Duke Realty Corporation Reports Fourth Quarter Results

Liquidity Position Enhanced - 2009 Dividend Reduced; Earnings Guidance and Expense Control Measures Announced


INDIANAPOLIS, IN--(Marketwire - January 28, 2009) - Duke Realty Corporation (NYSE: DRE) today reported results for the fourth quarter of 2008 and for the year ended December 31, 2008.

Operating Highlights

-- FFO per share of $0.71 for the quarter and $2.55 for the year.

-- Liquidity position enhanced:

   - Dividend reduced; $150 million in cash to be retained annually;
   - Properties and land sold; $265 million in cash generated in the
     fourth quarter;
   - Repurchased $38.5 million of unsecured debt obligations at a discount
     in the fourth quarter.

-- Operating expenses reduced:

   - Retail, national build-to-suit development businesses closed;
   - Operations in start-up markets discontinued;
   - Workforce reduced; management salaries frozen

-- 2009 FFO guidance issued: $1.85 - $2.15 per share.

"We are pleased with the company's performance for the quarter given the constrained capital markets and the current economy," said Dennis D. Oklak, chairman and chief executive officer. "Leasing activity remained solid during the quarter.

"Duke's long-term strategy as a fully integrated national owner, manager and developer of industrial, office, and healthcare properties remains sound."

Oklak continued, "Liquidity remains the most important priority for the company in these difficult times. The company's short-term emphasis is on strengthening its capital position, optimizing performance of existing assets, and taking advantage of third-party development opportunities, such as the recently announced Base Realignment and Closure Commission project for the U. S. Army Corps of Engineers (BRAC)."

Financial Performance

--  FFO for the fourth quarter of 2008 was $0.71 ($0.69 excluding $14.0
    million of gains on the repurchase of preferred stock and $11.4 million of
    impairment charges), compared with $0.80 for the fourth quarter of 2007.
    The variance is attributable to higher gains on the sale of land in the
    fourth quarter of 2007 and to increased interest expense in 2008
    attributable to properties that were recently placed in service. FFO for
    the year ended December 31, 2008 was $2.55 ($2.53 excluding the gains on
    the repurchase of preferred stock and impairment charges), compared with
    $2.74 for 2007.
    
--  Net income per diluted share (EPS) for the fourth quarter was $0.15,
    compared with $0.40 for the fourth quarter of 2007.  The variance is
    primarily attributable to the land sale gains and interest expense
    mentioned above, and to resumption of depreciation on held-for-rental
    assets previously classified as held-for-sale. EPS for the year ended
    December 31, 2008 was $0.38, compared with $1.55 for 2007.
    
--  The company made opportunistic repurchases of $12.4 million of
    preferred stock during the fourth quarter, resulting in the $14.0 million
    gain. These transactions had a positive impact on the company's fixed-
    charge ratios.
    
--  The company completed the $105 million land sale and began development
    of the previously announced BRAC project in Alexandria, VA, which involves
    relocation of various Department of Defense personnel from leased space in
    Northern Virginia. The project, including a portion of the gain from the
    land sale, contributed over $7 million to FFO from service operations
    during the quarter.
    
--  The company incurred charges of $3.0 million during the quarter from
    the write-off of costs related to development projects that it no longer
    intends to pursue.
    

Common Stock Dividend Reduced; Liquidity Position Enhanced

Dividend Reduced

The company's Board of Directors has declared a quarterly cash dividend on the company's common stock of $0.25 per share. The first quarter dividend will be payable February 27, 2009 to shareholders of record as of February 13, 2009. The 2009 annual dividend of $1.00 per share is a reduction from the 2008 annual dividend of $1.94 per share.

"Duke's dividend has increased every year since becoming a public company in 1993," Oklak said. "In view of the unprecedented state of the capital markets, we believe that it is prudent to reduce the dividend. Doing so will enable us to retain approximately $150 million in cash annually, thus strengthening the company's liquidity position going forward."

