Duke Realty Sees Solid Fundamentals in Industrial, Medical Office Portfolios

Denny Oklak, chairman and CEO of Duke Realty Corp. (NYSE: DRE), joined REIT.com for a CEO Spotlight video interview during REITWeek 2015: NAREIT’s Investor Forum, held in New York.

With bulk distribution facilities now making up more than 70 percent of Duke’s portfolio, Oklak provided an overview of industrial market fundamentals.

“The industrial business is really very good at this time,” he said. Oklak noted that Duke’s in-service occupancy rates within its bulk industrial portfolios are at almost 97 percent.

At the same time, the development pipeline is robust, according to Oklak. The company has booked about $400 million to $500 million in industrial development projects in the last two years. Much of that has been low-risk, build-to-suit activity, Oklak said.

Duke has also undertaken some limited speculative development around the country, with positive leasing results, Oklak added.

“Overall, when you look at the industrial scenario around the country, supply and demand seem to be relatively in balance in almost all markets. It’s a very good time to be in the industrial business,” he said.

Oklak also discussed Duke’s medical office building (MOB) operations. Business conditions in that segment continue to be “very strong,” he said. Oklak pointed out that the health care industry has experienced a number of mergers between major hospital systems, a development that has worked in Duke’s favor. Oklak said many of its tenants are now are major health care systems that are financially stable and highly rated.

At the same time, demographic changes look set to support fundamentals in the MOB business going forward, Oklak said.

Meanwhile, Oklak explained that the approximately $1 billion raised from the sale of its suburban office portfolio has been used in several ways. Oklak said $200 million was taken back as a note, repayable in 2016. Duke also spent about $500 million on repurchasing some of its corporate unsecured debt to help delever the balance sheet. The rest of the proceeds are targeted for the development pipeline and limited acquisitions, mostly on the bulk industrial side, according to Oklak.