Duke Realty Reports First Quarter 2022 Results

Indianapolis, Indiana, UNITED STATES

49.2 Percent Growth in Net Effective Rents on Leasing Activity

Record Occupancy Levels

2022 Guidance Updated

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

"We completed the first quarter of 2022 with record levels of in-service and stabilized occupancy and made significant leasing progress in our development pipeline," said Jim Connor, Chairman and Chief Executive Officer. "Leasing volume totaled 7.7 million square feet for the quarter, which was impressive considering that no build-to-suit activity was included. We finished the quarter with our total in-service portfolio 99.1 percent leased and our stabilized portfolio 99.4 percent leased. We only had one vacant second generation space greater than 100,000 square feet in our entire portfolio at March 31, 2022, and 15 of our 19 markets were more than 99 percent leased. Of the total 5.6 million square feet of speculative development projects that we have delivered in the last twelve months, 5.3 million square feet have been fully leased.

The leases that we executed during the quarter included, on average, 3.6 percent annual rent escalations. Rent growth on second generation leasing activity was 49.2 percent on a net effective basis and 29.5 percent on a cash basis, which are our highest levels reported for a quarter. This level of rent growth exemplifies the broad-based rent growth across all of our markets, as only 18 percent of our second generation leasing activity was in Coastal Tier One markets. Our total portfolio lease mark-to-market now stands at 48 percent, which will be a large contributor to future Core FFO growth.

Rental rate growth on second generation leases, annual lease escalations, the expiration of free rent periods and increased commencement occupancy in our same property portfolio drove our 7.3 percent growth in same-property net operating income, on a cash basis, compared to the first quarter of 2021."

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, are included in the financial tables included in this release.

  • Net income was $0.65 per diluted share for the first quarter of 2022, compared to $0.21 per diluted share for the first quarter of 2021. Net income per diluted share for the quarter increased from the first quarter of 2021 due to significantly higher gains on property sales, which were partially offset by a loss on debt extinguishment.

  • FFO, as defined by Nareit, was $0.37 per diluted share for the first quarter of 2022, compared to $0.38 per diluted share for the first quarter of 2021. The decreased FFO, as defined by Nareit, was primarily due to a loss on debt extinguishment, which was partially offset by rental rate growth, increased occupancy and portfolio growth from highly leased new development deliveries.

  • Core FFO was $0.44 per diluted share for the first quarter of 2022, compared to $0.39 per diluted share for the first quarter of 2021. The increased Core FFO per diluted share was primarily driven by rental rate growth, increased occupancy and portfolio growth from highly leased new developments.

  • Key indicators of the company's operating performance were as follows:

    • The company's stabilized in-service portfolio was 99.4 percent leased at March 31, 2022 compared to 98.7 percent leased at December 31, 2021 and 98.1 percent leased at March 31, 2021.
    • The company's total in-service portfolio was 99.1 percent leased at March 31, 2022 compared to 98.1 percent leased at December 31, 2021 and 97.6 percent leased at March 31, 2021.
    • The company's total portfolio, including properties under development, was 95.8 percent leased at March 31, 2022 compared to 95.1 percent leased at December 31, 2021 and 95.5 percent leased at March 31, 2021.
    • Tenant retention was 82.2 percent for the three month period ending March 31, 2022 and 95.7 percent after considering immediate backfills.
    • Same-property net operating income growth on a cash basis and net effective basis was 7.3 percent and 5.2 percent, respectively, for the three months ending March 31, 2022 compared to the same period in 2021.
    • Total leasing activity was 7.7 million square feet for the quarter.
    • Overall cash and annualized net effective rent growth on new and renewal leases was 29.5 percent and 49.2 percent, respectively, for the quarter.
  • Capital transactions included:

    • Eight new speculative development projects with expected costs of $339 million started during the quarter;
    • Building acquisitions totaling $34 million for the quarter;
    • Building dispositions and joint venture contributions totaling $325 million for the quarter;
    • Redemption of $300 million of 3.75 percent unsecured notes, which were originally scheduled to mature in December 2024.

Real Estate Investment Activity

"During the first quarter we self-funded a portion of our continued development activity by completing the contributions of three Amazon-leased assets to our 20 percent owned joint venture with CBRE Global Partners and selling a recently completed project in Central Florida, which was 100 percent leased to Amazon, to a third party," said Mr. Connor.