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   February 13, 2009  February 27, 2009
Series K      DREPRK     $  0.406250   February 13, 2009  February 27, 2009
Series L      DREPRL     $  0.412500   February 13, 2009  February 27, 2009
Series M      DREPRM     $  0.434375     March 17, 2009     March 31, 2009
Series N      DREPRN     $  0.453125     March 17, 2009     March 31, 2009
Series O      DREPRO     $  0.523438     March 17, 2009     March 31, 2009

Further Liquidity Enhancements Announced

Oklak noted that the company's unsecured bond maturities are modest through December 31, 2010, amounting to $411.5 million, or 9.6% of total debt outstanding. To further enhance its liquidity position, the company executed the following transactions:

--  Dispositions of properties and undeveloped land, which generated over
    $265 million in proceeds during the fourth quarter of 2008. These proceeds
    will be used to pay down existing debt obligations, including $125 million
    of unsecured bonds that mature in February 2009;
    
--  Repurchase of $38.5 million of unsecured debt in the fourth quarter
    that was to mature in 2009 and 2010. In January 2009, the company
    repurchased an additional $29.5 million of unsecured debt that was to
    mature in 2009, 2010 and 2011. These total debt obligations of $68.0
    million were repurchased for $59.9 million, a discount to par value of
    11.9%;
    
--  In addition, during the first quarter of 2009, the company executed a
    secured debt commitment for approximately $113 million and anticipates
    obtaining an additional commitment of approximately $40 million within the
    next few days. Both of these loans are expected to close during the first
    quarter of 2009.
    

Operating Expense Reductions

The company has taken steps to align its operating costs with its anticipated level of activity under current and expected economic conditions. These steps included:

--  Exiting the retail and national build-to-suit development businesses;
    
--  A company-wide reduction in workforce of about 19% of total employees
    since the beginning of 2008, which reflects the company's scaling back of
    development operations;
    
--  A salary freeze for all of Duke's top 64 management employees in 2009;
    and
    
--  Closing of operations in Austin and San Antonio, Texas; Seattle,
    Washington; and Newport Beach, California.
    

"Management will continue to evaluate operating expenses and adjust them accordingly throughout the year," Oklak noted.

"The decision to close operations in our newest markets was difficult, given their long-term growth potential," Oklak explained. "However, the lack of available capital and the company's emphasis on liquidity made the possibility of developing properties in these markets remote in the near term." Oklak added that the company's investment in these markets was minimal. "We will consider returning to these markets once the economy improves, in keeping with Duke's long-term strategy," he said.

Portfolio Performance

--  Duke's 703 stabilized, in-service properties (119 million square feet)
    were 92.4% leased at December 31, 2008, compared with 93.8% and 95.0% at
    September 30, 2008 and December 31, 2007, respectively. The decrease is
    primarily attributable to the addition of properties to the stabilized
    portfolio during the fourth quarter that have been in service for one year
    but have not reached occupancy levels of at least 90%.
    
--  The company's total portfolio occupancy improved during the quarter to
    88.9% at December 31, 2008, compared with 88.2% and 87.1% at September 30,
    2008 and December 31, 2007, respectively.
    
--  The company executed major leases for properties during the fourth
    quarter, including Grand Lakes II (653,000 square feet), an industrial
    warehouse in Dallas; Buildings B-2 and B-4 of Chesapeake Commerce Center
    (220,000 square feet), an industrial park in Baltimore which is now 100%
    leased; and Lakeside Crossing II (116,000 square feet), an office building
    in St. Louis.
    
--  The preponderance of the company's FFO in 2008 (92.2%) continued to be
    attributable to core operations rather than to gains from dispositions of
    assets.
    
--  Same-store net operating income increased 1.8% during the fourth
    quarter and 3.0% for the year over 2007.
    
--  The company's tenant retention rates for the fourth quarter and the
    year were 69.3% and 71.9%, respectively.
    
--  None of the company's tenants accounts for more than 1.7% of future
    annualized gross effective rent as of December 31, 2008, and the largest
    tenant of the company's in-service properties is the United States
    government.
    

