UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported): April 28, 2010
DUKE REALTY CORPORATION (Exact name of registrant as specified in its charter)
Indiana 1-9044 35-1740409 (State or Other Jurisdiction (Commission File Number) (IRS Employer of Incorporation) Identification No.)
600 East 96th Street, Suite 100, Indianapolis, Indiana 46240 (Address of Principal Executive Offices) (Zip Code)
Registrant’s telephone number, including area code: (317) 808-6000
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Item 2.02. Results of Operations and Financial Condition. On April 28, 2010, Duke Realty Corporation (the “Company”) issued a press release (the “Press Release”) announcing its results of operations and financial condition for the first quarter ended March 31, 2010. A copy of the Press Release is attached hereto as Exhibit 99.1 and is incorporated into this Item 2.02 by this reference.
On April 29, 2010, the Company also held a conference call to discuss the Company’s financial results for the first quarter ended March 31, 2010. Pursuant to General Instruction F to Form 8-K, a copy of the transcript from the conference call (the “Transcript”) is attached hereto as Exhibit 99.2 and is incorporated into this Item 2.02 by this reference. The Transcript has been selectively edited to facilitate the understanding of the information communicated during the conference call.
The information contained in this Item 2.02, including the related information set forth in the Press Release and the Transcript attached hereto and incorporated by reference herein, is being “furnished” and shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise. The information in this Item 2.02 shall not be incorporated by reference into any registration statement or other document pursuant to the Securities Act of 1933, as amended, or into any filing or other document pursuant to the Exchange Act, except as otherwise expressly stated in any such filing.
Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers. At the Company’s Annual Meeting of Shareholders held on April 28, 2010 (the “Annual Meeting”), the Company’s shareholders approved amendments (the “Amendments”) to the Duke Realty Corporation Amended and Restated 2005 Long-Term Incentive Plan (the “2005 Incentive Plan”) and the 1995 Key Employees’ Stock Option Plan of Duke Realty Investments, Inc. (the “1995 Plan”) to permit a one-time stock option exchange program pursuant to which certain outstanding stock options could be exchanged for a lesser number of restricted stock units. Details of the stock option exchange program, including a description of the material terms of the 2005 Incentive Plan under which the new restricted stock units will be granted, were included in the Company’s Definitive Proxy Statement on Schedule 14A (File No. 001-09044) as filed with the Securities and Exchange Commission on March 17, 2010.
Pursuant to General Instruction F to Form 8-K, the Amendments to the 2005 Incentive Plan and the 1995 Plan are attached hereto as Exhibit 10.1 and Exhibit 10.2, respectively, and are incorporated into this Item 5.02 by this reference. Item 5.07. Submission of Matters to a Vote of Security Holders. The shareholders of the Company voted on three proposals at the Annual Meeting. Each proposal was approved pursuant to the following final voting results from the Annual Meeting:
1. To elect eleven directors to serve on the Company’s Board of Directors for a one-year term ending at the 2011 Annual Meeting of Shareholders:
BROKER FOR AGAINST ABSTAIN NON-VOTES Thomas J. Baltimore, Jr. 165,554,991 3,361,820 2,329,827 27,562,363 Barrington H. Branch 165,326,703 3,592,065 2,327,870 27,562,363 Geoffrey A. Button 161,030,543 7,893,495 2,322,600 27,562,363 William Cavanaugh III 165,285,588 3,628,946 2,332,104 27,562,363 Ngaire E. Cuneo 156,454,054 12,460,339 2,332,245 27,562,363 Charles R. Eitel 165,339,907 3,565,251 2,341,480 27,562,363 Martin C. Jischke, PhD 165,329,098 3,579,823 2,337,717 27,562,363 Dennis D. Oklak 160,528,376 8,244,128 2,474,134 27,562,363 Jack R. Shaw 166,153,438 2,770,427 2,322,773 27,562,363 Lynn C. Thurber 166,212,781 2,710,060 2,323,797 27,562,363 Robert J. Woodward, Jr 166,177,543 2,747,151 2,321,944 27,562,363
2. To ratify the reappointment by the Board of Directors of KPMG LLP as the Company’s independent public accountants for the fiscal year 2010:
BROKER FOR AGAINST ABSTAIN NON-VOTES 193,245,256 3,071,609 2,492,135
3. To amend the 2005 Incentive Plan and the 1995 Plan to permit a one-time stock option exchange program:
BROKER FOR AGAINST ABSTAIN NON-VOTES 139,138,967 29,602,304 2,505,367 27,562,363
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits
10.1 2010 Amendment to the Duke Realty Corporation Amended and Restated 2005 Long-Term Incentive Plan.# 10.2 Amendment Eleven to the 1995 Key Employees’ Stock Option Plan of Duke Realty Investments, Inc.# 99.1 Duke Realty Corporation press release dated April 28, 2010, with respect to its financial results for the first quarter ended March 31, 2010.* 99.2 Duke Realty Corporation transcript from the conference call held on April 29, 2010, with respect to its financial results for the first quarter ended March 31, 2010.*
* The Press Release and the Transcript attached hereto as Exhibits 99.1 and 99.2, respectively, are “furnished” and not “filed,” as described in Item 2.02 of this Current Report on Form 8-K. SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
DUKE REALTY CORPORATION
By: /s/ Howard L. Feinsand Howard L. Feinsand Executive Vice President, General Counsel and Corporate Secretary
Dated: May 4, 2010 Exhibit 10.1
2010 AMENDMENT TO THE DUKE REALTY CORPORATION AMENDED AND RESTATED 2005 LONG-TERM INCENTIVE PLAN
This Amendment (the “Amendment”) to the Duke Realty Corporation Amended and Restated 2005 Long-Term Incentive Plan (the “Plan”), is hereby adopted as of the 28th day of April 2010, by Duke Realty Corporation (the “Corporation”). Each capitalized term not otherwise defined herein has the meaning set forth in the Plan.
WHEREAS, the Corporation maintains the Plan for the purposes set forth therein; and
WHEREAS, the Board of Directors of the Corporation approved, subject to approval by the Corporation’s shareholders, an amendment to the Plan to permit a one-time stock option exchange program for employees other than the Corporation’s named executive officers and directors (the “Amendment”);
WHEREAS, at the Annual Meeting of Shareholders of the Corporation held on April 28, 2010, the Corporation’s stockholders voted in favor of the Amendment;
NOW, THEREFORE, the Plan is hereby amended, effective as of April 28, 2010, by adding the following new Section 16.3: “Option Exchange. Notwithstanding any other provision of the Plan to the contrary (including, without limitation, Sections 7.1(g), 8.1(e) and 16.2(c)), upon approval of this amendment by the Company’s shareholders in accordance with the terms of this Plan, the Board or the Committee may provide for, and the Company may implement, a one-time-only option exchange offer, pursuant to which certain outstanding Options could, at the election of the person holding such Option, be tendered to the Company for cancellation in exchange for the issuance of a lesser number of Restricted Stock Units, provided that (a) the terms and conditions of such one-time-only option exchange offer are materially consistent with the description of the exchange offer contained in the Company’s Proxy Statement filed with the SEC on March 17, 2010 for the Company’s 2010 Annual Meeting of Shareholders at which the exchange offer was approved, and (b) the exchange offer is commenced within 12 months after the date of such shareholder approval.” All other provisions of the Plan shall remain the same and in full force and effect.
[remainder of page intentionally blank] IN WITNESS WHEREOF, Duke Realty Corporation, by a duly authorized officer, has executed this Amendment to the Duke Realty Corporation Amended and Restated Long-Term Incentive Plan, effective as of the 28th day of April, 2010.
DUKE REALTY CORPORATION
By: /s/ Dennis D. Oklak Dennis D. Oklak Chairman of the Board and Chief Executive Officer Exhibit 10.2
AMENDMENT ELEVEN TO THE 1995 KEY EMPLOYEES’ STOCK OPTION PLAN OF DUKE REALTY INVESTMENTS, INC.
This Amendment Eleven to the 1995 Key Employees’ Stock Option Plan of Duke Realty Investments, Inc. (“Plan”) is hereby adopted as of the 28th day of April, 2010 by Duke Realty Corporation (“Corporation”). Each capitalized term not otherwise defined herein has the meaning set forth in the Plan.