"We started eight speculative development projects, with expected costs of $339 million, and finished the quarter with a $1.6 billion development pipeline for which we estimate value creation, once stabilized, to exceed 70 percent. Significant leasing progress was made in our development pipeline by leasing more than 2 million square feet of speculative space that was under construction at the end of 2021. The fact that our development pipeline was over 50 percent leased at March 31, 2022 is especially impressive considering we started more than $800 million of speculative projects in the last two quarters. Our record high occupancy level is creating the need for additional space to support organic growth and our current land holdings are located in submarkets with strong demand and rent growth characteristics to support speculative development. As a result, we expect the majority of our development starts for the year to be on a speculative basis and, coupled with highly pre-leased current developments being placed in service, we expect the leasing percentage in our development pipeline to drop below recent levels. However, we expect our overall occupancy levels to remain high and on average, we continue to lease up our speculative development within two months of completion.

We have been replenishing our land inventory over the past few quarters and had more than $800 million of development land at March 31, 2022 when including income-producing covered land positions that will be developed in the near future. Over 90 percent of our land inventory is in Coastal Tier One markets and we are carrying our land at values that are significantly below current market values.

We've continued to grow through targeted acquisitions, purchasing a 75,000 square foot property in Southern California during the quarter. We also entered a forward purchase agreement to acquire a 318,000 square foot speculative in-fill property in Northern New Jersey, upon its expected completion in early or mid-2023, which we have already pre-leased."


The first quarter included the following development activity:

Consolidated Properties

  • The company started eight speculative development projects totaling 2.5 million square feet, and expected costs of $339 million. These development starts included two projects in Northern California totaling 457,000 square feet; two projects in Chicago totaling 623,000 square feet; three projects in Indianapolis totaling 1.3 million square feet and one 91,000 square foot project in Atlanta.
  • Four projects, totaling 784,000 square feet, were placed in service during the quarter and were comprised of two 100 percent-leased speculative projects in Southern California, totaling 373,000 square feet; a 100 percent-leased 300,000 square foot speculative project in Chicago; and a 100 percent-leased 112,000 square foot project in Central Florida.

Building Acquisitions

One building in Southern California was acquired for $34 million in the first quarter.

Building Dispositions

Building dispositions, including unconsolidated joint venture contributions, totaled $325 million in the first quarter and were comprised of the following:

  • Three buildings, which were 100 percent-leased and totaled 2.2 million square feet, in Seattle, South Florida and Eastern Pennsylvania were contributed to a 20 percent-owned unconsolidated joint venture;
  • A 100 percent-leased, 112,000 square-foot, project in Central Florida that was recently placed in service.

Distributions Declared

The company's board of directors declared a quarterly cash distribution on its common stock of $0.28 per share, or $1.12 per share on an annualized basis. The first quarter dividend will be payable on May 31, 2022 to shareholders of record on May 16, 2022.

2022 Earnings Guidance     
A reconciliation of the company's 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.

"Our increases to guidance this quarter are based on the continued acceleration of market rents and strong demand for industrial space, as we have continued to benefit from strong rent growth, occupancy and embedded rent escalators in our portfolio," stated Mark Denien, Executive Vice President and Chief Financial Officer. "We have also increased our development guidance to fund growth, primarily in Coastal Tier One markets. We have increased our disposition guidance in order to fund a portion of our increased development activities and expect overall exit capitalization rates to be below four percent.”

Revisions to guidance are shown as follows (dollars in millions except per share amounts):


 Current Range of
 Previous Range of
Net income per Share Attributable to Common Shareholders - Diluted $2.32 $2.76 $1.79 $2.07 
Core FFO per Share Attributable to Common Shareholders - Diluted $1.88 $1.94 $1.87 $1.93 
Growth in AFFO – Share Adjusted 9.1% 13.0% 8.4% 12.3% 
Average Percentage Leased (stabilized portfolio) 98.5% 99.5% 97.9% 99.3% 
Average Percentage Occupied (stabilized portfolio) 97.4% 98.4% 96.9% 98.3% 
Average Percentage Leased (in-service portfolio) 98.0% 99.0% 97.0% 98.4% 
Same-property NOI growth – Cash 5.8% 6.6% 5.4% 6.2% 
Same-property NOI growth – Net Effective 4.6% 5.4% 4.2% 5.0% 
Building Dispositions (Duke Share) $900 $1,100 $600 $800 
Development Starts (JVs at 100%) $1,450 $1,650 $1,200 $1,400 

More specific assumptions and components of the company's 2022 guidance will be available by 6 p.m. Eastern Time today through the Investor Relations section of the company's website.

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, 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 18 of its March 31, 2022 supplemental information.  

About Duke Realty Corporation

Duke Realty Corporation owns and operates approximately 164.9 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.   

