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): July 27, 2011
DUKE REALTY LIMITED PARTNERSHIP
(Exact name of registrant specified in its charter)
Indiana | 0-20625 | 35-1898425 | ||
(State of Formation) | (Commission File Number) |
(IRS Employer Identification No.) |
600 East 96th Street
Suite 100
Indianapolis, IN 46240
(Address of principal executive offices, zip code)
Registrants 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 July 27, 2011, Duke Realty Corporation, an Indiana corporation (the General Partner), the sole general partner of Duke Realty Limited Partnership, an Indiana limited partnership (the Operating Partnership), issued a press release (the Press Release) announcing its results of operations and financial condition for the quarter ended June 30, 2011. 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 July 28, 2011, the General Partner also held a conference call to discuss the General Partners financial results for the quarter ended June 30, 2011. 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 8.01. | Other Events. |
On or around August 1, 2011, the Operating Partnership distributed a Notice of Exchangeability to the holders of the Operating Partnerships 3.75% Exchangeable Senior Notes due 2011. The form of the notice is attached as Exhibit 99.3 to this Current Report and is incorporated herein by reference.
Item 9.01. | Financial Statements and Exhibits. |
(d) | Exhibits |
Exhibit |
Description | |
99.1 | Duke Realty Corporation press release dated July 27, 2011, with respect to its financial results for the quarter ended June 30, 2011.* | |
99.2 | Duke Realty Corporation transcript from the conference call held on July 28, 2011, with respect to its financial results for the quarter ended June 30, 2011.* | |
99.3 | Notice of Exchangeability. |
* | 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 LIMITED PARTNERSHIP | ||
By: | Duke Realty Corporation, its sole general partner | |
By: | /S/ HOWARD L. FEINSAND | |
Howard L. Feinsand | ||
Executive Vice President, General Counsel and Corporate Secretary |
Dated: August 2, 2011
EXHIBIT INDEX
Exhibit |
Description | |
99.1 | Duke Realty Corporation press release dated July 27, 2011, with respect to its financial results for the quarter ended June 30, 2011.* | |
99.2 | Duke Realty Corporation transcript from the conference call held on July 28, 2011, with respect to its financial results for the quarter ended June 30, 2011.* | |
99.3 | Notice of Exchangeability. |
* | 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 7.02 of this Current Report. |
Exhibit 99.1
News Release
FOR IMMEDIATE RELEASE
DUKE REALTY REPORTS
SECOND QUARTER 2011 RESULTS
Improved Operating and Capital Metrics
Continued Progress on Asset Repositioning Strategy
Core FFO per share of $0.29
(INDIANAPOLIS, July 27, 2011) Duke Realty Corporation (NYSE: DRE), a leading industrial, suburban and medical office property REIT, today reported results for the second quarter 2011.
During the second quarter, we continued to make meaningful progress in furthering our strategy as measured by the overall improvement in several of our key operating and capital metrics and continued repositioning of our assets said Dennis D. Oklak, Chairman and Chief Executive Officer. Core FFO was $0.29 per share, which was $0.01 per share better than the first quarter of 2011. Total portfolio occupancy increased to 89.3 percent, our highest level since 2005. We completed over 8.1 million square feet of leases during the quarter, many of which were new leases executed to backfill spaces with expiring leases, and we achieved same-property net operating income growth of 1.5% as compared to the twelve months ended June 30, 2010. We are pleased with our results and remain focused on demonstrating continued success in achieving our strategy.
Quarterly Highlights
| Core Funds from Operations per diluted share (Core FFO) and Funds from Operations per diluted share (FFO), as defined by the National Association of Real Estate Investment Trusts (NAREIT), were each $0.29 for the quarter. |
Duke Realty Reports Second Quarter 2011 Results
July 27, 2011
Page 2 of 7
| Strong operating metrics and performance: |
¡ | Overall portfolio occupancy of 89.3 percent, and bulk industrial occupancy of 90.6 percent, on June 30, 2011; |
¡ | 8.1 million square feet of leases completed during the quarter; |
¡ | Same-property net operating income growth of 1.5 percent for the twelve months ended June 30, 2011, and 0.5 percent for the three months ended June 30, 2011, as compared to the periods ended June 30, 2010. |
| Executing on asset and capital strategies: |
¡ | $116 million of acquisitions during the quarter; |
¡ | $62 million of dispositions during the quarter; |
¡ | Cash-on-hand of $117.6 million on June 30, 2011 with no balance outstanding on our line of credit. |
Financial Performance
| Core FFO for the second quarter of both 2011 and 2010 of $0.29 per share. A reconciliation of FFO as defined by NAREIT to Core FFO is included in the financial tables included in this release. |
| Improvement of net loss per diluted share (EPS) from a loss of $0.19 for the second quarter of 2010 to a loss of $0.12 for the same quarter in 2011. The improvement in the second quarter of 2011, as compared to the same period in 2010, was primarily attributable to $20.3 million ($0.08 per share) of losses on debt repurchases, and adjustments related to the repurchase of preferred stock, during the second quarter of 2010. |
Operating Performance Highlights
| Increase in overall portfolio occupancy, including projects under development, to 89.3 percent on June 30, 2011, compared to 88.9 percent on March 31, 2011. |
| Occupancy in the bulk distribution portfolio on June 30, 2011 of 90.6 percent, up from 90.2 percent on March 31, 2011. We executed over 4.0 million square feet of new industrial leases during the quarter to more than offset the effects of expected expirations of both temporary and longer-term leases, resulting in the overall increase in occupancy. |
| Improved occupancy in the medical office portfolio to 85.9 percent and maintained steady occupancy in the suburban office portfolio at 85.4 percent. |
Duke Realty Reports Second Quarter 2011 Results
July 27, 2011
Page 3 of 7
| Tenant retention for the quarter of approximately 61 percent. While our tenant retention rate decreased as a result of anticipated lease terminations, we were able to backfill the space with 4.6 million square feet of new leases resulting in the overall increase in occupancy. |
| Same-property net operating income growth was 1.5 percent for the twelve months ended June 30, 2011, and 0.5 percent for the three months ended June 30, 2011, as compared to the periods ended June 30, 2010. This positive same-property performance was driven mainly by increased occupancy and the expiration of free rent periods. |
Real Estate Investment Activity
Dispositions
Proceeds from property dispositions totaled $62.5 million during the quarter, including a property built pursuant to a take-out agreement. The dispositions comprised over 1.4 million square feet and were 74 percent leased.
Acquisitions
Consistent with our asset repositioning strategy, during the quarter we acquired $116.4 million of mainly class A industrial buildings in major distribution markets as follows:
| The final three industrial buildings from our previously announced South Florida portfolio acquisition; |
| A 323,000 square foot industrial building located in Lynwood, CA that was 100 percent leased to a single tenant; |
| A 329,000 square foot industrial building that was 48 percent occupied and located in Savannah, GA within close proximity to the port; |
| A 604,000 square foot industrial building located in Phoenix, AZ that was 54 percent occupied. |
Duke Realty Reports Second Quarter 2011 Results
July 27, 2011
Page 4 of 7
Development
Wholly Owned Properties
| Our wholly-owned development projects under construction on June 30, 2011 consisted of five medical office projects totaling 308,000 square feet and one 1.3 million square foot bulk industrial building. These projects were 94 percent pre-leased in the aggregate. |
| During the quarter, a 300,000 square foot industrial building located in Houston, TX that was 73 percent leased and a 40,000 square foot medical office building located in Atlanta, GA that was 52 percent leased were placed in service. |
Joint Venture Properties
| One joint venture development project in Phoenix, AZ was started during the quarter. The project is a 405,000 square foot expansion of an existing industrial building that was 100 percent leased to a single tenant. |
| During the quarter, the 406,000 square foot industrial building expansion located in Indianapolis, IN was placed into service. The asset was 100 percent leased. |
2011 Earnings Guidance
We reaffirmed Core FFO guidance for 2011 of $1.06 to $1.18.
Duke Realty Reports Second Quarter 2011 Results
July 27, 2011
Page 5 of 7
Dividends Declared
Our board of directors declared a quarterly cash dividend on our common stock of $0.17 per share, or $0.68 per share on an annualized basis. The second quarter dividend will be payable August 31, 2011 to shareholders of record on August 17, 2011.
The board also declared the following dividends on our outstanding preferred stock:
Class |
NYSE Symbol |
Quarterly Amount/Share |
Record Date |
Payment Date | ||||
Series J |
DREPRJ | $0.414063 | August 17, 2011 | August 31, 2011 | ||||
Series K |
DREPRK | $0.406250 | August 17, 2011 | August 31, 2011 | ||||
Series L |
DREPRL | $0.412500 | August 17, 2011 | August 31, 2011 | ||||
Series M |
DREPRM | $0.434375 | September 16, 2011 | September 30, 2011 | ||||
Series O |
DREPRO | $0.523438 | September 16, 2011 | September 30, 2011 |
Information Regarding FFO
The company computes FFO in accordance with standards established by the National Association of Real Estate Investment Trusts (NAREIT). NAREIT defines FFO as net income (loss) 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. The company believes FFO to be most directly comparable to net income as defined by GAAP. The company believes that FFO is an operating measure and should be examined in conjunction with net income (as defined by GAAP) as presented in the financial statements accompanying this release. FFO neither represents a measure of liquidity, nor is it indicative of funds available for the companys cash needs, including its ability to make cash distributions to shareholders. A reconciliation of net income and net income per share, as defined by GAAP, to FFO, as defined by NAREIT, is included in the financial tables accompanying this release.
