DUKE REALTY Investor Presentation October 2008

Transcription

1 1 DUKE REALTY Investor Presentation October 2008

2 Forward-Looking Statement When used in this presentation, the word believes, expects, estimates and similar expressions are intended to identify forward-looking statements. Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially. In particular, among the factors that could cause actual results to differ materially are continued qualification as a real estate investment trust, general business and economic conditions, competition, increases in real estate construction costs, interest rates, accessibility of debt and equity capital markets and other risks inherent in the real estate business including tenant defaults, potential liability relating to environmental matters and liquidity of real estate investments. Readers are advised to refer to Duke s Annual Report on Form 10-K as filed with the Securities and Exchange Commission on February 29, 2008 for additional information concerning these risks. 2

3 Overview of Duke Realty Leading National Integrated Platform Diversified Portfolio Flexible Development Capabilities Strong Liquidity Profile One of the largest fully-integrated owner, developer and managers of commercial real estate in the U.S. with a nationwide footprint Multiple asset class strategy: industrial, office and healthcare Cycle tested management team 673 stabilized in-service assets (109.2 million square feet), which are 93.1% leased and diversified by asset class, geography and tenant Held for rental pipeline comprised of 32 recently completed unstabilized in-service properties (stabilized investment $609 million) and $377 million of assets under development Build for sale pipeline of $1.265 billion; includes projects under development and in service 7,400 acres of land to support future development Develops industrial, office and healthcare buildings in each of its markets, and selectively in other markets for major tenants Demonstrated ability to shift pipeline mix based on market demand Current focus on build for sale projects, healthcare and sea ports Recently awarded BRAC 133 Project $1.3 billion revolver, with $813 million available Access to capital ($300 million preferred and $325 million unsecured offerings in 2008) Only 7.0% of long-term debt, approximately $300 million, matures in 2008 and

4 Consistent Historical Results Diversified and integrated business model delivers consistent FFO and dividend growth across cycles Demonstrated ability to maintain high occupancy rates FFO / Share Growth 10-year CAGR 5.5% Actual CAGR Notes: 1) Includes properties in service and under development; 2008 numbers as of June 30, ) As of June 30, Dividend / Share Growth year CAGR 5.7% 2001 Actual CAGR (000s) 140, , ,000 80,000 60,000 40,000 20,000 0 Portfolio Size and Occupancy (1) Total SF Leased Percent Leased 2008(2)

5 National Footprint; Geographically Diversified Portfolio Organic geographic expansion strategy Successful entry into 11 new markets since cities in cities in cities in 2008 Seattle Southern California Phoenix Austin San Antonio Minneapolis / St. Paul Dallas Chicago St. Louis Houston Indianapolis Nashville Columbus Baltimore Washington Cincinnati Norfolk Atlanta Tampa Raleigh Savannah Linden, NJ Orlando Fort Lauderdale New Markets st Half,

6 Diversified Portfolio: By Region (1) (2) 2010 Southeast East 27% South 3% 8% 62% Midwest South East 7% 12% 25% West, 1% 56% East South 18% 12% West 5% Midwest 36% Southeast Midwest Southeast 29% $6.5 Billion Invested $7.4 Billion Invested $8.3 Billion Invested Begin diversifying out of mature Midwest Markets Begin focus on high-growth ports, including Baltimore, Savannah, and Houston Continued focus on ports Increase focus in South and West, including Seattle, Southern California, and Texas Notes: 1) Excludes build for sale portfolio 2) As of June 30,

7 Diversified Portfolio: By Product Type (1) (2) 2010 Healthcare 4% Healthcare 13% 46% 54% Office 37% 45% 58% Office Industrial Industrial 42% Office Industrial $6.5 Billion Invested $7.4 Billion Invested $8.3 Billion Invested Continued capital recycling program to prune assets in old flex portfolio Build healthcare business Diversify away from speculative office development Balance pipeline to take advantage of growth opportunities Notes: 1) Excludes build for sale portfolio 2) As of June 30,

8 Flexible Development Capabilities Adjust value creation pipeline based on market conditions Decreasing size by reducing starts Changing mix between held for rental and build for sale Ability to increase fee business to absorb excess development capacity ($000) 2,000,000 1,800,000 1,600,000 1,400,000 1,200,000 1,000, , , , , Held for Rental Value Creation Pipeline Breakdown (1) Build for Sale rd Party Construction Q08 Ability to change allocation among product types based on market demand Today, increased healthcare focus Decrease industrial and office focus Announced plan to exit retail product 100% 80% 60% 40% 20% 0% New Development Starts (2) 2005 Industrial Office Healthcare Retail H08 Notes: 1) Value creation pipeline including 3 rd party construction; JVs grossed up to 100% 2) JV investments shown on a pro rata basis 8

