DRE Duke Realty Corporation

Duke Realty Corporation (NYSE: DRE), the largest domestic-only logistics REIT, today reported earnings for the second quarter of 2022.

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, ("SPNOI - Cash") are included in the financial tables included in this release. The company's financial results for the quarter were as follows:

	Three Months Ended June 30, 2022				Six Months Ended June 30, 2022
Net Income per Diluted Share	$	0.27			$	0.91
FFO per Diluted Share	$	0.45			$	0.82
Core FFO per Diluted Share	$	0.48			$	0.92
Growth in SPNOI - Cash		5.9	%			6.5	%

Distributions

The company's board of directors will approve the quarterly cash distribution on its common stock in a future meeting. Pursuant to the terms of the merger agreement, the dividend is expected to have the same record and payment dates as the Prologis second quarter dividend.

2022 Earnings Guidance     

In light of the company’s proposed merger with Prologis announced in June 2022, the Company will no longer provide guidance nor is it affirming past guidance.    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, costs directly attributable to our proposed merger with Prologis, 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 19 of its June 30, 2022 supplemental information.

About Duke Realty Corporation

Duke Realty Corporation owns and operates approximately 167.3 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.   

Second Quarter Earnings Call and Supplemental Information

Due to the company's proposed merger with Prologis, a second quarter 2022 conference call will not be held. 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

The statements in this communication that are not historical facts are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements are based on current expectations, estimates and projections about the industry and markets in which Prologis and Duke Realty operate as well as beliefs and assumptions of Prologis and Duke Realty. Such statements involve uncertainties that could significantly impact Prologis’ or Duke Realty’s financial results. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” and “estimates,” including variations of such words and similar expressions, are intended to identify such forward-looking statements, which generally are not historical in nature. All statements that address operating performance, events or developments that Prologis or Duke Realty expects or anticipates will occur in the future — including statements relating to any possible transaction between Prologis and Duke Realty, rent and occupancy growth, acquisition and development activity, contribution and disposition activity, general conditions in the geographic areas where Prologis or Duke Realty operate, Prologis’ and Duke Realty’s respective debt, capital structure and financial position, Prologis’ and Duke Realty’s respective ability to earn revenues from co-investment ventures, form new co-investment ventures and the availability of capital in existing or new co-investment ventures — are forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict. Although Prologis and Duke Realty believe the expectations reflected in any forward-looking statements are based on reasonable assumptions, neither Prologis nor Duke Realty can give assurance that its expectations will be attained and, therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements. Some of the factors that may affect outcomes and results include, but are not limited to: (i) Prologis’ and Duke Realty’s ability to complete the proposed transaction on the proposed terms or on the anticipated timeline, or at all, including risks and uncertainties related to securing the necessary shareholder approvals and satisfaction of other closing conditions to consummate the proposed transaction; (ii) the occurrence of any event, change or other circumstance that could give rise to the termination of the merger agreement relating to the proposed transaction; (iii) risks related to diverting the attention of Prologis and Duke Realty management from ongoing business operations; (iv) failure to realize the expected benefits of the proposed transaction; (v) significant transaction costs and/or unknown or inestimable liabilities; (vi) the risk of shareholder litigation in connection with the proposed transaction, including resulting expense or delay; (vii) the risk that Duke Realty’s business will not be integrated successfully or that such integration may be more difficult, time-consuming or costly than expected; (viii) risks related to future opportunities and plans for the combined company, including the uncertainty of expected future financial performance and results of the combined company following completion of the proposed transaction; (ix) the effect of the announcement of the proposed transaction on the ability of Prologis and Duke Realty to operate their respective businesses and retain and hire key personnel and to maintain favorable business relationships; (x) risks related to the market value of the Prologis common stock to be issued in the proposed transaction; (xi) other risks related to the completion of the proposed transaction and actions related thereto; (xii) national, international, regional and local economic and political climates and conditions; (xiii) changes in global financial markets, interest rates and foreign currency exchange rates; (xiv) increased or unanticipated competition for Prologis’ or Duke Realty’s properties; (xv) risks associated with acquisitions, dispositions and development of properties, including increased development costs due to additional regulatory requirements related to climate change; (xvi) maintenance of Real Estate Investment Trust status, tax structuring and changes in income tax laws and rates; (xvii) availability of financing and capital, the levels of debt that Prologis and Duke Realty maintain and their credit ratings; (xviii) risks related to Prologis’ and Duke Realty’s investments in co-investment ventures, including Prologis’ and Duke Realty’s ability to establish new co-investment ventures; (xix) risks of doing business internationally, including currency risks; (xx) environmental uncertainties, including risks of natural disasters; (xxi) risks related to the coronavirus pandemic; and (xxii) those additional factors discussed under Part I, Item 1A. Risk Factors in Prologis’ and Duke Realty’s respective Annual Reports on Form 10-K for the year ended December 31, 2021. Neither Prologis nor Duke Realty undertakes any duty to update any forward-looking statements appearing in this communication except as may be required by law.

