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Duke Realty Reports Second Quarter 2022 Earnings

INDIANAPOLIS, July 27, 2022 (GLOBE NEWSWIRE) -- Duke Realty Corporation (NYSE: DRE), the largest domestic-only logistics REIT, today reported earnings for the second quarter of 2022.

Quarterly Highlights

Complete reconciliations, in dollars and per share amounts, of (i) net income to funds from operations ("FFO"), as defined by Nareit, as well as to Core FFO, and (ii) earnings before income taxes to same property net operating income, on a cash basis, ("SPNOI - Cash") are included in the financial tables included in this release. The company's financial results for the quarter were as follows:

  Three Months
Ended June
30, 2022
  Six Months
Ended June
30, 2022
       
Net Income per Diluted Share $ 0.27     $ 0.91  
FFO per Diluted Share $ 0.45     $ 0.82  
Core FFO per Diluted Share $ 0.48     $ 0.92  
Growth in SPNOI - Cash   5.9 %     6.5 %

Distributions

The company's board of directors will approve the quarterly cash distribution on its common stock in a future meeting. Pursuant to the terms of the merger agreement, the dividend is expected to have the same record and payment dates as the Prologis second quarter dividend.

2022 Earnings Guidance     

In light of the company’s proposed merger with Prologis announced in June 2022, the Company will no longer provide guidance nor is it affirming past guidance.
   
FFO and AFFO Reporting Definitions

FFO: FFO is a non-GAAP performance measure computed in accordance with standards established by the National Association of Real Estate Investment Trusts (“Nareit"). It is calculated as net income attributable to common shareholders computed in accordance with generally accepted accounting principles (“GAAP"), excluding depreciation and amortization related to real estate, gains and losses on sales of real estate assets (including real estate assets incidental to our business), gains and losses from change in control, impairment charges related to real estate assets (including real estate assets incidental to our business) and similar adjustments for unconsolidated joint ventures and partially owned consolidated entities, all net of related taxes. We believe FFO to be most directly comparable to net income attributable to common shareholders as defined by GAAP. FFO does not represent a measure of liquidity, nor is it indicative of funds available for our cash needs, including our ability to make cash distributions to shareholders.
  
Core FFO: Core FFO is computed as FFO adjusted for certain items that can create significant earnings volatility and do not directly relate to our core business operations.  The adjustments include gains or losses on debt transactions, gains or losses from involuntary conversion from weather events or natural disasters, promote income, severance and other charges related to major overhead restructuring activities, costs directly attributable to our proposed merger with Prologis, the expense impact of non-incremental costs attributable to successful leasing activities, mark-to-market adjustments associated with derivative financial instruments and similar adjustments for unconsolidated joint ventures and partially owned consolidated entities. Although our 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, we believe it provides a meaningful supplemental measure of our operating performance. 
             
AFFO: AFFO is defined by the company as the 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, amortization of above and below market lease intangibles and lease concession, non-cash components of interest expense including interest rate hedge amortization, 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 income before income taxes 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 19 of its June 30, 2022 supplemental information.

About Duke Realty Corporation

Duke Realty Corporation owns and operates approximately 167.3 million rentable square feet of industrial assets in 19 major logistics markets. Duke Realty Corporation is publicly traded on the NYSE under the symbol DRE and is a member of the S&P 500 Index. More information about Duke Realty Corporation is available at www.dukerealty.com.   

Second Quarter Earnings Call and Supplemental Information

Due to the company's proposed merger with Prologis, a second quarter 2022 conference call will not be held. 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

