UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): April 29, 2015
DUKE REALTY CORPORATION
DUKE REALTY LIMITED PARTNERSHIP
(Exact name of registrant specified in its charter)
Duke Realty Corporation:
Indiana | 1-9044 | 35-1740409 | ||
(State of Formation) |
(Commission File Number) |
(IRS Employer Identification No.) |
Duke Realty Limited Partnership:
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 April 29, 2015, Duke Realty Corporation, an Indiana corporation (the Company), 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 March 31, 2015. A copy of the Press Release is attached hereto as Exhibit 99.1 and is incorporated into this Item 2.02 by this reference.
On April 30, 2015, the Company also held a conference call to discuss the Companys financial results for the quarter ended March 31, 2015. Pursuant to General Instruction F to Form 8-K, a copy of the transcript from the conference call (the Transcript) is attached hereto as Exhibit 99.2 and is incorporated into this Item 2.02 by this reference. The Transcript has been selectively edited to facilitate the understanding of the information communicated during the conference call.
The information contained in this Item 2.02, including the related information set forth in the Press Release and the Transcript attached hereto and incorporated by reference herein, is being furnished and shall not be deemed filed for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the Exchange Act), or otherwise. The information in this Item 2.02 shall not be incorporated by reference into any registration statement or other document pursuant to the Securities Act of 1933, as amended, or into any filing or other document pursuant to the Exchange Act, except as otherwise expressly stated in any such filing.
Item 5.02. | Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers. |
On April 30, 2015, the Company announced that Mr. James D. Bremner will step down from the position of President, Healthcare of the Company, effective June 30, 2015. Mr. Bremners responsibilities will be assumed by current Company employees, and the Company does not plan to replace Mr. Bremner at this time.
Mr. Bremner has agreed to provide certain consulting services to the Company through BRE II, LLC, an Indiana limited liability company, of which Mr. Bremner is the sole member, during the period commencing on June 30, 2015 and ending on January 1, 2016, subject to earlier termination (the Consulting Period). The Company and BRE II, LLC plan to enter into a Consulting Agreement (the Consulting Agreement) effective as of June 30, 2015. Pursuant to the Consulting Agreement, BRE II, LLC is expected to be entitled to 12 cash payments of $2,333.34 per month in exchange for the performance of consulting services during the Consulting Period. However, the Company cannot assure you that the Company and BRE II, LLC will enter into the Consulting Agreement on the terms described herein or at all.
In addition, at the Companys Annual Meeting of Shareholders held on April 29, 2015 (the Annual Meeting), the Companys shareholders approved the Companys 2015 Long-Term
Incentive Plan. Details of the Companys 2015 Long-Term Incentive Plan were included in the Companys Definitive Proxy Statement on Schedule 14A (File No. 001-09044) as filed with the Securities and Exchange Commission on March 11, 2015.
Pursuant to General Instruction F to Form 8-K, the Companys 2015 Long-Term Incentive Plan is attached hereto as Exhibit 10.1, and incorporated into this Item 5.02 by this reference.
Item 5.07. | Submission of Matters to a Vote of Security Holders. |
At the Annual Meeting, the shareholders of the Company voted on four proposals. Each proposal was approved pursuant to the following final voting results from the Annual Meeting:
1. To elect thirteen directors to serve on the Companys Board of Directors for a one-year term ending at the 2016 Annual Meeting of Shareholders:
FOR | AGAINST | ABSTAIN | BROKER NON-VOTES |
|||||||||||||
Thomas J. Baltimore, Jr. |
294,288,655 | 4,781,880 | 470,136 | 21,134,617 | ||||||||||||
William Cavanaugh III |
296,222,923 | 2,845,235 | 472,513 | 21,134,617 | ||||||||||||
Alan H. Cohen |
297,735,824 | 1,320,641 | 484,206 | 21,134,617 | ||||||||||||
Ngaire E. Cuneo |
285,971,754 | 13,168,276 | 400,641 | 21,134,617 | ||||||||||||
Charles R. Eitel |
296,468,609 | 2,673,209 | 398,853 | 21,134,617 | ||||||||||||
Martin C. Jischke, PhD |
296,586,181 | 2,554,308 | 400,182 | 21,134,617 | ||||||||||||
Dennis D. Oklak |
294,587,716 | 4,347,302 | 605,653 | 21,134,617 | ||||||||||||
Melanie R. Sabelhaus |
297,957,376 | 1,104,405 | 478,890 | 21,134,617 | ||||||||||||
Peter M. Scott, III |
298,198,117 | 860,129 | 482,425 | 21,134,617 | ||||||||||||
Jack R. Shaw |
297,005,844 | 2,067,870 | 446,957 | 21,134,617 | ||||||||||||
Michael E. Szymanczyk |
298,173,076 | 878,671 | 488,924 | 21,134,617 | ||||||||||||
Lynn C. Thurber |
297,958,204 | 1,191,565 | 390,902 | 21,134,617 | ||||||||||||
Robert J. Woodward, Jr. |
286,203,591 | 12,868,249 | 468,831 | 21,134,617 |
2. To vote on an advisory basis to approve the compensation of the Companys executive officers for 2014:
FOR | AGAINST | ABSTAIN | BROKER NON-VOTES |
|||||||||||
279,885,916 | 18,900,603 | 754,152 | 21,134,617 |
3. To ratify the reappointment of KPMG LLP as the Companys independent registered public accountants for the fiscal year 2015:
FOR | AGAINST | ABSTAIN | BROKER NON-VOTES |
|||||||||||
318,490,897 | 1,639,226 | 545,165 | |
4. To approve the Companys 2015 Long-Term Incentive Plan:
FOR | AGAINST | ABSTAIN | BROKER NON-VOTES |
|||||||||||
275,375,474 | 23,462,380 | 702,817 | 21,134,617 |
Item 9.01. | Financial Statements and Exhibits. |
(d) | Exhibits |
Exhibit |
Description | |
10.1 | Duke Realty Corporation 2015 Long-Term Incentive Plan. # | |
99.1 | Duke Realty Corporation press release dated April 29, 2015, with respect to its financial results for the quarter ended March 31, 2015.* | |
99.2 | Duke Realty Corporation transcript from the conference call held on April 30, 2015, with respect to its financial results for the quarter ended March 31, 2015.* |
* | The Press Release and the Transcript attached hereto as Exhibits 99.1 and 99.2, respectively, are furnished and not filed, as described in Item 2.02 of this Current Report on Form 8-K. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.
DUKE REALTY CORPORATION | ||
By: | /s/ ANN C. DEE | |
Ann C. Dee | ||
Executive Vice President, General Counsel and Corporate Secretary |
DUKE REALTY LIMITED PARTNERSHIP | ||
By: | Duke Realty Corporation, its general partner | |
By: | /s/ ANN C. DEE | |
Ann C. Dee | ||
Executive Vice President, General Counsel and Corporate Secretary |
Dated: May 4, 2015
EXHIBIT INDEX
Exhibit |
Description | |
10.1 | Duke Realty Corporation 2015 Long-Term Incentive Plan. # | |
99.1 | Duke Realty Corporation press release dated April 29, 2015, with respect to its financial results for the quarter ended March 31, 2015.* | |
99.2 | Duke Realty Corporation transcript from the conference call held on April 30, 2015, with respect to its financial results for the quarter ended March 31, 2015.* |
* | 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. |
Exhibit 10.1
DUKE REALTY CORPORATION
2015 LONG-TERM INCENTIVE PLAN
ARTICLE 1
PURPOSE
1.1. Purpose. The purpose of the Duke Realty Corporation 2015 Long-Term Incentive Plan (the Plan) is to promote the success, and enhance the value, of Duke Realty Corporation (the Company), by linking the personal interests of employees, officers, directors and consultants of the Company or any Affiliate (as defined below) to those of Company stockholders and by providing such persons with an incentive for outstanding performance. The Plan is further intended to provide flexibility to the Company in its ability to motivate, attract, and retain the services of employees, officers, directors and consultants upon whose judgment, interest, and special effort the successful conduct of the Companys operation is largely dependent. Accordingly, the Plan permits the grant of incentive awards from time to time to selected employees, officers, directors and consultants of the Company and its Affiliates.
ARTICLE 2
DEFINITIONS
2.1. Definitions. When a word or phrase appears in this Plan with the initial letter capitalized, and the word or phrase does not commence a sentence, the word or phrase shall generally be given the meaning ascribed to it in this Section or in Section 1.1 unless a clearly different meaning is required by the context. The following words and phrases shall have the following meanings:
(a) Affiliate means (i) any Subsidiary or Parent, or (ii) an entity that directly or through one or more intermediaries controls, is controlled by or is under common control with, the Company, as determined by the Committee.
(b) Award means any Option, Stock Appreciation Right, Restricted Stock Award, Restricted Stock Unit Award, Deferred Stock Unit Award, Performance Award, Other Stock-Based Award, Performance-Based Cash Award, or any other right or interest relating to Stock or cash, granted to a Participant under the Plan.
(c) Award Certificate means a written document, in such form as the Committee prescribes from time to time, setting forth the terms and conditions of an Award. Award Certificates may be in the form of individual award agreements or certificates or a program document describing the terms and provisions of an Award or series of Awards under the Plan. The Committee may provide for the use of electronic, on-line or other non-paper Award Certificates, and the use of electronic, on-line or other non-paper means for the acceptance thereof and actions thereunder by a Participant.
(d) Board means the Board of Directors of the Company.
(e) Cause as a reason for a Participants termination of Continuous Status as a Participant shall have the meaning assigned such term in the employment, consulting, severance or similar agreement, if any, between such Participant and the Company or an Affiliate, provided, however that if there is no such agreement in which such term is defined, and unless otherwise defined in the applicable Award Certificate, Cause shall mean any of the following acts by the Participant, as determined by the Committee or the
Board: (i) the willful and continued failure of the Participant to perform his or her required duties as an officer, employee, director or consultant of the Company or any Affiliate, (ii) any action by the Participant that involves willful misfeasance or gross negligence, (iii) the requirement of or direction by a federal or state regulatory agency that has jurisdiction over the Company or any Affiliate to terminate the Continuous Status as a Participant of the Participant, (iv) the conviction of the Participant of the commission of any criminal offense that involves dishonesty or breach of trust, or (v) any intentional breach by the Participant of a material term, condition or covenant of any agreement between the Participant and the Company or any Affiliate.
(f) Change in Control means and includes the occurrence of any one of the following events:
(i) individuals who, on the Effective Date, constitute the Board of Directors of the Company (the Incumbent Directors) cease for any reason to constitute at least a majority of such Board, provided that any person becoming a director after the Effective Date and whose election or nomination for election was approved by a vote of at least a majority of the Incumbent Directors then on the Board shall be an Incumbent Director; provided, however, that no individual initially elected or nominated as a director of the Company as a result of an actual or threatened election contest with respect to the election or removal of directors (Election Contest) or other actual or threatened solicitation of proxies or consents by or on behalf of any Person other than the Board (Proxy Contest), including by reason of any agreement intended to avoid or settle any Election Contest or Proxy Contest, shall be deemed an Incumbent Director; or
(ii) any person becomes a beneficial owner (as defined in Rule 13d-3 under the 1934 Act), directly or indirectly, of either (A) 25% or more of the then-outstanding shares of common stock of the Company (Company Common Stock) or (B) securities of the Company representing 25% or more of the combined voting power of the Companys then outstanding securities eligible to vote for the election of directors (the Company Voting Securities); provided, however, that for purposes of this subsection (ii), the following acquisitions of Company Common Stock or Company Voting Securities shall not constitute a Change in Control: (w) an acquisition directly from the Company, (x) an acquisition by the Company or a Subsidiary of the Company, (y) an acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any Subsidiary of the Company, or (z) an acquisition pursuant to a Non-Qualifying Transaction (as defined in subsection (iii) below); or
(iii) the consummation of a reorganization, merger, consolidation, statutory share exchange or similar form of corporate transaction involving the Company or a Subsidiary (a Reorganization), or the sale or other disposition of all or substantially all of the Companys assets (a Sale) or the acquisition of assets or stock of another corporation (an Acquisition), unless immediately following such Reorganization, Sale or Acquisition: (A) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the outstanding Company Common Stock and outstanding Company Voting Securities immediately prior to such Reorganization, Sale or Acquisition beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the entity resulting from such Reorganization, Sale or Acquisition (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Companys assets or stock either directly or through one or more subsidiaries, the Surviving Entity) in substantially the same proportions as their ownership, immediately
prior to such Reorganization, Sale or Acquisition, of the outstanding Company Common Stock and the outstanding Company Voting Securities, as the case may be, and no person (other than (x) the Company or any Subsidiary of the Company, (y) the Surviving Entity or its ultimate parent corporation, or (z) any employee benefit plan (or related trust) sponsored or maintained by any of the foregoing is the beneficial owner, directly or indirectly, of 25% or more of the total common stock or 25% or more of the total voting power of the outstanding voting securities eligible to elect directors of the Surviving Entity, and at least a majority of the members of the board of directors of the Surviving Entity were Incumbent Directors at the time of the Boards approval of the execution of the initial agreement providing for such Reorganization, Sale or Acquisition (any Reorganization, Sale or Acquisition which satisfies all of the criteria specified in (A), (B) and (C) above shall be deemed to be a Non-Qualifying Transaction); or
(iv) approval by the stockholders of the Company of a complete liquidation or dissolution of the Company; or
(v) the general partnership interest owned by the Company and its Subsidiaries in DRLP is reduced to a level below 50%.
Notwithstanding the foregoing, for any Awards that constitute nonqualified deferred compensation within the meaning of Section 409A(d) of the Code, Change in Control shall mean any change in control event as such term is defined in Section 409A of the Code, without giving effect to any elective provisions that may be available under such definition.
(g) Code means the Internal Revenue Code of 1986, as amended from time to time. Reference to a specific Section of the Code or regulation thereunder shall include such Section or regulation, any valid regulation promulgated under such Section, and any comparable provision of any future law, legislation or regulation amending, supplementing or superseding such Section or regulation.
(h) Committee means the committee of the Board described in Article 4.
(i) Company means Duke Realty Corporation, an Indiana corporation, or any successor corporation.
(j) Continuous Status as a Participant means the absence of any interruption or termination of service as an employee, officer, consultant or director of the Company or any Affiliate, as applicable; provided, however, that for purposes of an Incentive Stock Option, Continuous Status as a Participant means the absence of any interruption or termination of service as an employee of the Company or any Parent or Subsidiary, as applicable, pursuant to applicable tax regulations. Continuous Status as a Participant shall not be considered interrupted in the case of any short-term disability or leave of absence authorized in writing by the Company prior to its commencement; provided, however, that for purposes of Incentive Stock Options, no such leave may exceed 90 days, unless reemployment upon expiration of such leave is guaranteed by statute or contract. If reemployment upon expiration of a leave of absence approved by the Company is not so guaranteed, on the 91st day of such leave any Incentive Stock Option held by the Participant shall cease to be treated as an Incentive Stock Option and shall be treated for tax purposes as a Nonstatutory Stock Option. Whether military, government or other service or other leave of absence shall constitute a termination of Continuous Status as a Participant shall be determined in each case by the Committee at its discretion, and any determination by the Committee shall be final and conclusive; provided, however, that for purposes of any Awards that constitute nonqualified deferred compensation within the meaning of Section 409A(d) of the Code, (i) the determination of a leave of absence must comply with the requirements of a bona fide
leave of absence as provided in Treas. Reg. Section 1.409A-1(h), and (ii) Continuous Status as a Participant shall mean the absence of any separation from service within the meaning given such term in Section 409A of the Code, without giving effect to any elective provisions that may be available under such definition.
(k) Covered Employee means a covered employee as defined in Code Section 162(m)(3).
(l) Deferred Stock Unit means a right granted to a Participant under Article 11 to receive Shares (or the equivalent value in cash or other property if the Committee so provides) at a future time as determined by the Committee, or as determined by the Participant within guidelines established by the Committee in the case of voluntary deferral elections.
