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Duke Realty Corp. (DRE - Analyst Report) reported first quarter 2012 FFO (fund from operations) of $57.4 million or 21 cents per share compared with $71.8 million or 27 cents per share 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, recurring FFO for the quarter was $63.8 million or 24 cents per share compared with $72.6 million or 28 cents in the year-earlier quarter. The recurring FFO per share for the reported quarter was line with the Zacks Consensus Estimate.

Total revenue during first quarter 2012 was $272.4 million compared with $337.5 million in the year-ago quarter. The overall portfolio occupancy of the company, including projects under development, remained steady at 92.1% in the reported quarter compared with 90.7% in the year-earlier quarter.

Tenant retention for the quarter was about 84.0% with rental growth of 1.8%. Same-store net operating income (NOI) for the overall portfolio increased 4.7% during the quarter. The company completed 8.7 million square feet of leases during first quarter 2012.

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, generating proceeds of $65.3 million, of which $46.2 million came from seven suburban office assets and $17.5 million from six industrial assets. At the same time, the company acquired industrial and medical office buildings, spanning 2.1 million square feet, worth $157 million in strategic markets during the first quarter of 2012.

The company signed 1.5 million square feet of new development starts, consisting of two industrial developments totaling 1.4 million square feet and one medical office building spanning 117,000 square feet. In addition, Duke Realty also has 9 projects underway spanning 2.4 million square feet.

As of March 31, 2012, Duke Realty had two joint venture development projects under construction, which consisted of one industrial project totaling 376,000 square feet and one medical office project totaling 274,000 square feet

The company issued 10.8 million new shares of common stock during the reported quarter generating net proceeds of approximately $147 million. 

At the end of first quarter 2012, the company had nearly $15.0 million of cash with no balance on its line of credit. The total-debt-to-undepreciated-assets covenant was 49.25% at quarter-end, while the debt service coverage ratio was 2.19x.

Duke Realty reaffirmed its recurring FFO guidance for 2012 in the range of $0.94 – $1.06 per share.

Duke Realty currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. We are also maintaining our long-term Neutral recommendation on the stock. One of its competitors, Highwoods Properties Inc. ((HIW - Analyst Report) also holds a Zacks #3 Rank.

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