WITNESSETH:
WHEREAS, the Corporation maintains the Plan for the purposes set forth therein; and
WHEREAS, the Board of Directors of the Corporation approved, subject to approval by the Corporation’s shareholders, an amendment to the Plan to permit a one-time stock option exchange program for employees other than the Corporation’s named executive officers and directors (the “Amendment”); and
WHEREAS, at the Annual Meeting of Shareholders of the Corporation held on April 28, 2010, the Corporation’s stockholders voted in favor of the Amendment;
NOW, THEREFORE, the Plan is hereby amended, effective as of April 28, 2010, by adding the following new Section 3.9(d): “OPTION EXCHANGE: Notwithstanding any other provision of the Plan to the contrary, upon approval of this amendment by the Company’s shareholders in accordance with the terms of this Plan, the Board of Directors or the Committee may provide for, and the Company may implement, a one-time-only option exchange offer, pursuant to which certain outstanding Options could, at the election of the person holding such Option, be tendered to the Company for cancellation in exchange for the issuance of a lesser number of restricted stock units, provided that (a) the terms and conditions of such one-time-only option exchange offer are materially consistent with the description of the exchange offer contained in the Company’s Proxy Statement filed with the SEC on March 17, 2010 for the Company’s 2010 Annual Meeting of Shareholders at which the exchange offer was approved, and (b) the exchange offer is commenced within 12 months after the date of such shareholder approval.” All other provisions of the Plan shall remain the same and in full force and effect.
[remainder of page intentionally blank] IN WITNESS WHEREOF, Duke Realty Corporation, by a duly authorized officer thereunder, has executed this Amendment Eleven to the 1995 Key Employees’ Stock Option Plan of Duke Realty Investments, Inc. effective as of the 28th day of April, 2010.
DUKE REALTY CORPORATION
By: /s/ Dennis D. Oklak Dennis D. Oklak Chairman of the Board and Chief Executive Officer Exhibit 99.1
News Release
FOR IMMEDIATE RELEASE
DUKE REALTY CORPORATION REPORTS FIRST QUARTER 2010 RESULTS
Recurring Funds from Operations In-Line with Expectations Earnings Guidance Reaffirmed Positive Momentum in Operating Performance Balance Sheet Strengthened- Executing Capital Strategy
(INDIANAPOLIS, April 28, 2010) – Duke Realty Corporation (NYSE: DRE), a leading industrial and office property REIT, today reported results for the first quarter 2010.
Operating Highlights
• Recurring funds from operations per diluted share (“Recurring FFO”) was $0.28 for the quarter. There were no material non-recurring adjustments
to FFO recognized in the quarter.
• Positive momentum in operating performance:
• Overall portfolio occupancy at 87.5 percent, up from 87.2 percent at year end 2009;
• Tenant retention rate over 82 percent;
• Over 5.5 million square feet of leases completed during the quarter.
• Executing capital strategy; balance sheet strengthened:
• $100.0 million of unsecured bonds retired in January with available cash;
• $122.6 million in proceeds generated from first quarter asset dispositions;
• $250.0 million offering of 6.75% unsecured bonds;
• $212.2 million par value unsecured bonds with 2011 and 2013 maturity dates repurchased in April 2010. Duke Realty Corporation Reports First Quarter Results April 28, 2010 Page 2 of 12
“We are beginning to see signs that the economy is improving,” said Dennis D. Oklak, chairman and chief executive officer. “For the quarter, we were able to maintain occupancy levels from year end 2009 on our overall portfolio, execute the highest first quarter leasing activity in five years, and successfully dispose of non-strategic assets in alignment with our operating strategy. Additionally, I am very pleased with how we are executing on our capital strategy.”
Financial Performance
• Recurring FFO for the first quarter was $0.28 compared with $0.50 for the first quarter of 2009. The variance is primarily attributable to an
increase in our weighted average share count due to the common equity offering in April 2009.
• Net income per diluted share (EPS) for first quarter 2010 was a loss of $0.07, as compared to earnings of $0.15 for the same quarter in 2009. The variance is primarily attributable to $33.1 million of gains realized from the repurchase of the company’s unsecured bonds during the first quarter of 2009.
Capital Markets The company has continued to address near-term debt obligations and execute on deleveraging actions, including:
• Retired $100 million of 6.25% unsecured bonds with available cash.
• Repurchased in the open market $15 million principal amount of its 2011 exchangeable notes.
• On April 1, 2010, executed a $250 million offering of 6.75% senior unsecured notes due March 15, 2020.
• Also in April, repurchased $212.2 million principal amount of unsecured bonds through a tender offer comprised of the following:
• $66.4 million of its 6.95% March 2011 senior notes, repurchased on April 1, 2010;
• $95.8 million of its 5.625% August 2011 senior notes repurchased on April 20, 2010; and
• $50.0 million of its 6.25% May 2013 senior notes repurchased on April 20, 2010. Duke Realty Corporation Reports First Quarter Results April 28, 2010 Page 3 of 7
As a result of these and previously announced capital transactions, the company has $880 million of available liquidity to repay 2011 maturities and pursue strategic opportunities. This liquidity consists of $850 million available on the company’s unsecured line of credit and $30 million of cash on hand as of March 31, 2010.
Portfolio Performance Specific operational highlights include:
• Overall portfolio occupancy, including projects under development of 87.5 percent as of March 31, 2010, compared to 87.2 percent at
December 31, 2009.
• Tenant retention for the quarter of 82.7 percent.
• Same property net operating income decreased by 2.5 percent for the first quarter of 2010, compared with the three-month period ended
March 31, 2009; in-line with expectations. “Although the environment remains challenging, we are pleased to report that the second half of the first quarter showed a significant improvement in our operations. The primary driver was leasing activity in our bulk warehouse portfolio,” stated Mr. Oklak.
Real Estate Investment Activity Development Wholly Owned Properties
• The company’s wholly owned development pipeline at March 31, 2010 consists of three significantly pre-leased projects. The total estimated costs of these projects upon stabilization are $95.5 million, with $17.1 million in costs remaining to be funded. The pipeline is 463,000 square feet and 99.0 percent pre-leased in the aggregate.
• During the first quarter 2010, the company placed into service a 202,000 square foot office building that was 100.0% pre-leased.
Joint Venture Properties
• The company’s joint venture development pipeline at March 31, 2010, consists of three projects which total 956,000 square feet and are 52
percent pre-leased. The total estimated costs of these projects upon Duke Realty Corporation Reports First Quarter Results April 28, 2010 Page 4 of 7 stabilization are $326.6 million, with $185.3 million in remaining costs to be funded. (All joint venture costs and square footage are reported for 100 percent ownership.)
Dispositions Proceeds from first quarter non-strategic building dispositions were $122.6 million at a stabilized capitalization rate of 9.5 percent and were primarily comprised of Midwest office and non-strategic properties. Significant dispositions included:
• Four office buildings located in Columbus, Ohio totaling over 322,000 square feet;
• Three office buildings located in Raleigh, North Carolina totaling over 265,000 square feet that were sold to our CBRE Realty Trust joint
venture;
• A retail center located in Cincinnati, Ohio totaling 360,000 square feet; and
• A 247,500 square feet industrial building sold to a user from a joint venture in which the company has a 50% ownership interest.
Acquisitions Within our joint venture with CBRE Realty Trust, we acquired two office buildings located in the South Florida area totaling over 222,000 square feet that are 100% leased. The company’s 20% share of the acquisition price was approximately $8.7 million with a projected stabilized return of 9.5%.
Dividends Declared The company’s board of directors declared a quarterly cash dividend on the company’s common stock of $0.17 per share, or $0.68 per share on an annualized basis. The first quarter dividend will be payable May 31, 2010, to shareholders of record as of May 17, 2010.
