Duke Realty Corporation is a real estate investment trust that leases and manages Industrial Properties like warehouses (accounting for 70% of total square feet) and office buildings (accounting for 28% of total square feet). Business parks are mixed use developments that contain restaurants and other amenities in order to create a conducive atmosphere for tenants. DRE owns 726 rental properties (including 38 properties with 10.0 million square feet under development) and over 121.1 million rentable square feet based predominantly in the Midwest. The Midwest accounts for almost 70% of DRE's annual net effective rent.[1]

Duke's large presence in the Midwest has proven disadvantageous because demand in the region for industrial and office space has fallen from the year 2000 onwards because of a declining manufacturing sector. Also, barriers to entry in the region are low as competitors have ready access to land and can easily construct competing sites. DRE is moving away from the relatively stagnant Midwestern real estate market, and has sold a billion dollars in property with plans to use these funds to develop investments in more lucrative markets.

Unlike some of its REIT competitors, DRE handles a broad range of activities from construction to leasing and management. This gives DRE greater flexibility in exploiting real estate opportunities. DRE can purchase land when prices decline and invest in infrastructural improvements when prices rise making land acquisitions expensive.

Financial/Operating Metrics

DRE is the largest publicly traded office/industrial real estate company in the United States.[2] DRE also controls over 7,600 acres of land with capacity of more than 112 million square feet of space for future development. Duke's tenant base is highly diversified, with no one tenant accounting for more than 1.1% of its gross annualized effective rents.[3] Aside from Industrial Warehouses and office buildings, DRE also owns health care and retail buildings.[4]

The operating metrics of Duke Realty are provided below. DRE has maintained modest revenue growth because it has increased the number of square feet it owns from 97.8M square feet to 111.14 square feet from 2005-2008 while maintaining steady occupancy rates.

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DDR: Operating Metrics
2005 2006 2007
Occupancy Rate 92.7% 92.8% 92.7%
Total Square Feet 97.835M 108.852M 111.139M

Trends and Forces

DRE Faces Risks as it Attempts to Enter New Markets

As DRE enters more competitive and lucrative markets, it will face significant competition for investment opportunities thereby driving up costs. Since 2005, DRE has liquefied many of its poorer performing holdings. DRE classified the operations of 302 buildings as discontinued operations as of December 31, 2007. These 302 buildings consist of 253 industrial, 48 office and one retail properties. Of these properties, 32 were sold during 2007, 21 properties were sold during 2006, 234 properties were sold during 2005 and 15 operating properties are classified as held-for-sale at December 31, 2007.[7]

DRE's debt mix makes it less vulnerable to interest rates

  • Only 20% of DREs debt is suject to variable rates[8]. When interest rates rise, the amount the amount of interest expense that a firm pays also increases. Because DRE's variable rate debt is a relatively low percentage of its total debt, the company is less affected, when interest rates fluctuate, than some of its competitors with larger amounts of variable rate debt.

The Strength of the Industrial services Sector Affects Demand for DRE Properties

DRE's properties consist primarily of business parks making the company’s performance dependent upon general economic conditions of the market for office and industrial space. The market for such space is affected by the business cycles of the economy on the national, regional and local scales. In the Midwest, DRE's core market, such demand has fallen because of the Outsourcing of Manufacturing jobs to China and other Emerging Markets. Since March '07, 20,000 manufacturing jobs have been lost in Ohio a decrease of 2.6% a year. Indiana has lost 10,000 manufacturing jobs over the same period, an annual drop of 2.5%.



DRE faces competition from numerous developers and real estate companies both private and public. They compete with DRE in acquiring properties and leasing them to tenants. DRE is larger than most of its competitors and manages to maintain similar occupancy rates.

The table below provides competitive data comparing DRE with some of its close competitors:

Company Properties (2007) Square Feet Owned (millions, 2007) Occupancy Rate (2007) Revenue ($M)
Duke Realty (DRE) [10] 726 121.1 92.7% 1,170
Liberty Property Trust (LRY)[11] 649 62.1 92.9% 698.75
Highwoods Properties (HIW)[12] 420 26.6 92.0% 437.06
Kilroy Realty (KRC)[13] 129 12.0 94.0% 258.47


  1. DRE 2007 10K, Item 2, pg. 15
  2. DRE 2007 10K, Item 2, pg. 13
  3. DRE 2007 10K, Item 1A, pg. 6
  4. DRE 2007 10K, Item 2, pg. 14
  5. DRE 2007 10K, Item 15, pg. 57
  6. DRE 2007 10K, Item 2, pg. 14
  7. DRE 2007 10K, Item 15, pg. 69
  8. DRE 2007 10K, Item 1A , pg.10
  9. Northeast Midwest Institute, State Economic Profiles
  10. DRE 2007 10K, Item 1, pg. 2
  11. LRY 2007 10K, Item 1 , pg.4
  12. HIW 2007 10K, Item 1 , pg.3
  13. KRC 2007 10K, Item 1, pg. 1
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