9 Development Pipeline: Held for Rental Assets (1) Exit Value Creation Pipeline Value Creation Pipeline Core Asset Under Development In Service Unstabilized In Service Stabilized $377 million $609 million Total: $986 million Held for rental assets under development is down 51% since peak in 3Q07 Only $127 million remaining funding requirements Stabilized yield of 8.9% 42% pre-leased Current development focus is healthcare and pre-leased properties Comprised of 15% industrial, 55% office and 30% healthcare 9.7 million square feet of recently completed unstabilized developments in-service (1) Stabilized investment of $609 million (approximately $500 million spent to date) Current occupancy of 34.2% NOI projected to increase from $5 million today to $52.3 million at stabilization Lease-up of these assets will fuel Duke s NOI and FFO growth Comprised of 58% industrial, 37% office and 5% healthcare Note: 1) As of June 30, 2008; JVs grossed up to 100% 9

10 Development Pipeline: Build for Sale Assets (1) Exit Value Creation Pipeline Value Creation Pipeline Disposed Asset Under Development In Service Disposed $610 million $655 million Total: $1,265 million Over half of current build for sale assets have been placed in service 86% occupancy Average 8.2% yield No pressure to sell these assets Comprised of 21% industrial, 37% office, 5% healthcare, and 37% retail Current build for sale pipeline under construction is 73% pre-leased Comprised of 33% industrial, 33% office, 15% healthcare and 19% retail $600 $800 million Bulk Industrial assets will be sold to takeout JV over the next 3 years $290 million to be sold to JV by the end of 2008 (2) at a ~7% cap rate Notes: 1) As of June 30, 2008; JVs grossed up to 100% 2) Includes approximately $40MM as of June 30 10

11 Development Pipeline Funding Analysis $986 million held for rental pipeline and $1.265 billion build for sale pipeline Over 80% spent to date Unsecured credit facility has $813 million available as of June 30, 2008 Excludes dispositions of build for sale properties, including $140 million of proceeds from additional takeouts by industrial JV expected to occur by end of 2008 (1) ($ million) 2,500 2,000 $424 - Committed (2) 1,500 1,000 $1,827 -Invested $813 -Available Total Funding Needs $487 -Drawn Total Revolver Available Notes: 1) Approximately $250 million of expected gross dispositions past June 30, netting $140 million of cash to Duke 2) Includes $109 million investment for unstabilized in-service held for rental properties 11

12 Overview of Duke Growth Drivers 1. Leverage existing customer relationships 2. Capture key port positions and enhance logistics presence 3. Expand healthcare brand nationally 4. Leverage leadership in sustainable development 12

13 1. Leverage Existing Customer Relationships Excellent credit quality tenants Highly diversified customer base: top 20 customers only provide 15% of rent 13

14 1. Leverage Existing Customer Relationships (cont d) amazon.com Distribution Leases AllPoints at Anson Bldg 1 Indianapolis 630,000 square feet 10-year lease Buckeye Logistics Center Phoenix 605,000 square feet 10-year lease Goodyear Building 2 Phoenix 513,000 square feet 10-year lease 14

15 2. Capture Key Port Positions and Enhance Logistics Presence Over 50% of goods consumed in U.S. are imported, compared to 10% in 1963 Chronic delays at West Coast ports are driving demand to East Coast ports and distribution centers Intermodal rail network has altered the distribution geography of the U.S. Rising export activity is increasing the demand for port locations Growing international demand for American agricultural output and consumer goods is driving the need for distribution centers at port locations 15

16 2. Capture Key Port Positions Savannah 4 th largest U.S. port (2.6 million TEUs) 5.4 million SF, 1 mile from port Market share of 25-30% New York/New Jersey 3 rd largest U.S. port (5.3 million TEUs) 1.5 million SF planned, 6.5 miles from port Port of Baltimore 20 th largest U.S. port (610,000 TEUs) 460,000 SF, 0.5 miles from port 16

17 2. Build Logistics Business Rickenbacker Global Logistics Park Groveport Commerce Center, Columbus 2.6 million SF in place with 21 million planned Dallas Intermodal, Union Pacific Terminal On I-45, 12 miles from Dallas 626,000 SF in place with 1.6 million planned 17