The board also declared the following dividends on the company’s outstanding preferred stock:
Quarterly Class NYSE Symbol Amount/Share Record Date Payment Date Series J DREPRJ $0.414063 May 17, 2010 May 31, 2010 Series K DREPRK $0.406250 May 17, 2010 May 31, 2010 Series L DREPRL $0.412500 May 17, 2010 May 31, 2010 Series M DREPRM $0.434375 June 16, 2010 June 30, 2010 Series N DREPRN $0.453125 June 16, 2010 June 30, 2010 Series O DREPRO $0.523438 June 16, 2010 June 30, 2010 Duke Realty Corporation Reports First Quarter Results April 28, 2010 Page 5 of 7
2010 Earnings Guidance The company reaffirmed Recurring FFO guidance for 2010 of $0.95 to $1.15 per share.
Information Regarding FFO We compute FFO in accordance with standards established by the National Association of Real Estate Investment Trusts (“NAREIT”). NAREIT defines FFO as net income (loss) before non-controlling interest and excluding gains (losses) on sales of depreciable property and extraordinary items (computed in accordance with generally accepted accounting principles (“GAAP”); plus real estate related depreciation and amortization, and after similar adjustments for unconsolidated joint ventures. We believe FFO to be most directly comparable to net income as defined by GAAP. We believe that FFO should be examined in conjunction with net income (as defined by GAAP) as presented in the financial statements accompanying this release. FFO does not represent a measure of liquidity, nor is it indicative of funds available for our cash needs, including our ability to make cash distributions to shareholders. A reconciliation of net income per share, as defined by GAAP, to FFO per share, as defined by NAREIT, is included in the financial information accompanying this release. For information purposes, we also provide FFO adjusted for certain non-recurring items such as impairment charges, gains (losses) on debt transactions and gains (losses) on the repurchases of preferred stock to reflect what management defines as Recurring FFO. Although our calculation of Recurring FFO differs from NAREIT’s definition of FFO and may not be comparable to that of other REITs and real estate companies, we believe it provides a meaningful supplemental measure of our operating performance. A reconciliation of FFO as defined by NAREIT to Recurring FFO is included in the Financial Performance section of this release.
About Duke Realty Corporation Duke Realty Corporation owns and operates more than 134 million rentable square feet of industrial and office, including medical office, space in 18 major U.S. cities. Duke Realty Corporation is publicly traded on the NYSE under the symbol DRE and is listed on the S&P MidCap 400 Index. More information about Duke is available at www.dukerealty.com.
First Quarter Earnings Call and Supplemental Information Duke is hosting a conference call tomorrow, April 29, 2010, at 3:00 p.m. EDT to discuss its first quarter operating results. All investors and other interested Duke Realty Corporation Reports First Quarter Results April 28, 2010 Page 6 of 7 parties are invited to listen to the call. Access is available through the Investor Relations section of the company’s Web site.
A copy of the company’s supplemental information will be available after 6:00 p.m. EDT today through the Investor Relations section of the company’s Web site.
Cautionary Notice Regarding Forward-Looking Statements This news release may contain forward-looking statements within the meaning of the federal securities laws. All statements, other than statements of historical facts, including, among others, statements regarding the company’s future financial position, projected financing sources, future transactions with joint venture partners, future dividends, and future performance, are forward-looking statements. Those statements include statements regarding the intent, belief or current expectations of the company, members of its management team, as well as the assumptions on which such statements are based, and generally are identified by the use of words such as “may,” “will,” “seeks,” “anticipates,” “believes,” “estimates,” “expects,” “plans,” “intends,” “should,” or similar expressions. Forward-looking statements are not guarantees of future performance and involve risks and uncertainties that actual results may differ materially from those contemplated by such forward-looking statements. Many of these factors are beyond the company’s abilities to control or predict. Such factors include, but are not limited to, (i) general adverse economic and local real estate conditions, including the current economic recession; (ii) the inability of major tenants to continue paying their rent obligations due to bankruptcy, insolvency or a general downturn in their business; (iii) financing risks, such as the inability to obtain equity, debt or other sources of financing or refinancing on favorable terms, if at all; (iv) the company’s ability to raise capital by selling its assets; (v) changes in governmental laws and regulations; (vi) the level and volatility of interest rates and foreign currency exchange rates; (vii) valuation of joint venture investments, (viii) valuation of marketable securities and other investments; (ix) increases in operating costs; (x) changes in the dividend policy for the company’s common stock; (xi) the reduction in the company’s income in the event of multiple lease terminations by tenants; and (xii) impairment charges. Additional information concerning factors that could cause actual results to differ materially from those forward- looking statements is contained from time to time in the company’s filings with the Securities and Exchange Commission. The company refers you to the section entitled “Risk Factors” contained in the company’s Annual Report on Form 10-K for the year ended December 31, 2009. Copies of each filing may be obtained from the company or the Securities and Exchange Commission.
The risks included here are not exhaustive and undue reliance should not be placed on any forward-looking statements, which are based on current expectations. All written and oral forward-looking statements attributable to the company, its management, or persons acting on their behalf are qualified in their entirety by these cautionary statements. Further, forward-looking statements speak only as of the date they are made, and the company undertakes no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time unless otherwise required by law. Duke Realty Corporation Reports First Quarter Results April 28, 2010 Page 7 of 7
Contact Information:
Media: Jim Bremner 317.808.6920 [email protected]
Investors: Randy Henry 317.808.6060 [email protected] Duke Realty Corporation Statement of Operations March 31, 2010 (In thousands, except per share amounts)
Three Months Ended March 31, 2010 2009 Revenues: Rental and related revenue $ 222,020 $217,285 General contractor and service fee revenue 113,641 105,088 335,661 322,373 Expenses: Rental expenses 53,792 53,416 Real estate taxes 30,190 28,591 General contractor and service operations expenses 107,162 99,447 Depreciation and amortization 83,461 78,986 274,605 260,440 Other Operating Activities Equity in earnings of unconsolidated companies 4,929 2,527 Gain on sale of properties 2,069 — Earnings from sales of land — 357 Undeveloped land carrying costs (2,251) (2,365) Other operating expenses (277) (338) General and administrative expense (13,544) (9,880) (9,074) (9,699) Operating income 51,982 52,234
Other Income (Expense) Interest and other income (expense), net 151 123 Interest expense (59,021) (51,011) Gain (loss) on debt transactions (354) 33,062 Income (loss) from continuing operations before income taxes (7,242) 34,408
Income tax benefit — 2,707 Income (loss) from continuing operations (7,242) 37,115
Discontinued Operations: Income before impairment and gain on sales 112 353 Gain on sale of depreciable properties 9,778 5,119 Income from discontinued operations 9,890 5,472 Net income 2,648 42,587 Dividends on preferred shares (18,363) (18,363) Net (income) loss attributable to noncontrolling interests 451 (977) Net income (loss) attributable to common shareholders ($ 15,264) $ 23,247 Basic net income (loss) per Common Share: Continuing operations attributable to common shareholders ($ 0.11) $ 0.12 Discontinued operations attributable to common shareholders $ 0.04 $ 0.03 Total ($ 0.07) $ 0.15 Diluted net income (loss) per Common Share: Continuing operations attributable to common shareholders ($ 0.11) $ 0.12 Discontinued operations attributable to common shareholders $ 0.04 $ 0.03 Total ($ 0.07) $ 0.15 Duke Realty Corporation Statement of Funds From Operations March 31, 2010 (In thousands, except per share amounts)
