November 2010 NAREIT Conference November 15-17 th 2010
Strategic Focus 2010 Goals and Objectives Year to Date Performance Operations Strategy Asset Strategy Capital Strategy Lease-up of unstabilized portfolio Development starts focused on Medical Office and Build-to-Suit investments Execute planned asset dispositions Pursue accretive acquisitions Advance repositioning of portfolio Opportunistic debt repurchases Generate cash through asset dispositions Provided for 2011 maturities with cash, capital transactions and line availability Maintain minimal balance on line of credit Maintain fixed charge coverage above 1.75 and Debt/EBITDA below 7.0x Total portfolio occupancy as of September 30, 2010 of 88.9% Over 20.0 million square feet of leases completed year-to-date; 8.5 million square feet of leases executed in Q3 Q3 development starts consist of a 100% leased, 1.3 million square foot build-to-suit Industrial project in Columbus and a 406,000 square foot expansion of an industrial building in Indianapolis Asset dispositions of $50.4 million closed in Q3. Total YTD dispositions of $215.6 million Closed on acquisition of partner s interest in Dugan Realty joint venture on July 1 st In August, acquired two office assets totaling 465,000 square feet. The assets are located in South Florida and are 89% leased Acquired from a joint venture partner a 100% leased, 936,000 square foot industrial asset located in Columbus In Q1, retired $100 million of unsecured bonds with available cash In April, issued $250 million of 6.75% unsecured bonds In June, issued $311 million of common equity at $11.75 per share in conjunction with the acquisition of Dugan joint venture Year to date repurchased $279.9 million par value of bonds through tender offer and open market purchases Year to date repurchased $109.4 million face amount of series O preferred stock on open market, including $53.7 million in Q3 Executing in all three areas of strategic plan 2
Focus for 2010 Theme Plan 2010 Actions G G G 1) Stabilized Portfolio Occupancy 2) Unstabilized Portfolio Lease-up 3) Portfolio Repositioning Strong history of executing renewals in the 70-80% range High quality credit tenant base Proactive management of tenant watch list to track and reserve rents for high risk tenants Current occupancy provides 200-300 bps upside to historical levels Unstabilized portfolio is comprised of modern, new assets in desirable sub-markets Progressing on lease-up of assets Backlog of specifically identified properties under contract for sale, comprised of build-for-sale assets, Midwest office and other non-strategic properties in alignment with strategy Liquidity to execute on acquisition opportunities that fit longterm vision Strong backlog of medical office development Pursuing industrial acquisition opportunities Stabilized occupancy increased from 87.7% at 12/31/09 to 89.2% at 9/30/10 Same Property NOI positive in Q3, anticipate year end 2010 at better end of guidance Bulk portfolio over 90% leased at 9/30/10 Unstabilized portfolio occupancy increased from 59.2% at 3/31/10 to 71.5% at 9/30/10 Asset dispositions of $215.6 million YTD $300 million acquisition of Dugan Realty joint venture partner closed in July In August, acquired two office assets totaling 465,000 square fee located in S. Florida and 89% leased G 4) De-leveraging Activities $850 million line of credit $150 million ATM program in place Opportunistic repurchases of bonds Re-deployment of proceeds from sales of non- strategic assets Raised over $775 million of capital in 2010: comprised of $311 million equity, $250 million unsecured debt and $215 million of asset disposition proceeds Year to date repurchased $279.9 million par value of bonds through tender offer and open market purchases G 5) Dividend Coverage Lease-up of portfolio driving operating cash flow Focused on management of recurring capital expenditures in local markets Growth Drivers Ability to sustain AFFO coverage below 100% 3
Operations Strategy 4