For information purposes, the company also provides FFO adjusted for certain items that are generally non-cash in nature and that materially distort the comparative measurement of company performance over time (Core FFO). The adjustments include impairment charges, tax expenses or benefit related to (i) changes in deferred tax asset valuation allowances, (ii) changes in tax exposure accruals that were established as the result of the adoption of new accounting principles, or (iii) taxable income (loss) related to other items excluded from FFO or Core FFO (collectively referred to as other income tax
Duke Realty Reports Second Quarter 2011 Results
July 27, 2011
Page 6 of 7
items), gains (losses) on debt transactions, adjustments on the repurchase of preferred stock and gains (losses) on and related costs of acquisitions. Although the calculation of Core FFO differs from NAREITs definition of FFO and may not be comparable to that of other REITs and real estate companies, the company believes it provides a meaningful supplemental measure of its operating performance. A reconciliation of FFO as defined by NAREIT to Core FFO is included in the financial tables accompanying this release.
About Duke Realty Corporation
Duke Realty Corporation owns and operates approximately 141 million rentable square feet of industrial and office assets, including medical office, 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 Realty Corporation is available at www.dukerealty.com.
Second Quarter Earnings Call and Supplemental Information
Duke Realty Corporation is hosting a conference call tomorrow, July 28, 2011, at 3:00 p.m. EDT to discuss its second 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 companys Web site.
A copy of the companys supplemental information will be available by 6:00 p.m. EDT today through the Investor Relations section of the companys website.
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 companys future financial position, 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 companys abilities to control or predict. Such factors include, but are not limited to, (i) general adverse economic and local real estate conditions; (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 companys 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
Duke Realty Reports Second Quarter 2011 Results
July 27, 2011
Page 7 of 7
operating costs; (x) changes in the dividend policy for the companys common stock; (xi) the reduction in the companys 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 companys filings with the Securities and Exchange Commission. The company refers you to the section entitled Risk Factors contained in the companys Annual Report on Form 10-K for the year ended December 31, 2010. 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.
Contact Information:
Media:
Jim Bremner
317.808.6920
jim.bremner@dukerealty.com
Investors:
Christie Kelly
317.808.6065
christie.kelly@dukerealty.com
Duke Realty Corporation
Statement of Operations
June 30, 2011
(In thousands, except per share amounts)
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Revenues: |
||||||||||||||||
Rental and related revenue |
$227,708 | $205,588 | $467,744 | $417,084 | ||||||||||||
General contractor and service fee revenue |
135,362 | 168,398 | 281,909 | 282,039 | ||||||||||||
363,070 | 373,986 | 749,653 | 699,123 | |||||||||||||
Expenses: |
||||||||||||||||
Rental expenses |
47,153 | 45,446 | 103,939 | 96,575 | ||||||||||||
Real estate taxes |
33,647 | 27,489 | 68,591 | 55,915 | ||||||||||||
General contractor and other services expenses |
122,969 | 160,617 | 258,633 | 267,779 | ||||||||||||
Depreciation and amortization |
100,058 | 78,956 | 194,743 | 159,481 | ||||||||||||
303,827 | 312,508 | 625,906 | 579,750 | |||||||||||||
Other operating activities |
||||||||||||||||
Equity in earnings of unconsolidated companies |
1,713 | 2,016 | 2,786 | 6,945 | ||||||||||||
Gain on sale of properties |
493 | 4,973 | 68,348 | 7,042 | ||||||||||||
Undeveloped land carrying costs |
(2,453 | ) | (2,542 | ) | (4,762 | ) | (4,793 | ) | ||||||||
Impairment charges |
| (7,974 | ) | | (7,974 | ) | ||||||||||
Other operating expenses |
(26 | ) | (145 | ) | (111 | ) | (422 | ) | ||||||||
General and administrative expense |
(8,541 | ) | (9,151 | ) | (19,738 | ) | (22,695 | ) | ||||||||
(8,814 | ) | (12,823 | ) | 46,523 | (21,897 | ) | ||||||||||
Operating income |
50,429 | 48,655 | 170,270 | 97,476 | ||||||||||||
Other income (expense) |
||||||||||||||||
Interest and other income, net |
284 | 204 | 371 | 355 | ||||||||||||
Interest expense |
(66,846 | ) | (58,044 | ) | (132,950 | ) | (114,300 | ) | ||||||||
Loss on debt transactions |
| (15,773 | ) | | (16,127 | ) | ||||||||||
Acquisition costs |
(594 | ) | | (1,183 | ) | | ||||||||||
Income (loss) from continuing operations before income taxes |
(16,727 | ) | (24,958 | ) | 36,508 | (32,596 | ) | |||||||||
Discontinued operations: |
||||||||||||||||
Income before gain on sales |
157 | 1,240 | 107 | 1,748 | ||||||||||||
Gain on sale of depreciable properties |
2,712 | 3,078 | 14,316 | 12,856 | ||||||||||||
Income from discontinued operations |
2,869 | 4,318 | 14,423 | 14,604 | ||||||||||||
Net income (loss) |
(13,858 | ) | (20,640 | ) | 50,931 | (17,992 | ) | |||||||||
Dividends on preferred shares |
(15,974 | ) | (18,363 | ) | (31,948 | ) | (36,726 | ) | ||||||||
Loss on repurchase of preferred shares |
| (4,492 | ) | (163 | ) | (4,492 | ) | |||||||||
Net (income) loss attributable to noncontrolling interests |
790 | 1,104 | (293 | ) | 1,555 | |||||||||||
Net income (loss) attributable to common shareholders |
($29,042 | ) | ($42,391 | ) | $18,527 | ($57,655 | ) | |||||||||
Basic net income (loss) per common share: |
||||||||||||||||
Continuing operations attributable to common shareholders |
($0.13 | ) | ($0.21 | ) | $0.01 | ($0.32 | ) | |||||||||
Discontinued operations attributable to common shareholders |
$0.01 | $0.02 | $0.06 | $0.06 | ||||||||||||
Total |
($0.12 | ) | ($0.19 | ) | $0.07 | ($0.26 | ) | |||||||||
Diluted net income (loss) per common share: |
||||||||||||||||
Continuing operations attributable to common shareholders |
($0.13 | ) | ($0.21 | ) | $0.01 | ($0.32 | ) | |||||||||
Discontinued operations attributable to common shareholders |
$0.01 | $0.02 | $0.06 | $0.06 | ||||||||||||
Total |
($0.12 | ) | ($0.19 | ) | $0.07 | ($0.26 | ) | |||||||||
Duke Realty Corporation
Statement of Funds From Operations
June 30, 2011
(In thousands, except per share amounts)
Three Months Ended June 30, (Unaudited) |
||||||||||||||||||||||||||
2011 | 2010 | |||||||||||||||||||||||||
Amount | Wtd. Avg. Shares |
Per Share |
Amount | Wtd. Avg. Shares |
Per Share |
|||||||||||||||||||||
Net Loss Attributable to Common Shares |
($29,042 | ) | ($42,391 | ) | ||||||||||||||||||||||
Less: Dividends on share based awards expected to vest |
(806 | ) | (505 | ) | ||||||||||||||||||||||
Net Loss Per Common Share- Basic |
(29,848 | ) | 252,640 | ($0.12 | ) | (42,896 | ) | 227,082 | ($0.19 | ) | ||||||||||||||||
Add back: |
||||||||||||||||||||||||||
Noncontrolling interest in earnings of unitholders |
| | ||||||||||||||||||||||||
Other potentially dilutive securities |
||||||||||||||||||||||||||
Net Loss Per Common Share- Diluted |
($29,848 | ) | 252,640 | ($0.12 | ) | ($42,896 | ) | 227,082 | ($0.19 | ) | ||||||||||||||||
Reconciliation to Funds From Operations ("FFO") |
||||||||||||||||||||||||||
Net Loss Attributable to Common Shares |
($29,042 | ) | 252,640 | ($42,391 | ) | 227,082 | ||||||||||||||||||||