Additional InformationIn connection with the proposed transaction, Prologis will file with the Securities and Exchange Commission (“SEC”) a registration statement on Form S-4 (“Form S-4”), which will include a document that serves as a prospectus of Prologis and a joint proxy statement of Prologis and Duke Realty (the “joint proxy statement/prospectus”), and each party will file other documents regarding the proposed transaction with the SEC. INVESTORS AND SECURITY HOLDERS ARE URGED TO READ THE FORM S-4 AND THE JOINT PROXY STATEMENT/PROSPECTUS AND OTHER RELEVANT DOCUMENTS FILED WITH THE SEC, WHEN THEY BECOME AVAILABLE, BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION. A definitive joint proxy statement/prospectus will be sent to Prologis’ and Duke Realty’s shareholders. Investors and security holders will be able to obtain the Form S-4 and the joint proxy statement/prospectus free of charge from the SEC’s website or from Prologis or Duke Realty. The documents filed by Prologis with the SEC may be obtained free of charge at Prologis’ website at the SEC Filings section of www.ir.prologis.com or at the SEC’s website at www.sec.gov. These documents may also be obtained free of charge from Prologis by requesting them from Investor Relations by mail at Pier 1, Bay 1, San Francisco, CA 94111. The documents filed by Duke Realty with the SEC may be obtained free of charge at Duke Realty’s website at the SEC Filings section of http://investor.dukerealty.com or at the SEC’s website at www.sec.gov. These documents may also be obtained free of charge from Duke Realty by requesting them from Investor Relations by mail at 8711 River Crossing Blvd. Indianapolis, IN 46240.   This communication shall not constitute an offer to sell or the solicitation of an offer to buy any securities, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. No offering of securities shall be made except by means of a prospectus meeting the requirements of Section 10 of the Securities Act of 1933, as amended.

Participants in the SolicitationPrologis and Duke Realty and their respective directors, executive officers and other members of management may be deemed to be participants in the solicitation of proxies in respect of the proposed transaction. Information about Prologis’ directors and executive officers is available in Prologis’ Annual Report on Form 10-K for the fiscal year ended December 31, 2021, its proxy statement dated March 25, 2022, for its 2022 Annual Meeting of Shareholders and its Current Report on Form 8-K/A filed with the SEC on April 5, 2022. Information about Duke Realty’s directors and executive officers is available in Duke Realty’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021, its proxy statement dated March 2, 2022, for its 2022 Annual Meeting of Shareholders and its Current Report on Form 8-K filed with the SEC on April 27, 2022. Other information regarding the participants in the proxy solicitation and a description of their direct and indirect interests, by security holdings or otherwise, will be contained in the joint proxy statement/prospectus and other relevant materials to be filed with the SEC regarding the proposed transaction when they become available. Investors should read the joint proxy statement/prospectus carefully when it becomes available before making any voting or investment decisions. You may obtain free copies of these documents from Prologis or Duke Realty as indicated above.    Contact Information:     Investors:Ron Hubbard317.808.6060     Media:Gene Miller317.808.6195