"The fundamentals of our portfolio held up well during 2008," Oklak commented. "Looking ahead, we expect 2009 to be much more challenging from a leasing perspective. We will continue to focus on renewals and extensions of existing leases and continuing relationships with strong credit tenants."

Real Estate Investment Activity

Development

Wholly Owned Properties

--  The company's wholly owned development pipeline at December 31, 2008
    aggregated $372.6 million, with $230 million in remaining costs to be
    incurred.  The pipeline consisted of 18 properties (1.9 million square
    feet) that were 86% preleased with an anticipated stabilized yield of 8.4%.
    
--  In accordance with its planned reduction in new development, the
    company's starts for the fourth quarter aggregated only $43.4 million with
    an average initial stabilized yield of 9.3%.These included an office
    property for Monsanto in St. Louis and a healthcare project for the Baylor
    University Medical Center in Dallas, both of which are 100% preleased.
    
--  The company placed into service three held-for-rental properties
    (476,000 square feet) that were 33% leased.
    

Joint Venture Properties

--  The company's joint venture development pipeline at December 31, 2008
    aggregated $356.6 million, with $167.0 million in remaining costs to be
    incurred.  The pipeline consisted of five properties (2.1 million square
    feet) that were 12% preleased with an anticipated stabilized yield of 8.2%.
    Each joint venture has obtained third-party debt to finance these
    properties, with no anticipated future funding requirements from the
    company. (All joint venture costs and square footage are reported at 100%
    ownership.)
    
--  No joint venture properties were started or placed in service during
    the fourth quarter.
    

Acquisitions

No properties were acquired during the fourth quarter.

Dispositions

Fourth quarter building dispositions were $119.3 million at a stabilized capitalization rate of 7.2%. For the year ended December 31, 2008, the company received gross proceeds from building dispositions of $426.3 million at a stabilized capitalization rate of 7.2%. In addition, the company sold $147.8 million of land during the year, including 16 acres to the United States government for $105 million as part of the BRAC project.

Real Estate Valuation

During the fourth quarter of 2008, the company completed a detailed review of its operating and development assets and land holdings in accordance with guidelines under generally accepted accounting principles. The company recorded impairment charges for the quarter of $11.4 million, or $0.07 per share, pertaining to certain land parcels ($8.6 million) and two build-for-sale projects ($2.8 million). These charges were the result of increases in estimated capitalization rates and changes in market conditions that negatively affected values. These non-cash charges have no effect on liquidity, nor do they have a material impact on compliance with the company's credit facility or unsecured bond covenants.

The company also incurred charges of approximately $8.3 million, or $0.05 per share, for the year ended 2008 from the write-off of costs related to development projects that it no longer intends to pursue.

Earnings Guidance and 2009 Outlook

"Looking ahead to the remainder of 2009, we expect another very challenging year," Oklak said. "Capital will remain scarce, and new development will be at a standstill. Our earnings guidance reflects the state of the economy and our emphasis on liquidity and asset management. Once the economy improves, we will be well-positioned to capitalize on opportunities in the industrial, office and healthcare sectors in our existing markets."

The company expects FFO for 2009 to be in a range of $1.85 to $2.15 per share. The assumptions underlying FFO guidance are as follows:

--  No gains from the sale of build-for-sale properties, compared with
    $40.6 million, or $0.26 per share, in 2008;
--  Reduced land sale gains in 2009 of $0.04 per share compared to
    approximately $0.08 in 2008;
--  Increased interest expense attributable to unstabilized development
    properties that have recently been placed in service;
--  Slightly declining occupancy levels and same store growth in 2009
    compared with 2008;
--  Additional non-cash interest expense of $0.04 per share associated
    with the implementation of a new accounting pronouncement related to
    convertible debt.
    

Guidance is provided for informational purposes and is subject to change. More specific assumptions and components of 2009 FFO will be available after 6:00 p.m. EST today through the Investor Relations section of the company's Web site.

