Duke Realty: Recession Hits Healthcare

 |  Includes: DRE, ICF, IYR
by: Judy Weil

Until now, healthcare has been one of the more resilient sectors in the recession. Where workers were losing jobs in construction and finance, healthcare and education have fared better. That relative honeymoon may be over. Montana hospitals are reporting declines in patient visits and hospitals are struggling with shrinking revenues.

REIT Duke Realty Corp. (NYSE:DRE) indicates on its Q408 conference call that its healthcare portfolio is robust, yet it is seeing signs of a slowdown. If the trend is true, then here's another sector in urgent need of President Obama's stimulus plan.

From Duke Realty's Q408 conference call:

The healthcare business continues to be stronger than the industrial and office business, although activity is slowing in this area, too. At year end, we had 10 healthcare projects under way totaling 909,000 square feet, which were 73% preleased... We are in a strong position to grow this area of our business when the economy improves.

We’re halting virtually all new development starts in light of constrained capital markets. During the fourth quarter, we started only $43 million in new development, which consists almost entirely of two projects. One, 100% leased project in partnership with Baylor Health Care Systems in Dallas.

We've put some development in our guidance so that you know that there may be some commitments that we want to and need to live up to with existing customers, particularly I would say in the healthcare arena that we have some development relationships with certain of the major hospital chains that will want to continue during [2009].

Like that catchy turn of phrase:

[Our] focus for 2009 is to blend, extend and don’t spend.


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