Three Months Ended March 31, (Unaudited) 2010 2009 Wtd. Wtd. Avg. Per Avg. Per Amount Shares Share Amount Shares Share Net Income (Loss) Attributable to Common Shares ($ 15,264) $ 23,247 Less: Dividends on share based awards expected to vest (502) (515) Net Income (Loss) Per Common Share - Basic (15,766) 224,153 ($0.07) 22,732 148,488 $0.15 Add back: Noncontrolling interest in earnings of unitholders — 1,060 6,766 Other potentially dilutive securities 493 Net Income (Loss) Per Common Share - Diluted ($ 15,766) 224,153 ($0.07) $ 23,792 155,747 $0.15 Reconciliation to Funds From Operations (“FFO”) Net Income (Loss) Attributable to Common Shares ($ 15,264) 224,153 $ 23,247 148,488 Adjustments: Depreciation and amortization 84,168 80,208 Company share of joint venture depreciation and amortization 9,563 11,218 Earnings from depreciable property sales-wholly owned, continuing operations (9,778) (5,119) Earnings from depreciable property sales-wholly owned, discontinued operations (2,069) — Earnings from depreciable property sales-JV (2,304) — Noncontrolling interest share of adjustments (2,278) (3,761) Funds From Operations - Basic 62,038 224,153 $ 0.28 105,793 148,488 $0.71 Noncontrolling interest in earnings (loss) of unitholders (449) 6,607 1,060 6,766 Noncontrolling interest share of adjustments 2,278 3,761 Other potentially dilutive securities 1,435 493 Funds From Operations - Diluted 63,867 232,195 $ 0.28 110,614 155,747 $0.71 (Gains) losses on debt transactions 354 (33,062) (Gains) losses on land sales — (357) Recurring Funds From Operations - Diluted $ 64,221 232,195 $ 0.28 77,195 155,747 $0.50 Duke Realty Corporation Balance Sheet March 31, 2010 (In thousands, except per share amounts)
March 31, December 31, 2010 2009 ASSETS: Rental Property $ 6,298,396 $ 6,390,119 Less: Accumulated Depreciation (1,313,671) (1,311,733) Construction in Progress 88,485 103,298 Land Held for Development 655,947 660,723 Net Real Estate Investments 5,729,157 5,842,407 Cash 30,999 147,322 Accounts Receivable 20,798 20,604 Straight-line Rents Receivable 133,138 131,934 Receivables on Construction Contracts 40,982 18,755 Investments in and Advances to Unconsolidated Companies 516,356 501,121 Deferred Financing Costs, Net 51,302 54,489 Deferred Leasing and Other Costs, Net 360,702 371,286 Escrow Deposits and Other Assets 208,834 216,361 Total Assets $ 7,092,268 $ 7,304,279 LIABILITIES AND SHAREHOLDERS’ EQUITY: Secured Debt $ 785,769 $ 785,797 Unsecured Notes 2,938,688 3,052,465 Unsecured Line of Credit 15,876 15,770 Construction Payables and Amounts due Subcontractors 58,568 43,147 Accrued Real Estate Taxes 80,986 84,347 Accrued Interest 36,612 62,971 Accrued Expenses 27,733 48,758 Other Liabilities 194,901 198,906 Tenant Security Deposits and Prepaid Rents 35,947 44,258 Total Liabilities 4,175,080 4,336,419 Preferred Stock 1,016,625 1,016,625 Common Stock and Additional Paid-in Capital 3,273,760 3,269,436 Accumulated Other Comprehensive Income (4,906) (5,630) Distributions in Excess of Net Income (1,409,048) (1,355,086) Total Shareholders’ Equity 2,876,431 2,925,345 Non-controlling Interest 40,757 42,515 Total Liabilities and Equity $ 7,092,268 $ 7,304,279 Exhibit 99.2
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CORPORATE PARTICIPANTS
Randy Henry Duke Realty Corporation — Asst. VP — Investor Relations
Dennis Oklak Duke Realty Corporation — Chairman and CEO
Christie Kelly Duke Realty Corporation — CFO, EVP
Mark Denien Duke Realty Corporation — SVP, CAO
CONFERENCE CALL PARTICIPANTS
Joshua Attie Citigroup — Analyst
Sloan Bohlen Goldman Sachs — Analyst
Jamie Feldman Bank of America — Merrill Lynch — Analyst
Chris Caton Morgan Stanley — Analyst
Paul Adornato BMO Capital Markets — Analyst
Ki Bin Kim Macquarie Research Equities — Analyst
Michael Knott Green Street Advisors — Analyst
Young Ku Wells Fargo — Analyst
PRESENTATION
Operator
(Operator Instructions) As a reminder this conference call is being recorded. I’d now like to turn the conference over to your host, Randy Henry. Please go ahead, sir.
Randy Henry - Duke Realty Corporation — Asst. VP — Investor Relations
Thank you. Good afternoon, everyone, and welcome to our quarterly conference call. Joining me today are Denny Oklak, Chairman and Chief Executive Officer, Christie Kelly, Executive Vice President and Chief Financial Officer, and Mark Denien, Chief Accounting Officer. Before we make our prepared remarks let me remind you all that statements we make today are subject to certain risks and certainties that could cause actual results to differ materially from expectations. Some of those risk factors include our continued qualification as a REIT, general business and economic conditions, competition, interest rates, accessibility of the debt and equity capital markets, increases in real estate construction costs and other risks inherent in the real estate business. For more information about those risk factors we would refer you to our 2009 10-K which we have on file with the SEC dated March 1, 2010. Now for our prepared statement I will turn it over to Denny Oklak.
2
Dennis Oklak - Duke Realty Corporation — Chairman and CEO
Thank you, Randy. Good afternoon everyone and welcome to Duke Realty’s first quarter earnings call. On today’s call I will touch on our views on the current economic indicator and how they affect our business. I will highlight our performance during the first quarter of 2010 versus our strategic objectives. Christie Kelly will then provide an update of our first quarter 2010 financial performance and capital market activities in relation to our capital strategy. As we look at the first quarter activity, it’s clear that the economy has made some progress in the first quarter but we believe there’s still more progress needed before we see sustainable performance in leasing volume across all of our product types. However, from where we were just six months ago there are signs that the economic recovery is gaining traction.
Early indicators such as GDP growth, rising corporate profits, and continued access to both the debt and equity markets are providing the building blocks for a more stable economy. On the industrial front, a few items of note. Retail sales continue to improve. Trucking and shipping volumes have increased in the first quarter of 2010 based on year-over-year comps. And industrial production has risen over 5% since bottoming in June of last year, and manufacturing employment increased in both January and February of this year, signaling an expansion in growth. This is the first increase in these indicators since the start of our Great Recession.
With some optimism in the market we do see customers evaluating industrial space needs and inquiring more about available product, particularly with our strongest — with the strongest owners of quality space who are able to provide real estate solutions over the long-term. While economic growth may continue, it seems likely that job growth will remain subdued and unemployment will remain high for some time. This will slow the office sector in the near- term but is in line with what we anticipated for 2010. Bottom-line there are two key themes for our business today. First, the bulk signs are positive as retailers continue to build inventories. Second, the office signs are still negative because of the stubborn unemployment we’re seeing. In terms of our operating strategy and performance, we continue to be focused on leasing up the vacant space in our existing buildings to generate additional cash flow, building up our pre-leased medical office of business development pipeline and pursuing some build-to-suit development opportunities.
Turning to the first quarter operating results, we clearly experienced positive momentum during the quarter. Our overall occupancy in our portfolio was 87.5% at March 31st, up from 87.2% at year end 2009. With our 2010 guidance we anticipated an approximate 100 basis point decline in occupancy in our overall portfolio during the first quarter due to known terminations. While our known terminations did occur, these forecast vacancies were offset by higher temporary and month-to-month tenants remaining in our space as well as increased momentum in leasing in our bulk industrial business. Occupancy in our portfolio today includes about 1.4 million square feet or about 1% of these temporary and short-term leases. Our ability to retain this occupancy or convert the tenants into longer term leases will be key to maintaining our overall occupancy near the top end of our guidance range for the year.
On the leasing front, we signed over 5.5 million square feet in leases during the first quarter. I’m pleased to report that this volume was our highest level in a first quarter since 2004. Occupancy in our stabilized bulk portfolio was 89.5% at March 31, 2010, up from 89.0% at year end 2009. We signed some significant transactions during the quarter, including:
• In Dallas, we signed a 10.5-year lease with American Standard to fully lease a 626,000 square foot industrial building.
• In Atlanta, we leased 126,000 square feet to Mitsubishi Electric for 2.5 years. This lease increased the occupancy in the building to 100%.
• In Phoenix, we executed a lease for 117,000 square feet in our Good Year One building. This lease is with an alternative energy provider for a
term of 10 years.
• We also completed a significant renewal and extension of over 1 million square feet with C&H America covering two buildings in our Lebanon
Business Park in Indianapolis. This transaction extends our tenant’s current lease through January 2020.
On the suburban office side, we’re not seeing as much activity but have maintained the occupancy for our stabilized portfolio at 85.5% at quarter end, just marginally lower than the 85.6% at December 31st. A couple of transactions of note on the office side: In Raleigh, we signed a 5.5-year, 70,000 square foot lease to back fill space from the downsizing we completed with Lenovo in the fourth quarter of 2009. In Cincinnati, we renewed 160,000 square feet with an existing tenant to extend the current lease to July 2021. While the decrease in the net effective rent on this one transaction made our overall growth and net effective rents in our office renewal negative, we believe the transaction is an excellent long-term lease for this building.