Adjustments: |
||||||||||||||||||||||||||
Depreciation and amortization |
100,113 | 82,005 | ||||||||||||||||||||||||
Company share of joint venture depreciation and amortization |
8,639 | 10,372 | ||||||||||||||||||||||||
Earnings from depreciable property sales-wholly owned, discontinued operations |
(2,712 | ) | (3,078 | ) | ||||||||||||||||||||||
Earnings from depreciable property sales-wholly owned, continuing operations |
(493 | ) | (4,973 | ) | ||||||||||||||||||||||
Earnings from depreciable property sales-JV |
| (4 | ) | |||||||||||||||||||||||
Noncontrolling interest share of adjustments |
(2,802 | ) | (2,315 | ) | ||||||||||||||||||||||
Funds From Operations- Basic |
73,703 | 252,640 | $0.29 | 39,616 | 227,082 | $0.17 | ||||||||||||||||||||
Noncontrolling interest in loss of unitholders |
(706 | ) | 7,209 | (1,212 | ) | 6,404 | ||||||||||||||||||||
Noncontrolling interest share of adjustments |
2,802 | 2,315 | ||||||||||||||||||||||||
Other potentially dilutive securities |
3,364 | 2,615 | ||||||||||||||||||||||||
Funds From Operations- Diluted |
$75,799 | 263,213 | $0.29 | $40,719 | 236,101 | $0.17 | ||||||||||||||||||||
Loss on debt transactions |
| 15,773 | ||||||||||||||||||||||||
Adjustments for repurchase of preferred shares |
| 4,492 | ||||||||||||||||||||||||
Impairment charges and acquisition costs |
594 | 7,974 | ||||||||||||||||||||||||
Core Funds From Operations- Diluted |
$76,393 | 263,213 | $0.29 | $68,958 | 236,101 | $0.29 | ||||||||||||||||||||
Six Months Ended June 30, (Unaudited) |
||||||||||||||||||||||||||
2011 | 2010 | |||||||||||||||||||||||||
Amount | Wtd. Avg. Shares |
Per Share |
Amount | Wtd. Avg. Shares |
Per Share |
|||||||||||||||||||||
Net Income (Loss) Attributable to Common Shares |
$18,527 | ($57,655 | ) | |||||||||||||||||||||||
Less: Dividends on share based awards expected to vest |
(1,605 | ) | (1,005 | ) | ||||||||||||||||||||||
Net Income (Loss) Per Common Share- Basic |
16,922 | 252,524 | $0.07 | (58,660 | ) | 225,625 | ($0.26 | ) | ||||||||||||||||||
Add back: |
||||||||||||||||||||||||||
Noncontrolling interest in earnings of unitholders |
499 | 6,798 | | | ||||||||||||||||||||||
Other potentially dilutive securities |
68 | | ||||||||||||||||||||||||
Net Income (Loss) Per Common Share- Diluted |
$17,421 | 259,390 | $0.07 | ($58,660 | ) | 225,625 | ($0.26 | ) | ||||||||||||||||||
Reconciliation to Funds From Operations ("FFO") |
||||||||||||||||||||||||||
Net Income (Loss) Attributable to Common Shares |
$18,527 | 252,524 | ($57,655 | ) | 225,625 | |||||||||||||||||||||
Adjustments: |
||||||||||||||||||||||||||
Depreciation and amortization |
195,094 | 166,173 | ||||||||||||||||||||||||
Company share of joint venture depreciation and amortization |
16,267 | 19,935 | ||||||||||||||||||||||||
Earnings from depreciable property sales-wholly owned, discontinued operations |
(14,316 | ) | (12,856 | ) | ||||||||||||||||||||||
Earnings from depreciable property sales-wholly owned, continuing operations |
(68,348 | ) | (7,042 | ) | ||||||||||||||||||||||
Earnings from depreciable property sales-JV |
(91 | ) | (2,308 | ) | ||||||||||||||||||||||
Noncontrolling interest share of adjustments |
(3,371 | ) | (4,593 | ) | ||||||||||||||||||||||
Funds From Operations- Basic |
143,762 | 252,524 | $0.57 | 101,654 | 225,625 | $0.45 | ||||||||||||||||||||
Noncontrolling interest in income (loss) of unitholders |
499 | 6,798 | (1,661 | ) | 6,505 | |||||||||||||||||||||
Noncontrolling interest share of adjustments |
3,371 | 4,593 | ||||||||||||||||||||||||
Other potentially dilutive securities |
3,276 | 2,552 | ||||||||||||||||||||||||
Funds From Operations- Diluted |
$147,632 | 262,598 | $0.56 | $104,586 | 234,682 | $0.45 | ||||||||||||||||||||
Loss on debt transactions |
| 16,127 | ||||||||||||||||||||||||
Adjustments for repurchase of preferred shares |
163 | 4,492 | ||||||||||||||||||||||||
Impairment charges and acquisition costs |
1,183 | 7,974 | ||||||||||||||||||||||||
Core Funds From Operations- Diluted |
$148,978 | 262,598 | $0.57 | $133,179 | 234,682 | $0.57 | ||||||||||||||||||||
Duke Realty Corporation
Balance Sheet
June 30, 2011
(In thousands, except per share amounts)
June 30, 2011 |
December 31, 2010 |
|||||||
ASSETS: |
||||||||
Rental Property |
$6,802,628 | $7,032,889 | ||||||
Less: Accumulated Depreciation |
(1,381,919 | ) | (1,406,437 | ) | ||||
Construction in Progress |
70,424 | 61,776 | ||||||
Undeveloped Land |
617,470 | 625,353 | ||||||
Net Real Estate Investments |
6,108,603 | 6,313,581 | ||||||
Cash |
117,645 | 18,384 | ||||||
Accounts Receivable |
24,741 | 23,478 | ||||||
Straight-line Rents Receivable |
136,171 | 135,294 | ||||||
Receivables on Construction Contracts |
48,263 | 7,564 | ||||||
Investments in and Advances to Unconsolidated Companies |
365,323 | 367,445 | ||||||
Deferred Financing Costs, Net |
42,223 | 46,320 | ||||||
Deferred Leasing and Other Costs, Net |
497,174 | 545,787 | ||||||
Escrow Deposits and Other Assets |
186,942 | 186,423 | ||||||
Total Assets |
$7,527,085 | $7,644,276 | ||||||
LIABILITIES AND SHAREHOLDERS' EQUITY: |
||||||||
Secured Debt |
$1,187,044 | $1,065,628 | ||||||
Unsecured Notes |
2,906,154 | 2,948,405 | ||||||
Unsecured Lines of Credit |
18,329 | 193,046 | ||||||
Construction Payables and Amounts due Subcontractors |
67,757 | 44,892 | ||||||
Accrued Real Estate Taxes |
102,695 | 91,502 | ||||||
Accrued Interest |
62,046 | 62,407 | ||||||
Accrued Expenses |
38,561 | 63,175 | ||||||
Other Liabilities |
136,336 | 130,711 | ||||||
Tenant Security Deposits and Prepaid Rents |
53,391 | 54,607 | ||||||
Total Liabilities |
4,572,313 | 4,654,373 | ||||||
Preferred Stock |
902,540 | 904,540 | ||||||
Common Stock and Additional Paid-in Capital |
3,585,500 | 3,576,242 | ||||||
Accumulated Other Comprehensive Income (Loss) |
56 | (1,432 | ) | |||||
Distributions in Excess of Net Income |
(1,602,634 | ) | (1,533,740 | ) | ||||
Total Shareholders' Equity |
2,885,462 | 2,945,610 | ||||||
Non-controlling Interest |
69,310 | 44,293 | ||||||
Total Liabilities and Equity |
$7,527,085 | $7,644,276 | ||||||
Exhibit 99.2
FINAL TRANSCRIPT | ||||
|
||||
Conference Call Transcript |
||||
DRE - Q2 2011 Duke Realty Corp Earnings Conference Call |
||||
Event Date/Time: Jul 28, 2011 / 07:00PM GMT |
||||
THOMSON REUTERS STREETEVENTS | www.streetevents.com | Contact Us
© 2011 Thomson Reuters. All rights reserved. Republication or redistribution of Thomson Reuters content, including by framing or similar means, is prohibited without the prior written consent of Thomson Reuters. Thomson Reuters and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. |
FINAL TRANSCRIPT |
Jul 28, 2011 / 07:00PM GMT, DRE - Q2 2011 Duke Realty Corp Earnings Conference Call |
CORPORATE PARTICIPANTS
Christie Kelly
Duke Realty Corp - EVP and CFO
Denny Oklak
Duke Realty Corp - Chairman and CEO
CONFERENCE CALL PARTICIPANTS
Jamie Feldman
BofA Merrill Lynch - Analyst
Ki Bin Kim
Macquarie Research Equities - Analyst
Josh Attie
Citigroup - Analyst
Steven Frankel
Green Street Advisors - Analyst
Sloan Bohlen
Goldman Sachs - Analyst
Ross Nussbaum
UBS - Analyst
Vincent Chao
Deutsche Bank - Analyst
Mike Carroll
RBC Capital Markets - Analyst
Brendan Maiorana
Wells Fargo Securities - Analyst
PRESENTATION
Operator
Ladies and gentlemen, thank you for standing by and welcome to the Duke Realty quarterly earnings conference call. At this time, all lines are in a listen-only mode. Later well conduct a question and answer session and instructions will be given at that time.