Duke Realty Corporation and Subsidiaries
Consolidated Statement of Operations
(Unaudited and in thousands, except per share amounts)
			Three Months Ended							Six Months Ended
			June 30,							June 30,
			2022			2021				2022			2021
Revenues:
	Rental and related revenue		$	280,145		$	253,971			$	555,359		$	512,150
	General contractor and service fee revenue			5,143			17,721				8,092			48,834
				285,288			271,692				563,451			560,984
Expenses:
	Rental expenses			21,240			18,515				46,526			46,645
	Real estate taxes			43,728			41,368				87,656			82,538
	General contractor and other services expenses			3,730			14,066				5,199			43,529
	Depreciation and amortization			93,944			91,729				187,945			185,302
				162,642			165,678				327,326			358,014
Other operating activities:
	Equity in earnings of unconsolidated joint ventures			5,565			10,590				9,380			26,858
	Gain on sale of properties			24,832			95,183				235,579			116,543
	Gain on land sales			2,025			9,900				3,117			11,138
	Other operating expenses			(531	)		(338	)			(1,310	)		(1,483	)
	Impairment charges			(1,563	)		-				(1,563	)		-
	Non-incremental costs related to successful leases			(3,502	)		(4,027	)			(9,014	)		(6,985	)
	General and administrative expenses			(27,496	)		(15,879	)			(51,409	)		(40,096	)
				(670	)		95,429				184,780			105,975
	Operating income			121,976			201,443				420,905			308,945
Other income (expenses):
	Interest and other income, net			939			1,673				1,764			2,136
	Interest expense			(18,734	)		(21,072	)			(38,733	)		(43,579	)
	Loss on debt extinguishment			-			(3,938	)			(21,948	)		(4,008	)
	Gain on involuntary conversion			-			3,222				-			3,222
Income before income taxes				104,181			181,328				361,988			266,716
	Income tax expense			(493	)		(3,672	)			(6,823	)		(8,856	)
Net income				103,688			177,656				355,165			257,860
Net income attributable to noncontrolling interests				(1,218	)		(1,839	)			(3,774	)		(2,681	)
Net income attributable to common shareholders			$	102,470		$	175,817			$	351,391		$	255,179
Net income per share attributable to common shareholders-basic			$	0.27		$	0.47			$	0.91		$	0.68
Net income per share attributable to common shareholders-diluted			$	0.27		$	0.47			$	0.91		$	0.68

	Duke Realty Corporation and Subsidiaries
	Consolidated Balance Sheets
	(Unaudited and in thousands)
			June 30,				December 31,
			2022				2021
	Assets
Real estate investments:
	Real estate assets		$	9,994,446			$	9,616,076
	Construction in progress			997,320				744,871
	Investments in and advances to unconsolidated joint ventures			207,977				168,336
	Undeveloped land			600,292				473,317
				11,800,035				11,002,600
	Accumulated depreciation			(1,808,388	)			(1,684,413	)
	Net real estate investments			9,991,647				9,318,187
Real estate investments and other assets held-for-sale				-				144,651
Cash and cash equivalents				44,195				69,752
Accounts receivable				13,208				13,449
Straight-line rents receivable				194,474				172,225
Receivables on construction contracts, including retentions				35,651				57,258
Deferred leasing and other costs, net				341,923				337,936
Other escrow deposits and other assets				337,184				332,197
	Total assets		$	10,958,282			$	10,445,655
	Liabilities and Equity
Indebtedness:
	Secured debt, net of deferred financing costs		$	57,150			$	59,418
	Unsecured debt, net of deferred financing costs			3,831,530				3,629,864
				3,888,680				3,689,282
Liabilities related to real estate investments held-for-sale
				-				6,278
Construction payables and amounts due subcontractors, including retentions				123,428				107,009
Accrued real estate taxes				87,569				77,464
Accrued interest				22,925				20,815
Other liabilities				365,680				339,023
Tenant security deposits and prepaid rents				62,247				66,823
	Total liabilities			4,550,529				4,306,694
Shareholders' equity:
	Common shares			3,848				3,825
	Additional paid-in capital			6,262,634				6,143,147
	Accumulated other comprehensive loss			(26,233	)			(28,011	)
	Retained earnings (distributions in excess of net income)			60,571				(75,210	)
	Total shareholders' equity			6,300,820				6,043,751
Noncontrolling interests				106,933				95,210
	Total equity			6,407,753				6,138,961
	Total liabilities and equity		$	10,958,282			$	10,445,655