Operations Strategy: 3Q 2010 Performance Metrics Portfolio Occupancy Same Property NOI 2010 Guidance: Average Occupancy 87.5% to 84.0% Average occupancy of 87.8% as of September 30, 2010 Total portfolio occupancy at September 30, 2010 of 88.9% Occupancy in bulk distribution portfolio of 90.2% at September 30, 2010 Occupancy in suburban office portfolio of 85.7% at September 30, 2010 Unstabilized Portfolio Strong Progress since March 2010 Occupancy has increased to 71.5% at September 30, 2010 from 59.2% at March 31, 2010 8 assets have leased to above 90% since March. Key deals include: Hebron Building 2 in Cincinnati signed 598,000 square foot lease -100% Norman Pointe II in Minneapolis signed 244,500 square foot lease 100% Point West VII in Dallas signed 130,000 square foot lease 100% 2010 Guidance: (1%) to (5%) Same property net operating income decreased by (1.7%) over the twelve months ended September 30, 2010 Same property net operating income for three months ended September 30, 2010 increased 1.5% Anticipate being at better end of guidance range for year end 2010 Recurring AFFO Payout Ratio 2010 Guidance: 95% to 105% Annual dividend of $0.68 2010 components of AFFO in line with historicals: Recurring capital expenditures $75 million to $80 million Straight line rent adjustment $15 million to $20 million Non cash interest expense $15 million to $20 million 2010 YTD AFFO payout of 82.3%; anticipate being in line with better end of guidance at year end Company performance goals and objectives aligned with key operational success factors 5
Operations Strategy: Strong, Stable Occupancy Stabilized Occupancy (%) Strong historical stabilized occupancy fundamentals improving Stabilized occupancy In-service occupancy Key Metrics and Actions: Bulk distribution total portfolio occupancy of 90.2% at 9/30/10 95% 93% 95% 92% 92% 89% 88% 87% 89% 89% Stabilized occupancy above 85% in all key markets except Dallas Development pipeline over 95% preleased in aggregate with focus on medical office and build-to-suit projects 2006 2007 2008 2009 YTD 2010 Signed over 8.5 million square feet of leases during Q3 Lease expirations are well balanced with no one year accounting for more than 13% 2% Lease Expiration Schedule 10% 10% 13% 9% 11% 8% 6% 8% 23% 2010 lease renewals at 79% YTD Key Metrics and Actions: Market teams focused on renewals well ahead of lease expiration dates Balanced expirations 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019+ Focus on maintaining occupancy...managing maturities 6
Operations Strategy: Leasing Activity Leasing Activity New Leases and Renewals Consistent Execution Cap Trust Tower Raleigh, NC 29.9 21.7 21.4 22.7 20.1 2006 2007 2008 2009 YTD 2010 100 Commerce Parkway Columbus, OH Executed over 45,000 square feet of deals in Q3 2010, all with terms over 10 years All Points at Anson Bldg 1 Indianapolis, IN Awarded a 1.3 million square foot build-to-suit project in Q3 2010 Signed 10 year, 406,000 square foot expansion in Q3 2010 Strong leasing activity in 2010... Q3 2010 highest volume since Q3 2007 7
Operations Strategy: Strong Lease Renewals Lease Renewals (%) Strong lease renewal percentages 553 & 555 Maryville Center St. Louis, MO 80% 80% 79% 79% 72% 2006 2007 2008 2009 YTD 2010 Nationwide Building Columbus, OH Renewed 168,000 square feet with Eveready Battery Company for 10 years Kingsley Distribution Center-Dallas, TX Renewed 315,000 square feet with Nationwide for 7 years 250,000 square foot renewal and a 150,000 square foot expansion with existing tenant Lease renewals in line with historical highs 8
Operations Strategy: Quality Portfolio Middle Tennessee Medical Mary Shiels Dallas, TX Signed 26,000 square feet of leases in Q3 2010. Occupancy now at 95% Western Ridge Medical Office Cincinnati, OH 62,000 Square foot building, 100% preleased, projected in service 2011 Quality of Assets New, high-quality portfolio with long-term leases Description Average age of inservice buildings Average size of inservice buildings Bulk Industrial Suburban Office Medical Office Overall 9.7 yrs 12.7 yrs 1.8 yrs 10.4 yrs 225,000 sf 120,600 sf 94,000 sf Average lease term 7.0 yrs 7.4 yrs 10.8 yrs 7.2 yrs Placed in-service in Q3. 45,476 square feet, 89% leased at in-service Average lease size 71,000 sf 12,000 sf 8,000 sf 9