(Operator Instructions)
As a reminder, todays conference is being recorded. I would now like to turn the conference over to your host, Executive Vice President and Chief Financial Officer, Christie Kelly. Please go ahead.
Christie Kelly - Duke Realty Corp - EVP and CFO
Thank you. Good afternoon, everyone, and welcome to our second quarter earnings call. Joining me today are Denny Oklak, Chairman Chief Executive Officer, and Mark Denien, Chief Accounting Officer. Before we make our prepared remarks, let me remind you that the statements we make today are subject to certain risks and uncertainties that could cause actual results to differ materially from expectations. For more information about those risk factors, we would refer you to our December 31, 2010 10-K that we have on file with the SEC, and now, for our prepared statement, Ill turn it over to Denny Oklak.
Denny Oklak - Duke Realty Corp - Chairman and CEO
2
FINAL TRANSCRIPT |
Jul 28, 2011 / 07:00PM GMT, DRE - Q2 2011 Duke Realty Corp Earnings Conference Call |
Thank you, Christie. Good afternoon, everyone. Today, I will highlight some of our key accomplishments during the quarter in both our asset and operational strategies. Christie will then address our second quarter financial performance and progress on our capital strategy. We finished this quarter with a solid month in June, making it an excellent operational quarter overall. The performance was primarily driven by strong leasing activity across several markets, particularly on the bulk industrial side. The completion of Premier portfolio acquisition in South Florida and our office joint venture transaction with CBRE Realty Trust near the end of the first quarter provide significant momentum for us on our asset repositioning strategy.
While the second quarter was a little slower on the acquisition and disposition front, Im pleased with our continued progress on repositioning in the second quarter. From a macroeconomic perspective, most of the news continues to be somewhat negative. Job growth is slowing, GDP growth is below earlier projections, and uncertainty continues in many areas. These factors are affecting our business, but theres also some positive news. Net absorption was again positive for the industrial sector nationally during the second quarter. Vacancies continued to decline in most markets across the country. New development starts remain at historic lows, but there is some talk of limited new development occurring later this year. Overall, the sector continues to improve and the trend for the rest of the year appears positive. The office business continued to be challenging, but there are also some positive signs. Overall, our rents are holding or beginning to improve slightly, as indicated by our positive rent spreads this quarter. We are seeing more customers being active, but this is still going to be a slow haul for the suburban office recovery in most markets.
From a Duke Realty perspective, Im very pleased to report that we were actually able to improve many of our key operating metrics during the quarter. Total portfolio occupancy increased to 89.3%, which was our highest level since early 2005. Our in-service occupancy of 89.2% is the highest since 2007. As I noted on our last couple of calls, we were aware of a few large terminations in our industrial portfolio in the first half of the year. Many of these expirations occurred during the second quarter, but new activity was solid, as we signed over 4.6 million square feet of new leases this quarter. In total, we signed over 8.1 million square feet of leases, including renewals, which is our best quarter of total leasing activity ever if you exclude leasing and new development projects.
We renewed 61% of our leases during the quarter. This tenant retention rate was low by our normal standards, but as I mentioned, many of these spaces were backfilled with new tenants and overall, we had an occupancy increase. We experienced a 1.6% roll down in net effective rents overall, with most of the roll down coming in the industrial renewals. Keep in mind that many of these leases that are rolling now were signed at the peak of the market in 2006 and 2007. We expect rent spreads to continue to be challenging for the rest of the year, but we believe we will see traction in rates in the industrial side as vacancy rates continued to decline. We also achieved positive same-property NOI for the 3 and 12 months ended June 30 of 0.5%, and 1.5% respectively. These positive results were driven by increases in occupancy and the burn-off of some free rent.
Now, let me touch on some of the key activity within each product type for the quarter. As I noted, industrial seems to be picking up across most markets. This seems to be especially true of larger modern big-box spaces, which bodes well for us. This was evident in the fact that we completed over 4 million square feet of new industrial leases. We were able to increase our industrial portfolio occupancy to 90.6% as of June 30. Some of our larger deals this quarter included a 405,000 square foot lease in Atlanta to substantially backfill a portion of another tenant that expired this quarter, a 551,000 square foot lease in Chicago to take an entire building that had been occupied by another tenant on a month-to-month basis, a 263,000 square foot lease with a tenant in Dallas in our Point West VI building and 2 long-term leases in St. Louis totaling 238,000 square feet.
The office leasing environment remains slow as we expected. Office leasing also lags industrial and we continue to believe we will not see a noticeable improvement until we see a greater broad-based job growth. We were able to maintain our office occupancy at 85.4%. We were also able to renew 84% of our office leases and actually achieved a positive growth in net effective rents. Along the several key renewals that we signed, some of our larger new office leases included an 80,000 square foot expansion for a tenant in Cincinnati, a 30,000 square foot lease with the GSA in Cleveland, and a 34,000 square foot lease in the 3630 Peachtree project in Atlanta, which is now 45% leased. On the medical/office front, leasing activity and development opportunities continued to gain traction. Our medical office portfolio occupancy increased to 85.9% as of June 30, and we expect to start several new development projects yet this year. Im pleased to report that leasing momentum is continuing into the third quarter. In July, we signed a 450,000 square foot bulk industrial lease in Nashville. This space had been vacant for some time and takes our Nashville occupancy to over 95%.
Ill now Ill cover progress on our asset strategy. From an acquisition perspective, pricing on most deals that we have pursued has been aggressive, as cap rates for high quality industrial assets remain low. We have continued to stay true to our strategy and to remain patient and disciplined with regard to acquisitions. Our sense is that industrial cap rates are bottoming in the 6% to 6.5% range in most major distribution markets, and even slightly lower than that in a few. We acquired over $116 million of properties during the second quarter, almost all of which were Class A bulk
3
FINAL TRANSCRIPT |
Jul 28, 2011 / 07:00PM GMT, DRE - Q2 2011 Duke Realty Corp Earnings Conference Call |
industrial buildings in key distribution markets. These acquisitions included the final 3 industrial buildings from the premier acquisition in South Florida.
We also acquired a 323,000 square foot industrial building located in suburban Los Angeles that is 100% leased to a single tenant. This building represents our first operating asset in the Southern California market. As you know, cap rates are low in Southern California and our pricing on this asset was in the low 5% range, but this is really a great asset. The property is fully leased to a single tenant. It is located in the South Bay submarket, only 12 miles from the port, and is 1 of only 7 buildings over 300,000 square feet in this submarket. The occupancy in all of these buildings is 100% and its over 95% in the entire submarket. We also acquired two, partially leased new but distressed bulk assets, one in Phoenix and one in Savannah. Were optimistic about our chances to lease the remaining portion of these buildings quickly, as positive net absorption has been strong in Phoenix, and the port of Savannah is operating at record levels. These acquisitions further our repositioning strategy.
Compared to the last few quarters, our disposition activity this quarter was a little light. We generated $58 million of proceeds from the disposition of 6 properties. We are seeing stronger demand for our dispositions as the financing markets improve and we continue to have confidence in our ability to continue the reduction of our suburban office investments. On the new development front, activity remains somewhat slow. Weve had a number of discussions occurring on bulk industrial build-to-suit opportunities and on-campus MOBs, but these projects are taking a long time to negotiate and commence, as our customers navigate the economic and legislative uncertainties. As weve previously noted, we are not really looking at speculative development, but there are a couple markets where we believe there will be some speculative starts in the second half of the year on the bulk industrial side. These include some submarkets in Southern California and in Houston. The real question on new spec development today is going to be what are the projected yields based on the depressed market rental rates? So overall, were very pleased with our second quarter, and now Ill turn it the call over to Christie.
Christie Kelly - Duke Realty Corp - EVP and CFO
Thanks, Denny. And good afternoon, everyone. As Denny mentioned, I would like to provide an update on our second quarter financial performance and progress on our capital strategy. Im pleased to report that our second quarter 2011 core FFO was $0.29 per share, $0.01 per share above the first quarter. Our core earnings from rental operations remains stable, even as we continue repositioning our asset mix. The strong leasing activity that Denny touched on earlier is a key driver of the current stability in future growth in our core earnings from rental operations. Our service operations continue to produce strong results, driven in large part from the progress on the BRAC project in Washington, DC, which is moving to completion later this year. We also have a strong backlog of projects for the service operations business, a few of which just got started this quarter. We continue to focus on our overall operating results and the capital expenditures necessary to grow our business.
For the quarter, our AFFO per share was $0.22, which translates into a conservative payout ratio of 77%, and our year to date payout ratio is slightly below 83%. On the capital transactions side, we continue to have success matching our disposition proceeds with our capital needs for acquisitions and development. As I have said before, our strategy is to use our line of credit for only short-term needs and only in limited amounts. Im pleased to say that we have a $0 balance on our line of credit as of June 30, and a cash balance of $118 million. We continue to look at acquisitions, development, and capital opportunities to reinvest this cash. As Im sure you saw, on July 18, we redeemed the remaining amount of our Series N Preferred Shares that had a coupon of 7.25% for $109 million. This transaction will have a positive effect on FFO and on our capital strategy metrics.