	Duke Realty Corporation and Subsidiaries
	Summary of EPS, FFO and AFFO
	Three Months Ended June 30,
	(Unaudited and in thousands, except per share amounts)
		2022						2021
					Wtd.						Wtd.
					Avg.	Per					Avg.	Per
		Amount			Shares	Share		Amount			Shares	Share
Net income attributable to common shareholders		$	102,470					$	175,817
Less dividends on participating securities			(319	)					(365	)
Net income per common share-basic			102,151		384,519	$	0.27		175,452		376,020	$	0.47
Add back:
	Noncontrolling interest in earnings of unitholders		1,128		4,022				1,738		3,770
	Other potentially dilutive securities		-		658				365		1,831
Net income attributable to common shareholders-diluted		$	103,279		389,199	$	0.27		177,555		381,621	$	0.47
Reconciliation to FFO
Net income attributable to common shareholders		$	102,470		384,519			$	175,817		376,020
Adjustments:
	Depreciation and amortization		93,944						91,729
	Depreciation, amortization and other - unconsolidated joint ventures		2,999						2,012
	Gain on sales of properties		(24,832	)					(95,183	)
	Gain on land sales		(2,025	)					(9,900	)
	Impairment charges		1,563						-
	Income tax expense not allocable to FFO		493						3,672
	Gain on sales of real estate assets - unconsolidated joint ventures		(1,497	)					(7,360	)
	Noncontrolling interest share of adjustments		(731	)					149
Nareit FFO attributable to common shareholders - basic			172,384		384,519	$	0.45		160,936		376,020	$	0.43
	Noncontrolling interest in income of unitholders		1,128		4,022				1,738		3,770
	Noncontrolling interest share of adjustments		731						(149	)
	Other potentially dilutive securities				1,727						1,831
Nareit FFO attributable to common shareholders - diluted		$	174,243		390,268	$	0.45	$	162,525		381,621	$	0.43
	Gain on involuntary conversion		-						(3,222	)
	Loss on debt extinguishment - including share of unconsolidated joint venture		-						3,938
	Non-incremental costs related to successful leases		3,502						4,027
	Unconsolidated joint ventures share of unrealized derivative gain		(224	)					-
	Merger related costs		10,000						-
Core FFO attributable to common shareholders - diluted		$	187,521		390,268	$	0.48	$	167,268		381,621	$	0.44
AFFO
Core FFO - diluted		$	187,521		390,268	$	0.48	$	167,268		381,621	$	0.44
Adjustments:
	Straight-line rental income and expense		(11,642	)					(6,571	)
	Amortization of above/below market rents and concessions		(3,513	)					(2,611	)
	Stock based compensation expense		2,309						5,625
	Noncash interest expense		2,496						2,378
	Second generation concessions		(213	)					(1,355	)
	Second generation tenant improvements		(8,387	)					(4,604	)
	Second generation leasing costs		(8,666	)					(8,297	)
	Building improvements		(3,860	)					(1,814	)
AFFO - diluted		$	156,045		390,268			$	150,019		381,621