New Director Elected

Thomas J. Baltimore Jr. has been elected to the company's board of directors. Mr. Baltimore is co-founder and president of RLJ Development, a privately held real estate investment firm with almost $2 billion in equity under management from several major public and corporate pension funds and financial institutions. Prior to founding RLJ, Mr. Baltimore was a vice president of Hilton Hotels Corporation and held various management positions with Marriott Corporation. He serves on the board of directors of Prudential Financial, Inc. and Integra LifeSciences Holdings Corporation.

About Duke Realty Corporation

Duke Realty Corporation specializes in the ownership, management and development of office, industrial, and healthcare real estate. In terms of market capitalization, Duke is the largest publicly traded, vertically integrated office/industrial/healthcare real estate company in the United States. The company owns, manages, or has under development more than 144 million rentable square feet in 20 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.

Fourth Quarter Earnings Call and Supplemental Information

Duke is hosting a conference call tomorrow, January 29, 2009, at 3:00 p.m. EST to discuss its fourth quarter operating results. All investors and other interested 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 fact book will be available after 6:00 p.m. EST today through the Investor Relations section of the company's Web site.

                           Financial Highlights
                  (in thousands, except per share data)


                        Three Months Ended         Twelve Months Ended
                           December 31,                December 31,
                    ==========================  ==========================
Operating Results       2008          2007          2008          2007
                    ============  ============  ============  ============

Revenues from
 continuing
 operations         $    264,531  $    268,845  $    996,087  $    951,447
Earnings from
 rental operations        14,920        43,208        79,565       126,346
Earnings from
 service operations       25,402        25,781        61,943        52,034
Funds from
 operations
 available for
 common
 shareholders -
 Basic                   106,068       116,750       375,906       384,032
Funds from
 operations
 available for
 common
 shareholders -
 Diluted                 113,059       123,492       395,401       409,414
Net income
 available for
 common
 shareholders -
 Basic                    21,717        58,666        56,616       217,692
Net income
 available for
 common
 shareholders -
 Diluted                  22,824        61,964        59,584       232,091


Per Share:
Funds from
 operations
 available for
 common
 shareholders -
 Basic              $       0.72  $       0.80  $       2.56  $       2.76
Funds from
 operations
 available for
 common
 shareholders -
 Diluted            $       0.71  $       0.80  $       2.55  $       2.74
Net income
 available for
 common
 shareholders -
 Basic              $       0.15  $       0.40  $       0.39  $       1.56
Net income
 available for
 common
 shareholders -
 Diluted            $       0.15  $       0.40  $       0.38  $       1.55
Dividend payout
 ratio of funds
 from operations            68.3%         60.0%         75.9%         69.9%
Weighted average
 shares outstanding
  Basic - Funds
   From Operations
   and Net Income        147,615       145,623       146,915       139,255
  Diluted- Funds
   From Operations       159,631       154,467       155,041       149,614
  Diluted- Net
   Income                155,347       154,467       155,041       149,614

                    ============  ============  ============  ============
                                                December 31,  December 31,
Balance Sheet Data                                  2008          2007
                    ============  ============  ============  ============

Net real estate
 investments                                    $  6,096,519  $  6,101,332
Total assets                                       7,690,883     7,661,981
Total debt                                         4,298,478     4,316,460
Shareholders'
 equity                                            2,821,758     2,750,033
Common shares
 outstanding at end
 of period                                           148,420       146,175




          Reconciliation of Net Income to Funds From Operations
                  (in thousands, except per share data)


                                     Three Months Ended
                                        December 31,
                                        (Unaudited)
                  ---------------------------------------------------------
                              2008                         2007
                  ---------------------------- ----------------------------
                                Wtd.                         Wtd.
                                Avg.     Per                 Avg.     Per
                    Amount     Shares   Share    Amount     Shares   Share
                  ---------  ---------- ------ ---------  ---------- ------
 Net Income
  Available for
  Common Shares   $  21,717     147,615 $ 0.15 $  58,666     145,623 $ 0.40
 Add back:
     Minority
      interest in
      earnings of
      unitholders     1,107       7,299            3,298       8,146
     Other
      potentially
      dilutive
      shares                        433                          698
                  ---------  ----------        ---------  ----------
 Diluted Net
  Income
  Available for
  Common Shares   $  22,824     155,347 $ 0.15 $  61,964     154,467 $ 0.40
                  =========  ========== ====== =========  ========== ======