18 3. Expand Healthcare Brand Nationally Healthcare represents 14% of GDP, expected to grow to 20% by 2020 Healthcare real estate exceeds $750 billion, with new construction increasing 13% in 2008 to $53.8 billion Demand for outpatient services is expected to increase 16%/year over next 10 years Number of specialty hospitals in U.S. has tripled since 1997 BremnerDuke s clients include 7 of the top 10 healthcare systems and 3 of the top university medical centers in the United States Strong Demographic Trends Will Drive Healthcare Real Este (75+ Population in Millions) (% of Total Population) '04A '05F '06F '07F '08F '09F '10F '11F '12F '13F '14F '15F Population 75+ % of Total Population Source; Centers for Medicare & Medicaid Services, Office of the Actuary 18

19 3. Expand Healthcare Brand Nationally (cont d) Baylor Administrative Office Building Dallas, TX 81,000 SF Completion date: 3 rd Quarter, 2009 St. Vincent NE Medical Center Ascension Health System, Indianapolis, IN 120,000 SF Completion date: 4 th Quarter,

20 4. Leverage Leadership in Sustainable Development Duke is committed to creating corporate practices that balance economic, environmental and community performance Clients demand sustainable development, so leadership in the space will enhance shareholder value Norman Pointe Office Building - Minneapolis, MN Time Warner Cable - Raleigh, NC 20

21 Demonstrated Access to Capital in Challenging Environment Capital Raises $300 million 8.375% preferred stock offering (February) $325 million 6.25% five-year unsecured debt offering (May) JVs, Takeout Funds, and Dispositions 20/80 JV with CBRE Realty Trust Will acquire $290 million of Duke industrial assets in 2008 Will purchase $600-$800 million of Duke assets over three years 50/50 JV with Stockbridge JV acquired $75 million of land from Duke balance sheet $100 million of other property dispositions through June 30 th 21

22 Capital Structure Strategy Maintain current investment grade debt rating (Baa1/BBB+) Increase use of joint ventures to fund certain types of projects Raise common stock/units opportunistically Continue capital recycling of assets Total Book Capitalization Variable Rate Unsecured Debt Total Debt Target 30-35% Common 10-15% Preferred 50-60% Debt 15-20% Current (1) 34% Common 12% Preferred 54% Debt 12% Note: 1) As of September 12,

23 Strong Liquidity Position Only 7% of debt matures in 2008 and 2009 ($300 million) $1.3 billion line of credit ($487 million outstanding, due January 2010) ($ million) 2,500 Debt Maturity Schedule 2,000 1,500 1,000 2, , (1) (2) Thereafter Notes: 1) Remaining as of June 30, ) Includes $487 million revolver balance, which can be extended 1 year at Duke s option 23

24 Relative Valuation Price / 2009 AFFO Discount to 2-Year High FR PLD BDN DRE CLI DCT AMB FPO LRY PKY PSB EGP HIW CUZ BDN DRE FPO PLD FR DCT CLI CUZ PKY AMB LRY PSB HIW EGP 20.0x 18.0x 16.0x 14.0x 12.0x 10.0x 8.0x 6.0x 4.0x 2.0x NA 0% -10% -20% -30% -40% -50% -42% -40%-38%-35% -49% -46%-44%-43% -32% -31% -26% -25% -16% 0.0x -60% -57% Premium / (Discount) to NAV Implied Cap Rate BDN CLI DCT DRE AMB FR LRY PLD HIW CLI BDN DRE LRY FR DCT HIW PLD AMB CUZ 0% -5% -10% -15% -20% -17% -12% -12% -10% -9% -5% -4% 10.0% 9.0% 8.0% 7.0% 9.2% 9.0% 8.5% 8.4% 8.1% 8.0% 8.0% 7.5% 7.2% 6.3% -25% -30% -26% 6.0% 5.0% -35% -33% 4.0% Office Industrial Duke Sources: SNL, FactSet, Green Street Advisors as of September 30,

25 Investment Highlights Fully integrated real estate owner, manager and developer with multiple asset type strategy and national footprint 109 million square foot stabilized portfolio of diversified assets; 93% leased Manageable value creation pipeline that is well pre-leased/leased with over 80% of the costs incurred to date Flexible development platform that is well positioned for future market demand Several strategic initiatives that will continue to drive the company s growth Strong balance sheet and liquidity position with demonstrated ability to access to the capital market markets Talented management team with significant real estate experience 25

26 Appendix 26

27 BRAC 133 Project Mark Center, Alexandria, VA Sale of all remaining undeveloped land (16 acres) to Department of Defense Duke is the developer of the project and will receive a development fee based on total project costs General contractor will be Clark Construction under a guaranteed maximum price contract Project Timeline Contract execution October 2008 Land sale closing December 2008 Construction commencement January 2009 Construction completion September