The statements in this communication that are not historical facts are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements are based on current expectations, estimates and projections about the industry and markets in which Prologis and Duke Realty operate as well as beliefs and assumptions of Prologis and Duke Realty. Such statements involve uncertainties that could significantly impact Prologis’ or Duke Realty’s financial results. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” and “estimates,” including variations of such words and similar expressions, are intended to identify such forward-looking statements, which generally are not historical in nature. All statements that address operating performance, events or developments that Prologis or Duke Realty expects or anticipates will occur in the future — including statements relating to any possible transaction between Prologis and Duke Realty, rent and occupancy growth, acquisition and development activity, contribution and disposition activity, general conditions in the geographic areas where Prologis or Duke Realty operate, Prologis’ and Duke Realty’s respective debt, capital structure and financial position, Prologis’ and Duke Realty’s respective ability to earn revenues from co-investment ventures, form new co-investment ventures and the availability of capital in existing or new co-investment ventures — are forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict. Although Prologis and Duke Realty believe the expectations reflected in any forward-looking statements are based on reasonable assumptions, neither Prologis nor Duke Realty can give assurance that its expectations will be attained and, therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements. Some of the factors that may affect outcomes and results include, but are not limited to: (i) Prologis’ and Duke Realty’s ability to complete the proposed transaction on the proposed terms or on the anticipated timeline, or at all, including risks and uncertainties related to securing the necessary shareholder approvals and satisfaction of other closing conditions to consummate the proposed transaction; (ii) the occurrence of any event, change or other circumstance that could give rise to the termination of the merger agreement relating to the proposed transaction; (iii) risks related to diverting the attention of Prologis and Duke Realty management from ongoing business operations; (iv) failure to realize the expected benefits of the proposed transaction; (v) significant transaction costs and/or unknown or inestimable liabilities; (vi) the risk of shareholder litigation in connection with the proposed transaction, including resulting expense or delay; (vii) the risk that Duke Realty’s business will not be integrated successfully or that such integration may be more difficult, time-consuming or costly than expected; (viii) risks related to future opportunities and plans for the combined company, including the uncertainty of expected future financial performance and results of the combined company following completion of the proposed transaction; (ix) the effect of the announcement of the proposed transaction on the ability of Prologis and Duke Realty to operate their respective businesses and retain and hire key personnel and to maintain favorable business relationships; (x) risks related to the market value of the Prologis common stock to be issued in the proposed transaction; (xi) other risks related to the completion of the proposed transaction and actions related thereto; (xii) national, international, regional and local economic and political climates and conditions; (xiii) changes in global financial markets, interest rates and foreign currency exchange rates; (xiv) increased or unanticipated competition for Prologis’ or Duke Realty’s properties; (xv) risks associated with acquisitions, dispositions and development of properties, including increased development costs due to additional regulatory requirements related to climate change; (xvi) maintenance of Real Estate Investment Trust status, tax structuring and changes in income tax laws and rates; (xvii) availability of financing and capital, the levels of debt that Prologis and Duke Realty maintain and their credit ratings; (xviii) risks related to Prologis’ and Duke Realty’s investments in co-investment ventures, including Prologis’ and Duke Realty’s ability to establish new co-investment ventures; (xix) risks of doing business internationally, including currency risks; (xx) environmental uncertainties, including risks of natural disasters; (xxi) risks related to the coronavirus pandemic; and (xxii) those additional factors discussed under Part I, Item 1A. Risk Factors in Prologis’ and Duke Realty’s respective Annual Reports on Form 10-K for the year ended December 31, 2021. Neither Prologis nor Duke Realty undertakes any duty to update any forward-looking statements appearing in this communication except as may be required by law.

Additional Information
In connection with the proposed transaction, Prologis will file with the Securities and Exchange Commission (“SEC”) a registration statement on Form S-4 (“Form S-4”), which will include a document that serves as a prospectus of Prologis and a joint proxy statement of Prologis and Duke Realty (the “joint proxy statement/prospectus”), and each party will file other documents regarding the proposed transaction with the SEC. INVESTORS AND SECURITY HOLDERS ARE URGED TO READ THE FORM S-4 AND THE JOINT PROXY STATEMENT/PROSPECTUS AND OTHER RELEVANT DOCUMENTS FILED WITH THE SEC, WHEN THEY BECOME AVAILABLE, BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION. A definitive joint proxy statement/prospectus will be sent to Prologis’ and Duke Realty’s shareholders. Investors and security holders will be able to obtain the Form S-4 and the joint proxy statement/prospectus free of charge from the SEC’s website or from Prologis or Duke Realty. The documents filed by Prologis with the SEC may be obtained free of charge at Prologis’ website at the SEC Filings section of www.ir.prologis.com or at the SEC’s website at www.sec.gov. These documents may also be obtained free of charge from Prologis by requesting them from Investor Relations by mail at Pier 1, Bay 1, San Francisco, CA 94111. The documents filed by Duke Realty with the SEC may be obtained free of charge at Duke Realty’s website at the SEC Filings section of http://investor.dukerealty.com or at the SEC’s website at www.sec.gov. These documents may also be obtained free of charge from Duke Realty by requesting them from Investor Relations by mail at 8711 River Crossing Blvd. Indianapolis, IN 46240.
  
This communication shall not constitute an offer to sell or the solicitation of an offer to buy any securities, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. No offering of securities shall be made except by means of a prospectus meeting the requirements of Section 10 of the Securities Act of 1933, as amended.