Our debt maturities for the remainder of 2011 is a very manageable $312 million. We will fund these maturities through the use of proceeds from asset sales or refinancing with unsecured bonds. We continue to stay focused on maintaining and improving our balance sheet, our fixed charged coverage ratio has improved to 1.82 times from 1.79 times at year-end 2010. Net debt to EBITDA improved to 6.67 times from 7.31 times at year end, while debt to gross assets remained at 46%. Im also pleased to report that this week Moodys Investors Service reaffirmed our Baa2 rating and improved our outlook to stable. This is a strong reflection of the progress we have made on our capital strategy. Well have additional opportunities to improve our balance sheet as we continue to execute on our operating and asset strategies. And with that, Ill turn it back over to Denny.
Denny Oklak - Duke Realty Corp - Chairman and CEO
Thanks, Christie. As I mentioned in my opening remarks, theres still a tremendous amount of uncertainty in this economy. While there was a slowdown across many of the drivers of real estate demand during the first half of the year, our portfolio held up nicely and we even increased occupancy and produced solid operating results. We are pleased with the result so far for 2011 and are optimistic about the remainder of the year. We continue to produce positive results in all 3 components of our strategy operations, asset, and capital. We remain discipline on our approach and are progressing nicely and on schedule to ultimately reposition our portfolio to 60% bulk industrial, 25% suburban office, and 15% medical
4
FINAL TRANSCRIPT |
Jul 28, 2011 / 07:00PM GMT, DRE - Q2 2011 Duke Realty Corp Earnings Conference Call |
office. We have the balance sheet to be able to quickly react to opportunities and will continue to strengthen it over time. Finally, with the solid first 6 months of the year, we reaffirm our core FFO guidance of $1.06 to $1.18 per share for 2011. Thank you again for joining us today, and now well open it up for questions.
QUESTION AND ANSWER
Operator
(Operator Instructions)
Our first question will come from the line of Jamie Feldman, Bank of America. Please go ahead.
Jamie Feldman - BofA Merrill Lynch - Analyst
Thank you. Denny, starting out with your discussion of kind of macro themes and it sounds like in your the first thing you said on the call was that they are having an impact, but they are offset by others. But then as you spoke more, it sounded like youre really not seeing an impact. What are you watching to see where you can start to see some pushback, given what were seeing in the economy? What are the signs of slowing down that youre watching for?
Denny Oklak - Duke Realty Corp - Chairman and CEO
Well, Jamie, what we the main thing we really watch is just our overall leasing activity. Were pretty much on top of that. We get a weekly report of all the prospects on our major vacancies. We review that monthly with our senior team and more often on an individual market basis. So thats really what is I think the initial indicator to us whether activity is really slowing down. How does our prospect list look? Are how are our is the activity from our in-house leasing folks? And again, so far, I would have to say that its held up pretty well. You know, our occupancy continues to tick up a little bit. As I mentioned, weve signed a big lease down in Nashville in July.
So right now, we havent seen any kind of significant impact in my opinion on a downward trend in leasing from the things that have been going on in the economy over the last 60 days. So I think thats a good sign. And truthfully, the summer is generally a little bit slower time for us and we probably expect August to be a little bit slow. But so far, so good. The other comment I made just in general is on the development side it really is, as slow as weve seen it continues to be, theres more discussions going on now, but its just really hard to get folks to commit and get signed and get projects started. But I think weve got some opportunity to do a few things in the second half of the year.
Jamie Feldman- BofA Merrill Lynch - Analyst
Okay, and then I guess focusing on the medical office business, do you see any kind of fallout from the budget issues in Washington, and just funding to that part of the economy?
Denny Oklak - Duke Realty Corp - Chairman and CEO
No, actually I would say were starting to feel more optimistic about that piece of the business on the development side. Some of the larger hospital systems are beginning to free up more funds for new development type projects and I would just call it expansion projects. Weve seen a couple announced recently with some of our major clients. So I think, again, that business is going to start picking up I think in the second half of the year.
Jamie Feldman - BofA Merrill Lynch - Analyst
Okay, and then finally, can you tell us the yields on the acquisitions you completed during the quarter? Or maybe your projected IRRs?
Denny Oklak - Duke Realty Corp - Chairman and CEO
5
FINAL TRANSCRIPT |
Jul 28, 2011 / 07:00PM GMT, DRE - Q2 2011 Duke Realty Corp Earnings Conference Call |
Well, I think we disclosed the yields in our supplemental package, and overall, we were at about an average 6.78%, 6.77%, I guess, average yield in the second quarter. And as I mentioned, that included about a third of that, I would say, was from our California acquisition, which was in the low 5% cap rate range.
Jamie Feldman - BofA Merrill Lynch - Analyst
Okay. All right. Thank you.
Denny Oklak - Duke Realty Corp - Chairman and CEO
Thanks, Jamie.
Operator
The next question comes from the line of Ki Bin Kim with Macquarie. Please go ahead.
Ki Bin Kim - Macquarie Research Equities - Analyst
I just want to follow-up on that last statement. Was it you said you bought a industrial [site] in California for a low of 5% cap rate? When you do when you buy an asset like that, what kind of growth assumption are you putting in there and are the leases coming due pretty quickly?
Denny Oklak- Duke Realty Corp - Chairman and CEO
That one, as I said, its a single tenant. Thats the only tenant thats ever been in that building. The buildings I think maybe 8 or 9 years old, maybe a little older than that. And their lease goes for about another 3 years. It had some bumps. And we think today they are in probably 10% or 15% below market rents.
Ki Bin Kim - Macquarie Research Equities - Analyst
Okay, and going back to your tenant retention ratio, it fell off quite a bit. And 2.1 million square feet had vacated, typically where are those tenants going, or are they just kind of closing up shop or downsizing?
Denny Oklak - Duke Realty Corp - Chairman and CEO
Well, first of all, I would say again this goes back to what we said at the beginning of the year, that we had some larger industrial tenants that were leaving during the first half of the year. A lot of those were in the second quarter. And most of those, some of those folks I think left because of consolidation and some relocation. There probably was a little bit of downsizing in that, but mostly, it was either relocation. And just for example, we had a 600,000 square foot tenant down in Atlanta who basically terminated their lease, and because they needed a larger building and they ended up moving into a larger built basically build-to-suit for them. So we had 600,000 square feet go dark there in May, but we signed a lease in June for 407,000 of the 600,000.
Ki Bin Kim - Macquarie Research Equities - Analyst
Okay, last question, on your development yield page, it looks like the yield in or your projects that you finished in 2010, the expected yields went down maybe 30 bps, 30 bps or 40 bps. I was wondering if you could provide a little color on that.
Denny Oklak - Duke Realty Corp - Chairman and CEO
6
FINAL TRANSCRIPT |
Jul 28, 2011 / 07:00PM GMT, DRE - Q2 2011 Duke Realty Corp Earnings Conference Call |
Yes, well, we did we had kind of not a whole lot go into service in the second quarter. And I think it was really just a couple projects and mostly medical office projects that I think went into service. I dont think theres anything specific there, Ki Bin, I think its just timing. Were still, I would say on the new development side in the industrial business, even though we havent started one here for a while, I think that the yields are pretty much where we have been saying probably in the 7.75% to 8.5% on industrial build-to-suit type projects. Again, on most of the medical office, were in the somewhere between 8% and 9% depending on the size, the location, as well as quality of the hospital system. Again, most of the development were doing now is on the medical office side of the business and those projects are really with very highly-rated tenant customers in the hospital. So those yields are probably a little bit lower than weve historically seem its because of the tenant mix.
Ki Bin Kim - Macquarie Research Equities - Analyst
Okay, thanks. And in your opening remarks, you mentioned that you think industrial cap rates on the average metro area was about 6% to 6.5%. Can you give 1 for office, where you think those cap rates are?
Denny Oklak - Duke Realty Corp - Chairman and CEO
Well, you know, we havent seen a whole lot of office trade to be honest with you, so I would still say in most of our markets, I think theres probably been some trade in some of the major markets. One where weve seen some trades would be in Washington, DC, where weve seen some stuff trade actually on the office side in the 6% to 6.5% cap rate range. And weve sold some stuff in probably 8% to 8.25% cap rate range, but they have been mostly one-off buildings here. So there just isnt a whole lot trading there right now.
Ki Bin Kim - Macquarie Research Equities - Analyst
Okay, thank you.
Operator
And our next question comes from the line of Michael Bilerman with Citi. Please go ahead.
Josh Attie - Citigroup - Analyst
Hi, thanks. Its Josh Attie with Michael. How much of the positive same-store growth that you reported do you think is being driven by the lease-up of some of the developments that were delivered late in the last cycle and had some vacancy, or maybe another way to ask it, you identified $40 million NOI opportunity last year for leasing up those assets. How much of that is still an opportunity versus how much of it has been realized?