(m) Disability or Disabled has the same meaning as provided in the long-term disability plan or policy maintained by the Company or if applicable, most recently maintained, by the Company or if applicable, an Affiliate, for the Participant, whether or not such Participant actually receives disability benefits under such plan or policy. If no long-term disability plan or policy was ever maintained on behalf of Participant or if the determination of Disability relates to an Incentive Stock Option, Disability means Permanent and Total Disability as defined in Section 22(e)(3) of the Code. Notwithstanding the foregoing, for any Awards that constitute nonqualified deferred compensation within the meaning of Section 409A(d) of the Code, Disability has the meaning given such term in Section 409A of the Code, without giving effect to any elective provisions that may be available under such definition. In the event of a dispute, the determination whether a Participant is Disabled will be made by the Committee and may be supported by the advice of a physician competent in the area to which such Disability relates.
(n) Dividend Equivalent means a right granted with respect to an Award pursuant to Article 12.
(o) DRLP means Duke Realty Limited Partnership, an Indiana limited partnership of which the Company is the sole general partner.
(p) DRLP Units means limited partnership interests in DRLP that may be exchanged or redeemed for Shares on a one-for-one basis, or any profits interest in DRLP that may be exchanged or converted into such limited partnership interests.
(q) Effective Date has the meaning assigned such term in Section 3.1.
(r) Eligible Participant means an employee, officer, consultant or director of the Company or any Affiliate.
(s) Exchange means the New York Stock Exchange or any other national securities exchange on which the Stock may from time to time be listed or traded.
(t) Fair Market Value, on any date, means (i) if the Stock is listed on the New York Stock Exchange, the per share closing sales price for the Stock on the New York Stock Exchange on such date or, in the absence of reported sales on such date, the closing sales price on the immediately preceding date on which sales were reported, or (ii) if the Stock is not listed on the New York Stock Exchange, but is listed on another securities exchange, the closing sales price on such exchange on such date or, in the absence of reported sales on such date, the closing sales price on the immediately preceding date on which sales were reported, or (iii) if the Stock is not listed on the New York Stock Exchange or any other securities exchange, the mean between the bid and offered prices as
quoted by the applicable interdealer quotation system for such date, provided that if it is determined that the fair market value is not properly reflected by such quotation, Fair Market Value will be determined by such other method as the Committee determines in good faith to be reasonable and in compliance with Code Section 409A.
(u) Full Value Award means an Award other than in the form of an Option or SAR, and which is settled by the issuance of Stock or DRLP Units (or at the discretion of the Committee, settled in cash valued by reference to Stock value).
(v) Grant Date of an Award means the first date on which all necessary corporate action has been taken to approve the grant of the Award as provided in the Plan, or such later date as is determined and specified as part of that authorization process. Notice of the grant shall be provided to the grantee within a reasonable time after the Grant Date.
(w) Good Reason after a Change in Control means, without the Participants prior written consent: (i) a forced move to a location more than 60 miles from the Participants place of business immediately prior to the Change in Control; or (ii) a material reduction in the Participants base salary and/or annual incentive bonus target as compared to that in effect immediately prior to the Change in Control. A Participant may not resign for Good Reason without providing the employer written notice of the grounds that the Participant believes constitute Good Reason and giving the employer at least 30 days after such notice to cure and remedy the claimed event of Good Reason.
(x) Incentive Stock Option means an Option that is intended to be an incentive stock option and meets the requirements of Section 422 of the Code or any successor provision thereto.
(y) Independent Directors means those members of the Board of Directors who qualify at any given time as (a) an independent director within the meaning of Section 303A of the New York Stock Exchange Listed Company Manual, or otherwise under the applicable rules of the Exchange on which the Shares are listed, (b) a non-employee director under Rule 16b-3 of the 1934 Act, and (c) an outside director under Section 162(m) of the Code.
(z) Non-Employee Director means a director of the Company who is not a common law employee of the Company or an Affiliate.
(aa) Nonstatutory Stock Option means an Option that is not an Incentive Stock Option.
(bb) Option means a right granted to a Participant under Article 7 of the Plan to purchase Stock at a specified price during specified time periods. An Option may be either an Incentive Stock Option or a Nonstatutory Stock Option.
(cc) Other Stock-Based Award means a right, granted to a Participant under Article 13, that relates to or is valued by reference to Stock or other Awards relating to Stock.
(dd) Parent means a corporation, limited liability company, partnership or other entity which owns or beneficially owns a majority of the outstanding voting stock or voting power of the Company. Notwithstanding the above, with respect to an Incentive Stock Option, Parent shall have the meaning set forth in Section 424(e) of the Code.
(ee) Participant means an Eligible Participant who has been granted an Award under the Plan; provided that in the case of the death of a Participant, the term Participant refers to a beneficiary designated pursuant to Section 14.5 or the legal guardian or other legal representative acting in a fiduciary capacity on behalf of the Participant under applicable state law and court supervision.
(ff) Performance Award means a Performance Share or Performance Unit or Performance-Based Cash Award granted pursuant to Article 9.
(gg) Performance-Based Cash Award means a right granted to a Participant under Article 9 to a cash award to be paid upon achievement of such performance goals as the Committee establishes with regard to such Award.
(hh) Performance Share means any right granted to a Participant under Article 9 to a unit to be valued by reference to a designated number of Shares or DRLP Units to be paid upon achievement of such performance goals as the Committee establishes with regard to such Performance Share.
(ii) Performance Unit means a right granted to a Participant under Article 9 to a unit valued by reference to a designated amount of cash or property other than Shares, including DRLP Units, to be paid to the Participant upon achievement of such performance goals as the Committee establishes with regard to such Performance Unit.
(jj) Person means any individual, entity or group, within the meaning of Section 3(a)(9) of the 1934 Act and as used in Section 13(d)(3) or 14(d)(2) of the 1934 Act.
(kk) Plan means the Duke Realty Corporation 2015 Long-Term Incentive Plan, as amended from time to time.
(ll) Qualified Performance-Based Award means an Award that is either (i) intended to qualify for the Section 162(m) Exemption and is made subject to performance goals based on Qualified Business Criteria as set forth in Section 14.10(b), or (ii) an Option or SAR having an exercise price equal to or greater than the Fair Market Value of the underlying Stock as of the Grant Date.
(mm) Qualified Business Criteria means one or more of the Business Criteria listed in Section 14.10(b) upon which performance goals for certain Qualified Performance-Based Awards may be established by the Committee.
(nn) Restricted Stock Award means Stock granted to a Participant under Article 10 that is subject to certain restrictions and to risk of forfeiture.
(oo) Restricted Stock Unit Award means the right granted to a Participant under Article 10 to receive shares of Stock (or the equivalent value in cash or other property if the Committee so provides) in the future, which right is subject to certain restrictions and to risk of forfeiture.
(pp) Retirement means a Participants termination of employment with the Company or an Affiliate, other than for Cause, on or after the age of 55 years, provided that unless otherwise determined by the Committee, as of the date of termination of the Participants employment, the sum of (i) the number of whole years of the Participants employment with the Company, any Affiliate and any company or business acquired by the Company or an Affiliate via a merger, share purchase, asset purchase or similar transaction, plus (ii) the Participants age, totals at least 65 years.
(qq) Section 162(m) Exemption means the exemption from the limitation on deductibility imposed by Section 162(m) of the Code that is set forth in Section 162(m)(4)(C) of the Code or any successor provision thereto.
(rr) Shares means shares of the Companys Stock. If there has been an adjustment or substitution with respect to the Shares (whether or not pursuant to Article 15), the term Shares shall also include any shares of stock or other securities that are substituted for Shares or into which Shares are adjusted.
(ss) Stock means the $.01 par value common stock of the Company and such other securities of the Company as may be substituted for Stock pursuant to Article 15.
(tt) Stock Appreciation Right or SAR means a right granted to a Participant under Article 8 to receive a payment equal to the difference between the Fair Market Value of a Share as of the date of exercise of the SAR over the base price of the SAR, all as determined pursuant to Article 8.
(uu) Subsidiary means any corporation, limited liability company, partnership or other entity of which a majority of the outstanding voting stock or voting power is beneficially owned directly or indirectly by the Company. Notwithstanding the above, with respect to an Incentive Stock Option, Subsidiary shall have the meaning set forth in Section 424(f) of the Code.
(vv) 1933 Act means the Securities Act of 1933, as amended from time to time.
(ww) 1934 Act means the Securities Exchange Act of 1934, as amended from time to time.
ARTICLE 3
EFFECTIVE TERM OF PLAN
3.1. Effective Date. The Plan, as amended and restated, shall be effective as of the date that it is approved by the stockholders of the Company (the Effective Date).
3.2. Termination of Plan. Unless earlier terminated as provided herein, the Plan shall terminate on the tenth anniversary of the Effective Date or, if the stockholders of the Company approve an amendment to the Plan that increases the number of Shares subject to the Plan, the tenth anniversary of the date of such approval. The termination of the Plan on such date shall not affect the validity of any Award outstanding on the date of termination, which shall continue to be governed by the applicable terms and conditions of the Plan.
ARTICLE 4
ADMINISTRATION
4.1. Committee. The Plan shall be administered by a Committee appointed by the Board (which Committee shall consist of at least two directors) or, at the discretion of the Board from time to time, the Plan may be administered by the Board. It is intended that at least two of the directors appointed to serve on the Committee shall be Independent Directors and that any such members of the Committee who do not so qualify shall abstain from participating in any decision to make or administer Awards that are made to Eligible Participants who at the time of consideration for such Award (i) are persons subject to the short-swing profit rules of Section 16 of the 1934 Act, or (ii) are reasonably anticipated to become Covered Employees during the term of the Award. However, the mere fact that a Committee member shall fail to qualify as an Independent Director or shall fail to abstain from such action shall not invalidate any Award made by the Committee which Award is otherwise validly made under the Plan. The members of the Committee shall be appointed by, and may be changed at any time and from time to time in the discretion of, the Board. Unless and until changed by the Board, the Executive Compensation Committee of the Board is designated as the Committee to administer the Plan. The Board may
reserve to itself any or all of the authority and responsibility of the Committee under the Plan or may act as administrator of the Plan for any and all purposes. To the extent the Board has reserved any authority and responsibility or during any time that the Board is acting as administrator of the Plan, it shall have all the powers of the Committee hereunder, and any reference herein to the Committee (other than in this Section 4.1) shall include the Board. To the extent any action of the Board under the Plan conflicts with actions taken by the Committee, the actions of the Board shall control.
4.2. Action and Interpretations by the Committee. For purposes of administering the Plan, the Committee may from time to time adopt rules, regulations, guidelines and procedures for carrying out the provisions and purposes of the Plan and make such other determinations, not inconsistent with the Plan, as the Committee may deem appropriate. The Committee may correct any defect, supply any omission or reconcile any inconsistency in the Plan or in any Award in the manner and to the extent it deems necessary to carry out the intent of the Plan. The Committees interpretation of the Plan, any Awards granted under the Plan, any Award Certificate and all decisions and determinations by the Committee with respect to the Plan are final, binding, and conclusive on all parties. Each member of the Committee is entitled to, in good faith, rely or act upon any report or other information furnished to that member by any officer or other employee of the Company or any Affiliate, the Companys or an Affiliates independent certified public accountants, Company counsel or any executive compensation consultant or other professional retained by the Company or the Committee to assist in the administration of the Plan. No member of the Committee will be liable for any good faith determination, act or omission in connection with the Plan or any Award.
4.3. Authority of Committee. Except as provided below, the Committee has the exclusive power, authority and discretion to:
(a) Grant Awards;
(b) Designate Participants;
(c) Determine the type or types of Awards to be granted to each Participant;
(d) Determine the number of Awards to be granted and the number of Shares, DRLP Units or dollar amount to which an Award will relate;
(e) Determine the terms and conditions of any Award, not inconsistent with the provisions of the Plan, granted under the Plan, including but not limited to, the exercise price, grant price, or purchase price, any restrictions or limitations on the Award, any schedule for lapse of forfeiture restrictions or restrictions on the exercisability of an Award, and accelerations or waivers thereof, based in each case on such considerations as the Committee in its sole discretion determines;
(f) Determine whether, to what extent, and under what circumstances an Award may be settled in, or the exercise price of an Award may be paid in, cash, Stock, other Awards, or other property, or an Award may be canceled, forfeited, or surrendered;
(g) Prescribe the form of each Award Certificate, which need not be identical for each Participant;
(h) Decide all other matters that must be determined in connection with an Award;
(i) Establish, adopt or revise any rules, regulations, guidelines or procedures as it may deem necessary or advisable to administer the Plan;
(j) Make all other decisions and determinations that may be required under the Plan or as the Committee deems necessary or advisable to administer the Plan;
(k) Amend the Plan or any Award Certificate as provided herein; and
(l) Adopt such modifications, procedures, and subplans as may be necessary or desirable to comply with provisions of the laws of the United States or any non-U.S. jurisdictions in which the Company or any Affiliate may operate, in order to assure the viability of the benefits of Awards granted to participants located in the United States or such other jurisdictions and to further the objectives of the Plan.
Notwithstanding anything to the contrary in this Article 4, grants of Awards to Non-Employee Directors hereunder shall (i) be subject to the applicable award limits set forth in Section 5.4 hereof, and (ii) be made only in accordance with the terms, conditions and parameters of a plan, program or policy for the compensation of Non-Employee Directors as in effect from time to time that is approved and administered by a committee of the Board consisting solely of Independent Directors.
4.4. Delegation.
(a) Administrative Duties. The Committee may delegate to one or more of its members or to one or more officers of the Company or an Affiliate or to one or more agents or advisors such administrative duties or powers as it may deem advisable, and the Committee or any individuals to whom it has delegated duties or powers as aforesaid may employ one or more individuals to render advice with respect to any responsibility the Committee or such individuals may have under this Plan.
(b) Special Committee. The Board or the Committee may, by resolution, expressly delegate to a special committee, consisting of one or more directors who may but need not be officers of the Company, the authority, within specified parameters as to the number and terms of Awards, to (i) designate officers, employees and/or consultants of the Company or any of its Affiliates to be recipients of Awards under the Plan, and (ii) to determine the number of such Awards to be granted to any such Participants; provided that a limit on the total number or dollar value of Awards to be granted to any such Participants shall be approved in advance by the Board or the Committee and provided further that such delegation of duties and responsibilities to such special committee may not be made with respect to the grant of Awards to eligible participants (a) who are subject to Section 16(a) of the 1934 Act at the Grant Date, or (b) who as of the Grant Date are reasonably anticipated to be become Covered Employees during the term of the Award. The acts of such delegates shall be treated hereunder as acts of the Board and such delegates shall report regularly to the Board and the Committee regarding the delegated duties and responsibilities and any Awards so granted.
4.5. Award Certificates. Each Award shall be evidenced by an Award Certificate. Each Award Certificate shall include such provisions, not inconsistent with the Plan, as may be specified by the Committee.
ARTICLE 5
SHARES SUBJECT TO THE PLAN
5.1. Number of Shares. Subject to adjustment as provided in Section 5.2 and 15.1, the aggregate number of Shares reserved and available for issuance pursuant to Awards granted under the Plan shall be (i) 6,000,000, plus (ii) the number of Shares reserved but unissued under the Companys Amended and Restated 2005 Long-Term Incentive Plan, as amended (the Prior
Plan), and (iii) the number of Shares underlying awards outstanding as of the Effective Date under the Prior Plan that thereafter terminate or expire unexercised, or are cancelled, forfeited or lapse for any reason; provided that, as of the Effective Date, no further awards shall be made pursuant to the Prior Plan. The maximum number of Shares that may be issued upon exercise of Incentive Stock Options granted under the Plan shall be 6,000,000.
5.2. Share Counting. Shares covered by an Award shall be subtracted from the Plan share reserve as of the Grant Date, but shall be added back to the Plan share reserve or otherwise treated in accordance with subsections (a) through (g) of this Section 5.2.
(a) Shares subject to Awards settled in cash shall be added back to the Plan share reserve and again be available for issuance pursuant to Awards granted under the Plan.