Participants in the Solicitation
Prologis and Duke Realty and their respective directors, executive officers and other members of management may be deemed to be participants in the solicitation of proxies in respect of the proposed transaction. Information about Prologis’ directors and executive officers is available in Prologis’ Annual Report on Form 10-K for the fiscal year ended December 31, 2021, its proxy statement dated March 25, 2022, for its 2022 Annual Meeting of Shareholders and its Current Report on Form 8-K/A filed with the SEC on April 5, 2022. Information about Duke Realty’s directors and executive officers is available in Duke Realty’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021, its proxy statement dated March 2, 2022, for its 2022 Annual Meeting of Shareholders and its Current Report on Form 8-K filed with the SEC on April 27, 2022. Other information regarding the participants in the proxy solicitation and a description of their direct and indirect interests, by security holdings or otherwise, will be contained in the joint proxy statement/prospectus and other relevant materials to be filed with the SEC regarding the proposed transaction when they become available. Investors should read the joint proxy statement/prospectus carefully when it becomes available before making any voting or investment decisions. You may obtain free copies of these documents from Prologis or Duke Realty as indicated above.
   
Contact Information:
    
Investors:
Ron Hubbard
317.808.6060
    
Media:
Gene Miller
317.808.6195



Duke Realty Corporation and Subsidiaries
Consolidated Statement of Operations
(Unaudited and in thousands, except per share amounts)
               
      Three Months Ended   Six Months Ended
      June 30,   June 30,
      2022 2021   2022 2021
Revenues:            
  Rental and related revenue   $ 280,145   $ 253,971     $ 555,359   $ 512,150  
  General contractor and service fee revenue     5,143     17,721       8,092     48,834  
        285,288     271,692       563,451     560,984  
Expenses:            
  Rental expenses     21,240     18,515       46,526     46,645  
  Real estate taxes     43,728     41,368       87,656     82,538  
  General contractor and other services expenses     3,730     14,066       5,199     43,529  
  Depreciation and amortization     93,944     91,729       187,945     185,302  
        162,642     165,678       327,326     358,014  
Other operating activities:            
  Equity in earnings of unconsolidated joint ventures     5,565     10,590       9,380     26,858  
  Gain on sale of properties     24,832     95,183       235,579     116,543  
  Gain on land sales     2,025     9,900       3,117     11,138  
  Other operating expenses     (531 )   (338 )     (1,310 )   (1,483 )
  Impairment charges     (1,563 )   -       (1,563 )   -  
  Non-incremental costs related to successful leases     (3,502 )   (4,027 )     (9,014 )   (6,985 )
  General and administrative expenses     (27,496 )   (15,879 )     (51,409 )   (40,096 )
        (670 )   95,429       184,780     105,975  
               
  Operating income   121,976     201,443       420,905     308,945  
               
Other income (expenses):            
  Interest and other income, net     939     1,673       1,764     2,136  
  Interest expense     (18,734 )   (21,072 )     (38,733 )   (43,579 )
  Loss on debt extinguishment     -     (3,938 )     (21,948 )   (4,008 )
  Gain on involuntary conversion     -     3,222       -     3,222  
Income before income taxes     104,181     181,328       361,988     266,716  
  Income tax expense     (493 )   (3,672 )     (6,823 )   (8,856 )
Net income   103,688     177,656       355,165     257,860  
Net income attributable to noncontrolling interests     (1,218 )   (1,839 )     (3,774 )   (2,681 )
Net income attributable to common shareholders $ 102,470   $ 175,817     $ 351,391   $ 255,179  
               
               
Net income per share attributable to common shareholders-basic   $ 0.27   $ 0.47     $ 0.91   $ 0.68  
             
Net income per share attributable to common shareholders-diluted   $ 0.27   $ 0.47     $ 0.91   $ 0.68  
               



  Duke Realty Corporation and Subsidiaries
  Consolidated Balance Sheets
  (Unaudited and in thousands)
             
             
      June 30,   December 31,  
      2022   2021  
  Assets          
Real estate investments:          
  Real estate assets   $ 9,994,446     $ 9,616,076    
  Construction in progress     997,320       744,871    
  Investments in and advances to unconsolidated joint ventures     207,977       168,336    
  Undeveloped land     600,292       473,317    
        11,800,035       11,002,600    
  Accumulated depreciation     (1,808,388 )     (1,684,413 )  
             