Denny Oklak - Duke Realty Corp - Chairman and CEO
Well, let me address the first part and I think Christie can help on the second part. But its really not much. Again, when you when you think about it, Michael, the way we do it is once the projects either, what we call stabilized, which is over 90% leased, or its 1 year, it really goes into that population. So most those projects have been in here for quite a long time now. But that population has really gotten leased up pretty well and so I would say that the growth from there certainly is just a little bit in there from the lease-up of the newer developed properties, but I would say its a very, very minor piece of that growth right now.
Christie Kelly - Duke Realty Corp - EVP and CFO
And Josh, just to answer your question, one of the things that we do just as a matter of routine is track the progress on that population of buildings, and specifically, the rent on the leases that have been executed for that population of buildings now is in the tune of $17 million. So were making some good progress.
Operator
7
FINAL TRANSCRIPT |
Jul 28, 2011 / 07:00PM GMT, DRE - Q2 2011 Duke Realty Corp Earnings Conference Call |
And our next question comes from the line of Steven Frankel, Green Street Advisors. Please go ahead.
Steven Frankel - Green Street Advisors - Analyst
A couple questions regarding the asset repositioning strategy. First of all, if the building you guys bought in Lynwood do you use peg replacement costs and where do you peg land value more specifically for that building?
Denny Oklak - Duke Realty Corp - Chairman and CEO
We think replacement cost Steve, we didnt really look at the land value specifically, because as you know, thats pretty much an infill market there, but we peg replacement costs there right around probably $120 a foot, something like that, because weve said its infill and its in closer to the Port.
Steven Frankel - Green Street Advisors - Analyst
Okay. And youre starting like you said at a like low 5% type yield. From what you were saying earlier, it sounds like the tenant is a paying below market rent. What do you think the type of IRR youre going to achieve on that asset and how does that compare with other deals that you think we might see you guys do in Southern California going forward?
Denny Oklak - Duke Realty Corp - Chairman and CEO
Well, we dont really look at them as much on an IRR basis because then you have to just make all kinds of assumptions about your ultimate time period youre going to hold and your disposition cap rate. But again, we think thats a low 5% yield growing up in the high 5%s, low 6%s as the tenant rolls. We have seen some good rental rate increases out there in Southern California. You know, again, what weve said about Southern California is that its a market we want to be in. Were going to be part of that market. Its not going to be a huge number for us as we go forward, but we think its great as part of that repositioning strategy as we move through some of the office dispositions to be active in that market and own some assets. And then I think going forward, again, that market has fluctuated a little bit over the last couple of years, but when you look at where the yields have been, I think they have been into that in that 5% to 6% range for quite a bit of the time over the last 4. 5 years.
Steven Frankel - Green Street Advisors - Analyst
Great, and then just a question on the office disposition, as you guys noted, the environment, I guess the financing environment, it sounds like from your guys perception is coming back, which should help with the disposition strategy going forward. But the CMBS market, the secured financing market from life companies and others has bounced back quite a bit year to date. What do you think is going to take for the volume to get there? Just more equity chasing, suburban office versus industrial, or something else?
Denny Oklak - Duke Realty Corp - Chairman and CEO
Yes, I think theres a couple of things that were seeing. I think theres probably 2 different types of dispositions that well do there. One is smaller one-off single asset or 2 or 3 asset portfolios. And we were seeing quite a fair amount of interest in that on both the equity side on the debt side right now. The banks are getting back into the lending business on that, so I think and those probably arent going to be part of the CMBS market really, Steve. They will be just bank loans and were seeing that activity pick up. And then I think the other area there would be doing some kind of a larger portfolio, maybe even a multi-city portfolio, and that would be contingent I think on some type of larger CMBS financing. And youve said, that market has come back. I think theres recently might have been a couple blips, but I think its still in pretty good shape right now and I think theres equity beginning to look at some of those larger portfolios and I think Ive mentioned this back in June and we talked to everybody at NAREIT. I think there may be some opportunity for a larger portfolio sale as the market improves.
Steven Frankel - Green Street Advisors - Analyst
Great, thank you.
8
FINAL TRANSCRIPT |
Jul 28, 2011 / 07:00PM GMT, DRE - Q2 2011 Duke Realty Corp Earnings Conference Call |
Operator
Next question comes from the line of Sloan Bohlen, Goldman Sachs. Please go ahead.
Sloan Bohlen - Goldman Sachs - Analyst
Hello, there. Just had one question for Denny. You had some comments about some pretty good demand for big space within bulk industrial. I wonder if you could maybe reconcile that with the slow activity in the build-to-suit or spec development area. Is it a matter of those bigger tenants being opportunistic in terms of moving around for space? Maybe you could just elaborate on that?
Denny Oklak - Duke Realty Corp - Chairman and CEO
Yes, I think, Sloan, what were seeing is that the activity that weve seen has been strongest, has been in what I would call the larger spaces, anywhere from 200,000 square feet to 600,000 square feet or 800,000 square feet even. And today, I think some of those larger tenants are taking advantage of the vacancies in the market and the lower rental rates, potentially to do some consolidation today, or even grow. Weve seen growth in a number of our clients. So I do think thats a big part of it. Now when you look around now in many markets a lot of that large bulk space that was available and a lot of which was built right at the end of the last cycle has been leased-up. So theres in a number of markets a lack of that big space. So thats why Im saying I think in a couple markets well start to see some spec development. But I also think, which is typical from this point in the cycle coming out of the downturn, you will see some of these distribution companies focus on build-to-suit opportunities, because there isnt that availability of the larger spaces. And were seeing that really again from a discussion point of view, but its just hard to get everything done and signed up.
Sloan Bohlen - Goldman Sachs - Analyst
Okay. And is there enough critical mass of that type of demand out there to start pushing rents even for smaller space across your portfolio?
Denny Oklak - Duke Realty Corp - Chairman and CEO
I dont think so, to be honest with you. I think its still going to be a while before we see rents start to push. And that was really the essence of my comment in our remarks. I think what well see today is when a customer does need a build-to-suit, the yields will be reasonably good on those. And by that I mean in the 8% to 8.75% range on a bulk industrial building. But I think whats the real decision thats going to be tough, I think, for developers once they start looking at the spec product today is what are the rental rates that are really out there in the market today? And what kind of yield can they get on those developments, because I think its going to be pretty hard right now to pencil out spec development with todays rental rates in almost any market.
Sloan Bohlen - Goldman Sachs - Analyst
And how far do you think the gap is between those rates needed?
Denny Oklak - Duke Realty Corp - Chairman and CEO
I would say were probably 20% off. 15% to 20%.
Sloan Bohlen - Goldman Sachs - Analyst
Oh okay. Thats very helpful. Thank you guys.
Operator
9
FINAL TRANSCRIPT |
Jul 28, 2011 / 07:00PM GMT, DRE - Q2 2011 Duke Realty Corp Earnings Conference Call |
Our next question comes from the line of Ross Nussbaum at UBS. Please go ahead.
Ross Nussbaum - UBS - Analyst
Hello, everybody. Good afternoon.
Denny Oklak - Duke Realty Corp - Chairman and CEO
Hello, Ross.
Ross Nussbaum - UBS - Analyst
2 questions first, on the portfolio mix, what is your timeline at this point for getting to your ideal portfolio mix?
Denny Oklak - Duke Realty Corp - Chairman and CEO
Well, the timeline as weve laid it out has been through 2013, and I think obviously weve made pretty good progress and were probably ahead of that pace. But I think it really just depends on the market activity thats available out there, and where we can be successful mostly on the acquisition and disposition side here. And thats really been what a lot of our repositioning has been. The medical office, will probably continue to be through mostly through new development opportunities as that pipeline continues to be solid and grow. Right now, I think the industrial increase will be more through the acquisition side and obviously dispositions of some of the suburban office assets. So I think it really just depends on how the market is. As Ive said, its got a little bit tighter on the bulk industrial side, so weve done a few deals, but weve slowed down some there just because of where pricing is. But again, that ebbs and flows. And then I also think theres some up again, more interest and more activity on the suburban office side now than weve seen in quite a while. So, were still hoping to be able to get to those percentages optimistically before 2013, but again, I think were very comfortable in being able to get to those no later than 2013.
Ross Nussbaum - UBS - Analyst
So if I wanted to put dollar terms around it, what from a disposition standpoint over the next 24, 30 months or so would you need to be selling on suburban office to get to get to these numbers?
Denny Oklak - Duke Realty Corp - Chairman and CEO
Weve got to do about kind of between $1.1 billion and $1.2 billion of suburban office dispositions and roughly a like amount maybe a little bit less of industrial acquisitions or development, and then about, about $400 million, $300 million to $500 million, lets say, of medical office acquisitions or development over that 24-month period.
Ross Nussbaum - UBS - Analyst
Okay. Second topic, your earnings guidance. If I heard correctly, you reiterated your guidance of was it $1.06 to $1.18?
