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Duke Realty Corporation (DRE - Analyst Report), a real estate investment trust (REIT), reported third quarter 2011 FFO (fund from operations) of $72.3 million or 27 cents per share compared with $128.9 million or 50 cents in the year-ago quarter. Fund from operations, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.

Excluding certain one-time items, the recurring FFO for the quarter was $76.1 million or 29 cents per share compared with $78.0 million or 30 cents in the year-earlier quarter. The recurring FFO for the reported quarter was in line with the Zacks Consensus Estimate. Total revenue were $361.3 million during third quarter 2011 compared with $360.6 million in the year-ago quarter. Total revenue during the reported quarter surpassed the Zacks Consensus Estimate of $232 million.

The overall portfolio occupancy of the company, including projects under development, was 90.7% at quarter end. Tenant retention for the quarter was about 69%. Same-store net operating income (NOI) during the quarter increased 1.1% for bulk distribution portfolio; 15.9% for medical office; and 0.3% for suburban office properties. The company executed 1.9 million square feet of new leases during the reported quarter in the bulk distribution portfolio.

In accordance with its asset repositioning strategy, which provides for increasing investment in industrial and medical office assets, Duke Realty sold non-strategic assets during the quarter, raising proceeds of $6.2 million. Year-to-date, the company sold assets worth $525 million spanning 5.4 million square feet. At the same time, the company acquired $103.5 million worth of assets during the reported quarter.

At quarter-end, the company had 5 pre-leased medical office projects totaling over 321,000 square feet and 1 pre-leased office project totaling 344,000 square feet under development. In addition, Duke Realty had a single joint venture industrial project totaling 405,000 square feet under development. The company started the development of 388,000 square feet of space during the reported quarter for a total investment of $162 million. At the same time, Duke Realty started a joint venture medical office project totaling 274,000 square feet during the quarter.

At quarter-end, the company had nearly $16.2 million of cash on hand and a total debt of $4.3 billion. The total-debt-to-undepreciated-assets covenant was 49.62% at quarter-end, while the debt service coverage ratio was 2.22x. With strong quarterly performance, Duke Realty narrowed its 2011 recurring FFO guidance to $1.13 – $1.15 per share.

Duke Realty currently retains a Zacks #3 Rank, which translates into a short-term ‘Hold’ rating. We maintain our long-term ‘Neutral’ recommendation on the stock. We also have a ‘Neutral’ recommendation and a Zacks #3 Rank for Highwoods Properties Inc (HIW - Analyst Report), one of the competitors of Duke Realty.

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