Duke Realty to repay $1.2 billion of notes and loans via asset sale

By Susanna Moon

Chicago, May 1 – Duke Realty Corp. said it plans to repay about $1.2 billion of notes and loans using proceeds of a $2.8 billion sale of its medical offices.

Specifically, Duke will repay $500 million of debt under its unsecured line of credit and its $250 million floating-rate term loan due January 2019, according to a company notice.

The debt under the line of credit was $237 million as of March 31 but expected to grow to $500 million by the time the transaction closes, the company noted.

The company also will repay $286 million of 6.5% unsecured notes due January 2018 and $129 million of 6.75% unsecured notes due March 2020, with prepayment costs on the unsecured note repayments estimated at $25 million.

Duke said it entered into an agreement with a subsidiary of Healthcare Trust of America, Inc. to sell its medical office business, including its remaining portfolio, in a deal expected to close in stages through the second and third quarters of 2017 for a purchase price of $2.8 billion.

“Consistent with previous large-scale dispositions, we will return a portion of these proceeds to shareholders while also retaining a significant amount to reinvest in our industrial real estate development projects and acquisitions in tier 1 markets,” Mark Denien, Duke Realty's executive vice president and chief financial officer, added in the press release.

“We expect to have the cash reinvested by early 2018 while having the balance sheet capacity to continue to fund our business without any equity needs for the foreseeable future.

“We anticipate our balance sheet leverage to improve even further in the short term, providing us plenty of capacity to take advantage of growth opportunities as they arise. However, our long-term goal is to maintain our current BBB+/Baa1 credit rating and, with that, we expect leverage to slowly gravitate back to current levels as we deploy capital into new industrial investments. Even with the expected sizable return of capital, we expect to maintain our current level of regular quarterly common dividends which should remain at a conservative level of under a 75% payout ratio.”

The special dividend has been estimated at between $250 million and $725 million, or $0.70 to $2.00 per share, to be paid in late 2017.

Duke Realty is an Indianapolis-based real estate investment trust that owns and operates industrial and office space.

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