Denny Oklak - Duke Realty Corp - Chairman and CEO
Yes.
Ross Nussbaum - UBS - Analyst
10
FINAL TRANSCRIPT |
Jul 28, 2011 / 07:00PM GMT, DRE - Q2 2011 Duke Realty Corp Earnings Conference Call |
Based on the first half run rate, you would be pushing into the upper end of that range. What would take you to the lower end? In other words, what gets that number that you reported this quarter meaningfully lower?
Denny Oklak - Duke Realty Corp - Chairman and CEO
Well, I think if you look at it, what we do is give you guidance at the beginning of the year in a range that we think will be for the year and obviously when youre giving guidance early in the year, there are a lot of variables. As we mentioned earlier this year with those industrial expirations that we had. And then we just have a tendency really not to change it during the year, at least until later in the year when we feel like we can maybe narrow that guidance and give you a little bit more clues. So were comfortable that were within the guidance. If you look at the range of estimates that we provide and we provided at the beginning of the year, we are probably trending towards the optimistic range in most of those numbers. But again, with just all the uncertainty out there, we just didnt really feel like there was a need to change it this quarter at all and were very comfortable with where we are.
Ross Nussbaum - UBS - Analyst
Is it fair to say that theres nothing on the transactional front or the fundamental front that would cause your run rate to be falling 14%? I mean it would have to fall 14% sort of into the back half of the year to get to that lower end the bottom end of the range. That doesnt seem like its going to happen.
Christie Kelly - Duke Realty Corp - EVP and CFO
I would say that, as Denny mentioned, Ross, that were just not in the practice of changing our guidance. I mean, weve been following that practice for many years now and were going to continue to do that.
Ross Nussbaum - UBS - Analyst
Guess Im trying to narrow it for you.
Christie Kelly - Duke Realty Corp - EVP and CFO
I understand, and weve got weve got strong momentum.
Ross Nussbaum - UBS - Analyst
Thanks a lot.
Operator
The next question comes from the line of Vincent Chao, Deutsche Bank. Please go ahead.
Vincent Chao - Deutsche Bank - Analyst
Hello everyone. Just had a question regarding your comment about the leases rolling now that were in the signed in the 2006, 2007 period. Can you give a sense of what percentage of leases that were renewed this quarter were from that vintage and whats left in the overall portfolio?
Denny Oklak - Duke Realty Corp - Chairman and CEO
Yes, sure. I think I would say probably 80% of those leases that rolled this quarter were in that 2006, 2007 range, particularly on the industrial side and when you look at our overall portfolio, its probably, we have a very balanced lease expiration schedule and so we run between 10% and
11
FINAL TRANSCRIPT |
Jul 28, 2011 / 07:00PM GMT, DRE - Q2 2011 Duke Realty Corp Earnings Conference Call |
12%, maybe 8% to 12% of leases expiring each year. So if you look back, theres probably not a whole lot of our portfolio thats left out there in those years because what matured has rolled and we may have a little bit in the second half of this year and a little headed into next year, but its probably less than 15% of our portfolio that were in those years.
Vincent Chao - Deutsche Bank - Analyst
Okay, and Im just trying to understand, it sounded like you expect leasing to be, or pricing to be challenged through the rest of the year. But if that peak year leases are kind of mostly done at this point, I guess when would you expect that spread to get more positive?
Denny Oklak - Duke Realty Corp - Chairman and CEO
Well, again, I think weve said particularly on the industrial side, I think its going to be negative the rest of this year. If theres really 2 things that have to happen. Again, as youre intimating here, it depends on when the lease was signed and thats rolling now. So as you get out into more in 08, leases signed in late 07, early 08, those rental rates were already starting to drop then. And then again going forward, when are rates going to start going up? And again, our sense is they as the bulk product continues to get have high occupancy, which when you look through our portfolio and the geographic concentration, almost all of our markets on the industrial side now are above the 90%, with just 2 or 3 out there that arent. So were in really good shape and I think as that holds for a while, that occupancy holds, well start to see some upward trends on the rent from where we are today. And thats probably going to happen in 2012.
Vincent Chao - Deutsche Bank - Analyst
Okay, thanks.
Operator
Next question comes from the line of David Rodgers with RBC. Please go ahead.
Mike Carroll - RBC Capital Markets - Analyst
Hi, its Mike Carroll here. Could you add a little color around your current land holdings, how many sites could support industrial development and where are those sites concentrated at?
Denny Oklak - Duke Realty Corp - Chairman and CEO
Well, weve really got land throughout the system, weve got industrial land and basically all of our markets I would say with the exception of South Florida. And obviously have a little bit of office land, but over 70% of the land that we have today available for future development is on the industrial side. So, today on the industrial square footage, we can do over 40 million square feet of new development on the land that we own and a lot of thats concentrated in some of our major Midwest distribution markets. Weve got Indianapolis and Columbus and Chicago. So weve really got land available all over for industrial development.
Mike Carroll - RBC Capital Markets - Analyst
Okay. And now on the transaction side, do you see any large portfolios on the market that you would be interested in buying, or is it mostly single assets?
Denny Oklak - Duke Realty Corp - Chairman and CEO
No, weve seen some larger portfolios be marketed so far this year in the first 6 months, and a couple comments on those. I would say most of those that we saw were of mixed quality on the industrial side and by that, I mean there was some really good assets and good markets and then there was those were combined with some markets you wouldnt want to be in and some lower quality assets. So whats typically happening
12
FINAL TRANSCRIPT |
Jul 28, 2011 / 07:00PM GMT, DRE - Q2 2011 Duke Realty Corp Earnings Conference Call |
these days is the sellers and the sellers brokers will solicit offers on all or any pieces and parts of those larger portfolios. So we have on a few of those larger portfolios made some offers on pieces and parts that we would like that would fit in strategically with us and are the quality of the assets that we want to own. But interestingly enough so far on those portfolios, theres been at least 1 bidder for the entire portfolio and most of the time obviously the seller would like to sell to a single buyer if possible, just makes the transaction easier. So we have seen some of those transactions trade in whole and we just werent interested in the whole package. So we havent been successful on those so far.
Mike Carroll - RBC Capital Markets - Analyst
All right, thank you.
Operator
And our next question comes from the line of Brendan Maiorana with Wells Fargo. Please go ahead.
Brendan Maiorana - Wells Fargo Securities - Analyst
Thanks, good afternoon. Hello, guys. So I just wanted to circle back to California and just get a better understanding of what your outlook is for that market over the next several years, given you did the 1 transaction and its relatively modest in size. I think its a $38 million low 5%s cap rate. You kind of I think you closed down the office that you had out there a few years ago, took a charge, but now youre back in that market. What do you think is the market opportunity? What do you think you can invest in there over the next few years and then what are kind of the returns that you expect to get?
Denny Oklak - Duke Realty Corp - Chairman and CEO
Yes. Well, first of all, youre right. Thats the first asset that we really acquired. We do have 1 land development site in Chino that weve owned for several years and can do about 400,000 square feet on it at the appropriate time. And we have made a lot of offers I would say over the last 12 to 18 months out in Southern California and been close on acquiring some other assets, but thats this was our first successful bid. You know, again, its just key distribution market for the country and its a place that Duke Realty as one of the larger distribution companies in the country should be, we believe. And I think but that doesnt mean its going to be 20% of our portfolio or anything like that. Its not going to be.
Weve said kind of in the $200 million to $300 million range in total over time. I think cap rates are probably bottomed out a little bit. They may come back a little bit as theres a little less money chasing stuff out there. But again, if you look back historically at the cap rates in Southern California, they fluctuate a little bit, but they dont fluctuate too far off of where they are today. And its really all a matter of how people are perceiving where the rents are. I mean, if the rents are if people are perceiving the rents are going to be growing then the cap rates go down. If they think rents are sort of topped out then cap rates go back up, which is very logical how that works. And so weve seen that again through this cycle. But were going to keep looking at opportunities out there and again, I think its maybe 3% to 5% of our overall portfolio or something like that ultimately.
Brendan Maiorana - Wells Fargo Securities - Analyst
I mean, its understandable that I guess you want to be in that market, given the importance to the overall distribution market nationally, but you did $200 million to $300 million on a $7 billion portfolio doesnt really do that much. So, is it worth it, kind of paying a 5% cap and for pricing that tends to be pretty strong out there all the time relative to the other markets where you have more scale and returns seem to be a little bit higher?
Denny Oklak - Duke Realty Corp - Chairman and CEO
Well, it is worth it for us because what having a presence there does is it drives more business your way. When were working with our major customers and they have an opportunity in Southern California, you want them to be thinking about you, particularly on the development side. And they are not really going to think about you unless you have some kind of a presence there. So I think long-term, its very important for us to be there.
