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Text: For more information about those risk factors, we would refer you to our December 31, 2019 10-K that we have on file with the SEC.
We hope all of you joining us today as well as your families are safe and healthy.
Let me start by saying that 2020 was another outstanding year for Duke Realty.
Even amid the global pandemic and a major US recession, we exceeded all of our 2020 goals, including our original pre-pandemic operating and financial guidance metrics.
We also capped off the year with fourth quarter leasing volume being the strongest quarter of the year, and just after quarter end, executed a significant debt transaction to bolster our balance sheet, which sets us up for a great start to 2021.
Let me recap the highlights of our outstanding year.
When the pandemic hit, we engaged our business continuity plan to ensure the health and safety of our employees, our customers and our construction work sites.
This was executed extremely well and I'm happy to resort cases at Duke Realty were very minimal.
We signed nearly 21 million square feet of leases, we maintained the occupancy of our stabilized portfolio between 97% and 98% throughout the year, and our total portfolio which includes our under development pipeline ended the year at 96% leased, the highest level we've ever achieved.
We renewed 70% of our leases for 83% when including immediate backfills and attained 29% GAAP rent growth and 14% cash rent growth on second generation leases throughout the year.
We grew same property NOI on a cash basis 5%, which included -- which exceeded our revised guidance expectations.
We commenced $795 million in new developments that were 62% pre-leased, 67% of which were in coastal Tier 1 markets.
We placed $730 million of developments in service that are now 94% leased.
We completed $322 million of property dispositions and $411 million of property acquisitions.
We raised $675 million of debt at an average -- at a weighted average term of 20 years and an average coupon of 2.4%.
We increased our annual common dividend by 9.1%.
And finally, we've continued to run our Company in the most responsible manner with our ESG culture and numerous ESG achievements.
I'll first touch on overall market fundamentals.
The fourth quarter demand was exceptional in logistics sector with 104 million square feet of absorption, which was the highest on record.
Demand exceeded supply for the quarter by about 30 million square feet which nudged national vacancy rates down to 4.6%, which is still roughly about 200 basis points below long-term historical averages.
For the full year, demand was 225 million square feet, compared to a sly number of 265 million square feet.
Even when adjusting for the significant amount of activity we saw from Amazon this year, the full year 2020 net absorption was still 12% higher than 2019.
For transactions larger than 100,000 square feet, e-commerce users comprised 22% of total demand and 3PLs about 26%.
Comparatively, e-commerce demand in our own portfolio represented about 20% of our total leasing square footage volume for the year.
This segment of the demand market, users over 100,000 square feet, continues to be the most active subset.
To that end, we signed 29 deals in the fourth quarter over 100,000 square feet in our portfolio.
Asking rental rates rose again in the fourth quarter, up 8.3% over this time last year.
This rate of growth is about 100 basis points higher than the five-year historical average of 7.1%.
We see this trend continuing in 2021 with macro rent growth levels in the mid-single digits.
In our own portfolio, we had our strongest quarter of the year with 9.7 million square feet of leases executed, which is our second highest quarter ever in our Company's nearly 50-year history.
Our average transaction size was 104,000 square feet.
In addition, the average lease term signed during the quarter was 7.5 years.
On the rent collections side, we averaged 99.9% for the fourth quarter and 99.9% for the full year, arguably best-in-class in the entire REIT sector.
These figures include a very small amount of deferral agreements and credit enhancement collections as detailed in the supplemental package.
Looking forward, our overall tenant credit quality is very strong.
We do have a handful of tenants and industries most acutely impacted by COVID that are in financial difficulty, which Mark will touch on in a moment as to their minor impact on our 2021 financial numbers.
We do have a strong prospect list of backfills for most of these spaces.
So the longer term impact in the situation we believe will be positive.
At quarter end, our stabilized in-service portfolio was 98.1%.
The lease activity for the quarter combined with the strong fundamentals I touched on led to another great quarter of rent growth of 13% cash and 27% GAAP.
We also had a very strong quarter in first-generation leasing, in our speculative developments on our construction, we executed two significant leases in the quarter.
The first was a 622,000 square foot lease in Northern New Jersey to a leading national home furnishings retailer looking to expand its supply chain network for inventory redundancy, often referred to as safety stock or referred to as increased inventory levels, for them to take 100% of the facility -- 100% of the space in that facility.
The second notable lease transaction in the spec project was 290,000 square feet lease we signed in the South Bay submarket of Southern California.
This lease was a major -- was to a major national beverage distributor to take 100% of the space as well.
It's important to note both these buildings are still under construction and not scheduled to be completed until the second and third quarters of this year.
Turning to development, we had a tremendous quarter starts, breaking ground on eight projects totaling $420 million in cost and 69% pre-leased.
In total, nearly 70% of our fourth quarter development starts were in coastal Tier 1 markets and five of our eight projects were redevelopments of existing land and site structures.
Our development pipeline at year-end totaled $1.1 billion with 80% of this allocated to coastal Tier 1 markets.
This is a larger pipeline than we had a year ago and the allocation to coastal Tier markets is also higher than a year ago.
The pipeline is 67% pre-leased and we expect to generate margins in the 30% to 40% range.
Looking forward, our prospect list for new starts in 2021 is very strong, and our land balance at year-end totaled $297 million, with nearly 80% of this allocated to coastal Tier 1 markets, setting us up very well for future growth.
We had a very active quarter on both dispositions and acquisitions.
