424 )     (2,226 )     (3,496 )
Impairment charges     (3,622 )     (3,042 )     (4,481 )     (15,098 )
General and administrative expenses   (10,075 )     (12,534 )     (41,165 )     (42,216 )
    14,991       81,521       132,446       173,617  
               
  Operating income    73,367       141,258       318,120       349,791  
               
Other income (expenses):              
Interest and other income, net   6,404       507       9,197       3,597  
Interest expense   (20,835 )     (27,283 )     (65,401 )     (87,255 )
Loss on debt extinguishment     (16,568 )       (6,243 )       (26,104 )       (8,673 )
Acquisition-related activity     -          (7 )       -          (82 )
Income from continuing operations, before income taxes     42,368         108,232         235,812         257,378  
  Income tax (expense) benefit      (359 )       359         (7,918 )       173  
  Income from continuing operations      42,009         108,591         227,894         257,551  
               
Discontinued operations:              
Income before gain on sales     2,563         4,249         17,747         9,062  
Gain on sale of depreciable properties, net of tax     120,179         319         1,229,270         485  
Income tax (expense) benefit   876         -        (10,736 )       -   
  Income from discontinued operations     123,618         4,568         1,236,281         9,547  
               
Net income   165,627       113,159       1,464,175       267,098  
Net income attributable to noncontrolling interests   (358 )     (1,145 )     (18,163 )     (2,710 )
  Net income attributable to common shareholders   $165,269       $112,014       $1,446,012       $264,388  
               
Basic net income per common share:              
  Continuing operations attributable to common shareholders   $0.12       $0.31       $0.63       $0.72  
  Discontinued operations attributable to common shareholders   0.34       0.01       3.43       0.03  
Total   $0.46       $0.32       $4.06       $0.75  
               
Diluted net income per common share:              
  Continuing operations attributable to common shareholders   $0.12       $0.31       $0.63       $0.72  
  Discontinued operations attributable to common shareholders   0.34       0.01       3.40       0.03  
Total   $0.46       $0.32       $4.03       $0.75  
               

 

Duke Realty Corporation and Subsidiaries  
Consolidated Balance Sheets  
(Unaudited and in thousands)  
           
           
    September 30,   December 31,  
      2017       2016    
Assets          
Real estate investments:          
Real estate assets     $6,091,861       $5,144,805    
Construction in progress     441,005       303,644    
Investments in and advances to unconsolidated companies     135,089       197,807    
Undeveloped land     167,928       237,436    
      6,835,883       5,883,692    
Accumulated depreciation     (1,159,493 )     (1,042,944 )  
           
Net real estate investments     5,676,390       4,840,748    
           
Real estate investments and other assets held-for-sale      63,604       1,324,258    
           
Cash and cash equivalents     27,315       12,639    
Accounts receivable, net     20,605       15,838    
Straight-line rents receivable, net     91,045       82,554    
Receivables on construction contracts, including retentions     10,343       6,159    
Deferred leasing and other costs, net     279,891       258,741    
Restricted cash held in escrow for like-kind exchange     512,520       40,102    
Notes receivable from property sales     426,678       25,460    
Other escrow deposits and other assets     189,080       165,503    
           
      $7,297,471       $6,772,002    
           
Liabilities and Equity          
Indebtedness:          
Secured debt, net of deferred financing costs     $312,776       $383,725    
Unsecured debt, net of deferred financing costs     1,814,104       2,476,752    
Unsecured line of credit       5,000         48,000    
        2,131,880         2,908,477    
           
Liabilities related to real estate investments held-for-sale       2,653       56,291    
           
Construction payables and amounts due subcontractors, including retentions     70,432       44,250    
Accrued real estate taxes     83,152       59,112    
Accrued interest     24,547       23,633    
Other liabilities     195,147       153,846    
Tenant security deposits and prepaid rents     36,285       33,100    
Total liabilities     2,544,096       3,278,709    
           
Shareholders' equity:          
           
Common shares     3,561       3,548    
Additional paid-in-capital     5,195,151       5,192,011    
Accumulated other comprehensive income       -        682    
Distributions in excess of net income     (488,328 )     (1,730,423 )  
Total shareholders' equity     4,710,384       3,465,818    
           
Noncontrolling interests     42,991       27,475    
Total equity     4,753,375       3,493,293    
           
      $7,297,471       $6,772,002    
           

 