First Quarter Earnings Call and Supplemental Information

Duke Realty Corporation is hosting a conference call tomorrow, April 28, 2022, at 12:00 p.m. ET to discuss its first 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 although not all forward looking statements may contain such words. 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, and the company’s ability to retain current credit ratings; (iv) the company’s ability to raise capital by selling its assets; (v) the company’s continued qualification as a real estate investment trust, or REIT, for U.S. federal income tax purposes; (vi) changes in governmental laws and regulations; (vii) the level and volatility of interest rates and foreign currency exchange rates; (viii) valuation of joint venture investments; (ix) valuation of marketable securities and other investments, including volatility in the company’s stock price and trading volume; (x) valuation of real estate and other inherent risks in the real estate business, including, but not limited to, tenant defaults, potential liability relating to environmental matters and liquidity of real estate investments; (xi) increases in operating costs; (xii) changes in the dividend policy for the company’s common stock; (xiii) the reduction in the company’s income in the event of multiple lease terminations by tenants, as well as competition for tenants and potential decreases in property occupancy; (xiv) impairment charges, (xv) a failure or breach of our information technology systems networks or processes that could cause business disruptions or loss of confidential information; (xvi) the effects of geopolitical instability and risks such as terrorist attacks and trade wars; (xvii) the effects of natural disasters, including floods, droughts, wind, tornadoes and hurricanes; and (xviii) the effect of any damage to our reputation resulting from developments relating to any of items (i) – (xviii). 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, 2021. 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. 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:

Ron Hubbard

Gene Miller


Duke Realty Corporation and Subsidiaries
Consolidated Statement of Operations
(Unaudited and in thousands, except per share amounts)
   Three Months Ended 
   March 31, 
    2022  2021  
 Rental and related revenue $275,214 $258,179  
 General contractor and service fee revenue  2,949  31,113  
    278,163  289,292  
 Rental expenses  25,286  28,130  
 Real estate taxes  43,928  41,170  
 General contractor and other services expenses  1,469  29,463  
 Depreciation and amortization  94,001  93,573  
    164,684  192,336  
Other operating activities:    
 Equity in earnings of unconsolidated joint ventures  3,815  16,268  
 Gain on sale of properties  210,747  21,360  
 Gain on land sales  1,092  1,238  
 Other operating expenses  (779) (1,145) 
 Non-incremental costs related to successful leases  (5,512) (2,958) 
 General and administrative expenses  (23,913) (24,217) 
    185,450  10,546  
 Operating income 298,929  107,502  
Other income (expenses):    
 Interest and other income, net  825  463  
 Interest expense  (19,999) (22,507) 
 Loss on debt extinguishment  (21,948) (70) 
Income before income taxes  257,807  85,388  
 Income tax expense  (6,330) (5,184) 
Net income 251,477  80,204  
Net income attributable to noncontrolling interests  (2,556) (842) 
Net income attributable to common shareholders$248,921 $79,362  
Net income per share attributable to common shareholders-basic $0.65 $0.21  
Net income per share attributable to common shareholders-diluted $0.65 $0.21  

 Duke Realty Corporation and Subsidiaries
 Consolidated Balance Sheets
 (Unaudited and in thousands)
   March 31, December 31, 
    2022   2021  
Real estate investments:     
 Real estate assets $9,796,211  $9,616,076  
 Construction in progress  832,319   744,871  
 Investments in and advances to unconsolidated joint ventures  208,644   168,336  
 Undeveloped land  580,446   473,317  
    11,417,620   11,002,600  
 Accumulated depreciation  (1,746,146)  (1,684,413) 
 Net real estate investments 9,671,474   9,318,187  
Real estate investments and other assets held-for-sale  -   144,651  
Cash and cash equivalents  9,160   69,752  
Accounts receivable  15,947   13,449  
Straight-line rents receivable  182,673   172,225  
Receivables on construction contracts, including retentions  37,167   57,258  
Deferred leasing and other costs, net  339,561   337,936  
Other escrow deposits and other assets  331,427   332,197  
 Total assets$10,587,409  $10,445,655  
 Liabilities and Equity     
 Secured debt, net of deferred financing costs $58,291  $59,418  
 Unsecured debt, net of deferred financing costs  3,332,778   3,629,864  
 Unsecured line of credit  260,000   -  
    3,651,069   3,689,282  
Liabilities related to real estate investments held-for-sale     
  -   6,278  
Construction payables and amounts due subcontractors, including retentions  99,604   107,009  
Accrued real estate taxes  81,492   77,464  
Accrued interest  20,891   20,815  
Other liabilities  340,399   339,023  
Tenant security deposits and prepaid rents  59,430   66,823  
 Total liabilities 4,252,885   4,306,694  
Shareholders' equity:     
 Common shares  3,835   3,825  
 Additional paid-in capital  6,185,119   6,143,147  
 Accumulated other comprehensive loss  (27,122)  (28,011) 
 Retained earnings (distributions in excess of net income)  65,973   (75,210) 
 Total shareholders' equity 6,227,805   6,043,751  
Noncontrolling interests  106,719   95,210  
 Total equity  6,334,524   6,138,961  
 Total liabilities and equity$10,587,409  $10,445,655  