Consistent with our strategy to increase our exposure to coastal Tier 1 markets, we sold $276 million of assets in the fourth quarter, comprised of two facilities in the far Northwest submarket Indianapolis, one in the far Northeast market of Atlanta, one facility in the Western portion of the Lehigh Valley and an asset leased to Amazon in Houston.
In turn, we used these proceeds to acquire two assets in Southern California and a portfolio in Seattle for $305 million, that in aggregate are 74% leased, with an expected initial stabilized yield in the mid-4s and long-term IRRs -- unlevered IRRs in the mid-6s.
The Seattle portfolio encompasses three buildings that are 69% leased in aggregate located in the DuPont submarket and adjacent to an existing facility we developed several years ago.
For the full year, our capital recycling encompassed $322 million of asset sales and $423 million of acquisitions.
Combined with the development previously mentioned by Steve, this activity moves our coastal Tier 1 exposure to 41% of GAV and our overall Tier 1 exposure to 67%.
We expect this recycling to continue in 2021 with dispositions primarily from the monetization of some of our Amazon assets, allowing us to manage our tenant exposure as well as some Midwestern assets to further refine our geography.
I am pleased to report the core FFO for the quarter was $0.41 per share compared to core FFO of $0.40 per share in the third quarter and represented a 7.9% increase over the $0.38 per share reported for the fourth quarter of 2019.
Core FFO was $1.52 per share for the full year 2020 compared to $1.44 per share for 2019, which represents a 5.6% annual growth rate.
FFO as defined by NAREIT was $1.40 per share for the full year 2020 which is lower than the core FFO due mainly to debt extinguishment charges.
We grew AFFO by 6.2% on a share adjusted basis compared to 2019.
Same property NOI growth on a cash basis for the three months and 12 months ended December 31, 2020 was 3.3% and 5% respectively.
Same property growth for the quarter was driven by continued strong rent growth and a 20-basis point increase in average commencement occupancy within our same property portfolio from the fourth quarter of 2019.
Net operating income from non-same-store properties was 17.3% of total net operating income for the quarter.
Same property NOI growth on a GAAP basis was 3.1% for the fourth quarter and 2.8% for the full year 2020.
Bad debt expense for the year was primarily related to non-cash straight-line reserves, which negatively impacted GAAP same property NOI.
We finished 2020 with $295 million outstanding on our unsecured line of credit, which we refinanced earlier this month with a $450 million, 1.75% 10-year green bond issuance which will bear interest at an effective rate of 1.83%.
The pricing on this transaction was very attractive with our effective rate incorporating a 70-basis point spread over treasury rates which at the time was the lowest credit spread ever on a 10-year REIT bond offering.
We intend to continue a robust pace of growth in 2021, which we anticipate to fund with the combination of asset dispositions, internally generated cash flow, short-term use of our line of credit and a potential unsecured bond issuance later in the year.
Also, if additional growth opportunities arise, it's possible we issue a modest amount of equity through the ATM on an opportunistic basis.
From a macro outlook perspective, we expect the 2021 environment to be overall relatively strong and improving each quarter in light of the expected federal stimulus and vaccinations.
Supply and demand are relatively in balance.
The overall fundamentals picture is quite supportive of continued market rent growth and thus a positive setup for pricing power and new development starts.
With this as a backdrop, yesterday, we announced the range for 2021 core FFO per share of $1.62 to $1.68 per share with a midpoint of $1.65, representing an 8.6% increase over 2020.
We also announced growth in AFFO on a share adjusted basis to range between 5.8% and 10.1% with the midpoint at 8%.
Our average in-service portfolio occupancy range is expected to be 95.7% to 97.7%.
Same property NOI growth on a cash basis is projected in a range of 3.6% to 4.4%%.
Our guidance for same-property NOI includes the negative impact from a few tenants Steve mentioned that we expect to terminate in early 2021.
We expect proceeds from building dispositions in the range of $500 million to $700 million, which we will use to fund our highly accretive development pipeline.
Acquisitions are projected in the range of $200 million to $400 million with a continued focus on infill coastal markets and facilities with the repositioning or lease-up potential.
Development starts are projected in the range of $700 million to $900 million with a continuing target to maintain the pipeline at a healthy level of pre-leasing.
Our pipeline of build-to-suit prospects continues to remain robust and the $800 million midpoint of our 2021 guidance is consistent with our actual development starts for 2020.
More specific assumptions and components of our guidance are available in the 2021 range of estimates document on the Investor Relations website.
In closing, I'd like to reiterate what a great year 2020 was for Duke Realty amid the pandemic and a recession.
As we look ahead into 2021, the demand drivers remain exceptionally strong.
Supply and demand remain in balance and we anticipate another year of strong results.
This is evidence that our 2021 guidance of $700 million to $900 million of expected new development starts, strong occupancy expected to remain elevated and most of all evident with our expected growth in FFO per share and AFFO of 8.6% and 8% in the midpoints respectively.
This level of growth is what we believe should be achievable on a consistent basis going forward.
Our performance is the result of a decade of portfolio repositioning with a steadfast focus on quality, investing in selective submarkets and strengthening our balance sheet.
We will continue to see added value created by our dominant development platform and we believe we can continue this level of growth well into the future.
Also, please remember the prompt for our system is now one-zero.
Sean, you may open up the lines for our first question.

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q4 core ffo per share $0.41.
q4 ffo per share $0.40.
introducing 2021 guidance for core ffo of $1.62 to $1.68 per diluted share.
sees 2021 guidance for ffo, as defined by nareit, of $1.58 to $1.68 per diluted share.

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