(b) The full number of Shares subject to an Option shall count against the number of Shares remaining available for issuance pursuant to Awards made under the Plan, even if the exercise price of an Option, or the related tax withholding requirements, is satisfied through net-settlement or by delivering Shares to the Company (by either actual delivery or attestation).
(c) Upon exercise of Stock Appreciation Rights that are settled in Shares, the full number of Stock Appreciation Rights (rather than the net number of Shares actually delivered upon exercise) shall count against the number of Shares remaining available for issuance pursuant to Awards granted under the Plan, even if the related tax withholding requirements are satisfied through net-settlement or by delivering Shares to the Company (by either actual delivery or attestation).
(d) Shares withheld from an Award or delivered by a Participant to satisfy tax withholding requirements (by either actual delivery or attestation) for Full Value Awards shall be added back the share reserve as of the withholding date and again be available for issuance pursuant to Awards granted under the Plan.
(e) To the extent that all or a portion of an Award is canceled, terminates, expires, is forfeited or lapses for any reason, including by reason of failure to meet time-based vesting requirements or to achieve performance goals, any unissued or forfeited Shares subject to the Award will be added back to the Plan share reserve and again be available for issuance pursuant to Awards made under the Plan.
(f) Substitute Awards made pursuant to Section 14.12 of the Plan shall not count against the Shares otherwise available for issuance under the Plan under Section 5.1.
(g) Subject to applicable Exchange requirements, shares available under a shareowner-approved plan of a company acquired by the Company (as appropriately adjusted to Shares to reflect the transaction) may be issued under the Plan pursuant to Awards made to individuals who were not employees of the Company or its Affiliates immediately before such transaction and will not count against the maximum share limitation specified in Section 5.1.
5.3. Stock Distributed. Any Stock distributed pursuant to an Award may consist, in whole or in part, of authorized and unissued Stock, treasury Stock or Stock purchased on the open market.
5.4. Limitation on Awards. Notwithstanding any provision in the Plan to the contrary (but subject to adjustment as provided in Article 15):
(a) Options. The maximum number of Shares with respect to one or more Options that may be granted during any one calendar year under the Plan to any one Participant shall be 500,000.
(b) SARs. The maximum number of Shares with respect to one or more SARs that may be granted during any one calendar year under the Plan to any one Participant shall be 500,000.
(c) Performance Awards. With respect to any one calendar year (i) the maximum amount that may be paid to any one Participant for Performance Awards that are intended to qualify for the Section 162(m) Exemption and are payable in cash or property other than Shares shall be $5,000,000, and (ii) the maximum number of Shares that may be paid to any one Participant for Performance Awards that are intended to qualify for the Section 162(m) Exemption and are payable in Stock shall be 500,000 Shares. For purposes of applying these limits in the case of multi-year performance periods, the amount of cash or property or number of Shares deemed paid with respect to any one calendar year is the total amount payable or Shares earned for the performance period divided by the number of calendar years in the performance period. With respect to any election to defer the payment of Full Value Awards or Performance-Based Cash Awards to a later date, any Shares, Share equivalents, DRLP Units or cash payments made to a Participant in excess of the amounts payable at the time of the deferral shall not be subject to the above limitations, provided that the additional amount paid is based either on a reasonable rate of interest or one or more predetermined actual investments in accordance with Treasury Regulation 1.162-27(e)(2)(iii)(B).
(d) Awards to Non-Employee Directors. The maximum aggregate Fair Market Value of the Shares associated with any Award granted under the Plan in any 12-month period to any one Non-Employee Director, determined as of the Grant Date of any such Award, shall be $500,000.
ARTICLE 6
ELIGIBILITY
6.1. General. Awards may be granted only to Eligible Participants; except that Incentive Stock Options may be granted to only to Eligible Participants who are employees of the Company or a Parent or Subsidiary as defined in Section 424(e) and (f) of the Code. Eligible Participants who are service providers to an Affiliate may be granted Options or SARs under this Plan only if the Affiliate qualifies as an eligible issuer of service recipient stock within the meaning of §1.409A-1(b)(5)(iii)(E) of the final regulations under Code Section 409A.
ARTICLE 7
STOCK OPTIONS
7.1. General. The Committee is authorized to grant Options to Participants subject to terms and conditions, not inconsistent with the provisions of the Plan, as the Committee shall establish, including the following:
(a) Exercise Price. The exercise price per Share under an Option shall be determined by the Committee; provided, however, that the exercise price of an Option (other than an Option issued as a substitute Award pursuant to Section 14.12) shall not be less than the Fair Market Value as of the Grant Date.
(b) Prohibition on Repricing. Except as otherwise provided in Article 15, without the prior approval of stockholders of the Company: (i) the exercise price of an Option may
not be reduced, directly or indirectly, (ii) an Option may not be cancelled in exchange for other Awards or Options or SARs with an exercise or base price that is less than the exercise price of the original Option, or otherwise, and (iii) the Company may not repurchase an Option for value (in cash or otherwise) from a Participant if the current Fair Market Value of the Shares underlying the Option is lower than the exercise price per share of the Option.
(c) Time and Conditions of Exercise. The Committee shall determine the time or times at which an Option may be exercised in whole or in part, subject to Section 7.1(d), and may include in the Award Certificate a provision that an Option that is otherwise exercisable and has an exercise price that is less than the Fair Market Value of the Stock on the last day of its term will be automatically exercised on such final date of the term by means of a net exercise, thus entitling the optionee to Shares equal to the intrinsic value of the Option on such exercise date, less the number of Shares required for tax withholding. The Committee shall also determine the performance or other conditions, if any, that must be satisfied before all or part of an Option may be exercised or vested. Except (i) under certain circumstances contemplated by Section 14.9, (ii) with respect to substitute awards granted under Section 14.12, or (iii) as may be set forth in an Award Certificate with respect to death, Disability or Retirement of a Participant, Options subject solely to continued employment requirements shall be subject to a vesting period of not less than three years from the Grant Date (but permitting pro-rata vesting over such time).
(d) Payment. The Committee shall determine the methods by which the exercise price of an Option may be paid, the form of payment, and the methods by which Shares shall be delivered or deemed to be delivered to Participants. As determined by the Committee at or after the Grant Date, payment of the exercise price of an Option may be made, in whole or in part, in the form of (i) cash or cash equivalents, (ii) delivery (by either actual delivery or attestation) of previously-acquired Shares based on the Fair Market Value of the Shares on the date the Option is exercised, (iii) withholding of Shares from the Option based on the Fair Market Value of the Shares on the date the Option is exercised, (iv) broker-assisted market sales, or (iv) any other cashless exercise arrangement.
(e) Exercise Term. In no event may any Option granted under the Plan be exercisable for more than ten years after the Grant Date.
(f) No Deferral Feature. No Option shall provide for any feature for the deferral of compensation other than the deferral of recognition of income until the exercise or disposition of the Option.
(g) No Dividend Equivalents. No Option shall provide for Dividend Equivalents.
7.2. Incentive Stock Options. The terms of any Incentive Stock Options granted under the Plan must comply with the requirements of Section 422 of the Code. Without limiting the foregoing, any Incentive Stock Option granted to a Participant who at the Grant Date owns more than 10% of the voting power of all classes of shares of the Company must have an exercise price per Share of not less than 110% of the Fair Market Value per Share on the Grant Date and an Option term of not more than five years. If all of the requirements of Section 422 of the Code (including the above) are not met, the Option shall automatically become a Nonstatutory Stock Option.
ARTICLE 8
STOCK APPRECIATION RIGHTS
8.1. Grant of Stock Appreciation Rights. The Committee is authorized to grant SARs to Participants subject to such terms and conditions, not inconsistent with the provisions of the Plan, as the Committee shall establish, including the following:
(a) Right to Payment. Upon the exercise of a SAR, the Participant to whom it is granted has the right to receive, for each Share with respect to which the SAR is being exercised, the excess, if any, of:
(1) | The Fair Market Value of one Share on the date of exercise; over |
(2) | The base price of the SAR, as determined by the Committee, which (other than a SAR issued as a substitute Award pursuant to Section 14.12), shall not be less than the Fair Market Value of one Share on the Grant Date. |
(b) No Deferral Feature. No SAR shall provide for any feature for the deferral of compensation other than the deferral of recognition of income until the exercise or disposition of the SAR.
(c) Time and Conditions of Exercise. The Committee shall determine the time or times at which a SAR may be exercised in whole or in part, and may include in the Award Certificate a provision that a SAR that is otherwise exercisable and has a base price that is less than the Fair Market Value of the Stock on the last day of its term will be automatically exercised on such final date of the term, thus entitling the holder to cash or Shares equal to the intrinsic value of the SAR on such exercise date, less the cash or number of Shares required for tax withholding. The Committee shall also determine the performance or other conditions, if any, that must be satisfied before all or part of a SAR may be exercised or vested. Except (i) under certain circumstances contemplated by Section 14.9, (ii) with respect to substitute awards granted under Section 14.12, or (iii) as may be set forth in an Award Certificate with respect to death, Disability or Retirement of a Participant, SARs subject solely to continued employment requirements shall be subject to a vesting period of not less than three years from the Grant Date (but permitting pro-rata vesting over such time).
(d) Exercise Term. In no event may any SAR granted under the Plan be exercisable for more than ten years after the Grant Date.
(e) No Dividend Equivalents. No SAR shall provide for Dividend Equivalents.
(f) Prohibition on Repricing. Except as otherwise provided in Article 15, without the prior approval of stockholders of the Company: (i) the base price of a SAR may not be reduced, directly or indirectly, (ii) a SAR may not be cancelled in exchange for other Awards or Options or SARs with an exercise or base price that is less than the exercise price of the original SAR, or otherwise, and (iii) the Company may not repurchase a SAR for value (in cash or otherwise) from a Participant if the current Fair Market Value of the Shares underlying the SAR is lower than the base price per share of the SAR.
(g) Other Terms. All awards of SARs shall be evidenced by an Award Certificate. Subject to the terms of this Article 8, the terms, methods of exercise, methods of settlement, form of consideration payable in settlement, and any other terms and conditions of any SAR shall be determined by the Committee at the time of the grant of the Award and shall be reflected in the Award Certificate.
ARTICLE 9
PERFORMANCE AWARDS
9.1. Grant of Performance Awards. The Committee is authorized to grant Performance Shares, Performance Units or Performance-Based Cash Awards to Participants on such terms and conditions as may be selected by the Committee. The Committee shall have the complete discretion to determine the number of Performance Awards granted to each Participant, subject to Section 5.4, and to designate the provisions of such Performance Awards as provided in Section 4.3. All Performance Awards shall be evidenced by an Award Certificate or a written program established by the Committee, pursuant to which Performance Awards are awarded under the Plan under uniform terms, conditions and restrictions set forth in such written program.
9.2. Performance Goals. The Committee may establish performance goals for Performance Awards which may be based on any performance criteria selected by the Committee. Such performance criteria may be described in terms of Company-wide objectives or in terms of objectives that relate to the performance of the Participant, an Affiliate or a division, region, department or function within the Company or an Affiliate. The length of a performance period shall be determined by the Committee; provided, however, that a performance period shall not be shorter than 12 months. If the Committee determines that a spin-off, change in the business, operations, corporate structure or capital structure of the Company or the manner in which the Company or an Affiliate conducts its business, or other events or circumstances render performance goals to be unsuitable, the Committee may modify such performance goals in whole or in part, as the Committee deems appropriate. If a Participant is promoted, demoted or transferred to a different business unit or function during a performance period, the Committee may determine that the performance goals or performance period are no longer appropriate and may (i) adjust, change or eliminate the performance goals or the applicable performance period as it deems appropriate to make such goals and period comparable to the initial goals and period, or (ii) make a cash payment to the participant in an amount determined by the Committee. The foregoing two sentences shall not apply with respect to a Performance Award that is intended to be a Qualified Performance-Based Award if the recipient of such award (a) was a Covered Employee on the date of the proposed modification, adjustment, change or elimination of the performance goals or performance period, or (b) in the reasonable judgment of the Committee, may be a Covered Employee on the date the Performance Award is expected to be paid.
9.3. Right to Payment. The grant of a Performance Share to a Participant will entitle the Participant to receive at a specified later time a specified number of Shares or DRLP Units, variable under conditions specified in the Award, or the equivalent cash value, if the performance goals established by the Committee are achieved and the other terms and conditions thereof are satisfied. The grant of a Performance Unit to a Participant will entitle the Participant to receive at a specified later time a specified dollar value, which may be settled in cash or other property, including Shares or DRLP Units, variable under conditions specified in the Award, if the performance goals in the Award are achieved and the other terms and conditions thereof are satisfied. The grant of a Performance-Based Cash Award to a Participant will entitle the Participant to receive at a specified later time a specified dollar value in cash variable under conditions specified in the Award, if the performance goals in the Award are achieved and the other terms and conditions thereof are satisfied. The Committee shall set performance goals and other terms or conditions to payment of the Performance Awards in its discretion which, depending on the extent to which they are met, will determine the value of the Performance Awards that will be paid to the Participant.
9.4. Other Terms. Performance Awards may be payable in cash, Stock, DRLP Units or other property, and have such other terms and conditions as determined by the Committee and
reflected in the Award Certificate. For purposes of determining the number of Shares to be used in payment of a Performance Award denominated in cash but payable in whole or in part in Shares or Restricted Stock, the number of Shares to be so paid will be determined by dividing the cash value of the Award to be so paid by the Fair Market Value of a Share on the date of determination by the Committee of the amount of the payment under the Award, or, if the Committee so directs, the date immediately preceding the date the Award is paid.
ARTICLE 10
RESTRICTED STOCK AND RESTRICTED STOCK UNIT AWARDS
10.1. Grant of Restricted Stock and Restricted Stock Units. The Committee is authorized to make Awards of Restricted Stock or Restricted Stock Units to Participants in such amounts and subject to such terms and conditions as may be selected by the Committee. An Award of Restricted Stock or Restricted Stock Units shall be evidenced by an Award Certificate setting forth the terms, conditions, and restrictions applicable to the Award.
10.2. Issuance and Restrictions. Restricted Stock or Restricted Stock Units shall be subject to such restrictions on transferability and other restrictions as the Committee may impose (including, without limitation, limitations on the right to vote Restricted Stock or the right to receive dividends on the Restricted Stock or Dividend Equivalents on the Restricted Stock units). These restrictions may lapse separately or in combination at such times, under such circumstances, in such installments, upon the satisfaction of performance goals or otherwise, as the Committee determines at the time of the grant of the Award or thereafter. Except as otherwise provided in an Award Certificate or any special Plan document governing an Award, the Participant shall have all of the rights of a stockholder with respect to the Restricted Stock, and the Participant shall have none of the rights of a stockholder with respect to Restricted Stock Units until such time as Shares of Stock are paid in settlement of the Restricted Stock Units.
10.3. Forfeiture. Except (i) under certain circumstances contemplated by Section 14.9, (ii) with respect to substitute awards granted under Section 14.12, or (iii) as may be set forth in an Award Certificate with respect to death, Disability or Retirement of a Participant, Restricted Stock Awards and Restricted Stock Unit Awards subject solely to continued employment requirements shall be subject to a restriction period of not less than one year from the Grant Date (but permitting pro-rata vesting over such time). Except as otherwise determined by the Committee at the time of the grant of the Award or thereafter, immediately after termination of Continuous Status as a Participant during the applicable restriction period or upon failure to satisfy a performance goal during the applicable restriction period, Restricted Stock or Restricted Stock Units that are at that time subject to restrictions shall be forfeited.
10.4. Delivery of Restricted Stock. Shares of Restricted Stock shall be delivered to the Participant as of the Grant Date either by book-entry registration or by delivering to the Participant, or a custodian or escrow agent (including, without limitation, the Company or one or more of its employees) designated by the Committee, a stock certificate or certificates registered in the name of the Participant. If physical certificates representing shares of Restricted Stock are registered in the name of the Participant, such certificates must bear an appropriate legend referring to the terms, conditions, and restrictions applicable to such Restricted Stock.