3630 Peachtree Update Loan Extension Terms Status: Agreement executed. Loan term: Extended from July 2011 until July 2015. Interest Rate: Rate increases in July 2011 from LIBOR + 1.35% To LIBOR + 2.50%. Loan Funding: Lender to fully fund loan; cost share with Duke Realty. ~25% Leased Extension Executed... Lease up in process 10
Asset Strategy 11
Asset Strategy: Road Map Product Type Amount % Investment Today Investment 2013 Proceeds from Targeted Dispositions Action plan $ in millions Acquisitions/ Development/ Repositioning Amount % Industrial $3,175 38 % ($185) $1,780 $4,825 60% Office 4,330 53 % (780) (1,180) 2,060 25% Medical Office 470 6% (55) 830 1,315 15% Retail 280 3% (280) - - 0% $8,255 100.00% ($1,300) $1,430 $8,200 100.00% Region Midwest $4,325 52% ($730) ($100) $3,280 40% Southeast 1,875 23% (180) 560 2,480 30% East 975 12% (210) 390 1,210 15% South 1,015 12% (180) 240 825 10% West 65 1% - 340 405 5% $8,255 100.00% ($1,300) $1,430 $8,200 100.00% Property dispositions of $196.2 million through September 30... on pace to meet upper end of 2010 guidance 12
Midwest Portfolio Statistics at Q3 2010: $4.1 Billion Total Investment Portfolio by product type Industrial 40% Portfolio by geographical location Columbus 13% Medical Office 5% Minneapolis 8% Chicago 19% Office 55% Industrial Office Average Age 11.2 yrs 15.5 yrs Average Building Size 234,747 sf 133,928 sf Total Square Footage 51.6 Million 17.5 Million Stabilized Occupancy Total 91.9% 84.9% Chicago 98.6% 88.1% Cincinnati 86.1% 85.0% Columbus 98.6% 80.4% Indianapolis 91.7% 89.0% Minneapolis 90.1% 89.2% St. Louis 88.6% 81.0% St. Louis 14% Indianapolis 23% Cincinnati 23% 13
East/Southeast Portfolio Statistics at Q3 2010: $2.6 Billion Total Investment Portfolio by product type Industrial 35% Medical Office 3% Portfolio by geographical location Washington DC 14% Savannah 10% South Florida 9% Office 62% Atlanta 34% Industrial Office Average Age 7.9 yrs 9.3 yrs Average Building Size 191,100 sf 110,199 sf Total Square Footage 22.9 Million 13.0 Million Stabilized Occupancy - Total 93.3% 89.2% Atlanta 92.0% 88.6% Central Florida 90.5% 83.2% Raleigh 96.7% 89.7% Savannah 94.8% N/A S. Florida N/A 94.4% Washington DC/Baltimore 98.8% 90.6% Raleigh 20% Central Florida 13% 14
Southwest Portfolio Statistics at Q3 2010: $1.0 Billion Total Investment Portfolio by product type Industrial Office Medical Office 18% Industrial 55% Portfolio by geographical location Phoenix 4% Office 27% Average Age 8.2 yrs 7.9yrs Average Building Size 260,600 sf 111,072 sf Total Square Footage 19.3 Million 2.4 Million Stabilized Occupancy -Total 81.8% 91.2% Dallas 78.0% 88.9% Houston 96.6% 100% Nashville 90.7% 85.1% Phoenix 97.1% N/A Nashville 34% Dallas 55% Houston 7% 15
Healthcare Portfolio Statistics Q3 2010: $ 471.5 Million Total Investment Portfolio by product type MEDICAL OFFICE MOB On-campus 89% Specialty Hospital 7% MOB Off-campus 4% Dallas Indianapolis Atlanta Nashville Cincinnati Square Feet (in thousands) Total Occupancy 1,014 84.6% 781 86.5% 403 85.8% 120 90.5% 107 91.4% Portfolio by geographical location Midwest 43% Southeast 15% South 42% Austin Columbus Chicago TOTAL 96 73 56 2,654 46.3% 100.0% 90.1% 85.0% High quality credit tenant base Minimal lease expirations over next five years Strong back log of new development pursuits 16
Royal Palm I and II Acquisition Buildings: Size: Two Class A Suburban Office Buildings 465,592 total square feet Royal Palm I @ 240,308 square feet Royal Palm II @ 225,284 square feet Age: 9 years (Building 1); 3 years (Building 2) Location: Occupancy: 89.1% Plantation, Florida; Broward County Highest quality suburban office in West Broward County Strong submarket with excellent long term growth outlook 89.1% occupied with minimal near term tenant rollover Attractive yields given the location and quality of the property Acquired below replacement cost Permits near term redeployment of asset sale proceeds South Florida and Washington DC attractive office markets... Viewed as long term strategic locations 17
Capital Strategy 18