 Reconciliation
  to Funds From
  Operations
  ("FFO")
 Net Income
  Available for
  Common Shares   $  21,717     147,615 $ 0.15 $  58,666     145,623 $ 0.40
 Adjustments:
     Depreciation
      and
      Amortization   83,996                       69,469
     Company
      Share of
      Joint
      Venture
      Depreciation
      and
      amortization    9,552                        5,796
     Earnings
      from
      depreciable
      property
      sales-wholly
      owned          (5,021)                      (9,321)
     Earnings
      from
      depreciable
      property
      sales-JV            0                       (4,416)
     Minority
      interest
      share of
      adjustments    (4,176)                      (3,444)
                  ---------  ----------        ---------  ----------
 Basic Funds From
  Operations        106,068     147,615 $ 0.72   116,750     145,623 $ 0.80
     Minority
      interest in
      earnings of
      unitholders     1,107       7,299            3,298       8,146
     Joint
      venture
      partner
      convertible
      ownership
      option          1,708       4,284
     Minority
      interest
      share of
      adjustments     4,176                        3,444
     Other
      potentially
      dilutive
      shares                        433                          698
                  ---------  ----------        ---------  ----------
 Diluted Funds
  From Operations $ 113,059     159,631 $ 0.71 $ 123,492     154,467 $ 0.80
                  =========  ========== ====== =========  ========== ======



                                    Twelve Months Ended
                                        December 31,
                                        (Unaudited)
                  ---------------------------------------------------------
                              2008                         2007
                  ---------------------------- ----------------------------
                                Wtd.                         Wtd.
                                Avg.     Per                 Avg.     Per
                    Amount     Shares   Share    Amount     Shares   Share
                  ---------  ---------- ------ ---------  ---------- ------
 Net Income
  Available for
  Common Shares   $  56,616     146,915 $ 0.39 $ 217,692     139,255 $ 1.56
 Add back:
     Minority
      interest in
      earnings of
      unitholders     2,968       7,619           14,399       9,204
     Other
      potentially
      dilutive
      shares                        507                        1,155
                  ---------  ----------        ---------  ----------
 Diluted Net
  Income
  Available for
  Common Shares   $  59,584     155,041 $ 0.38 $ 232,091     149,614 $ 1.55
                  =========  ========== ====== =========  ========== ======

 Reconciliation
  to Funds From
  Operations
  ("FFO")
 Net Income
  Available for
  Common Shares   $  56,616     146,915 $ 0.39 $ 217,692     139,255 $ 1.56
 Adjustments:
     Depreciation
      and
      Amortization  314,952                      277,691
     Company
      Share of
      Joint
      Venture
      Depreciation
      and
      amortization   38,321                       26,948
     Earnings
      from
      depreciable
      property
      sales-wholly
      owned         (16,961)                    (121,072)
     Earnings
      from
      depreciable
      property
      sales-share
      of joint
      venture          (495)                      (6,244)
     Minority
      interest
      share of
      adjustments   (16,527)                     (10,983)
                  ---------  ----------        ---------  ----------
 Basic Funds From
  Operations        375,906     146,915 $ 2.56   384,032     139,255 $ 2.76
     Minority
      interest in
      earnings of
      unitholders     2,968       7,619           14,399       9,204
     Minority
      interest
      share of
      adjustments    16,527                       10,983
     Other
      potentially
      dilutive
      shares                        507                        1,155
                  ---------  ----------        ---------  ----------
 Diluted Funds
  From Operations $ 395,401     155,041 $ 2.55 $ 409,414     149,614 $ 2.74
                  =========  ========== ====== =========  ========== ======

Contact Information: Contact Information: Investors: Shona Bedwell (317) 808-6169 Randy Henry (317) 808-6060 Media: Joel Reuter (317) 808-6137