ARTICLE 11
DEFERRED STOCK UNITS
11.1. Grant of Deferred Stock Units. The Committee is authorized to grant Deferred Stock Units to Participants subject to such terms and conditions as may be selected by the
Committee. Deferred Stock Units shall entitle the Participant to receive Shares of Stock (or the equivalent value in cash or other property if so determined by the Committee) at a future time as determined by the Committee, or as determined by the Participant within guidelines established by the Committee in the case of voluntary deferral elections. An Award of Deferred Stock Units shall be evidenced by an Award Certificate setting forth the terms and conditions applicable to the Award.
ARTICLE 12
DIVIDENDS AND DIVIDEND EQUIVALENTS
12.1. Grant of Dividend Equivalents. The Committee is authorized to grant Dividend Equivalents with respect to Full Value Awards granted hereunder (and actual dividends with respect to Restricted Stock granted hereunder), subject to such terms and conditions as may be selected by the Committee. Dividend Equivalents shall entitle the Participant to receive payments equal to ordinary cash dividends or distributions with respect to all or a portion of the number of Shares subject to a Full Value Award, as determined by the Committee.
With respect to Full Value Awards that are not Performance Awards, the Committee may provide that Dividend Equivalents (and actual dividends with respect to Restricted Stock) be paid or distributed when accrued or be deemed to have been reinvested in additional Shares or units or otherwise reinvested (subject to Share availability under Section 5.1 hereof).
With respect to Full Value Awards that are Performance Awards, Dividend Equivalents (or actual dividends with respect to Restricted Stock) shall, as provided in the Award Certificate, either (i) be reinvested in the form of additional Shares or units equivalent to Shares, which shall be subject to the same performance and vesting provisions as provided for the host Performance Award, or (ii) be credited by the Company to an account for the Participant and accumulated without interest until the date upon which the host Award becomes earned and vested. Dividend Equivalents (and actual dividends with respect to Restricted Stock) credited to a Participants account with respect to vested Performance Awards shall be distributed to the Participant at the same time as the distribution of cash or Shares under the host Performance Award. A Participant shall have no right to Dividend Equivalents or dividends accumulated with respect to Performance Awards that are forfeited, and any such unearned Dividend Equivalents or dividends will be reconveyed to the Company without further consideration or any act or action by the Participant. Unless otherwise provided in the applicable Award Certificate, Dividend Equivalents paid on Full Value Awards that are not Performance Awards, and dividends paid on Restricted Stock awards that not Performance Awards, will be paid or distributed to the Participant no later than the 15th day of the 3rd month following the later of (A) the calendar year in which the corresponding dividends were paid to stockholders, or (B) the first calendar year in which the Participants right to such Dividends Equivalents or dividends is no longer subject to a substantial risk of forfeiture.
Notwithstanding the foregoing, up to 10% of the Dividend Equivalents pertaining to a Performance Award payable in DRLP Units may be paid in cash to the Participant prior to the date upon which such award becomes earned and vested, and such Dividend Equivalents will be not be required to be reconveyed to the Company.
ARTICLE 13
STOCK OR OTHER STOCK-BASED AWARDS
13.1. Grant of Stock or Other Stock-based Awards. The Committee is authorized, subject to limitations under applicable law, to grant to Participants such other Awards that are
payable in, valued in whole or in part by reference to, or otherwise based on or related to Shares or other property, as deemed by the Committee to be consistent with the purposes of the Plan, including without limitation Shares awarded purely as a bonus and not subject to any restrictions or conditions, convertible or exchangeable debt securities, DRLP Units, other rights convertible or exchangeable into Shares, and Awards valued by reference to book value of Shares or the value of securities of or the performance of specified Parents or Affiliates (Other Stock-Based Awards). Such Other Stock-Based Awards shall also be available as a form of payment in the settlement of other Awards granted under the Plan (other than Options or SARs). The Committee shall determine the terms and conditions of such Other Stock-Based Awards. Except (i) under certain circumstances contemplated by Section 14.9, (ii) with respect to substitute awards granted under Section 14.12, or (iii) as may be set forth in an Award Certificate with respect to death, Disability or Retirement of a Participant, Other Stock-Based Awards subject solely to continued employment restrictions shall be subject to restrictions imposed by the Committee for a period of not less than one year from the Grant Date (but permitting pro-rata vesting over such time); provided that such restrictions shall not be applicable to grants of Other Stock-Based Awards in payment of Performance Awards pursuant to Article 9 or grants of Other Stock-Based Awards granted in lieu of cash or other compensation.
ARTICLE 14
PROVISIONS APPLICABLE TO AWARDS
14.1. Award Certificates. Each Award shall be evidenced by an Award Certificate. Each Award Certificate shall include such provisions, not inconsistent with the Plan, as may be specified by the Committee.
14.2. Term of Award. The term of each Award shall be for the period as determined by the Committee, provided that in no event shall the term of any Option or SAR exceed a period of ten years from its Grant Date (or, with respect to an Incentive Stock Option granted to a Participant who, at the Grant Date, owns stock possessing more than ten percent of the total combined voting power of all classes of stock of the Company or any Parent or Subsidiary, five years from its Grant Date).
14.3. Form of Payment for Awards. Subject to the terms of the Plan and any applicable law or Award Certificate, payments or transfers to be made by the Company or an Affiliate on the grant or exercise of an Award may be made in such form as the Committee determines at the Grant Date, including without limitation, cash, Stock, other Awards, or other property, or any combination, and may be made in a single payment or transfer, in installments, or (other than Options or SARs) on a deferred basis, in each case determined in accordance with rules adopted by, and at the discretion of, the Committee; provided, that any payment or transfer elected to be made on a deferred basis must be in accordance with the election provisions and all other requirements of one of the Companys then-existing deferred compensation plans that would be applicable to such Participant.
14.4. Limits on Transfer. No right or interest of a Participant in any unexercised or restricted Award may be pledged, encumbered, or hypothecated to or in favor of any party other than the Company or an Affiliate, or shall be subject to any lien, obligation, or liability of such Participant to any other party other than the Company or an Affiliate. No unexercised or restricted Award shall be assignable or transferable by a Participant without stockholder approval other than by will or the laws of descent and distribution or, except in the case of an Incentive Stock Option, pursuant to a domestic relations order that would satisfy Section 414(p)(1)(A) of the Code if such Section applied to an Award under the Plan. Notwithstanding the foregoing, the Committee may (but need not), without stockholder approval, permit the transfer of Nonqualified
Stock Options by an optionee to: (i) the spouse, child or grandchildren of the optionee (Immediate Family Members); (ii) a trust or trusts for the exclusive benefit of Immediate Family Members; or (iii) a partnership or limited liability company in which the optionee and/or the Immediate Family Members are the only equity owners (collectively, Eligible Transferees); provided that, in the event the Committee permits the transferability of Nonqualified Stock Options granted to an optionee, the Committee may subsequently, in its discretion, restrict the ability of the optionee to transfer Nonqualified Stock Options granted to the optionee thereafter. An option that is transferred to an Immediate Family Member shall not be transferable by such Immediate Family Member, except for any transfer by such Immediate Family Members will or by the laws of descent and distribution upon the death of such Immediate Family Member. Incentive Stock Options granted under the Plan shall be nontransferable.
In the event that the Committee, in its sole discretion, permits the transfer of Nonqualified Stock Options by an optionee to an Eligible Transferee under this Section 14.4, the options transferred to the Eligible Transferee must be exercised by such Eligible Transferee and, in the event of the death of such Eligible Transferee, by such Eligible Transferees executor or administrator only in the same manner, to the same extent and under the same circumstances (including, without limitation, the time period within which the options must be exercised) as the optionee or, in the event of the optionees death, the executor or administrator of the optionees estate, could have exercised such options. The optionee, or in the event of optionees death, the optionees estate, shall remain liable for all federal, state, city and local taxes applicable upon the exercise of a Nonqualified Stock Option by an Eligible Transferee.
14.5. Beneficiaries. Notwithstanding Section 14.4, a Participant may, in the manner determined by the Committee, designate a beneficiary to exercise the rights of the Participant and to receive any distribution with respect to any Award upon the Participants death. A beneficiary, legal guardian, legal representative, or other person claiming any rights under the Plan is subject to all terms and conditions of the Plan and any Award Certificate applicable to the Participant, except to the extent the Plan and Award Certificate otherwise provide, and to any additional restrictions deemed necessary or appropriate by the Committee. If no beneficiary has been designated or survives the Participant, any payment due to the Participant shall be made to the Participants estate. Subject to the foregoing, a beneficiary designation may be changed or revoked by a Participant, in the manner provided by the Company, at any time provided the change or revocation is filed with the Company.
14.6. Stock Trading Restrictions. All Stock issuable under the Plan is subject to any stop-transfer orders and other restrictions as the Committee deems necessary or advisable to comply with federal or state securities laws, rules and regulations and the rules of any national securities exchange or automated quotation system on which the Stock is listed, quoted, or traded. The Committee may place legends on any Stock certificate or issue instructions to the transfer agent to reference restrictions applicable to the Stock.
14.7. Treatment Upon Death. Except as otherwise provided in the Award Certificate or any special Plan document governing an Award, upon a Participants death during his or her Continuous Status as a Participant, all of such Participants outstanding Options, SARs, and other Awards in the nature of rights that may be exercised shall become fully exercisable, and all time-based vesting restrictions on the Participants outstanding Awards shall lapse. In addition, with respect to any Awards containing performance-based criteria that have not been met as of the date of termination due to the Participants death, the performance-based Award shall be payable to the Participant within thirty (30) days after the date on which the Award would have been paid if the Participants service had not terminated due to death, and shall be based on actual performance during the period. Any Awards shall thereafter continue or lapse in accordance with
the other provisions of the Plan and the Award Certificate; provided, however, that any Awards in the nature of rights that may be exercised shall remain exercisable until the earlier of the original expiration of the Award or two years after the Participants death. To the extent that this Section 14.7 causes Incentive Stock Options to exceed the dollar limitation set forth in Code Section 422(d), the excess Options shall be deemed to be Nonstatutory Stock Options.
14.8. Treatment Upon Disability. Except as otherwise provided in the Award Certificate or any special Plan document governing an Award, upon termination of employment due to a Participants Disability, all of such Participants outstanding Options, SARs, and other Awards in the nature of rights that may be exercised shall become fully exercisable, and all time-based vesting restrictions on the Participants outstanding Awards shall lapse. In addition, with respect to any Awards containing performance-based criteria that have not been met as of the date of termination due to the Participants Disability, the performance-based Award shall be payable to the Participant within thirty (30) days after the date on which the Award would have been paid if the Participants service had not terminated due to Disability, and shall be based on actual performance during the period. Any Awards shall thereafter continue or lapse in accordance with the other provisions of the Plan and the Award Certificate; provided, however, that any Awards in the nature of rights that may be exercised shall remain exercisable until the earlier of the original expiration of the Award or two years following the date of termination due to the Participants Disability. To the extent that this provision causes Incentive Stock Options to exceed the dollar limitation set forth in Code Section 422(d), the excess Options shall be deemed to be Nonstatutory Stock Options. If any Incentive Stock Option is not exercised within one year after the date of termination due to Disability, it shall be deemed to be a Nonstatutory Stock Option.
14.9. Treatment Upon a Change in Control. The provisions of this Section 14.9 shall apply in the case of a Change in Control, unless otherwise provided in the Award Certificate or any special Plan document or separate agreement with a Participant governing an Award.
(a) Awards Assumed or Substituted by Surviving Entity. With respect to Awards assumed by the Surviving Entity or otherwise equitably converted or substituted in connection with a Change in Control: if within one year after the effective date of the Change in Control, a Participants employment is terminated without Cause or the Participant resigns for Good Reason, then (i) all of that Participants outstanding Options, SARs and other Awards in the nature of rights that may be exercised shall become fully exercisable, (ii) all time-based vesting restrictions on his or her outstanding Awards shall lapse, and (iii) the Participants performance-based Awards that were outstanding immediately prior to effective time of the Change in Control shall vest based upon assumed or actual performance, as provided in the Award Certificates or any special Plan documents or separate agreements governing the Awards. Any Awards shall thereafter continue or lapse in accordance with the other provisions of the Plan and the Award Certificate. To the extent that this provision causes Incentive Stock Options to exceed the dollar limitation set forth in Code Section 422(d), the excess Options shall be deemed to be Nonstatutory Stock Options.
(b) Awards Not Assumed or Substituted by Surviving Entity. Upon the occurrence of a Change in Control, and except with respect to any Awards assumed by the Surviving Entity or otherwise equitably converted or substituted in connection with the Change in Control: (i) outstanding Options, SARs, and other Awards in the nature of rights that may be exercised shall become fully exercisable, (ii) time-based vesting restrictions on outstanding Awards shall lapse, and (iii) the performance-based Awards that were outstanding immediately prior to effective time of the Change in Control shall vest based upon assumed or actual performance, as provided in the Award Certificates or any special Plan documents or separate agreements governing the Awards.
Any Awards shall thereafter continue or lapse in accordance with the other provisions of the Plan and the Award Certificate. To the extent that this provision causes Incentive Stock Options to exceed the dollar limitation set forth in Code Section 422(d), the excess Options shall be deemed to be Nonstatutory Stock Options.
14.10. Qualified Performance-Based Awards.
(a) The provisions of the Plan are intended to ensure that all Options and SARs granted hereunder to any Covered Employee shall qualify for the Section 162(m) Exemption.
(b) When granting any other Award, the Committee may designate such Award as a Qualified Performance-Based Award, based upon a determination that the recipient is or may be a Covered Employee with respect to such Award, and the Committee wishes such Award to qualify for the Section 162(m) Exemption. If an Award is so designated, the Committee shall establish performance goals for such Award within the time period prescribed by Section 162(m) of the Code based on one or more of the following Qualified Business Criteria, which may be expressed in terms of Company-wide objectives or in terms of objectives that relate to the performance of an Affiliate or a division, region, department or function within the Company or an Affiliate:
| Revenue |
| Sales |
| Profit (net profit, gross profit, operating profit, economic profit, profit margins or other corporate profit measures) |
| Earnings (EBIT, EBITDA, earnings per share, or other corporate earnings measures) |
| Funds from Operations (FFO) as defined by the National Association of Real Estate Investment Trusts (NAREIT), or a similar performance measure adopted by NAREIT |
| Adjusted Funds from Operations (FFO as adjusted for certain specified income, expense or cash flow amounts that are not considered in the computation of FFO) |
| Net income (before or after taxes, operating income or other income measures) |
| Cash (cash flow, cash generation or other cash measures) |
| Stock price or performance |
| Growth in annualized dividends per share to common stockholders |
| Total stockholder return (stock price appreciation plus reinvested dividends divided by beginning share price) |
| Return measures (including, but not limited to, return on assets, capital, equity, or sales, and cash flow return on assets, capital, equity, or sales) |
| Balance sheet and operating leverage metrics |
| Market share |
| Volume of asset acquisitions or dispositions |
| Occupancy rates of real estate rental properties |
| Volume of lease transactions |
| Volume and/or profitability of real estate developments |
| Volume and/or profitability of construction contracts |
| Debt or capital raising transactions (debt or equity placements and joint venture transactions) |
| Improvements in capital structure |
| Expenses (expense management, expense ratio, expense efficiency ratios or other expense measures) |
| Business expansion or consolidation (acquisitions and divestitures) |
| Internal rate of return or increase in net present value |
| Working capital targets relating to inventory and/or accounts receivable |
| Planning accuracy (as measured by comparing planned results to actual results) |
Performance goals with respect to the foregoing Qualified Business Criteria may be specified in absolute terms, in percentages, or in terms of growth from period to period or growth rates over time, as well as measured relative to an established or specially-created performance index of Company competitors or peers. Any member of a specially-created performance index that disappears during a measurement period shall be disregarded for the entire measurement period. Performance goals need not be based upon an increase or positive result under a business criterion and could include, for example, the maintenance of the status quo or the limitation of economic losses (measured, in each case, by reference to a specific business criterion). Unless otherwise provided in the Award Certificate, performance goals that are based upon earnings per share or FFO shall be calculated without regard to any change in accounting standards or definitions that may be required by the Financial Accounting Standards Board, the Securities and Exchange Commission or the National Association of Real Estate Investment Trusts.