  Net real estate investments   9,991,647       9,318,187    
             
Real estate investments and other assets held-for-sale     -       144,651    
             
Cash and cash equivalents     44,195       69,752    
Accounts receivable     13,208       13,449    
Straight-line rents receivable     194,474       172,225    
Receivables on construction contracts, including retentions     35,651       57,258    
Deferred leasing and other costs, net     341,923       337,936    
Other escrow deposits and other assets     337,184       332,197    
             
  Total assets $ 10,958,282     $ 10,445,655    
             
  Liabilities and Equity          
Indebtedness:          
  Secured debt, net of deferred financing costs   $ 57,150     $ 59,418    
  Unsecured debt, net of deferred financing costs     3,831,530       3,629,864    
        3,888,680       3,689,282    
Liabilities related to real estate investments held-for-sale          
    -       6,278    
             
Construction payables and amounts due subcontractors, including retentions     123,428       107,009    
Accrued real estate taxes     87,569       77,464    
Accrued interest     22,925       20,815    
Other liabilities     365,680       339,023    
Tenant security deposits and prepaid rents     62,247       66,823    
  Total liabilities   4,550,529       4,306,694    
             
Shareholders' equity:          
             
  Common shares     3,848       3,825    
  Additional paid-in capital     6,262,634       6,143,147    
  Accumulated other comprehensive loss     (26,233 )     (28,011 )  
  Retained earnings (distributions in excess of net income)     60,571       (75,210 )  
  Total shareholders' equity   6,300,820       6,043,751    
             
Noncontrolling interests     106,933       95,210    
  Total equity     6,407,753       6,138,961    
             
  Total liabilities and equity $ 10,958,282     $ 10,445,655    
             



  Duke Realty Corporation and Subsidiaries
  Summary of EPS, FFO and AFFO
  Three Months Ended June 30,
  (Unaudited and in thousands, except per share amounts)
               
               
               
    2022 2021
       Wtd.      Wtd.  
       Avg. Per    Avg. Per
    Amount  Shares Share Amount  Shares Share
Net income attributable to common shareholders $ 102,470       $ 175,817      
Less dividends on participating securities   (319 )       (365 )    
Net income per common share-basic   102,151   384,519 $ 0.27   175,452   376,020 $ 0.47
Add back:            
  Noncontrolling interest in earnings of unitholders   1,128   4,022     1,738   3,770  
  Other potentially dilutive securities   -   658     365   1,831  
Net income attributable to common shareholders-diluted $ 103,279   389,199 $ 0.27   177,555   381,621 $ 0.47
Reconciliation to FFO            
Net income attributable to common shareholders $ 102,470   384,519   $ 175,817   376,020  
Adjustments:            
  Depreciation and amortization   93,944         91,729      
  Depreciation, amortization and other - unconsolidated joint ventures   2,999         2,012      
  Gain on sales of properties   (24,832 )       (95,183 )    
  Gain on land sales   (2,025 )       (9,900 )    
  Impairment charges   1,563         -      
  Income tax expense not allocable to FFO   493         3,672      
  Gain on sales of real estate assets - unconsolidated joint ventures   (1,497 )       (7,360 )    
  Noncontrolling interest share of adjustments   (731 )       149      
Nareit FFO attributable to common shareholders - basic   172,384   384,519 $ 0.45   160,936   376,020 $ 0.43
  Noncontrolling interest in income of unitholders   1,128   4,022     1,738   3,770  
  Noncontrolling interest share of adjustments   731         (149 )    
  Other potentially dilutive securities   1,727     1,831  
Nareit FFO attributable to common shareholders - diluted $ 174,243   390,268 $ 0.45 $ 162,525   381,621 $ 0.43
  Gain on involuntary conversion   -         (3,222 )    
  Loss on debt extinguishment - including share of unconsolidated joint venture   -         3,938      
  Non-incremental costs related to successful leases   3,502         4,027      
  Unconsolidated joint ventures share of unrealized derivative gain   (224 )       -      
  Merger related costs   10,000         -      
Core FFO attributable to common shareholders - diluted $ 187,521   390,268 $ 0.48 $ 167,268   381,621 $ 0.44
AFFO            
Core FFO - diluted $ 187,521   390,268 $ 0.48 $ 167,268   381,621 $ 0.44
Adjustments:            
  Straight-line rental income and expense   (11,642 )       (6,571 )    
  Amortization of above/below market rents and concessions   (3,513 )       (2,611 )    
  Stock based compensation expense   2,309         5,625      
  Noncash interest expense   2,496         2,378      
  Second generation concessions   (213 )       (1,355 )    
  Second generation tenant improvements   (8,387 )       (4,604 )    
  Second generation leasing costs   (8,666 )       (8,297 )    
  Building improvements   (3,860 )       (1,814 )    
AFFO - diluted $ 156,045   390,268   $ 150,019   381,621  
 



