Sale of HTA Portfolio and Business
The HTA Portfolio is 6.6 million square feet comprised of 71 in-service buildings, five buildings that will be under construction at the time of sale, the Company's ownership interests in two buildings owned by unconsolidated joint ventures and 16.5 acres of land. The Company will fund the cost to complete the five properties that are under construction, which is expected to total approximately
The transaction includes the Company's entire medical office operations and development platform.
The final composition of the HTA portfolio could be impacted by rights of first refusal, which could allow various hospital systems to purchase up to 30 properties, as well as various provisions related to the two buildings owned by unconsolidated joint ventures.
As part of the transaction, the Company will provide seller financing of
TriHealth Portfolio Disposition
The TriHealth Portfolio sale closed last week and was comprised of ten buildings totaling 381,000 square feet, with a sale price of
Expected Uses of Proceeds
The Company intends to use the proceeds from these transactions to reduce leverage, fund future growth through development and acquisitions and for a return of capital to shareholders through a special dividend.
We anticipate our balance sheet leverage to improve even further in the short term, providing us plenty of capacity to take advantage of growth opportunities as they arise. However, our long term goal is to maintain our current BBB+/Baa1 credit rating and, with that, we expect leverage to slowly gravitate back to current levels as we deploy capital into new industrial investments. Even with the expected sizeable return of capital, we expect to maintain our current level of regular quarterly common dividends which should remain at a conservative level of under a 75% payout ratio."
The Company intends to repay approximately
- Outstanding borrowings under the Company's unsecured line of credit, which totaled
$237 millionat March 31, 2017, and is expected to be approximately $500 millionby the time the transaction closes; $286 millionof 6.5 percent coupon unsecured notes due January 2018; $250 millionfloating rate term loan due January 2019; $129 millionof 6.75 percent coupon unsecured notes due March 2020; and
- Prepayment costs on unsecured note repayments estimated at
Retained cash proceeds plus a special cash dividend will equal approximately
A special dividend, estimated at between
Revisions to 2017 Earnings Guidance
The Company has revised full year expectations, from previously issued guidance, for net income to a range of
In closing Mr. Connor noted, "While the transaction is expected to be dilutive to our 2017 Core FFO per share guidance by about
ADDITIONAL INFORMATION: An executive summary highlighting the transaction is available through the Investor Relations section of the Company's website under the Presentations link.
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.
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) the ability of the Company to complete the disposition, on the currently agreed upon terms, or at all, including the satisfaction of the closing conditions, (ii) the Company's ability to redeploy the transaction proceeds, including its ability to repay outstanding debt and availability of assets in which to reinvest, and (iii) changes to the Company's dividend policy.. 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
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.
|Duke Realty Corporation and Subsidiaries|
|Reconciliation of 2017 FFO Guidance|
|Net income per common share, diluted||$||4.19||$||4.70|
|Depreciation and gains on sales of depreciated property (including share of joint venture)||(3.12||)||(3.49||)|
|FFO per share - diluted, as defined by NAREIT||$||1.07||$||1.21|
|Gains on land sales||0.00||(0.03||)|
|Loss on debt extinguishment||0.08||0.06|
|Core FFO per share - diluted||$||1.16||$||1.24|