As of March 31, our wholly-owned development pipeline consisted of only three properties comprising 460,000 square feet which were 99% preleased with an anticipated yield of 8%. These projects require approximately $17.1 million of additional capital to complete. Same property NOI for the quarter was a negative 2.5% and in line with our expectations. This is a significant positive trend from the fourth quarter 2009, which was 5.9%. I’m also pleased to report that our lease renewal percentage for the quarter was 82.7%. As a leasing environment picks up, we believe
3 we are well positioned with our unstabilized portfolio of modern, recently placed in service assets that can generate $40 million to $45 million of NOI upon stabilization. As I mentioned, our operations strategy is focused on lease up of these assets which total approximately 11.8 million square feet and are today 59.2% leased. Our team knows our objectives and we’re making progress even in a tough environment.
One other item of note, we believe that the new healthcare reform will be an increased driver for growth in our medical office business. We are seeing an increase velocity of projects in the market place now that legislation has been approved. We believe this increases the long-term trend and our healthcare team is well positioned to capitalize on this momentum. I’ll now turn the call over to Christie.
Christie Kelly - Duke Realty Corporation — CFO, EVP
Thanks, Denny, and good afternoon, everyone. As Denny mentioned, I would like to provide an update on our financial performance and financing activities during the quarter with respect to our capital and asset strategy. First quarter recurring FFO was $0.28 per share compared to $0.50 per share for the first quarter of 2009. The decrease in recurring FFO from 2009 to 2010 is primarily the result of an increase in our weighted average share count due to the common equity offering in April 2009. The results were in line with our expectations and the consensus estimates for the quarter. Turning to the capital side of our business, we continued to address our near-term debt obligations and execute on deleveraging actions.
In January, we retired $100 million of unsecured bonds with available cash. In April we successfully executed $250 million offering of 6.75% senior unsecured notes, due March 15th, 2020. The spread was 287.5 basis points which at the time was 25 basis points below spreads on our secondary bonds and 40 basis points considering new issue premiums. Additionally, we had no maturities in 2020 prior to this transaction. We are very pleased with the timing and execution of this transaction, and by the acceptance of our investors in the market.
We used the proceeds to repurchase $212 million par value unsecured bonds through a tender offer comprised of the following: $66 million of our 6.95% March 2011 secured senior notes, $95.8 million of our 5.625% August 2011 senior notes, and finally, $50 million of our 6.25% May 2013 senior notes. This tender offer allowed us to reduce our 2011 unsecured maturities from $585 million at March 31st to $422 million upon the final closing of the tender offers on April 20th. As a result of these and previously announced capital transactions, we have $880 million available liquidity to repay our 2011 maturity and pursue strategic opportunities.
In February, we initiated an At-The-Market program which allows us to issue up to $150 million of equity. We believe that this is an efficient means to raise capital. I want to make clear that we have not issued any shares under this program to date. We view this tool as a means to utilize opportunistically given the volatility in the market and remain very disciplined in using this source of capital.
Turning to our capital recycling, we closed on $122.6 million of asset dispositions during the quarter at an aggregate capitalization rate of 9.5%. Consistent with our stated strategy, the assets sold were mainly office and other non-strategic properties. Included in these dispositions are the following:
• First, three office buildings in Raleigh that we sold to our CBRE realty trust joint venture in conjunction with another transaction which I’ll
touch on in a moment;
• Four office buildings located in Columbus, Ohio, totaling over 322,000 square feet;
• A retail center located in Cincinnati, Ohio, totaling 360,000 square feet; and
• A 247,500 square foot industrial building sold to a user from a joint venture in which our company has a 50% ownership interest for which the
company had a 50% ownership interest.
The 9.5% cap rate is more indicative of the types of assets that we sold than the current value of our long-term hold portfolio. These assets were older and non-strategic assets. This position will help us to progress to our long-term goal of being more weighted to bulk industrial assets.
Through our joint venture with CBRE Realty Trust, we acquired two office buildings totaling over 222,000 square feet that are 100% leased and located in South Florida, specifically the Greater Ft. Lauderdale/Broward County area. The buildings were owned by CBRE Realty Trust and were contributed to the joint venture at the same time as the three of our office buildings in Raleigh were sold to the venture. As of March 31st, this joint venture with Duke Realty is a 20% partner owns nine office and eight industrial assets with an investment of over $450 million. We have at least $350 million in remaining capacity in this venture and are very pleased with our venture success to date. We continue to look at opportunistic acquisitions that have focus on industrial and medical office assets. We’re seeing some fairly aggressive pricing on the relatively small number of trade that are occurring in both product types. We are being disciplined in our approach in pricing, realizing that there will be transactions that trade at a lower cap rate than we require.
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The first quarter was a positive start to our capital plan for 2010. We executed over $100 million of assets sales, retired over $100 million of all remaining 2010 unsecured bond maturities with available cash, refinanced a portion of our 2011 debt maturity and were able to keep our unsecured line of credit at zero balance as of March 31st. With that I’ll turn it back over to Denny.
Dennis Oklak - Duke Realty Corporation — Chairman and CEO
Thanks, Christie. To close I’d like to emphasize our strategic focus as we continue to move forward in 2010. From an operations strategy, we are focused on leasing up of our unstabilized portfolio and the development of pre-leased medical office buildings and other build to suit opportunities. Our asset strategy is driven by the ultimate goal of repositioning our portfolio from a concentration in Midwest suburban office assets to more investment in bulk industrial product and medical office properties. We have an identified action plan and a number of buildings and land parcels moving through the disposition process. We remain comfortable with our guidance of $150 million to $350 million of dispositions for the year.
We are extremely pleased with the execution of our capital strategy over the past year, including the recently completed unsecured debt transactions. We are driving operating fundamentals by focusing on lease up and selected pursuit of development. We’re progressing on our asset repositioning in a difficult environment and aggressively pursuing our capital strategy by deleveraging, pushing out maturities, and being prepared for growth opportunities. We remain focused on executing our strategic plan and addressing all factors impacting our value. We have reaffirmed our guidance of $0.95 to $1.15 of FFO per share for 2010. As we noted on our last call, we provided a wide guidance range this year because of the uncertainty in the economy.
We are certainly pleased with our performance in the first quarter, particularly on the bulk industrial leasing front. But there are a couple of items I would point out. First, revenues for much of our first quarter leasing activity will not begin until the second half of 2010. Second, we are seeing pressure on our tenants’ businesses and experienced a couple of unanticipated bankruptcies in the first quarter. And finally, the spurt in office business is looking slower than we anticipated because as I mentioned earlier the unemployment level is not dropping. Therefore, we believe a wide guidance range is still appropriate until we gain more clarity on the second half of this year. Thank you again for joining us today. And now we will open it up for questions.
QUESTION AND ANSWER
Operator
Thank you. (Operator Instructions) Our first question is from the line of Michael Bilerman with Citi.
Joshua Attie - Citigroup — Analyst
Thanks, Josh Attie with Michael. What were the unanticipated bankruptcies in the first quarter? And have those been reflected in the occupancy yet?
Dennis Oklak - Duke Realty Corporation — Chairman and CEO
They were reflected in the occupancy at March 31st, Josh. There was — we had a couple of them. We actually had an industrial bankruptcy over in Savannah. We had an office bankruptcy down in Atlanta — or excuse me, in Orlando that we just didn’t anticipate. And so there’s still a lot of pressure on the tenants. The economy is beginning to turn but there are still a few folks that I would call hanging on by their fingernails. So we don’t think that we’re really out of the woods yet on our tenant base.
Joshua Attie - Citigroup — Analyst And for the month-to-month tenants that you mentioned in your prepared remarks, what’s the tone of your conversations been in terms of signing them onto longer term leases and what are their pressure points? Is it just a question of rent or are they still unsure of where their business is going and if they’re going to need the space?
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Dennis Oklak - Duke Realty Corporation — Chairman and CEO
Yeah. I think the tenor of the discussions really varies across the board on that. Some of the folks just want the temporary space. They know they’re not going to need it long-term. But for the most part, it’s more of an unwillingness to sign a longer term lease because they’re still not comfortable with their business. A number of these month-to-months are actually expansions of tenants, so a tenant has come up to and said, we need a few more thousand square feet but we don’t want to do it on a long-term basis right now. But we’d like to do it on a short-term basis. Obviously, if we have the space available adjacent in this environment we are willing to do that. And then once we get them in the space we’re constantly trying to get them to extend that and enter into a long-term lease.
