Duke Realty (DRE) Guides Q1, Backs FY09 FFO Outlook; Expects to Pay Dividends Through 2009

April 15, 2009 4:37 PM EDT

Duke Realty Corporation (NYSE: DRE) today provided an update on its first quarter 2009 financing, dispositions and performance, as well as an update on its 2009 dividends and earnings guidance.

• sees Q1 FFO of $0.70-$0.72, versus the Street estimate of $0.51.
  
• reaffirms its FY09 FFO guidance of $1.85-$2.15, which compares to the consensus of $2.02.
  
• Stabilized, in-service properties (124 million square feet) were 89.7% leased at March 31, 2009, as compared with 92.4% at December 31, 2008. This decrease is attributable to the addition to the stabilized portfolio during Q109 of five recently developed properties aggregating 2.5 million square feet which were 49.2% leased at March 31, 2009, as well as to lease expirations during Q109. Stabilized occupancy was in line with company expectations. Total in-service occupancy at March 31, 2009, which includes unstabilized properties in service for less than one year with less than 90% occupancy, was 87.8%, compared with 89.5 percent at December 31, 2008.
  
• Tenant retention for Q1 was 68.0%, with growth in net effective rents of 3.8%. Tenant retention for Q408, excluding the effects of one early renewal of a lease of 323,000 square feet of office space to a single tenant, was 66.6%, with growth in net effective rents of 5.0%.

Financing Update

• During Q1, the company completed $156 million of 10-year secured debt financing. The proceeds were primarily used to pay down the company's unsecured line of credit.
  
• The company has executed a term sheet for a $280 million seven-year secured loan, and is actively discussing additional secured debt financing with multiple lenders, which the company believes may generate additional proceeds of approximately $200 million in 2009. As of March 31, 2009, the company had $5.7 billion of in-service, unencumbered assets in its portfolio. To the extent that such loans are finalized, they would be secured by geographically diverse portfolios of suburban office and industrial assets. The company can provide no assurance that any of these prospective financing transactions will actually be completed or as to the terms on which they may be completed.
  
• As of March 31, 2009, the company had approximately $625 million available under its unsecured line-of-credit, which is scheduled to mature in January 2010. The company, in its sole discretion, may extend this maturity by one year to January 2011.

Dispositions

• During Q1, the company completed $62 million of asset dispositions. In addition, the company has executed agreements pursuant to which its joint venture with CB Richard Ellis Realty Trust will acquire three additional properties from the company. Closing is scheduled to occur in the second quarter, subject to certain conditions, and is anticipated to provide gross proceeds to the company of $33 million.
  
• The company is conducting non-binding negotiations for the sale of certain other assets from its portfolio for gross proceeds of approximately $240 million, and is actively marketing additional properties valued at approximately $80 million. The company can provide no assurance that it will be successful in completing any of these transactions.

Dividends

The company paid a cash dividend of $0.25 per share on its common stock in Q109. In order to maintain financial flexibility in light of the current state of the capital markets, and after taking into account the dividend payments for the increased number of shares expected to be outstanding upon completion of the common stock offering announced today, the company expects to reduce its dividend payments per share for the balance of 2009. The company's policy is to pay aggregate annual dividends in 2009 in an amount generally equal to its annual taxable income.

Assuming the completion of the offering of 64 million shares of common stock announced today, the company currently expects to pay dividends of $0.17 per share in each of Q2, Q3, Q409. The company currently expects to pay all future 2009 dividend payments in cash.

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