	Duke Realty Corporation and Subsidiaries
	Summary of EPS, FFO and AFFO
	Six Months Ended June 30,
	(Unaudited and in thousands, except per share amounts)
		2022						2021
					Wtd.						Wtd.
					Avg.	Per					Avg.	Per
		Amount			Shares	Share		Amount			Shares	Share
Net income attributable to common shareholders		$	351,391					$	255,179
Less dividends on participating securities			(645	)					(735	)
Net income per common share-basic			350,746		383,619	$	0.91		254,444		374,850	$	0.68
Add back:
	Noncontrolling interest in earnings of unitholders		3,591		3,915				2,499		3,673
	Other potentially dilutive securities		645		1,731				735		1,811
Net income attributable to common shareholders-diluted		$	354,982		389,265	$	0.91	$	257,678		380,334	$	0.68
Reconciliation to FFO
Net income attributable to common shareholders		$	351,391		383,619			$	255,179		374,850
Adjustments:
	Depreciation and amortization		187,945						185,302
	Depreciation, amortization and other - unconsolidated joint ventures		6,297						4,269
	Gain on sales of properties		(235,579	)					(116,543	)
	Gain on land sales		(3,117	)					(11,138	)
	Income tax expense not allocable to FFO		6,823						8,856
	Impairment charges		1,563						-
	Gain on sales of real estate assets - unconsolidated joint ventures		(1,497	)					(20,108	)
	Noncontrolling interest share of adjustments		379						(492	)
Nareit FFO attributable to common shareholders - basic			314,205		383,619	$	0.82		305,325		374,850	$	0.81
	Noncontrolling interest in income of unitholders		3,591		3,915				2,499		3,673
	Noncontrolling interest share of adjustments		(379	)					492
	Other potentially dilutive securities				1,731						1,811
Nareit FFO attributable to common shareholders - diluted		$	317,417		389,265	$	0.82	$	308,316		380,334	$	0.81
	Gain on involuntary conversion		-						(3,222	)
	Loss on debt extinguishment - including share of unconsolidated joint venture		22,031						4,071
	Non-incremental costs related to successful leases		9,014						6,985
	Unconsolidated joint ventures share of unrealized derivative gain		(787	)					-
	Merger related costs		10,000						-
Core FFO attributable to common shareholders - diluted		$	357,675		389,265	$	0.92	$	316,150		380,334	$	0.83
AFFO
Core FFO - diluted		$	357,675		389,265	$	0.92	$	316,150		380,334	$	0.83
Adjustments:
	Straight-line rental income and expense		(22,113	)					(15,204	)
	Amortization of above/below market rents and concessions		(6,416	)					(5,466	)
	Stock based compensation expense		20,408						20,004
	Noncash interest expense		5,059						4,747
	Second generation concessions		(1,114	)					(1,636	)
	Second generation tenant improvements		(11,531	)					(8,527	)
	Second generation leasing costs		(15,675	)					(16,769	)
	Building improvements		(4,438	)					(3,118	)
AFFO - diluted		$	321,855		389,265			$	290,181		380,334

Duke Realty Corporation and Subsidiaries
Reconciliation of Same Property Net Operating Income Growth
(Unaudited and in thousands)
	Three Months Ended
	June 30, 2022			June 30, 2021
Income before income taxes	$	104,181		$	181,328
Share of same property NOI from unconsolidated joint ventures		6,754			6,599
Income and expense items not allocated to segments		112,491			16,294
Earnings from service operations		(1,413	)		(3,655	)
Properties not included and other adjustments		(39,993	)		(28,704	)
Same property NOI - Cash Basis	$	182,020		$	171,862
Percent Change		5.9	%
	Six Months Ended
	June 30, 2022			June 30, 2021
Income from continuing operations before income taxes	$	361,988		$	266,716
Share of same property NOI from unconsolidated joint ventures		13,354			13,145
Income and expense items not allocated to segments		61,956			121,309
Earnings from service operations		(2,893	)		(5,305	)
Properties not included and other adjustments		(74,789	)		(58,332	)
Same property NOI - Cash Basis	$	359,616		$	337,533
Percent Change		6.5	%