Capital Strategy: Key Metrics and Goals Key Metrics: Actual 2009 Debt + Preferred to Gross Assets Actual Q3 2010 5 Year Goals: 56.5% 56.1% Debt + Preferred to Gross Assets 45% Fixed Charge Coverage Ratio 1.79 :1 1.77:1 Fixed Charge Coverage Ratio 2.00 : 1 Debt/EBITDA 6.65 7.22 Debt/EBITDA < 6.00 Debt + Preferred/EBITDA 8.47 8.82 Debt + Preferred/EBITDA <7.75 Focused on Strategic Plan 5 year goals 19
Current Liquidity Position and Plans 2,500 2,000 1,500 1,000 500 - Debt Maturity September 30, 2010 (1) JV Debt Secured Debt Unsecured Debt $28 $1,011 $451 $934 $320 Total Debt as of 3/31/09 $591 $516 $313 $310 2010 2011 2012 2013 2014 (1) Includes impact of $195MM Dugan Loan paid off on 10/8/10. $1.5B Progress $256 ($ in millions) $2,566 $1,644 Thereafter Thereafter Provide for $333MM 2011 Unsecured Bond Maturities 6.95% Unsecured notes due March 15, 2011 - $42.5 MM outstanding 5.625% Unsecured notes due August 15, 2011 - $122.5 MM outstanding 3.75% Convertible unsecured notes due December 1, 2011 - $167.6 MM outstanding Capital Plans Established to Meet All Obligations... While Achieving Overall Strategic Objectives 20
Maintain Available Options to Advance De-leveraging Efforts and Growth Strategy A) Equity raise Set up ATM $311MM equity B) Tender for debt... Additional unsecured to extend maturities C) Opportunistic open market debt repurchases D) Opportunistic open market preferred stock repurchases 1 st Qtr 2 nd Qtr 3 rd Qtr Future Evaluated Market $15MM of converts repurchased issuance to fund Dugan $212.2MM of bonds repurchased $48.5MM of converts repurchased $55.7MM of Series O repurchased Evaluated Market Evaluated Market $4.2MM of converts repurchased $53.7MM of Series O repurchased Will evaluate Will evaluate Will evaluate Will evaluate Executing according to strategy 21
Next Steps 22
Vision Road Map: Future Duke Realty What We Will Be Action Plan Low leveraged Move from 56% to 45% leverage (1) Non-Strategic property and land sales Increase portfolio occupancy to normalized levels Product focused Become bulk industrial focused Industrial: Increase from 38% to > 60% Office: Decrease from 56% to < 25% Medical: Grow from 6% to 15%+ Concentrated in high growth markets Align investment and resources to high growth markets; dispose/exit non-strategic areas Differentiated asset strategy within tighter geographic focus Low leverage industrial and office REIT in high growth markets and product segments (1) (Debt & Preferred) / Total Assets 23
Appendix 24
2010 Range of Estimates Metrics Range 2009 Actual Pessimistic Optimistic Key Assumptions Core FFO Per Share $1.45 $1.11 $1.15 Guidance updated in October 2010 AFFO Payout Ratio 69% 105% 95% Annual dividend at $0.68 per share $ in millions Average Occupancy 86.3% 84.0% 87.5% Maintain occupancy in the 85-86% range after Q1 Upside to guidance driven by lease-up of unstabilized portfolio Downside assumes worst case scenario from unknown bankruptcies, defaults and terminations Same Property NOI (2.7%) (5.0%) (1.0%) Concessions still prevalent in most markets, both on rental rates and tenant improvement costs Spreads negative in 2010 Project improvement in 2H 2010 Building Acquisitions $32 $0 $100 Focus on product type and location that align with long-term strategy Building Dispositions $266 $150 $350 Strong backlog of non-strategic assets under contract 2010 pipeline consists primarily of office and build to suit projects Land Dispositions $34 $20 $50 Identified non-strategic parcels of over $230 million Local market driven demand will determine timing of sales Construction and Development Starts $308 $200 $400 Anticipate medical office starts in the $100 million to $150 million range Remaining starts from build-to-suit projects Construction Volume $728 $600 $750 BRAC and Baylor Cancer Center projects keeping volume at 2009 levels Gain on Sale of Development Properties and Land General and Administrative Expenses $0 $0 $0 No gains on sales of development properties in 2009 Recurring FFO as a result of decision to exit the merchant building business $48 $45 $39 2010 total overhead expenses reduced over 10% No severance costs in 2010 guidance Management focused Leasing actions driving upside 25