  Duke Realty Corporation and Subsidiaries
  Summary of EPS, FFO and AFFO
  Six Months Ended June 30,
  (Unaudited and in thousands, except per share amounts)
               
               
               
    2022 2021
       Wtd.      Wtd.  
       Avg. Per    Avg. Per
    Amount  Shares Share Amount  Shares Share
Net income attributable to common shareholders $ 351,391       $ 255,179      
Less dividends on participating securities   (645 )       (735 )    
Net income per common share-basic   350,746   383,619 $ 0.91   254,444   374,850 $ 0.68
Add back:            
  Noncontrolling interest in earnings of unitholders   3,591   3,915     2,499   3,673  
  Other potentially dilutive securities   645   1,731     735   1,811  
Net income attributable to common shareholders-diluted $ 354,982   389,265 $ 0.91 $ 257,678   380,334 $ 0.68
Reconciliation to FFO            
Net income attributable to common shareholders $ 351,391   383,619   $ 255,179   374,850  
Adjustments:            
  Depreciation and amortization   187,945         185,302      
  Depreciation, amortization and other - unconsolidated joint ventures   6,297         4,269      
  Gain on sales of properties   (235,579 )       (116,543 )    
  Gain on land sales   (3,117 )       (11,138 )    
  Income tax expense not allocable to FFO   6,823         8,856      
  Impairment charges   1,563         -      
  Gain on sales of real estate assets - unconsolidated joint ventures   (1,497 )       (20,108 )    
  Noncontrolling interest share of adjustments   379         (492 )    
Nareit FFO attributable to common shareholders - basic   314,205   383,619 $ 0.82   305,325   374,850 $ 0.81
  Noncontrolling interest in income of unitholders   3,591   3,915     2,499   3,673  
  Noncontrolling interest share of adjustments   (379 )       492      
  Other potentially dilutive securities   1,731     1,811  
Nareit FFO attributable to common shareholders - diluted $ 317,417   389,265 $ 0.82 $ 308,316   380,334 $ 0.81
  Gain on involuntary conversion   -         (3,222 )    
  Loss on debt extinguishment - including share of unconsolidated joint venture   22,031         4,071      
  Non-incremental costs related to successful leases   9,014         6,985      
  Unconsolidated joint ventures share of unrealized derivative gain   (787 )       -      
  Merger related costs   10,000         -      
Core FFO attributable to common shareholders - diluted $ 357,675   389,265 $ 0.92 $ 316,150   380,334 $ 0.83
AFFO            
Core FFO - diluted $ 357,675   389,265 $ 0.92 $ 316,150   380,334 $ 0.83
Adjustments:            
  Straight-line rental income and expense   (22,113 )       (15,204 )    
  Amortization of above/below market rents and concessions   (6,416 )       (5,466 )    
  Stock based compensation expense   20,408         20,004      
  Noncash interest expense   5,059         4,747      
  Second generation concessions   (1,114 )       (1,636 )    
  Second generation tenant improvements   (11,531 )       (8,527 )    
  Second generation leasing costs   (15,675 )       (16,769 )    
  Building improvements   (4,438 )       (3,118 )    
AFFO - diluted $ 321,855   389,265   $ 290,181   380,334  
 



Duke Realty Corporation and Subsidiaries
Reconciliation of Same Property Net Operating Income Growth
(Unaudited and in thousands)
       
  Three Months Ended
  June 30, 2022 June 30, 2021  
       
Income before income taxes $ 104,181   $ 181,328    
Share of same property NOI from unconsolidated joint ventures   6,754     6,599    
Income and expense items not allocated to segments   112,491     16,294    
Earnings from service operations   (1,413 )   (3,655 )  
Properties not included and other adjustments   (39,993 )   (28,704 )  
Same property NOI - Cash Basis $ 182,020   $ 171,862    
       
Percent Change   5.9 %    
       
  Six Months Ended
  June 30, 2022 June 30, 2021  
       
Income from continuing operations before income taxes $ 361,988   $ 266,716    
Share of same property NOI from unconsolidated joint ventures   13,354     13,145    
Income and expense items not allocated to segments   61,956     121,309    
Earnings from service operations   (2,893 )   (5,305 )  
Properties not included and other adjustments   (74,789 )   (58,332 )  
Same property NOI - Cash Basis $ 359,616   $ 337,533    
       
Percent Change   6.5 %    
       




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Source: Duke Realty Corporation