(c) Each Qualified Performance-Based Award (other than a market-priced Option or SAR) shall be earned, vested and payable (as applicable) only upon the achievement of performance goals established by the Committee based upon one or more of the Qualified Business Criteria, together with the satisfaction of any other conditions, such as continued employment, as the Committee may determine to be appropriate; provided, however, that the Committee may provide, either in connection with the grant thereof or by amendment thereafter, that achievement of such performance goals will be waived upon the death or Disability of the Participant, or upon a Change in Control. The Committee has the right, in connection with the grant of a Qualified Performance-Based Award, to exercise negative discretion to determine that the portion of such Award actually earned, vested and/or payable (as applicable) shall be less than the portion that would be earned, vested and/or payable based solely upon application of the applicable performance goals.
(d) The Committee may provide in any Qualified Performance-Based Award, at the time the performance goals are established, that any evaluation of performance shall exclude or otherwise objectively adjust for any specified event that occurs during a performance period, including by way of example but without limitation the following: (a) asset write-downs or impairment charges; (b) Company stock or debt buybacks, (c) litigation or claim judgments or settlements; (d) the effect of changes in tax laws, accounting principles or other laws or provisions affecting reported results; (e) accruals for reorganization and restructuring programs; (f) extraordinary nonrecurring items as described in Accounting Principles Board
Opinion No. 30 and/or in managements discussion and analysis of financial condition and results of operations appearing in the Companys annual report to stockholders for the applicable year; (g) acquisitions or divestitures; (h) foreign exchange gains and losses; and (i) a spin-off of a division of the Company. To the extent such inclusions or exclusions affect Awards to Covered Employees, they shall be prescribed in a form that meets the requirements of Code Section 162(m) for deductibility.
(e) Any payment of a Qualified Performance-Based Award granted with performance goals pursuant to subsection (c) above shall be conditioned on the written certification of the Committee in each case that the performance goals and any other material conditions were satisfied. Except as specifically provided in subsection (c), no Qualified Performance-Based Award held by a Covered Employee or by an employee who in the reasonable judgment of the Committee may be a Covered Employee on the date of payment, may be amended, nor may the Committee exercise any discretionary authority it may otherwise have under the Plan with respect to a Qualified Performance-Based Award under the Plan, in any manner to waive the achievement of the applicable performance goal based on Qualified Business Criteria or to increase the amount payable pursuant thereto or the value thereof, or otherwise in a manner that would cause the Qualified Performance-Based Award to cease to qualify for the Section 162(m) Exemption.
(f) Section 5.4 sets forth the maximum number of Shares or dollar value that may be granted in any one-year period to a Participant in designated forms of Qualified Performance-Based Awards.
14.11. Forfeiture Events. Awards granted under the Plan shall be subject to any compensation recoupment policy that the Company may adopt from time to time that is applicable by its terms to the Participant. In addition, the Committee may specify in an Award Certificate that the Participants rights, payments and benefits with respect to an Award shall be subject to reduction, cancellation, forfeiture or recoupment upon the occurrence of certain specified events, in addition to any otherwise applicable vesting or performance conditions of an Award. Such events may include, but shall not be limited to, termination of employment for cause, violation of material Corporation or Affiliate policies, breach of non-competition, confidentiality or other restrictive covenants that may apply to the Participant, or other conduct by the Participant that is detrimental to the business or reputation of the Company or any Affiliate.
14.12. Substitute Awards. The Committee may grant Awards under the Plan in substitution for stock and stock-based awards held by employees of another entity who become employees of the Company or an Affiliate as a result of a merger or consolidation of the former employing entity with the Company or an Affiliate or the acquisition by the Company or an Affiliate of property or stock of the former employing corporation. The Committee may direct that the substitute awards be granted on such terms and conditions as the Committee considers appropriate in the circumstances.
14.13 Standalone or Tandem Awards. Awards granted under the Plan (other than Options or SARs) may, in the discretion of the Committee, be granted either alone or in addition to, or in tandem with, any other Award granted under the Plan. Subject to Section 16.2, awards granted in addition to or in tandem with other Awards may be granted either at the same time as or at a different time from the grant of such other Awards.
ARTICLE 15
CHANGES IN CAPITAL STRUCTURE
15.1. Mandatory Adjustments. In the event of a nonreciprocal transaction between the Company and its stockholders that causes the per-share value of the Stock to change (including, without limitation, any stock dividend, stock split, spin-off, rights offering or large nonrecurring cash dividend), the Committee shall make such adjustments to the Plan and Awards as it deems necessary, in its sole discretion, to prevent dilution or enlargement of rights immediately resulting from such transaction. Action by the Committee may include: (i) adjustment of the number and kind of shares that may be delivered under the Plan; (ii) adjustment of the number and kind of shares subject to outstanding Awards; (iii) adjustment of the exercise price of outstanding Awards or the measure to be used to determine the amount of the benefit payable on an Award; and (iv) any other adjustments that the Committee determines to be equitable. Notwithstanding the foregoing, the Committee shall not make any adjustments to outstanding Options or SARs that would constitute a modification or substitution of the stock right under Treas. Reg. Section 1.409A-1(b)(5)(v) that would be treated as the grant of a new stock right or change in the form of payment for purposes of Code Section 409A. Without limiting the foregoing, in the event of a subdivision of the outstanding Stock (stock-split), a declaration of a dividend payable in Shares or a combination or consolidation of the outstanding Stock into a lesser number of Shares, the authorization limits under Section 5.1 and 5.4 shall automatically be adjusted proportionately, and the Shares then subject to each Award shall automatically, without the necessity for any additional action by the Committee, be adjusted proportionately without any change in the aggregate purchase price therefor.
15.2 Discretionary Adjustments. Upon the occurrence or in anticipation of any corporate event or transaction involving the Company (including, without limitation, any recapitalization, reorganization, merger, consolidation, combination or exchange of shares or any transaction described in Section 15.1), the Committee may, in its sole discretion, provide (i) that Awards will be settled in cash rather than Stock, (ii) that Awards will become immediately vested and exercisable and will expire after a designated period of time to the extent not then exercised, (iii) that Awards will be assumed by another party to a transaction or otherwise be equitably converted or substituted in connection with such transaction, (iv) that outstanding Awards may be settled by payment in cash or cash equivalents equal to the excess of the Fair Market Value of the underlying Stock, as of a specified date associated with the transaction, over the exercise price or base price of the Award, (v) that performance targets and performance periods for Performance Awards will be modified, consistent with Code Section 162(m) where applicable, or (vi) any combination of the foregoing. The Committees determination need not be uniform and may be different for different Participants whether or not such Participants are similarly situated.
15.3 General. Any discretionary adjustments made pursuant to this Article 15 shall be subject to the provisions of Section 16.2. To the extent that any adjustments made pursuant to this Article 15 cause Incentive Stock Options to cease to qualify as Incentive Stock Options, such Options shall be deemed to be Nonstatutory Stock Options.
ARTICLE 16
AMENDMENT, MODIFICATION AND TERMINATION
16.1. Amendment, Modification and Termination. The Board or the Committee may, at any time and from time to time, amend, modify or terminate the Plan without stockholder approval; provided, however, that if an amendment to the Plan would, in the reasonable opinion of the Board or the Committee, constitute a material change requiring stockholder approval under applicable laws, policies or regulations or the applicable listing or other requirements of an
Exchange, then such amendment shall be subject to stockholder approval; and provided, further, that the Board or Committee may condition any other amendment or modification on the approval of stockholders of the Company for any reason, including (i) by reason of such approval being necessary or deemed advisable to comply with the listing or other requirements of an Exchange, or (ii) to satisfy any other tax, securities or other applicable laws, policies or regulations. Without the prior approval of the stockholders of the Company, the Plan may not be amended to permit: (x) the exercise price or base price of an Option or SAR to be reduced, directly or indirectly, (y) an Option or SAR to be cancelled in exchange for cash, other Awards, or Options or SARs with an exercise or base price that is less than the exercise price or base price of the original Option or SAR, or otherwise, or (z) the Company to repurchase an Option or SAR for value (in cash or otherwise) from a Participant if the current Fair Market Value of the Shares underlying the Option or SAR is lower than the exercise price or base price per share of the Option or SAR.
16.2. Awards Previously Granted. At any time and from time to time, the Committee may amend, modify or terminate any outstanding Award without approval of the Participant; provided, however:
(a) Subject to the terms of the applicable Award Certificate, such amendment, modification or termination shall not, without the Participants consent, materially reduce or diminish the economic value of such Award;
(b) The original term of an Option or SAR may not be extended without the prior approval of the stockholders of the Company;
(c) Except as otherwise provided in Article 15, without the prior approval of the stockholders of the Company: (i) the exercise price or base price of an Option or SAR may not be reduced, directly or indirectly, (ii) an Option or SAR may not be cancelled in exchange for other Awards, or Options or SARs with an exercise or base price that is less than the exercise price or base price of the original Option or SAR, or otherwise, and (iii) the Company may not repurchase an Option or SAR for value (in cash or otherwise) from a Participant if the current Fair Market Value of the Shares underlying the Option or SAR is lower than the exercise price or base price per share of the Option or SAR; and
(d) No termination, amendment, or modification of the Plan shall materially reduce or diminish the economic value or otherwise materially adversely affect any Award previously granted under the Plan, without the written consent of the Participant affected thereby.
16.3 Compliance Amendments. Notwithstanding anything in the Plan or in any Award Certificate to the contrary, the Board may amend the Plan or an Award Certificate, to take effect retroactively or otherwise, as deemed necessary or advisable for the purpose of conforming the Plan or Award Certificate to any present or future law relating to plans of this or similar nature (including, but not limited to, Section 409A of the Code), and to the administrative regulations and rulings promulgated thereunder. By accepting an Award under this Plan, a Participant agrees to any amendment made pursuant to this Section 16.3 to any Award granted under the Plan without further consideration or action.
ARTICLE 17
GENERAL PROVISIONS
17.1. No Rights to Awards; Non-Uniform Determinations. No Participant or any Eligible Participant shall have any claim to be granted any Award under the Plan. Neither the Company, its Affiliates nor the Committee is obligated to treat Participants or Eligible
Participants uniformly, and determinations made under the Plan may be made by the Committee selectively among Eligible Participants who receive, or are eligible to receive, Awards (whether or not such Eligible Participants are similarly situated).
17.2. No Stockholder Rights. No Award gives a Participant any of the rights of a stockholder of the Company unless and until Shares are in fact issued to such person in connection with such Award.
17.3. Special Provisions Related to Section 409A of the Code.
(a) General. It is intended that the payments and benefits provided under the Plan and any Award shall either be exempt from the application of, or comply with, the requirements of Section 409A of the Code. The Plan and all Award Certificates shall be construed in a manner that effects such intent. Nevertheless, the tax treatment of the benefits provided under the Plan or any Award is not warranted or guaranteed. Neither the Company, its Affiliates nor their respective directors, officers, employees or advisers (other than in his or her capacity as a Participant) shall be held liable for any taxes, interest, penalties or other monetary amounts owed by any Participant or other taxpayer as a result of the Plan or any Award.
(b) Definitional Restrictions. Notwithstanding anything in the Plan or in any Award Certificate to the contrary, to the extent that any amount or benefit that would constitute non-exempt deferred compensation for purposes of Section 409A of the Code would otherwise be payable or distributable, or a different form of payment (e.g., lump sum or installment) would be effected, under the Plan or any Award Certificate by reason of the occurrence of a Change in Control, or the Participants Disability, termination of employment or separation from service, such amount or benefit will not be payable or distributable to the Participant, and/or such different form of payment will not be effected, by reason of such circumstance unless (i) the circumstances giving rise to such Change in Control, Disability, termination of employment or separation from service meet any description or definition of change in control event, disability or separation from service, as the case may be, in Section 409A of the Code and applicable regulations (without giving effect to any elective provisions that may be available under such definition), or (ii) the payment or distribution of such amount or benefit would be exempt from the application of Section 409A of the Code by reason of the short-term deferral exemption or otherwise. This provision does not prohibit the vesting of any Award. If this provision prevents the payment or distribution of any amount or benefit, such payment or distribution shall be made on the next earliest payment or distribution date or event specified in the Award Certificate that is permissible under Section 409A. If this provision prevents the application of a different form of payment of any amount or benefit, such amount or benefit shall be paid or distributed in the form that would have applied absent the Change in Control, Disability, termination of employment, or separation from service, as applicable.
(c) Allocation among Possible Exemptions. If any one or more Awards granted under the Plan to a Participant could qualify for any separation pay exemption described in Treas. Reg. Section 1.409A-1(b)(9), but such Awards in the aggregate exceed the dollar limit permitted for the separation pay exemptions, the Company (acting through the Committee or the Head of Human Resources) shall determine which Awards or portions thereof will be subject to such exemptions.
(d) Six-Month Delay in Certain Circumstances. Notwithstanding anything in the Plan or in any Award Certificate to the contrary, if any amount or benefit that would
constitute non-exempt deferred compensation for purposes of Section 409A of the Code would otherwise be payable or distributable under this Plan or any Award Certificate by reason of a Participants separation from service during a period in which the Participant is a Specified Employee (as defined below), then, subject to any permissible acceleration of payment by the Committee under Treas. Reg. Section 1.409A-3(j)(4)(ii) (domestic relations order), (j)(4)(iii) (conflicts of interest), or (j)(4)(vi) (payment of employment taxes):
(i) the amount of such non-exempt deferred compensation that would otherwise be payable during the six-month period immediately following the Participants separation from service will be accumulated through and paid or provided on the first day of the seventh month following the Participants separation from service (or, if the Participant dies during such period, within thirty (30) days after the Participants death) (in either case, the Required Delay Period); and
(ii) the normal payment or distribution schedule for any remaining payments or distributions will resume at the end of the Required Delay Period.
For purposes of this Plan, the term Specified Employee has the meaning given such term in Code Section 409A and the final regulations thereunder, provided, however, that, as permitted in such final regulations, the Companys Specified Employees and its application of the six-month delay rule of Code Section 409A(a)(2)(B)(i) shall be determined in accordance with rules adopted by the Board or a committee thereof, which shall be applied consistently with respect to all nonqualified deferred compensation arrangements of the Company, including this Plan.
(e) Grants to Employees of Affiliates. Eligible Participants who are service providers to an Affiliate may be granted Options or SARs under this Plan only if the Affiliate qualifies as an eligible issuer of service recipient stock within the meaning of §1.409A-1(b)(5)(iii)(E) of the final regulations under Code Section 409A. For the avoidance of doubt, as of the Effective Date, Duke Realty Limited Partnership, Duke Realty Services Limited Partnership, and Duke Construction Limited Partnership qualify as eligible issuers of service recipient stock.
(f) Installment Payments. If, pursuant to an Award, a Participant is entitled to a series of installment payments, such Participants right to the series of installment payments shall be treated as a right to a series of separate payments and not to a single payment. For purposes of the preceding sentence, the term series of installment payments has the meaning provided in Treas. Reg. Section 1.409A-2(b)(2)(iii) (or any successor thereto).
(g) Timing of Release of Claims. Whenever an Award conditions a payment or benefit on a Participants execution and non-revocation of a release of claims, such release must be executed and all revocation periods shall have expired within 60 days after the date of termination of the Participants employment; failing which such payment or benefit shall be forfeited. If such payment or benefit is exempt from Section 409A of the Code, the Company may elect to make or commence payment at any time during such 60-day period. If such payment or benefit constitutes non-exempt deferred compensation for purpose of Code Section 409A, then, subject to subsection (d) above, (i) if such 60-day period begins and ends in a single calendar year, the Company may make or commence payment at any time during such period at its discretion, and (ii) if such 60-day period begins in one calendar year and ends in the next calendar year, the payment shall be made or commence during the second such calendar year (or any later date specified for such payment under the applicable Award), even if such signing and non-revocation of the release occur during the first such calendar year included within such 60-day period. In other words, a Participant is not permitted to influence the calendar year of payment based on the timing of signing the release.