 Duke Realty Corporation and Subsidiaries
 Summary of EPS, FFO and AFFO
 Three Months Ended March 31,
 (Unaudited and in thousands, except per share amounts)
   2022 2021
    Wtd.   Wtd. 
    Avg.Per  Avg.Per
  Amount SharesShareAmount SharesShare
Net income attributable to common shareholders$ 248,921   $ 79,362   
Less dividends on participating securities (327)   (371)  
Net income per common share-basic 248,594 382,708$ 0.65 78,991 373,667$ 0.21
Add back:      
 Noncontrolling interest in earnings of unitholders 2,463 3,808  761 3,575 
 Other potentially dilutive securities 327 1,421  - 502 
Net income attributable to common shareholders-diluted$ 251,384 387,937$ 0.65 79,752 377,744$ 0.21
Reconciliation to FFO      
Net income attributable to common shareholders$ 248,921 382,708 $ 79,362 373,667 
 Depreciation and amortization 94,001    93,573   
 Depreciation, amortization and other - unconsolidated joint ventures 3,298    2,257   
 Gain on sales of properties (210,747)   (21,360)  
 Gain on land sales (1,092)   (1,238)  
 Income tax expense not allocable to FFO 6,330    5,184   
 Gain on sales of real estate assets - unconsolidated joint ventures -    (12,748)  
 Noncontrolling interest share of adjustments 1,066    (622)  
Nareit FFO attributable to common shareholders - basic 141,777 382,708$ 0.37 144,408 373,667$ 0.39
 Noncontrolling interest in income of unitholders 2,463 3,808  761 3,575 
 Noncontrolling interest share of adjustments (1,066)   622   
 Other potentially dilutive securities 1,421  1,777 
Nareit FFO attributable to common shareholders - diluted$ 143,174 387,937$ 0.37$ 145,791 379,019$ 0.38
 Loss on debt extinguishment - including share of unconsolidated joint venture 22,031    133   
 Non-incremental costs related to successful leases 5,512    2,958   
 Unconsolidated joint ventures share of unrealized derivative gain (563)  $ -   
Core FFO attributable to common shareholders - diluted$ 170,154 387,937$ 0.44$ 148,882 379,019$ 0.39
Core FFO - diluted$170,154 387,937$0.44$148,882 379,019$0.39
 Straight-line rental income and expense (10,471)   (8,633)  
 Amortization of above/below market rents and concessions (2,903)   (2,855)  
 Stock based compensation expense 18,099    14,379   
 Noncash interest expense 2,563    2,369   
 Second generation concessions (901)   (281)  
 Second generation tenant improvements (3,144)   (3,923)  
 Second generation leasing costs (7,009)   (8,472)  
 Building improvements (578)   (1,304)  
AFFO - diluted$ 165,810 387,937 $ 140,162 379,019 

Duke Realty Corporation and Subsidiaries
Reconciliation of Same Property Net Operating Income Growth
(Unaudited and in thousands)
 Three Months Ended
 March 31, 2022March 31, 2021 
Income before income taxes$257,807 $85,388  
Share of same property NOI from unconsolidated joint ventures 6,605  6,545  
Income and expense items not allocated to segments (50,535) 105,015  
Earnings from service operations (1,480) (1,650) 
Properties not included and other adjustments (34,317) (29,261) 
Same property NOI - Cash Basis$178,080 $166,037  
Percent Change 7.3%  
Duke Realty Corporation and Subsidiaries
Reconciliation of 2022 FFO Per Diluted Share Guidance
(Unaudited )
Net income attributable to common shareholders - diluted$ 2.32 $ 2.76  
Depreciation 0.96  0.90  
Gains on land and property sales (1.53) (1.79) 
Share of joint venture adjustments 0.02  -  
Nareit FFO attributable to common shareholders - diluted$ 1.77 $ 1.87  
Loss on debt extinguishment 0.06  0.06  
Non-incremental costs related to successful leases 0.04  0.02  
Other reconciling items 0.01  (0.01) 
Core FFO attributable to common shareholders - diluted$ 1.88 $ 1.94