Joshua Attie - Citigroup — Analyst
Thanks. And then my last question is, of the leasing that was done in the quarter, how much of it has been for the new unstabilized assets? And as you lease that space, how do the rents compare to the market rents in those markets?
Dennis Oklak - Duke Realty Corporation — Chairman and CEO
Yes. The one lease that we mentioned on the 626,000 square foot deal with American Standard down in Dallas. That was one of our newer spec buildings — that building was actually leased initially for a year but then it’s been vacant for about 18 months or so since then. So that one now is off the market. And I think there was a couple other ones that we filled part of a couple buildings, including one other industrial building and one of our medical office buildings in the quarter.
Joshua Attie - Citigroup — Analyst
And as you lease that vacant space, how are the rents versus what the market rents are?
Dennis Oklak - Duke Realty Corporation — Chairman and CEO
Well, the rents compared to the — they are market rents, but I think you mean compared to our original pro forma. You know, they’re substantially below, I would say. But what really trying to do with these is — it’s still a tough market on the pricing side, even in the bulk industrial. And so typically what happens is we have more free rent period than we pro forma. And normally we would pro forma in a normal on an industrial building, maybe two or three months at the most. We’re probably in the nine to 12 months, sort of one month per year of a term today. Rents on the initial phase rents are probably down 30% to 35% from our original pro forma, but we’re getting good bumps. And we’re very focused on is within a two- to four-year period, depending on the market and the tenant, getting that space rate back up to pretty close to where we proforma it. And we are we’re able to do that generally speaking today.
Joshua Attie - Citigroup — Analyst
Okay. Thank you very much.
Operator
Next we go to the line of Sloan Bohlen with Goldman Sachs. Please go ahead.
Sloan Bohlen - Goldman Sachs — Analyst
Good afternoon. Thanks. Denny, I think I see where you’re going on the guidance. But just one or two quick questions on the quarter. The 100 basis point decline that you expected in occupancy in the quarter, was that entirely made up by the month-to-month tenants or was there better leasing volume or kind of combination of both?
Dennis Oklak - Duke Realty Corporation — Chairman and CEO
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It was a combination of both. But I would say probably a little bit more weighted towards the new leasing activities.
Sloan Bohlen - Goldman Sachs — Analyst
Okay. And I think for your guidance for the year originally you’d set out same store declines of anywhere between 2% and 5%. And it looks like you’re coming in at the lower end of that range. Could you maybe give us thoughts on where you expect the rest of the year to ramp?
Dennis Oklak - Duke Realty Corporation — Chairman and CEO
Yeah. I think, Sloan, our guidance was negative 1% to negative 5%.
Sloan Bohlen - Goldman Sachs — Analyst
Okay.
Dennis Oklak - Duke Realty Corporation — Chairman and CEO
Right now, again, it’s really dependent on how the leasing activity goes for the rest of the year. But I think we’ll be closer to the lower negative guidance so closer to the negative 1% than the negative 5%.
Sloan Bohlen - Goldman Sachs — Analyst
Okay.
Dennis Oklak - Duke Realty Corporation — Chairman and CEO
For the year.
Sloan Bohlen - Goldman Sachs — Analyst
And with regards to those bankruptcies you had in the first quarter, is there anything else on your watch list that’s crept up? Or those were fairly unanticipated as you said. But anything else that you’re taking a closer look at?
Dennis Oklak - Duke Realty Corporation — Chairman and CEO
Well, we still have a fairly sizeable watch list in today’s environment. So we are looking closely. And it’s really not the watch list tenants that worry us so much. Because we pretty much know where they stand. It’s the ones who kind of come out of the blue that we manage all of our own properties so our property managers are very close to our tenants so we think we have a good handle on all those folks. But every once in a while one comes out of the blue that even our local property managers didn’t anticipate. And those were a couple of the ones in the first quarter. So those are the kinds that make us nervous.
Sloan Bohlen - Goldman Sachs — Analyst
Okay. And then just one question on the capital strategy. And again with the sales it looks like you are even ahead of schedule there kind of at the low end of your range already. Could you talk about what pricing has maybe been done since you’ve done those sales and whether there’s been any thought as to try to increase that given that maybe there’s more activity going on?
Christie Kelly - Duke Realty Corporation — CFO, EVP
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I think first of all I’ll answer the second part of the question first and then turn it over to Denny just in terms of views on pricing. But from a disposition perspective, first we’re comfortable with our guidance in the $150 million to $350 million range. We do think we’ll come in more towards the upper end of that range as it relates to building dispositions. And on land dispositions, if you take the whole pie of non-strategic, we have given guidance at the $20 million to $50 million range. And that’s just really slow right now as you can imagine. And we closed for the first quarter just a couple million.
Dennis Oklak - Duke Realty Corporation — Chairman and CEO
Yeah. The only thing I would add to that, Sloan, was as you will recall on the first quarter call we said that our dispositions for the year were going to be weighted towards the first half of the year because we had quite a few things pretty far down the way. So we did close on a lot of those in the first quarter. Again, we have a pretty strong pipeline here in the second quarter. So overall we’re really looking at the $150 million to $350 million range. And then in answer to your question, yes, we are always looking. As you know, we still have a fairly sizeable portfolio that’s in our targeted disposition list as part of the — our asset strategy to reposition the assets. So we are looking at some of those other assets to see if there are opportunities to accelerate those dispositions. But, still again, I think when we look at the year sitting here today we’re still pretty comfortable with that top end in the $350 million range.
Sloan Bohlen - Goldman Sachs — Analyst
Okay. And just anything else in the pricing since the sales?
Dennis Oklak - Duke Realty Corporation — Chairman and CEO
No. I think — I guess just as an overall comment, the pricing for most assets generally seems to be getting better. And I think that was the case during the first quarter. Both on our — we’re not really selling any industrial but we’ve looked at a number of industrial acquisitions. And I think the cap rates have continued to decline on the industrial product. On the office products, they firmed up, I would say. And I think there’s generally speaking a fairly consistent market out there now for even the suburban office assets, although it’s still — they’re still a little bit tough for the kind of assets that are sold to local buyers. Because that typical bank financing is still not available out there today.
Sloan Bohlen - Goldman Sachs — Analyst
Okay. All right. That’s helpful, guys. Thank you.
Operator
Next is the line of Jamie Feldman from Bank of America. Please go ahead.
Jamie Feldman - Bank of America — Merrill Lynch — Analyst
Thank you. Just a couple of follow-ups from some of the questions already asked. So the 1% to 5% negative same store guidance, is that cash or GAAP?
Dennis Oklak - Duke Realty Corporation — Chairman and CEO
Cash.
Jamie Feldman - Bank of America — Merrill Lynch — Analyst
That’s cash? Okay. And without lease termination fees?
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Dennis Oklak - Duke Realty Corporation — Chairman and CEO
Yeah. We exclude any building that’s had a $250,000 or more lease termination fee in it from the population.
Jamie Feldman - Bank of America — Merrill Lynch — Analyst
Okay. And then you guys provide leasing spreads for the renewals. But do you happen to know what they would have been for all leases signed? If you were to blend them on a cash basis?
Dennis Oklak - Duke Realty Corporation — Chairman and CEO
We don’t look at that and we really never have, Jamie. And the reason for that is, it’s not all that often that we lease the exact same space that the tenant terminated in. So in other words, a tenant may terminate 100,000 square feet. We lease that and a 20,000 or 40,000 and a 40,000 or something. So it’s just a little bit harder to really match everything up. So we’ve never done that and we really — we don’t track that internally, either.
Jamie Feldman - Bank of America — Merrill Lynch — Analyst
Okay. I guess what I’m trying to get at is just as we think about lease expirations, what the market to market would be.
Dennis Oklak - Duke Realty Corporation — Chairman and CEO
Jamie, I don’t think it’s a whole lot different than our renewals. There’s nothing that I’ve seen over the years to say that it’s going to be significantly different than the renewals. And I would tell you especially today I think that’s true, because even on the renewals, you know, generally speaking our customers have tenant rep brokers involved. And they know the market. So you can — usually where we do better on the renewals is less capital expenditures. So that’s what we’re really focused on the renewal side. The rental rates are pretty close to what any market rate would be.