Duke Realty Corporation and Subsidiaries    
Summary of EPS, FFO and AFFO    
Three Months Ended September 30    
(Unaudited and in thousands, except per share amounts)    
                     
         
         
         
     2017       2016       
     Wtd.         Wtd.         
     Avg.   Per       Avg.   Per       
   Amount   Shares   Share     Amount   Shares   Share       
 Net income attributable to common shareholders    $165,269           $112,014            
 Less: dividends on participating securities    (444 )         (580 )          
 Net income per common share- basic    164,825   355,905   $0.46     111,434   351,856   $0.32      
 Add back:                     
 Noncontrolling interest in earnings of unitholders      1,535     3,301         1,131     3,495        
 Other potentially dilutive securities      444     2,896         580     3,630        
 Net income attributable to common shareholders- diluted    $166,804   362,102   $0.46     $113,145   358,981   $0.32      
                     
 Reconciliation to funds from operations ("FFO")                     
 Net income attributable to common shareholders    $165,269   355,905       $112,014   351,856        
 Adjustments:                     
 Depreciation and amortization    68,029           80,688            
 Company share of joint venture depreciation, amortization and other    2,171           3,772            
 Impairment charges - depreciable property      -           3,042            
 Gains on depreciable property sales - wholly owned, discontinued operations (1)    (121,348 )         (319 )          
 Gains on depreciable property sales - wholly owned, continuing operations    (21,952 )         (82,698 )          
 Income tax benefit triggered by depreciable property sales    (516 )         (359 )          
 Gains on depreciable property sales - joint ventures    37           (5,668 )          
 Noncontrolling interest share of adjustments    677           15            
 NAREIT FFO attributable to common shareholders - basic    92,367   355,905   $0.26     110,487   351,856   $0.31      
 Noncontrolling interest in income of unitholders      1,535     3,301         1,131     3,495        
 Noncontrolling interest share of adjustments      (677 )         (15 )          
 Other potentially dilutive securities      2,896         3,630        
 NAREIT FFO attributable to common shareholders - diluted    $93,225     362,102   $0.26     $111,603     358,981   $0.31      
 Gain on land sales, including share of joint venture      (5,665 )           (4,673 )          
 Loss on debt extinguishment      16,568             6,243            
 Land impairment charges      3,622             -            
 Promote income      -           (2,212 )          
 Acquisition-related activity      -           7            
 Core FFO attributable to common shareholders - diluted
 
  $107,750     362,102   $0.30     $110,968     358,981   $0.31      
                     
 Adjusted FFO                     
 Core FFO - diluted
  $107,750     362,102   $0.30     $110,968     358,981   $0.31      
 Adjustments:                     
 Straight-line rental income and expense      (4,292 )           (5,742 )          
 Amortization of above/below market rents and concessions      1,232             303            
 Stock based compensation expense      1,943             3,262            
 Noncash interest expense      1,244             1,609            
 Second generation concessions      (19 )           (240 )          
 Second generation tenant improvements      (3,700 )           (3,352 )          
 Second generation leasing commissions      (4,983 )           (3,628 )          
 Building improvements      (5,184 )           (677 )          
 Adjusted FFO - diluted    $93,991     362,102       $102,503     358,981        
                     
 (1) Excludes noncontrolling interest adjustment of $1,169 on depreciable property sales - wholly owned, discontinued operations during the three months ended September 30, 2017.     

 

Duke Realty Corporation and Subsidiaries  
Summary of EPS, FFO and AFFO  
Nine Months Ended September 30  
(Unaudited and in thousands, except per share amounts)  
                   
       
       
       
     2016       2015     
     Wtd.         Wtd.       
     Avg.   Per       Avg.   Per     
   Amount   Shares   Share     Amount   Shares   Share     
 Net income attributable to common shareholders    $1,446,012           $264,388          
 Less: dividends on participating securities    (1,527 )         (1,751 )        
 Net income per common share- basic    1,444,485   355,614   $4.06     262,637   348,341   $0.75    
 Add back:                   
 Noncontrolling interest in earnings of unitholders      13,427     3,307         2,670     3,499      
 Other potentially dilutive securities    1,527     3,026         1,751     3,565      
 Net income attributable to common shareholders- diluted    $1,459,439   361,947   $4.03     267,058   355,405   $0.75    
                   