(h) Permitted Acceleration. The Company shall have the sole authority to make any accelerated distribution permissible under Treas. Reg. section 1.409A-3(j)(4) to Participants of deferred amounts, provided that such distribution(s) meets the requirements of Treas. Reg. Section 1.409A-3(j)(4).
17.4. Withholding. The Company or any Affiliate shall have the authority and the right to deduct or withhold, or require a Participant to remit to the Company or such Affiliate, an amount sufficient to satisfy federal, state, and local taxes (including the Participants FICA obligation) required by law to be withheld with respect to any exercise, lapse of restriction or other taxable event arising as a result of the Plan. The Company shall have the authority to require a Participant to remit cash to the Company in lieu of the surrender of Shares for tax withholding obligations if the surrender of Shares in satisfaction of such withholding obligations would result in the Companys recognition of expense under generally accepted accounting principles. With respect to withholding required upon any taxable event under the Plan, the Committee may, at the time the Award is granted or thereafter, require or permit that any such withholding requirement be satisfied, in whole or in part, by withholding from the Award Shares having a Fair Market Value on the date of withholding equal to the minimum amount (and not any greater amount) required to be withheld for tax purposes, all in accordance with such procedures as the Committee establishes.
17.5 No Right to Continued Service. Nothing in the Plan, any Award Certificate or any other document or statement made with respect to the Plan, shall interfere with or limit in any way the right of the Company or any Affiliate to terminate any Participants employment or status as an officer, director or consultant at any time, nor confer upon any Participant any right to continue as an employee, officer, director or consultant of the Company or any Affiliate, whether for the duration of a Participants Award or otherwise.
17.6. Unfunded Status of Awards. The Plan is intended to be an unfunded plan for incentive and deferred compensation. With respect to any payments not yet made to a Participant pursuant to an Award, nothing contained in the Plan or any Award Certificate shall give the Participant any rights that are greater than those of a general creditor of the Company or any Affiliate. This Plan is not intended to be subject to ERISA.
17.7. Relationship to Other Benefits. No payment under the Plan shall be taken into account in determining any benefits under any pension, retirement, savings, profit sharing, group insurance, welfare or benefit plan of the Company or any Affiliate unless provided otherwise in such other plan.
17.8. Expenses. The expenses of administering the Plan shall be borne by the Company and its Affiliates.
17.9. Titles and Headings. The titles and headings of the Sections in the Plan are for convenience of reference only, and in the event of any conflict, the text of the Plan, rather than such titles or headings, shall control.
17.10. Gender and Number. Except where otherwise indicated by the context, any masculine term used herein also shall include the feminine; the plural shall include the singular and the singular shall include the plural.
17.11. Fractional Shares. No fractional Shares shall be issued and the Committee shall determine, in its discretion, whether cash shall be given in lieu of fractional Shares or whether such fractional Shares shall be eliminated by rounding up or down.
17.12. Government and Other Regulations.
(a) Notwithstanding any other provision of the Plan, no Participant who acquires Shares pursuant to the Plan may, during any period of time that such Participant is an affiliate of the Company (within the meaning of the rules and regulations of the Securities and Exchange Commission under the 1933 Act), sell such Shares, unless such offer and sale is made (i) pursuant to an effective registration statement under the 1933 Act, which is current and includes the Shares to be sold, or (ii) pursuant to an appropriate exemption from the registration requirement of the 1933 Act, such as that set forth in Rule 144 promulgated under the 1933 Act.
(b) Notwithstanding any other provision of the Plan, if at any time the Committee shall determine that the registration, listing or qualification of the Shares covered by an Award upon any Exchange or under any foreign, federal, state or local law or practice, or the consent or approval of any governmental regulatory body, is necessary or desirable as a condition of, or in connection with, the granting of such Award or the purchase or receipt of Shares thereunder, no Shares may be purchased, delivered or received pursuant to such Award unless and until such registration, listing, qualification, consent or approval shall have been effected or obtained free of any condition not acceptable to the Committee. Any Participant receiving or purchasing Shares pursuant to an Award shall make such representations and agreements and furnish such information as the Committee may request to assure compliance with the foregoing or any other applicable legal requirements. The Company shall not be required to issue or deliver any certificate or certificates for Shares under the Plan prior to the Committees determination that all related requirements have been fulfilled. The Company shall in no event be obligated to register any securities pursuant to the 1933 Act or applicable state or foreign law or to take any other action in order to cause the issuance and delivery of such certificates to comply with any such law, regulation or requirement.
17.13. Governing Law. To the extent not governed by federal law, the Plan and all Award Certificates shall be construed in accordance with and governed by the laws of the State of Indiana.
17.14. Additional Provisions. Each Award Certificate may contain such other terms and conditions as the Committee may determine; provided that such other terms and conditions are not inconsistent with the provisions of the Plan.
17.15. No Limitations on Rights of Company. The grant of any Award shall not in any way affect the right or power of the Company to make adjustments, reclassification or changes in its capital or business structure or to merge, consolidate, dissolve, liquidate, sell or transfer all or any part of its business or assets. The Plan shall not restrict the authority of the Company, for proper corporate purposes, to draft or assume awards, other than under the Plan, to or with respect to any person. If the Committee so directs, the Company may issue or transfer Shares to an Affiliate, for such lawful consideration as the Committee may specify, upon the condition or understanding that the Affiliate will transfer such Shares to a Participant in accordance with the terms of an Award granted to such Participant and specified by the Committee pursuant to the provisions of the Plan.
17.16. Indemnification. Each person who is or shall have been a member of the Committee, or of the Board, or an officer of the Company to whom authority was delegated in accordance with Article 4 shall be indemnified and held harmless by the Company against and from any loss, cost, liability, or expense that may be imposed upon or reasonably incurred by him or her in connection with or resulting from any claim, action, suit, or proceeding to which he or she may be a party or in which he or she may be involved by reason of any action taken or failure to act under the Plan and against and from any and all amounts paid by him or her in settlement thereof, with the Companys approval, or paid by him or her in satisfaction of any judgment in any such action, suit, or proceeding against him or her, provided he or she shall give the Company an opportunity, at its own expense, to handle and defend the same before he or she undertakes to handle and defend it on his or her own behalf, unless such loss, cost, liability, or expense is a result of his or her own willful misconduct or except as expressly provided by statute. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such persons may be entitled under the Companys Articles of Incorporation or Bylaws, as a matter of law, or otherwise, or any power that the Company may have to indemnify them or hold them harmless.
The foregoing is hereby acknowledged as being the Duke Realty Corporation 2015 Long-Term Incentive Plan, as most recently adopted by the Board on January 28, 2015, and approved by the stockholders on April 29, 2015.
DUKE REALTY CORPORATION | ||
By: | /s/ DENNIS D. OKLAK | |
Dennis D. Oklak, | ||
Chairman of the Board and Chief Executive Officer |
Exhibit 99.1
News Release
FOR IMMEDIATE RELEASE
DUKE REALTY REPORTS
FIRST QUARTER 2015 RESULTS
Core FFO per Share of $0.31
In-Service Occupancy of 96.0 Percent
Over $1.5 Billion of Non-Strategic Asset Dispositions through
April 2015
2015 Guidance Updated
(INDIANAPOLIS, April 29, 2015) Duke Realty Corporation (NYSE: DRE), a leading industrial, medical and suburban office property REIT, today reported results for the first quarter of 2015.
Quarterly Highlights
| Core Funds from Operations (Core FFO) per diluted share was $0.31 for the quarter. Funds from Operations (FFO) per diluted share as defined by the National Association of Real Estate Investment Trusts (NAREIT) was $0.33 for the quarter. |
| Operating results: |
| Occupancy, excluding the property portfolio dispositions described in the Significant Post Quarter Transactions section below, in the total portfolio of 94.5 percent and the in-service portfolio occupancy of 96.0 percent; |
| Same-property net operating income growth of 6.8 percent for the quarter ended March 31, 2015 as compared to the quarter ended March 31, 2014 and 5.4 percent for the twelve months ended March 31, 2015 as compared to the twelve months ended March 31, 2014; |
Duke Realty Reports First Quarter 2015 Results
April 29, 2015
Page 2 of 9
| Adjusted Funds from Operations (AFFO) of $0.28 per diluted share, which results in a dividend payout ratio of 61 percent; |
| Total leasing activity, excluding leasing activity related to properties sold as part of the Significant Post Quarter Transactions section below, of 6.5 million square feet. |
| Successful execution of capital transactions during the quarter: |
| Began $80 million of new developments; |
| Completed $161 million of non-strategic building and land dispositions; |
| Repaid $250 million of unsecured notes that bore interest at an effective rate of 7.5 percent. |
Denny Oklak, Chairman and CEO said, We experienced continued strong operational results in the first quarter and further improved our in-service occupancy. Additionally, we executed 3.3 million square feet of renewal leases, representing a 77 percent renewal rate, during the quarter with a significant 8.4 percent growth in net effective rent. Same property net operating income growth for the quarter was also a very strong 6.8 percent.
Commenting on first quarter dispositions of $161 million, Mr. Oklak stated, I am happy to say that our first quarter dispositions included our last retail project and also all of our remaining office properties in Cleveland. In addition to the first quarter dispositions, in April we completed the previously announced $1.1 billion suburban office portfolio disposition to an affiliate of Starwood Capital and the second phase of the sale of non-strategic industrial properties located primarily in the Midwest for $270 million. When including these sales along with the disposition activity during the first quarter, we have already disposed of over $1.5 billion of non-strategic assets so far this year.
Mark Denien, Chief Financial Officer, commented, We immediately utilized a significant portion of the proceeds from our disposition activity to reduce our outstanding debt, including the repayment of $250 million of unsecured debt at its February maturity date, the early repurchase of $425 million of our unsecured notes as part of our previously announced tender offer, the repayment of over $137 million of secured debt and the repayment of $238 million of the outstanding balance on our unsecured line of credit. These actions resulted in an immediate and significant improvement to our leverage metrics.
Duke Realty Reports First Quarter 2015 Results
April 29, 2015
Page 3 of 9
Financial Performance
| The following table reconciles FFO per share, as defined by NAREIT, to Core FFO per share as measured by the company, for the three months ended March 31, 2015 and 2014: |
Three Months Ended March 31 |
||||||||
2015 | 2014 | |||||||
FFO per share diluted, as defined by NAREIT |
$ | 0.33 | $ | 0.28 | ||||
Adjustment: |
||||||||
Gain on land sales |
(0.02 | ) | | |||||
|
|
|
|
|||||
Core FFO per share diluted |
$ | 0.31 | $ | 0.28 | ||||
|
|
|
|
| Core FFO was $109 million for the first quarter of 2015, an increase of $16 million, or $0.03 per share, from the first quarter of 2014 as the result of having no ongoing preferred dividend obligations as well as improved property performance from increased occupancy, rental rate growth and the impact of new developments coming online. A reconciliation of net income to FFO as defined by NAREIT, as well as to Core FFO, is included in the financial tables included in this release. |
| Net income was $0.19 per diluted share for the first quarter of 2015 compared to $0.06 per diluted share for the same quarter in 2014. In addition to the factors driving the increase to Core FFO, the improved net income per share was due to increased gains on property and land sales and reduced depreciation expense resulting from a significant amount of properties being classified as held-for-sale during a portion of the first quarter 2015. |
Portfolio Operating Performance
Strong overall operating performance across all product types:
| In-service occupancy in the bulk distribution portfolio at March 31, 2015 of 96.8 percent compared to 96.4 percent at December 31, 2014. |
| In-service occupancy in the medical office portfolio of 94.2 percent at March 31, 2015 compared to 94.3 percent at December 31, 2014. |
| In-service occupancy in the suburban office portfolio of 86.0 percent at March 31, 2015 compared to 87.9 percent at December 31, 2014. Occupancy at March 31, 2015 for the suburban office portfolio was lower than December 31, 2014 as a result of excluding the properties sold on April 1, 2015 as part of the suburban office disposition from the March 31, 2015 occupancy. |
Duke Realty Reports First Quarter 2015 Results
April 29, 2015
Page 4 of 9
| Total occupancy, including properties under development, of 94.5 percent at March 31, 2015 compared to 93.8 percent at December 31, 2014. |
| Tenant retention of 77 percent for the quarter, with overall renewal rental rate growth of 8.4 percent. |
| Same-property net operating income growth of 5.4 percent for the twelve months ended March 31, 2015 and 6.8 percent for the three months ended March 31, 2015 as compared to the comparable periods ended March 31, 2014. |
Real Estate Investment Activity
Development
Jim Connor, Chief Operating Officer, stated, We continued to increase our investment in high quality industrial properties, starting four new industrial projects totaling 1.3 million square feet. Our development pipeline under construction, which totals 5.2 million square feet and is 55 percent leased, is comprised of what we believe to be a strong mix of pre-leased developments and speculative developments in high-growth markets. We also have a strong pipeline and expect starts to accelerate in the second quarter.
The first quarter included the following development activity:
Wholly-Owned Properties
| During the quarter, the company started $60 million of wholly-owned industrial development projects totaling 836,000 square feet, which were 95 percent leased in total. These wholly-owned development starts consisted of two 100 percent pre-leased industrial projects in Chicago and one 57 percent pre-leased industrial project in Washington, DC. |
| Wholly-owned development projects under construction at March 31, 2015, excluding the one suburban office project that will be sold at completion as part of the suburban office disposition, consisted of nine industrial projects totaling 3.2 million square feet, five medical office projects totaling 247,000 square feet and two suburban office projects totaling 256,000 square feet. These projects were 62 percent pre-leased in the aggregate. |
| Four bulk industrial projects, which were 93 percent leased and totaled 1.7 million square feet, were placed in service. Additionally, two medical office projects, which were 89 percent leased and totaled 143,000 square feet, were placed in service. |
Duke Realty Reports First Quarter 2015 Results
April 29, 2015
Page 5 of 9
Joint Venture Properties
| During the quarter, a 100 percent pre-leased bulk industrial project, totaling 451,000 square feet was started in Indianapolis in a 50 percent-owned unconsolidated joint venture. |
| One bulk industrial project, which was 100 percent leased and totaled 305,000 square feet, was placed in service during the quarter by a 50 percent-owned joint venture. |
| Joint venture development projects under construction at March 31, 2015 consisted of three industrial projects totaling 1.5 million square feet, which are 37 percent pre-leased. |
Land Monetization
Deployment of $49 million of the companys land holdings, through either sales or development, took place as follows during the first quarter:
| Dispositions of 147 acres of non-strategic land across several markets, with a sales price of $35 million and a net gain on sale of $5 million; |
| Utilization of 58 acres of owned or jointly controlled land, with an improved basis of $14 million, for development projects. |
Building Dispositions
Building dispositions totaled $126 million in the first quarter and were comprised of the following:
Wholly-Owned Properties
| Four industrial buildings in Minneapolis, which were 100 percent leased and totaled 692,000 square feet; |
| A 284,000 square foot, 83 percent leased, retail property in Eastern Pennsylvania; |
| A 57,000 square foot, 100 percent leased, medical office building in San Antonio; |
| Six suburban office properties in Cleveland, which were 67 percent leased, totaled 421,000 square feet, and represented the completion of the companys exit from Cleveland. |
Duke Realty Reports First Quarter 2015 Results
April 29, 2015
Page 6 of 9
Joint Venture Properties
| A 122,000 square foot, 100 percent leased, office building in Raleigh. |
Significant Post Quarter Transactions
On April 1, 2015, the company completed the previously announced suburban office portfolio sale to a joint venture with affiliates of Starwood Capital Group, Vanderbilt Partners and Trinity Capital Advisors for $1.1 billion. This transaction included all of the companys wholly-owned, in-service suburban office properties located in Nashville, Raleigh, South Florida and St. Louis. The portfolio included approximately 6.7 million square feet in 61 buildings and 57 acres of undeveloped land. One additional office asset currently under construction in Raleigh will be sold upon completion in late 2015.
On April 8, 2015, the company completed the sale of 51 non-strategic industrial properties for $270 million. These properties totaled 5.2 million square feet and were located in primarily Midwest markets.