Jamie Feldman - Bank of America — Merrill Lynch — Analyst
Okay. And then in terms of the dispositions you still think you thinking about there? What are you thinking about cap rates there?
Dennis Oklak - Duke Realty Corporation — Chairman and CEO
I’m sorry, on acquisitions did you say?
Jamie Feldman - Bank of America — Merrill Lynch — Analyst
I’m sorry. Dispositions.
Dennis Oklak - Duke Realty Corporation — Chairman and CEO
Dispositions? Well, I think when you look at the disposition list that we have, again for the most part today it’s those non-strategic assets. So I would tell you that I think it’s probably going to stay somewhere in that 9 to 9.5 range, maybe 8.5 to 9.5.
Jamie Feldman - Bank of America — Merrill Lynch — Analyst
Okay. All right. Thank you.
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Operator
Next we go to the line of Chris Caton with Morgan Stanley. Please go ahead.
Chris Caton - Morgan Stanley — Analyst
Hi. Thanks for taking my call. Two quick questions. One is if you look at your industrial lease role of 12 to 24 months, what are you seeing in terms of tenant retention and how fully utilizing — how much are the tenants fully utilizing the space at this point? And then second is across markets, any color across your markets would be appreciated.
Dennis Oklak - Duke Realty Corporation — Chairman and CEO
Okay. Sure, Chris. You know, we’ve really experienced a very high level of renewals over the last 18 to 24 months. And I think as we’ve been saying, tenants just aren’t really inclined to move. The only time they’re moving right now is to really consolidate several operations for efficiency. We’ve been the beneficiary of that with some of our larger bulk spaces. So tenants are inclined to stay. Similar to my comments on the month-to-month leases where a tenant comes to us and say they’d like to expand but they’re just not ready to sign a long-term lease yet. Same thing with staying in a building. They want to stay. And so I think we’re going to continue to see a pretty high renewal rate and range on the industrial buildings. And the second part of that question, I forgot what was the second part.
Christie Kelly - Duke Realty Corporation — CFO, EVP
I can jump in. On the lease maturity schedule, I think you’re asking what we are seeing going forward. Our maturities are really well-balanced going forward. So on average we’ve got 10% and there’s really no ladder or no year that’s really in excess of 12%, 13%.
Dennis Oklak - Duke Realty Corporation — Chairman and CEO
But other part of your question, I’m sorry, was the utilization, Chris. Yeah. The space is being utilized. Industrial tenants, they don’t want to leave that space sitting vacant. We probably have a little bit more of that shadow space in the office side today, but not in the industrial side. And then just looking kind of high level at the markets, generally speaking I would say the industrial activity has picked up pretty much across the board. Varies a little bit market by market. But we’ve filled buildings in almost every one of our markets now, over the last six to nine months.
So I think it’s a positive sign on the industrial — it’s interesting to me that there’s a lot of talk about Savannah and the pickup in the port activity. But we haven’t seen a lot of additional pickup or momentum in Savannah. We’re still doing fine there, but we haven’t seen a lot of pickup. Midwest markets continue to show some good activity. Dallas, Atlanta, Chicago are still tough markets because there’s still a fair amount of vacancy out there in newer buildings. But there’s deals coming around today.
On the office side, I would say it’s really pretty much opposite of that it’s pretty slow all over. There’s a couple exceptions in our cities today. I would tell you the portfolio we have in Washington, D.C. is doing very well. Very highly-occupied, rental rates are strong. So that market, as I’m sure you all would imagine is, doing well. Raleigh seems to be doing very well. I mentioned we down sized Lenovo in the fourth quarter. We’ve now virtually filled all that space from their downsizing. And then the other market that really continues seem to hold up well is our south Florida asset. We’ve got a pretty nice office presence down that in Broward county. And that one seems to be doing well.
Chris Caton - Morgan Stanley — Analyst
Thank you.
Dennis Oklak - Duke Realty Corporation — Chairman and CEO
Thanks, Chris.
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Operator
Next we go to the line of Paul Adornato with BMO Capital Markets. Please go ahead.
Paul Adornato - BMO Capital Markets — Analyst
Thanks. Good afternoon. I wanted to follow upon the medical office side of the business. First was wondering if you could characterize the development opportunities. How much of a — what size of a development pipeline would you be comfortable with let’s say two years down the road? And secondly, in the past you guys have been successful in kind of making large strategic shifts relatively quickly. And so to that end have you seen any large medical office portfolios out there? And if so, does the pricing appeal to you?
Dennis Oklak - Duke Realty Corporation — Chairman and CEO
Paul, first on the development side, the opportunities are picking up. We haven’t — there’s nothing that we’ve announced at the start this year, but in that industry you get awarded the project and then there’s still a pretty — a pretty long time frame before that project actually gets all signed up and starts. And we don’t really count it until it starts. So I would tell you today, we have probably been awarded projects somewhere in the range of $50 million to $70 million that we think will start sometime later this year or early next year. And that’s pretty much in line with our guidance. Our guidance for this year was the new development starts between $100 million and $200 million. And we said that probably at least 50% of that would be on the medical office side and the rest would be in some build to suits.
Paul Adornato - BMO Capital Markets — Analyst
And do you see that potential increasing in the future? Or is that kind of a Max type of development pipeline that you —
Dennis Oklak - Duke Realty Corporation — Chairman and CEO
Oh, no, I definitely think we can increase that . That if you look back, Paul, to 2006 and 2007, and even really into the first part of 2008, we were running more at a clip of kind of the $250 million a year start range. So I think we will get back close to that level. You know, the healthcare providers haven’t been without their issues during this downturn. And I think clearly this whole healthcare legislation issue just put a lot of things on hold. So we do anticipate the velocity picking up in that business now. And then on the question on acquisitions, we have looked — we have seen a few. Obviously you all have seen a few of the medical office transactions trade in the market. And we’ve looked at a few of those. But again I think the pricing is not quite where we would like to see it for our purposes. I think we will have some success on acquisitions is working with the major hospital systems and our clients and acquiring some properties directly from them as part of some ongoing development opportunities. — We’re seeing a few of those. And I think that’s where most of our acquisition activity will come.
Paul Adornato - BMO Capital Markets — Analyst
Thank you.
Dennis Oklak - Duke Realty Corporation — Chairman and CEO
Thanks, Paul.
Operator
Next we go to the line of Ki Bin Kim with Macquarie. Please go ahead.
Ki Kim
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Thank you, so if you look at your debt maturity schedule it looks like 2010 is pretty taken care of. How much of the 2011 debt maturities are you guys expecting to proactively deal with in this year?
Christie Kelly - Duke Realty Corporation — CFO, EVP
Ki Bin, we are expecting to opportunistically buy whatever we can.
Ki Kim
Okay. And in terms of issuing new debt, are you comfortable with carrying a balance on your line of credit? Or are you looking to match fund it so issue new debt as you are buying it back long term?
Christie Kelly - Duke Realty Corporation — CFO, EVP
You know, in alignment with our capital strategy, Ki Bin, we would look to match funds.
Ki Kim
All right.
Dennis Oklak - Duke Realty Corporation — Chairman and CEO
The only thing I would add to that, again I think it was really a successful quarter with Christie and her team. Because we now have those 2011 unsecured maturities below $500 million, which just at 12 months ago they were at $1.1 billion and we had $700 million on our line. So we’ve made tremendous progress here. The issue we have now is we got about as much of those 2011 maturities with this tender as we could get. So you’ve almost got a way to pay them off at maturity because nobody else wants to give them up. So we’ll continue to look for opportunities, but we’ll fund those in 2011.
Ki Kim
So if you try to pay it off early, what kind of early debt extinguishing fees would you be looking at?
Christie Kelly - Duke Realty Corporation — CFO, EVP
We priced — I think it’s really more of a hypothetical, Ki Bin, but we priced as aggressively as we possibly could for the 2011. And to that point we were even just a bit light. So we came in at for example $66 million on one tranche and we’re pricing for $75 million.
Dennis Oklak - Duke Realty Corporation — Chairman and CEO
That was at a 5% or —
Christie Kelly - Duke Realty Corporation — CFO, EVP
5% to 6%.
Ki Kim
5% to 6% percent premium.
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Christie Kelly - Duke Realty Corporation — CFO, EVP
That’s correct.