 Reconciliation to funds from operations ("FFO")                   
 Net income attributable to common shareholders    $1,446,012   355,614       $264,388   348,341      
 Adjustments:                   
 Depreciation and amortization    222,914           238,647          
 Company share of joint venture depreciation, amortization and other    7,266           11,664          
 Impairment charges - depreciable property    859           3,042          
 Gains on depreciable property sales - wholly owned, discontinued operations (1)    (1,224,422 )         (485 )        
 Gains on depreciable property sales - wholly owned, continuing operations    (93,339 )         (137,589 )        
 Income tax expense (benefit) triggered by depreciable property sales    19,142           (173 )        
 Gains on depreciable property sales - joint ventures    (50,694 )         (23,700 )        
 Gain on dissolution of unconsolidated company      -            (30,697 )        
 Noncontrolling interest share of adjustments    10,307           (604 )        
 NAREIT FFO attributable to common shareholders - basic    338,045   355,614   $0.95     324,493   348,341   $0.93    
 Noncontrolling interest in income of unitholders      13,427     3,307         2,670     3,499      
 Noncontrolling interest share of adjustments      (10,307 )         604          
 Other potentially dilutive securities      3,026         3,565      
 NAREIT FFO attributable to common shareholders - diluted    $341,165    361,947   $0.94     $327,767    355,405   $0.92    
 Gain on land sales, including share of joint venture      (8,449 )           (5,510 )        
 Loss on debt extinguishment, including share of joint venture      26,104             10,265          
 Gain on non-depreciable property sale - joint venture      (119 )           -          
 Land impairment charges      3,622             12,056          
 Promote income      (20,007 )           (26,299 )        
 Income tax benefit from valuation allowance adjustment      (2,619 )           -          
 Acquisition-related activity      -             82          
 Core FFO attributable to common shareholders - diluted
 
  $339,697    361,947   $0.94     $318,361    355,405   $0.90    
                   
 Adjusted FFO                   
 Core FFO - diluted
 
  $339,697    361,947   $0.94     $318,361    355,405   $0.90    
 Adjustments:                   
 Straight-line rental income and expense      (12,336 )           (13,247 )        
 Amortization of above/below market rents and concessions      1,895             1,361          
 Stock based compensation expense      16,023             16,748          
 Noncash interest expense      4,448             4,594          
 Second generation concessions      (94 )           (311 )        
 Second generation tenant improvements      (11,197 )           (17,954 )        
 Second generation leasing commissions      (15,260 )           (19,497 )        
 Building improvements      (8,115 )           (1,939 )        
 Adjusted FFO - diluted    $315,061    361,947       $288,116    355,405      
                   
 (1) Excludes noncontrolling interest adjustment of ($4,848) on depreciable property sales - wholly owned, discontinued operations during the nine months ended September 30, 2017.   

 

Duke Realty Corporation and Subsidiaries  
Reconciliation of Same Property Net Operating Income Growth  
(Unaudited and in thousands)  
           
  Three Months Ended  
  September 30, 2017   September 30, 2016    
           
Income from continuing operations before income taxes   $42,368       $108,232      
Share of same property NOI from unconsolidated joint ventures   3,824       4,094      
Income and expense items not allocated to segments   85,605       14,717      
Earnings from service operations   (1,138 )     (2,169 )    
Properties not included and other adjustments   (23,000 )     (19,532 )    
Same property NOI   $107,659       $105,342      
           
Percent Change   2.2 %        
           
  Nine Months Ended  
  September 30, 2017   September 30, 2016    
           
Income from continuing operations before income taxes   $235,812       $257,378      
Share of same property NOI from unconsolidated joint ventures   11,297       12,454      
Income and expense items not allocated to segments   150,064       103,000      
Earnings from service operations   (4,115 )     (8,216 )    
Properties not included and other adjustments   (69,971 )     (53,589 )    
Same property NOI   $323,087       $311,027      
           
Percent Change   3.9 %        
           
           
Duke Realty Corporation and Subsidiaries  
Reconciliation of 2017 FFO Guidance  
(Unaudited )  
           
  Pessimistic   Optimistic    
Net income per common share, diluted   $4.45       $4.60      
Depreciation and gains on sales of depreciated property (including share of joint venture)   (3.23 )     (3.31 )    
FFO per share - diluted, as defined by NAREIT   $1.22       $1.29      
Gains on land sales   (0.02 )     (0.04 )    
Other reconciling items   0.01       0.00      
Core FFO per share - diluted   $1.21       $1.25      

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