On April 3, 2015, the company used a portion of the proceeds from the suburban office portfolio sale to complete a tender offer to repurchase unsecured notes having a face value of $425 million, for a cash payment of $500 million.
Denny Oklak, Chairman and Chief Executive Officer, said, The completion of these major dispositions represents a significant change in the character of Duke Realty. Our bulk industrial business now represents over 70 percent of our net operating income, more than double what it was five years ago. Net operating income from our superior quality bulk industrial and medical office portfolios now comprise nearly 90 percent of our total net operating income. In addition, after completion of these dispositions and the use of a portion of the proceeds to repay debt, our pro forma leverage metrics are substantially improved with debt to EBITDA at 6.2 times and our fixed charge coverage ratio of 2.8 times.
Distributions Declared
Our board of directors declared a quarterly cash distribution on our common stock of $0.17 per share, or $0.68 per share on an annualized basis. The first quarter dividend will be payable May 29, 2015 to shareholders of record on May 14, 2015.
Duke Realty Reports First Quarter 2015 Results
April 29, 2015
Page 7 of 9
2015 Earnings Guidance
The company narrowed its previous Core FFO guidance for 2015 to a range of $1.13 to $1.19 per share, compared to previous guidance of $1.12 to $1.20 per share. The company increased its AFFO guidance for 2015 to a range of $0.98 to $1.04 per share, compared to previous guidance of $0.96 to $1.04 per share.
Guidance for same property net operating income growth, for the twelve months ended December 31, 2015 compared to the twelve months ended December 31, 2014, was increased to a range of 3.0 to 5.0 percent compared to previous guidance of 2.0 to 4.0 percent.
Guidance for 2015 average in-service occupancy also was increased to a range of 95.0 percent to 96.0 percent compared to previous guidance, which ranged from 94.5 percent to 95.5 percent.
FFO and AFFO Reporting Definitions
FFO: FFO is computed in accordance with standards established by NAREIT. NAREIT defines FFO as net income (loss) excluding gains (losses) on sales of depreciable property, impairment charges related to depreciable real estate assets, 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 should be examined in conjunction with net income (as defined by GAAP) as presented in the financial statements accompanying this release. FFO does not represent a measure of liquidity, nor is it indicative of funds available for the companys cash needs, including the companys ability to make cash distributions to shareholders.
Core FFO: Core FFO is computed as FFO adjusted for certain items that are generally non-cash in nature and that materially distort the comparative measurement of company performance over time. The adjustments include gains on sale of undeveloped land, impairment charges not related to depreciable real estate assets, 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 items), gains (losses) on debt transactions, adjustments on the repurchase or redemption of preferred stock, gains (losses) on and related costs of acquisitions, and severance charges related to major overhead restructuring
Duke Realty Reports First Quarter 2015 Results
April 29, 2015
Page 8 of 9
activities. Although the companys 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.
AFFO: AFFO is defined by the company as Core FFO (as defined above), less recurring building improvements and total second generation capital expenditures (the leasing of vacant space that had previously been under lease by the company is referred to as second generation lease activity) related to leases commencing during the reporting period and adjusted for certain non-cash items including straight line rental income and expense, non-cash components of interest expense and stock compensation expense, and after similar adjustments for unconsolidated partnerships and joint ventures.
Same Property Performance
The company includes same-property net operating income growth as a property-level supplemental measure of performance. The company utilizes same-property net income growth as a supplemental measure to evaluate property-level performance, and jointly-controlled properties are included at our ownership percentage.
A description of the properties that are excluded from the companys same-property measure is included on page 19 of our March 31, 2015 supplemental information.
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 22 major U.S. metropolitan areas. 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.
First Quarter Earnings Call and Supplemental Information
Duke Realty Corporation is hosting a conference call tomorrow, April 30, 2015, at 3:00 p.m. ET to discuss its first 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 website.
A copy of the companys supplemental information will be available by 6:00 p.m. ET today through the Investor Relations section of the companys website.
Duke Realty Reports First Quarter 2015 Results
April 29, 2015
Page 9 of 9
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 or results, 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) valuation of real estate; (x) increases in operating costs; (xi) changes in the dividend policy for the companys common stock; (xii) the reduction in the companys income in the event of multiple lease terminations by tenants; (xiii) impairment charges, (xiv) the effects of geopolitical instability and risks such as terrorist attacks; (xv) the effects of weather and natural disasters such as floods, droughts, wind, tornadoes and hurricanes; and (xvi) the effect of any damage to our reputation resulting from developments relating to any of items (i) (ix). 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, 2014. 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:
Investors:
Ron Hubbard
317.808.6060
Media:
Helen McCarthy
317.708.8010
Duke Realty Corporation and Subsidiaries
Consolidated Balance Sheets
(Unaudited and in thousands)
March 31, 2015 |
December 31, 2014 |
|||||||
Assets |
||||||||
Real estate investments: |
||||||||
Land and improvements |
$ | 1,383,889 | $ | 1,412,867 | ||||
Buildings and tenant improvements |
4,815,764 | 4,986,390 | ||||||
Construction in progress |
194,918 | 246,062 | ||||||
Investments in and advances to unconsolidated companies |
341,911 | 293,650 | ||||||
Undeveloped land |
473,562 | 499,960 | ||||||
|
|
|
|
|||||
7,210,044 | 7,438,929 | |||||||
Accumulated depreciation |
(1,176,719 | ) | (1,235,337 | ) | ||||
|
|
|
|
|||||
Net real estate investments |
6,033,325 | 6,203,592 | ||||||
Real estate investments and other assets held-for-sale |
840,018 | 725,051 | ||||||
Cash and cash equivalents |
17,806 | 17,922 | ||||||
Accounts receivable, net |
28,961 | 26,168 | ||||||
Straight-line rents receivable, net |
110,635 | 109,657 | ||||||
Receivables on construction contracts, including retentions |
44,860 | 36,224 | ||||||
Deferred financing costs, net |
36,427 | 38,734 | ||||||
Deferred leasing and other costs, net |
374,862 | 387,635 | ||||||
Escrow deposits and other assets |
243,610 | 209,856 | ||||||
|
|
|
|
|||||
$ | 7,730,504 | $ | 7,754,839 | |||||
|
|
|
|
|||||
Liabilities and Equity |
||||||||
Indebtedness: |
||||||||
Secured debt |
$ | 919,448 | $ | 983,242 | ||||
Unsecured debt |
3,113,617 | 3,364,161 | ||||||
Unsecured line of credit |
453,000 | 106,000 | ||||||
|
|
|
|
|||||
4,486,065 | 4,453,403 | |||||||
Liabilities related to real estate investments held-for-sale |
23,408 | 18,328 | ||||||
Construction payables and amounts due subcontractors, including retentions |
46,723 | 69,470 | ||||||
Accrued real estate taxes |
70,130 | 76,308 | ||||||
Accrued interest |
34,634 | 55,110 | ||||||
Other accrued expenses |
38,766 | 62,632 | ||||||
Other liabilities |
98,532 | 95,566 | ||||||
Tenant security deposits and prepaid rents |
38,063 | 44,142 | ||||||
|
|
|
|
|||||
Total liabilities |
4,836,321 | 4,874,959 | ||||||
|
|
|
|
|||||
Shareholders equity: |
||||||||
Common stock |
3,450 | 3,441 | ||||||
Additional paid-in-capital |
4,952,319 | 4,944,800 | ||||||
Accumulated other comprehensive income |
2,739 | 3,026 | ||||||
Distributions in excess of net income |
(2,084,810 | ) | (2,090,942 | ) | ||||
|
|
|
|
|||||
Total shareholders equity |
2,873,698 | 2,860,325 | ||||||
Noncontrolling interest |
20,485 | 19,555 | ||||||
|
|
|
|
|||||
Total equity |
2,894,183 | 2,879,880 | ||||||
|
|
|
|
|||||
$ | 7,730,504 | $ | 7,754,839 | |||||
|
|
|
|
Duke Realty Corporation and Subsidiaries
Consolidated Statement of Operations
(Unaudited and in thousands, except per share amounts)
Three Months Ended March 31, |
||||||||
2015 | 2014 | |||||||
Revenues: |
||||||||
Rental and related revenue |
$ | 214,615 | $ | 208,646 | ||||
General contractor and service fee revenue |
52,820 | 55,820 | ||||||
|
|
|
|
|||||
267,435 | 264,466 | |||||||
|
|
|
|
|||||
Expenses: |
||||||||
Rental expenses |
36,124 | 42,041 | ||||||
Real estate taxes |
30,779 | 29,203 | ||||||
General contractor and other services expenses |
47,023 | 47,271 | ||||||
Depreciation and amortization |
81,903 | 88,298 | ||||||
|
|
|
|
|||||
195,829 | 206,813 | |||||||
|
|
|
|
|||||
Other operating activities: |
||||||||
Equity in earnings of unconsolidated companies |
6,246 | 2,321 | ||||||
Gain on sale of properties |
23,484 | 15,853 | ||||||
Gain on land sales |
5,425 | 152 | ||||||
Other operating expenses |
(1,557 | ) | (2,216 | ) | ||||
General and administrative expenses |
(17,004 | ) | (14,694 | ) | ||||
|
|
|
|
|||||
16,594 | 1,416 | |||||||
|
|
|
|
|||||
Operating income |
88,200 | 59,069 | ||||||
Other income (expenses): |
||||||||
Interest and other income, net |
338 | 351 | ||||||
Interest expense |
(49,610 | ) | (49,261 | ) | ||||
Acquisition-related activity |
(28 | ) | (14 | ) | ||||
|
|
|
|
|||||
Income from continuing operations, before income taxes |
38,900 | 10,145 | ||||||
Income tax expense |
(1,484 | ) | (2,674 | ) | ||||
|
|
|
|
|||||
Income from continuing operations |
37,416 | 7,471 | ||||||
Discontinued operations: |
||||||||
Income before gain on sales |
10,178 | 1,325 | ||||||
Gain on sale of depreciable properties, net of tax |
18,375 | 16,775 | ||||||
|
|
|
|
|||||
Income from discontinued operations |
28,553 | 18,100 | ||||||
Net income |
65,969 | 25,571 | ||||||
Dividends on preferred shares |
| (7,037 | ) | |||||
Adjustments for redemption/repurchase of preferred shares |
| 483 | ||||||
Net income attributable to noncontrolling interests |
(725 | ) | (334 | ) | ||||
|
|
|
|
|||||
Net income attributable to common shareholders |
$ | 65,244 | $ | 18,683 | ||||
|
|
|
|
|||||
Basic net income per common share: |
||||||||
Continuing operations attributable to common shareholders |
$ | 0.11 | $ | 0.00 | ||||
Discontinued operations attributable to common shareholders |
0.08 | 0.06 | ||||||
|
|
|
|
|||||
Total |
$ | 0.19 | $ | 0.06 | ||||
|
|
|
|
|||||
Diluted net income per common share: |
||||||||
Continuing operations attributable to common shareholders |
$ | 0.11 | $ | 0.00 | ||||
Discontinued operations attributable to common shareholders |
0.08 | 0.06 | ||||||
|
|
|
|
|||||
Total |
$ | 0.19 | $ | 0.06 | ||||
|
|
|
|
Duke Realty Corporation and Subsidiaries
Summary of EPS, FFO and AFFO
Three Months Ended March 31
(Unaudited and in thousands, except per share amounts)
2015 | 2014 | |||||||||||||||||||||||
Amount | Wtd. Avg. Shares |
Per Share |
Amount | Wtd. Avg. Shares |
Per Share |
|||||||||||||||||||
Net income attributable to common shareholders |
$ | 65,244 | $ | 18,683 | ||||||||||||||||||||
Less: dividends on participating securities |
(620 | ) | (645 | ) | ||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||
Net income per common share- basic |
64,624 | 344,597 | $ | 0.19 | 18,038 | 327,106 | $ | 0.06 | ||||||||||||||||
Add back: |
||||||||||||||||||||||||
Noncontrolling interest in earnings of unitholders |
699 | 3,695 | 250 | 4,387 | ||||||||||||||||||||
Other potentially dilutive securities |
361 | 223 | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
Net income attributable to common shareholders- diluted |
$ | 65,323 | 348,653 | $ | 0.19 | $ | 18,288 | 331,716 | $ | 0.06 | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
Reconciliation to funds from operations (FFO) |
||||||||||||||||||||||||
Net income attributable to common shareholders |
$ | 65,244 | 344,597 | $ | 18,683 | 327,106 | ||||||||||||||||||
Adjustments: |
||||||||||||||||||||||||
Depreciation and amortization |
85,420 | 98,264 | ||||||||||||||||||||||
Company share of joint venture depreciation, amortization and other |
4,928 | 6,396 | ||||||||||||||||||||||
Gains on depreciable property sales - wholly owned, discontinued operations |
(18,375 | ) | (19,752 | ) | ||||||||||||||||||||
Gains on depreciable property sales - wholly owned, continuing operations |
(23,484 | ) | (15,853 | ) | ||||||||||||||||||||
Income tax expense triggered by depreciable property sales |
1,484 | 5,651 | ||||||||||||||||||||||
Gains/losses on depreciable property sales - JV |
(1,544 | ) | 165 | |||||||||||||||||||||
Noncontrolling interest share of adjustments |
(514 | ) | (991 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
Funds from operations- basic |
113,159 | 344,597 | $ | 0.33 | 92,563 | 327,106 | $ | 0.28 | ||||||||||||||||
Noncontrolling interest in income of unitholders |
699 | 3,695 | 250 | 4,387 | ||||||||||||||||||||
Noncontrolling interest share of adjustments |
514 | 991 | ||||||||||||||||||||||
Other potentially dilutive securities |
3,233 | 2,887 | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
Funds from operations- diluted |
$ | 114,372 | 351,525 | $ | 0.33 | $ | 93,804 | 334,380 | $ | 0.28 | ||||||||||||||
Gain on land sales |
(5,425 | ) | (152 | ) | ||||||||||||||||||||
Adjustments for redemption/repurchase of preferred shares |
| (483 | ) | |||||||||||||||||||||
Acquisition-related activity |
28 | 14 | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
Core funds from operations- diluted |
$ | 108,975 | 351,525 | $ | 0.31 | $ | 93,183 | 334,380 | $ | 0.28 | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
Adjusted funds from operations |
||||||||||||||||||||||||
Core funds from operations- diluted |
$ | 108,975 | 351,525 | $ | 0.31 | $ | 93,183 | 334,380 | $ | 0.28 | ||||||||||||||
Adjustments: |
||||||||||||||||||||||||
Straight-line rental income and expense |
(9,179 | ) | (6,701 | ) | ||||||||||||||||||||
Amortization of above/below market rents and concessions |
2,113 | 2,468 | ||||||||||||||||||||||
Stock based compensation expense |
10,065 | 8,277 | ||||||||||||||||||||||
Noncash interest expense |
1,775 | 1,602 | ||||||||||||||||||||||
Second generation concessions |
(36 | ) | (76 | ) | ||||||||||||||||||||
Second generation tenant improvements |
(6,900 | ) | (7,461 | ) | ||||||||||||||||||||
Second generation leasing commissions |
(6,698 | ) | (6,902 | ) | ||||||||||||||||||||
Building improvements |
(290 | ) | (337 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
Adjusted funds from operations - diluted |
$ | 99,825 | 351,525 | $ | 0.28 | $ | 84,053 | 334,380 | $ | 0.25 | ||||||||||||||
|
|
|
|
|
|
|
|
Exhibit 99.2
THOMSON REUTERS STREETEVENTS
EDITED TRANSCRIPT
DRE - Q1 2015 Duke Realty Corp Earnings Call
EVENT DATE/TIME: APRIL 30, 2015 / 7:00PM GMT
THOMSON REUTERS STREETEVENTS | www.streetevents.com | Contact Us |
![]() | |
©2015 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. |
APRIL 30, 2015 / 7:00PM, DRE - Q1 2015 Duke Realty Corp Earnings Call
CORPORATE PARTICIPANTS
Ron Hubbard Duke Realty Corporation - VP-IR
Denny Oklak Duke Realty Corporation - Chairman & CEO
Jim Connor Duke Realty Corporation - Senior EVP & COO
Mark Denien Duke Realty Corporation - EVP & CFO
CONFERENCE CALL PARTICIPANTS
Vance Edelson Morgan Stanley - Analyst
Jamie Feldman BofA Merrill Lynch - Analyst
Ki Bin Kim SunTrust Robinson Humphrey - Analyst
Eric Frankel Green Street Advisors - Analyst
Brendan Maiorana Wells Fargo Securities - Analyst
Stephen Dye Robert W. Baird & Company - Analyst
Mike Salinsky RBC Capital Markets - Analyst
Michael Bilerman Citigroup - Analyst
John Guinee Stifel Nicolaus - Analyst
PRESENTATION
Operator
Ladies and gentlemen, thank you for standing by and welcome to the Duke Realty quarterly earnings conference call. (Operator Instructions) As a reminder, todays conference is being recorded.