13
FINAL TRANSCRIPT |
Jul 28, 2011 / 07:00PM GMT, DRE - Q2 2011 Duke Realty Corp Earnings Conference Call |
Brendan Maiorana - Wells Fargo Securities - Analyst
Okay. Fair enough. And then I just had a couple more specific questions probably for Christie. Christie, the dispositions that you provide, the disposition cap rates that you provide I think are stabilized. Without giving kind of specific going out cap rates, are the actual NOI loss that youre getting or the yield going out the door, is that higher or lower than the stabilized cap rate that youre reporting?
Christie Kelly - Duke Realty Corp - EVP and CFO
Its lower, Brendan.
Brendan Maiorana - Wells Fargo Securities - Analyst
Okay, so the, youre effectively marking the occupancy up to a stabilized number and these assets might have occupancy lower?
Christie Kelly - Duke Realty Corp - EVP and CFO
Thats correct.
Brendan Maiorana - Wells Fargo Securities - Analyst
Okay, thats helpful. And then in terms of the contractor fee line item, which I think on a the contractor fees you guys mentioned are typically $15 million to $25 million sort of on a normalized run rate. But I think also in that line item now youre including fees that you get for managing the CBRT venture and some of the other joint ventures. Do you have can you give us a sense of what the other fees other than kind of the contractor revenue, and the stuff that BRAC and Baylor thats going to roll off, what those other fees are contributing today?
Christie Kelly - Duke Realty Corp - EVP and CFO
Those other the other fees, Brendan, are a smaller portion. But as a result of CBRT, its probably in the order of magnitude of 15%.
Brendan Maiorana - Wells Fargo Securities - Analyst
Okay, 15%. I think that does it. All right. Thank you.
Christie Kelly - Duke Realty Corp - EVP and CFO
Thanks.
Denny Oklak - Duke Realty Corp - Chairman and CEO
Thanks, Brendan.
Operator
(Operator Instructions)
And allowing a few moments for people to queue up, I have no further questions in queue.
14
FINAL TRANSCRIPT |
Jul 28, 2011 / 07:00PM GMT, DRE - Q2 2011 Duke Realty Corp Earnings Conference Call |
Denny Oklak - Duke Realty Corp - Chairman and CEO
Okay, thank you.
Christie Kelly - Duke Realty Corp - EVP and CFO
Thanks, everybody.
Operator
And it appears that we do not have any questions. Does that conclude your conference? Okay, ladies and gentlemen, that does conclude our conference for today. We want to thank you for your participation and for using AT&T Executive Teleconference. You may now disconnect.
DISCLAIMER
Thomson Reuters reserves the right to make changes to documents, content, or other information on this web site without obligation to notify any person of such changes.
In the conference calls upon which Event Transcripts are based, companies may make projections or other forward-looking statements regarding a variety of items. Such forward-looking statements are based upon current expectations and involve risks and uncertainties. Actual results may differ materially from those stated in any forward-looking statement based on a number of important factors and risks, which are more specifically identified in the companies most recent SEC filings. Although the companies mayindicate and believe that the assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate or incorrect and, therefore, there can be no assurance that the results contemplated in the forward-looking statements will be realized.
THE INFORMATION CONTAINED IN EVENT TRANSCRIPTS IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANYS CONFERENCE CALL AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE CONFERENCE CALLS. IN NO WAY DOES THOMSON REUTERS OR THE APPLICABLE COMPANY OR THE APPLICABLE COMPANY ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY EVENT TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANYS CONFERENCE CALL ITSELF AND THE APPLICABLE COMPANYS SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.
© 2011 Thomson Reuters. All Rights Reserved.
15
Exhibit 99.3
DUKE REALTY LIMITED PARTNERSHIP
August 1, 2011
[Address]
Re: | Notice of Exchangeability of our 3.75% Exchangeable Senior Notes due 2011 |
To the Holders of our 3.75% Exchangeable Senior Notes due 2011:
Reference is made to the Indenture, dated as of November 22, 2006 (the Indenture), by and among Duke Realty Limited Partnership, an Indiana limited partnership (the Operating Partnership), Duke Realty Corporation, an Indiana corporation, and The Bank of New York Trust Company, N.A., relating to the Operating Partnerships 3.75% Exchangeable Senior Notes due 2011 (the Notes). Capitalized terms used but not defined herein have the meanings ascribed to them in the Indenture.
Pursuant to Section 13.01(b) of the Indenture, the Operating Partnership hereby gives notice to the Holders of the Notes that the Notes shall be exchangeable at any time on or after August 1, 2011 until the close of business on the second Business Day immediately preceding the Maturity Date, subject to the terms and conditions of the Indenture.
DUKE REALTY LIMITED PARTNERSHIP, an Indiana limited partnership | ||||
By: |
Duke Realty Corporation, an Indiana corporation, its general partner | |||
By: |
| |||
Printed: |
| |||
Title: |
|
G_-667O]!8[/I?G<.^CS
M]%W_`$?])_P:.-NUW]*^BWC='\Y5]+_@_P#1?]VO06T1*])5X$6U`1U#H'ZJ
M=3WN8RW&MVBMVZMUI&VQUC/5_H[7MJH]%WK/>S_1U4>MD6>DH/\`JYE49.)1
MF754C,?:P.82\L=4-VVW>**V?:)9Z+_6]-F_]9]%5:]FP?TS^=I^ANV_2[?]
MV/\`N'_PR6)M^U4?TR-SY]#=ZW!_HWYV_P#TZ%3_`'A]BK'9O/\`JIU!I>&V
MTAU;"^QEI=4]I:'&RI_LLHWU?HZ['LR'T>K=_.^EZMK&=]6,FGUOM>174:&O
M=8VL&R/3;CO=O>[T:V;/MFVWW>K^B_059/J5K.JV[*/Z3]"SZ&[;Q;_1_P#@
M?^Y/_H0C4[)/].^@W^;W?Z'\[_@O]'_W12X
MG_-667O]!8[/I?G<.^CS]%W_`$?])_P:.-NUW]*^BWC='\Y5]+_@_P#1?]VO
M06T1*])5X$6U`1U#H'ZJ=3WN8RW&MVBMVZMUI&VQUC/5_H[7MJH]%WK/>S_1
MU4>MD6>DH/\`JYE49.)1F754C,?:P.82\L=4-VVW>**V?:)9Z+_6]-F_]9]%
M5:]FP?TS^=I^ANV_2[?]V/\`N'_PR6)M^U4?TR-SY]#=ZW!_HWYV_P#TZ%3_
M`'A]BK'9O/\`JIU!I>&VTAU;"^QEI=4]I:'&RI_LLHWU?HZ['LR'T>K=_.^E
MZMK&=]6,FGUOM>174:&O=8VL&R/3;CO=O>[T:V;/MFVWW>K^B_059/J5K.JV
M[*/Z3]"SZ&[;Q;_1_P#@?^Y/_H0C4[)/].^@W^;W?Z'\[_@O]'_W12XNJK\(ZZ][ZMU[W[KW
M7A^>/Z<_UX_XCWKJC::BO7$J6!L-5C>WTX_I_A]?>^K$@<3UWQ;G@?T/_&_?
MNM]=^_=>Z]S;C^HO_K7Y]^ZJ:5%>/70OS<6YX_Q'%C[]U;KOW[KW7O?NO==6
M!N/ZVOR?]A[]UHF@J>N[\D6Y%O\`>1[UUKC0@XZ][WU;KWOW7NO>_=>Z][]U
M[KB/J?I_L/K_`+'W[KW7*PM;_8>]=5[J\<=>'%K?CWOK9%13KJW/^%K'_$?T
M_P!A[]UOKPXX'X_Y'[]UH@$4/7FM;GZ>_=>``%!U[CC_`%N/];CW[K?7?OW7
MNO>_=:J,9Z][]U[@,GKWOW6^N^+>]=5[M7]'KKWOJW7O?NO=<1R38_CZ6^G^
M/^M[]U[KOFY!(/TOQS;\\WL"?Z_3W\L#RZL"_F%?%'N+
MYD;FZ!WI\=/YB/3?2&S=M_'S;>R=U;+JOD?GMH+E,[+#CJJ6NJ,-LK,OC*Q%
MH@T#FH'E(NGZ?8(Y`YQV'DZ'?+;F/D6YO+Q]P=U<6R244$X#2`$9]#3HYW[;
M+W=I;:6PWF&.+P5#*TI7RK\*@\?F>BB?R:=T]3[*WE\M_P"6S\J-_=?Y;86P
M^R,%W3L;=C[FQB=>5^Z^J]Q4:[IJMIY?,2QT4U%6U.)H*^+QDO,'E<*3J/L3
M^]$.Z7]MRO[D\LV%Q;7%U;&!U"$2A)4(74%S@$@@U%2,](^4Y+>&6^V*_E61
M5?76O;5
G)E4WI.
M5&-Z:V,Y9"<_/@H\/V%D;V)E+7AA<"UF:6QT97)S(&5S8STB0U(B/SX*/'@Z
M>&%P;65T82!X;6QNS;/S-S%
MRKM/+$<'*M];KN<=Y]29'N))BM9%B=M:POJ;2ND,*58D=`G[Q.W6>Y\H\M