Ki Kim
Okay. And last question. If you look across your JV partnerships, could you remind me, are there any expirations targets for the joint ventures? And any risk in terms of if the assets are worse than the debt what would happen in that type of situation?
Dennis Oklak - Duke Realty Corporation — Chairman and CEO
No. The only near-term maturity we have is — that we talked about is in our Dugan joint venture. We have a $200 million secured loan coming due in October of this year. That loan was taken out as a 10-year CMBS loan so it was taken out at about 50% loan to value.
Christie Kelly - Duke Realty Corporation — CFO, EVP
That’s right, Denny, and Ki Bin we have that in our cash forecast, all accounted for.
Dennis Oklak - Duke Realty Corporation — Chairman and CEO
So our share is the $100 million.
Ki Kim
Okay. Thank you guys.
Operator
Next we go to the line of Michael Knott with Green Street Advisors, please go ahead.
Michael Knott - Green Street Advisors — Analyst
I was wondering if you could just provide some color on the deals you referenced, Christie, that some transactions in the market that were aggressive but in just maybe location, product type, any commentary you can provide that will just give us a little color on your comment there.
Christie Kelly - Duke Realty Corporation — CFO, EVP
Sure, Michael. I’ll take it off and then to the extent that Denny wants to add any additional color we’ll follow up. But we’ve been active in the market. And specifically we’re seeing aggressive pricing, no new news to everybody in the Southern Cal area with some industrial portfolios that we were pursuing, as well in south Florida. We were surprised by some activity in some less I would say more secondary markets such as the South, you know, Raleigh areas, and specifically have been able to execute as we announced in our press release in markets where they are not specifically marketed transactions. So something that we would do specifically with relationships that we have. But there’s very aggressive pricing out there. I mean, in terms of cash on cash yields and NOI, you know, we’re looking at the 6 to 7.
Dennis Oklak - Duke Realty Corporation — Chairman and CEO
Yeah. Michael, I would say that on the industrial side there isn’t a whole lot trading but it doesn’t seem to mat where it is right now. It’s all trading pretty aggressively.
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Michael Knott - Green Street Advisors — Analyst
Okay. That’s helpful. And it sound like it’s more aggressive on the industrial side, almost without respect to location in terms of Southern California versus other industrial markets?
Dennis Oklak - Duke Realty Corporation — Chairman and CEO
Yeah. That’s right. And you’ve got to remember we’re really not looking at any office acquisitions. So our input to you would be on the disposition side on the office. And then on the medical office, we haven’t looked at a whole lot there. But what we’ve monitored seems to be pretty aggressive again without regard to geography.
Michael Knott - Green Street Advisors — Analyst
Okay. Thank you.
Operator
And next we go to the line of Brendan Mariana with Wells Fargo. Please go ahead.
Young Ku - Wells Fargo — Analyst
Yes, thank you. Good afternoon. This is actually Young Ku here for Brendan. A couple of housekeeping items first. Looks like your capitalized interest dropped about $2 million per quarter sequentially. That’s a pretty big drop. That’s about $8 million per year. What caused that big drop?
Dennis Oklak - Duke Realty Corporation — Chairman and CEO
Well, we just got no development going on right now. Our development pipeline is way down. And virtually everything we’ve got is completed. So once the development is complete we stop capitalizing the interest.
Young Ku - Wells Fargo — Analyst
Well, I mean, that’s about $125 million in debt that’s stopped being capitalized, right?
Dennis Oklak - Duke Realty Corporation — Chairman and CEO
Yeah. That’s probably about right. You’re talking about the debt on our development pipeline, right?
Young Ku - Wells Fargo — Analyst
Yeah. So I don’t think you guys delivered $125 million worth of developments this quarter, is that right?
Dennis Oklak - Duke Realty Corporation — Chairman and CEO
This quarter? I think it was probably pretty close to that. The shell completion.
Young Ku - Wells Fargo — Analyst
Okay.
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Dennis Oklak - Duke Realty Corporation — Chairman and CEO
Yeah.
Young Ku - Wells Fargo — Analyst
Yeah. We can catch up offline for that. And just could you remind me if the G&A for Q4 that included around $2 million in severance costs? Is that right?
Christie Kelly - Duke Realty Corporation — CFO, EVP
That’s correct.
Young Ku - Wells Fargo — Analyst
And the G&A for this quarter didn’t really go down. So is there something else that’s hitting it or is that a continuation of the severance costs?
Dennis Oklak - Duke Realty Corporation — Chairman and CEO
No. Your first quarter our G&A is always higher because our volumes are just less with construction and generally leasing, quite honestly. So first quarter is typically our highest quarter for the G&A. You know, when you look at — yeah, and there’s always some stock compensation awards that are included in that first quarter number. And so when we’re looking at G&A right now as far as compared to our guidance, our guidance was for a top end of that to be in the $45 million range. So I think today we’d say we’re probably going to be close to that top end. But we’re not, you know, we’re not at the $13 million a quarter run rate or whatever we were this quarter.
Young Ku - Wells Fargo — Analyst
That’s helpful. And Denny, I think you talked about trying to get out of mid-west office and into bulk industrials. But are there specific markets that you’re looking at for potential acquisitions?
Dennis Oklak - Duke Realty Corporation — Chairman and CEO
Yeah. The concentration is in some of the newer markets that were we’re in where we don’t have a large presence today on the industrial side. And the three that I would point out, or four I guess would be, one would be Houston. That is a target market. We’ve been there for a couple of years, and we want to grow that industrial portfolio. We also want to grow our south Florida industrial portfolio. We’ve got pretty much an office presence today. But not an industrial presence today.
We’re also looking at kind of the Washington, D.C. — Baltimore corridor. We’ve got a relatively small industrial presence there too but we’ve got a nice big office presence so we’d like to grow that. And then finally we’re keeping an eye on Phoenix, I would say. We ultimately want to grow our portfolio in Phoenix. Obviously that’s a tough market on the industrial side today. But we did acquire a one off building in Phoenix this quarter that’s 100% leased, which a long-term leases that we — a very nice building. So in some of those markets we can do with one off transactions.
Young Ku - Wells Fargo — Analyst
Great. Thank you.
Operator
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And our last question will come in the line of Michael Bilerman with Citi. Please go ahead.
Joshua Attie - Citigroup — Analyst
It’s Josh Attie again with Michael. The asset sale markets really started to heat up and I think you had a multi-year asset sell plan. When you any of originally what you planned to sell in year two or three are you thinking about pulling any of that forward to maybe of the second half of this year?
Dennis Oklak - Duke Realty Corporation — Chairman and CEO
Well, what are you and Michael looking to buy the second half of this year? Kidding. No, I think I mentioned that — I think somebody kind of asked that question earlier. And I said we are looking through that target disposition list and seeing if there are some things that we can accelerate. I would say again more specifically that a lot of those properties are going to be a fair number of those are going to be local buyers that need some typical bank debt financing. And that market still isn’t really back yet. A lot of the other capital markets have come back, but that one doesn’t seem to be yet.
Joshua Attie - Citigroup — Analyst
And then just a modeling question. It looks like JV income increased a lot this quarter versus last quarter. Was that the assets that you sold into your CBRE joint venture?
Christie Kelly - Duke Realty Corporation — CFO, EVP
Yes. That’s a part of it.
Joshua Attie - Citigroup — Analyst
What’s the other part?
Dennis Oklak - Duke Realty Corporation — Chairman and CEO
Well, we had a buyout come through one of our joint ventures, right? Yeah. So that was in — I would say that was what, Mark, was it $900,000? $900,000 of a buyout is part of that variance.
Joshua Attie - Citigroup — Analyst
And then the rest of it are the assets you sold to the JV?
Dennis Oklak - Duke Realty Corporation — Chairman and CEO
Yes.
Joshua Attie - Citigroup — Analyst
Was there anything else?
Dennis Oklak - Duke Realty Corporation — Chairman and CEO
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NO.
Joshua Attie - Citigroup — Analyst
Okay. Okay. Thank you.
Operator
And Mr. Henry, any closing comments, sir?
Randy Henry - Duke Realty Corporation — Asst. VP — Investor Relations
Yes. I just wanted to thank everybody for participating. And this concludes our first quarter earnings call.
Operator
Thank you. (Operator Instructions.) That does conclude your conference for today. Thank you for using AT&T executive teleconference service. And you may now disconnect.
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