I would now like to turn the conference over to your host, Mr. Ron Hubbard. Please go ahead, sir.
Ron Hubbard - Duke Realty Corporation - VP-IR
Thank you. Good afternoon, everyone, and welcome to our first-quarter earnings call. Joining me today are Denny Oklak, Chairman and CEO; Jim Connor, Chief Operating Officer; and Mark Denien, Chief Financial Officer.
Before we make our prepared remarks, let me remind you that 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 refer you to our December 31, 2014, 10-K that we have on file with the SEC.
Now for our prepared statement I will turn it over to Denny Oklak.
Denny Oklak - Duke Realty Corporation - Chairman & CEO
Thank you, Ron. Good afternoon, everyone. Today I will highlight our key metrics for the quarter and some of our thoughts on the overall real estate and economic environment. Jim Connor will give you an update on our leasing activity and development status. I will review our disposition activity, including some of the major transactions that closed just after quarter end in April, and Mark will then address our first-quarter financial performance and balance sheet activity.
THOMSON REUTERS STREETEVENTS | www.streetevents.com | Contact Us |
![]() | |
©2015 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. |
2
APRIL 30, 2015 / 7:00PM, DRE - Q1 2015 Duke Realty Corp Earnings Call
We followed up our very strong 2014 with a solid start to 2015. We signed 6.5 million square feet of leases in the first quarter and ended with overall occupancy at 94.5%, including projects under development. The occupancy of our in-service portfolio was 96%.
Rents and renewal leases for the quarter grew by nearly 8.4%, reflecting continued strong supply and demand fundamentals and pricing power. We started $80 million of new bulk industrial development projects and we have a strong backlog of both industrial and medical office projects, and expect development starts to accelerate in the coming quarters.
With the closing of the previously announced $1.1 billion office sale, bulk distribution now makes up over 70% of our total NOI and medical office is approaching 20%. The overall fundamentals and operating environment for our business remains strong. On the industrial front, our occupancies remained at or near historic highs. New supply in substantially all markets is in balance and demand for modern bulk space is still high. Our outlook is for these fundamentals to continue to be favorable for the remainder of 2015.
The medical office development business is also seeing a significant pickup in demand, driven by major hospitals adjusting their service delivery models. At this point in the cycle, we see continued opportunities to create value through our development platform.
Now I will turn it over to Jim to give you some color on our first-quarter operations.
Jim Connor - Duke Realty Corporation - Senior EVP & COO
Thanks, Denny. Operationally we had another solid quarter with leasing of 6.5 million square feet, as Denny noted earlier. Our total in-service occupancy ended the quarter at 96%. Thats up 70 basis points from the previous quarter.
Our tenant retention was high at 77% and our rental rate growth on renewals continues to be strong across the portfolio with growth of 8.4%. We are very focused on pushing rents throughout the portfolio, in particular on the industrial side.
Now let me touch on some of the key activity within each of our product types. With respect to our industrial portfolio, we continue to see fundamentals improve with completion of 6.2 million square feet of total leasing, including 1.2 million square feet of build-to-suit or partially preleased developments, and 842,000 square feet of leasing in our recently completed spec projects. Overall, industrial market fundamentals remain positive with 21 of our 22 markets at 94% occupancy or better and all realizing positive market rent growth.
In-service occupancy in the bulk industrial portfolio at the end of the quarter was 96.8%. Thats up 100 basis points over a year ago. Compared to the general market vacancy in 22 markets, our in-service occupancy is outperforming those markets by 330 basis points.
Regarding specific lease activity, we signed six deals totaling 842,000 square feet in four speculative projects in Houston and northern New Jersey. Two notable leases, including a 358,000 square foot lease with McKesson Corporation to occupy 100% of our Gateway Northwest One project in Houston and a 282,000 square foot lease with a food and beverage company to lease 57% of one of our two speculative projects in our Legacy Commerce Center in Linden, New Jersey.
We also signed three other leases totaling 144,000 square feet to bring the second speculative project in Linden to 100% leased. With these leases, occupancy in Houston has improved from 86.2% at year-end to 98.4% and New Jersey has improved from 73% to 83.8%, which is evidence we continue to deliver on speculative projects ahead of pro forma.
Also contributing to growth in our industrial occupancy were four new leases signed in Savannah totaling 692,000 square feet, bringing occupancy there to 94.7% from a year-end occupancy of 85.9%. With the tightening of conditions across most of our markets and high occupancies in our own portfolio, we continue to be able to push rents as indicated by the rent growth on renewal in our industrial leases of nearly 9%, which is a range which we expect to be able to maintain throughout 2015.
Now let me touch on the medical office portfolio. We continue to have strong momentum with our in-service occupancy remaining at 94.2% and a robust list of prospects for future development to go along with our existing development pipeline. The development fundamentals for modern medical space coupled with long-term leases with rent escalations and top tier tenant roster provide an excellent risk-adjusted return component to our overall portfolio.
THOMSON REUTERS STREETEVENTS | www.streetevents.com | Contact Us |
![]() | |
©2015 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. |
3
APRIL 30, 2015 / 7:00PM, DRE - Q1 2015 Duke Realty Corp Earnings Call
I would also like to make an announcement on a leadership transition in our medical office platform. Jim Bremner, the President of our Healthcare division, will be stepping down this summer after leading the reins of that business for the last 10 years.
Looking back, Jim and his deeply talented team grew our healthcare business from just under 800,000 square feet and nine buildings in 2007 to over 6 million square feet and 77 buildings today, representing 18% of our overall business. On behalf of the Duke Realty team we want to acknowledge Jims great leadership and hard work in growing the platform, his flawless execution of strategic and profitable investment and development transactions, and an appreciation for his cultivation of a very deep and talented medical office leadership team.
As many of you know or have seen firsthand in our markets, Duke Realty has always been very focused on talent development and retention of the best professionals in the business. With this, we are pleased to announce that Keith Konkoli, an 18-year veteran of Duke Realty, will assume leadership of the Healthcare team effective July 1, 2015.
Keith has been a leader and an integral part of our healthcare business for the past seven years. We have the utmost confidence that Keith will assume this new leadership role and continue to generate profitable, relationship-driven medical developments with our premier healthcare system clients. As Denny alluded earlier, Keith and his team have a very strong pipeline of the development deals for 2015 and beyond.
We also note that Jim Bremner is not going away completely. Jim will enter into a consulting agreement with us for the next year to help assist with any transition needs.
Let me also say that the team of professionals at our medical office have risen to be one of the very best development franchises of the country, a development franchise that has fit very well into the Duke Realty culture of being reliable, highly-trusted partners. While operationally there may not be many synergies between the medical office and industrial business, the medical office niche is a complementary growth business from a development and construction franchise perspective, particularly the build-to-suit strategy. And medical is complementary from the long-term durable nature of cash flows perspective, very similar to our bulk industrial product.
Turning to development for the quarter, we started 80 million square feet of build-to-suit and partially preleased projects totaling 1.3 million square feet with a weighted average GAAP yield of 7%. As Denny noted, we have a very solid pipeline for prospects for the remainder of the year.
We started two projects in Chicago in our Butterfield Corporate Park totaling 742,000 feet. Both facilities were 100% preleased build-to-suits for Shorr Packaging and Fellowes corporation, with lease terms of 12 and 10 years, respectively. We also started a 451,000 square foot build-to-suit project in our AllPoints Midwest Park in Indianapolis. This facility is 100% preleased to Integrated Distribution Services for a term of over 13 years.
Finally, in Washington DC we started a 94,000 square foot industrial project at our TransDulles Center near Dulles International Airport. That facility is 57% preleased.
On the land side, during the quarter we sold $35 million of nonstrategic parcels at a book gain of $5.5 million, or a 16% margin. Additionally we monetized another 14 million of land in related development projects.
From an overall development pipeline perspective, at quarter end we have 19 projects under construction totaling 5.2 million square feet and a projected $405 million in stabilized costs at our share that are 55% preleased. These projects have an initial cash yield of 7.1% and a GAAP yield of 7.8% and provide evidence of our ability to create significant value as they are being developed at high-teens margins of value over cost.
Given that we have title land positions that can support roughly 48 million square feet of bulk industrial product, and given our relationships and track record at winning major build-to-suit proposals with top customers, our development platform is in a dominant position to drive incremental cash flow growth over the long haul.
THOMSON REUTERS STREETEVENTS | www.streetevents.com | Contact Us |
![]() | |
©2015 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. |
4
APRIL 30, 2015 / 7:00PM, DRE - Q1 2015 Duke Realty Corp Earnings Call
I will now turn it back over to Denny to cover our investment activities for the quarter.
Denny Oklak - Duke Realty Corporation - Chairman & CEO
Thanks, Jim. With respect to the investment activity, we closed $161 million of dispositions during the quarter, including transactions that represented the completion of our exit from the Cleveland office market and the exit from the retail property sector. Further, on the disposition front, we announced early in April that we successfully closed a $1.1 billion suburban office portfolio sale to an affiliate of Starwood Capital that was originally announced in late January. The transaction divests all the Companys wholly-owned, in-service, suburban office properties located in Nashville, Raleigh, South Florida, and St. Louis, and is consistent with our strategy of opportunistically reducing our investment in suburban office. After the closing of the Starwood office sale, our percent of NOI from suburban office is down to roughly 12%, and in the context of our 2015 earnings guidance and disposition strategy, suburban office should be in the single digit percentage by year-end.
Let me also once more frame the office sales strategy as follows. The abundance of private capital chasing commercial real estate now and given the unencumbered nature of the portfolio, which made it attractive from the buyers perspective, we firmly believe the execution pricing and the use of the proceeds toward industrial and MOB development and towards significant balance sheet deleveraging is a big win for our shareholders.
Also, just after the Starwood closing in mid-April, we closed on a 5.2 million square foot older industrial portfolio primarily located in the Midwest, generating proceeds of $270 million. This transaction represents the majority of the 5.9 million square foot Midwest industrial portfolio we began marketing in the fourth quarter of 2014, and as weve previously disclosed on the October and January earnings calls. The other 700,000 square feet of this portfolio was sold in a separate transaction in the first quarter.
The average age of these industrial properties was 23 years, compared to 10 years for the remainder of our industrial portfolio. With these two post-quarter transactions, dispositions for the year already total $1.5 billion, just below the midpoint of our guidance. The remaining dispositions for the year will be focused on additional suburban office properties.
So with that, I will now turn the call over to Mark to discuss our financial results and capital transactions.
Mark Denien - Duke Realty Corporation - EVP & CFO
Thanks, Denny. Core FFO was $0.31 per share for the first quarter of 2015, compared to $0.30 per share for the fourth quarter of 2014. The increase in FFO was primarily due to realizing the benefit of the full-quarter dividend savings from the preferred stock redemptions that we completed in late 2014.
In addition to the preferred dividend savings, the increase of $0.03 per share and the $0.28 per share of core FFO reported in the first quarter of 2014 was driven by improved occupancy and rental rate growth, as well as the impact of developments being placed in service. We generated $0.28 per share in core AFFO for the quarter, which equates to a dividend payout ratio of 61%.
Same-property NOI growth for the twelve and three months ended March 31, 2015, was 5.4% and 6.8%, respectively. Same-property operating expenses decreased from prior periods due to milder winter conditions the first quarter of 2015, but this was generally offset by a decrease in reimbursement revenue, so this did not really have a significant impact on overall net operating income.
The significant growth for the quarter in NOI was mainly due to our positive results in driving occupancy higher and rental rate growth. We anticipate that same-property growth for the remainder of 2015 will moderate a bit from the first-quarter level as occupancy growth slows, but will continue to be strong, which resulted in our increased guidance for the year.
As Denny noted, shortly after the end of the quarter we closed on a $1.1 billion suburban office portfolio disposition and a $270 million Midwest bulk industrial portfolio disposition. Using the proceeds from these transactions, weve repurchased $425 million of face value, unsecured notes as part of a $500 million debt tender offer, repaid a significant portion of our unsecured line of credit, repaid an additional $137 million of secured debt, and still retained enough cash to cover our capital needs for the rest of the year.
THOMSON REUTERS STREETEVENTS | www.streetevents.com | Contact Us |
![]() | |
©2015 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. |
5
APRIL 30, 2015 / 7:00PM, DRE - Q1 2015 Duke Realty Corp Earnings Call
All of these capital transactions, coupled with our operational performance, resulted in a continued trend of improvement in our key financial metrics. We reported a fixed charge coverage ratio of 2.7 times for the quarter ended March 31, 2015, and we expect fixed charge coverage to approximate 3.0 times by the end of the year.
Net debt to EBITDA for the rolling 12 months ended March 31, 2015, was 6.9 times compared to the 7.8 times that we reported for the rolling 12 months ended one year ago. After adjusting for the April dispositions and debt repayments, pro forma net debt to EBITDA for the three months ended March 31, 2015, is down to 6.2 times.
We are very proud of the progress we have made in improving our overall leverage profile and having reported another strong quarter. With that I will turn it back over to Denny.
Denny Oklak - Duke Realty Corporation - Chairman & CEO
Thanks, Mark. Yesterday we narrowed our guidance for FFO per share for 2015 to $1.13 to $1.19 and also raised our guidance for adjusted funds from operations per share to $0.98 to $1.04 per share. We also raised same-property guidance from a range of 2% to 4% up to a range of 3% to 5%, and raised our average occupancy guidance by 50 basis points to 95% to 96%. With solid results in the first quarter and capital markets execution in April, we set the stage for a continued strong 2015 and beyond.
I would also like to personally thank Jim Bremner for all his efforts on behalf of Duke Realty. Its been a great partnership between Jim and I, and he has built a terrific business for Duke Realty that will continue to grow under Keiths leadership.
In closing, I will reiterate that we believe our team and our portfolio is in a unique position to take advantage of the strong fundamentals in our businesses. The value creation potential for shareholders is very high. We thank you again for your interest and support of Duke Realty.
We will now open up the lines to the audience and we ask that participants to keep the dialogue to one question or perhaps two very short questions. You are, of course, welcome to get back in queue. Thank you.
QUESTIONS AND ANSWERS
Operator
(Operator Instructions) Vance Edelson.
Vance Edelson - Morgan Stanley - Analyst
Terrific, thank you. So with the weaker GDP figures just out, there has been a lot of talk about the temporary impact from West Coast labor disputes and the severe weather in other parts of the country, your leasing activity was obviously quite strong in the first quarter, so do you think there was any material impact from any nonrecurring events that might have weighed on GDP? Or do you feel more like it was business as usual for Duke?
Jim Connor - Duke Realty Corporation - Senior EVP & COO
Vance, I will tell you I think its been business as usual. Theres been a lot of dialogue, particularly about the ports of LA and Long Beach.
THOMSON REUTERS STREETEVENTS | www.streetevents.com | Contact Us |
![]() | |
©2015 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. |
6
APRIL 30, 2015 / 7:00PM, DRE - Q1 2015 Duke Realty Corp Earnings Call
The quarter-end numbers that have just been posted out of California are very encouraging. March was the strongest month ever for the Port of Long Beach and the second-strongest month ever for the Port of LA, so clearly they are clearing up that backlog quicker than anticipated. We were recently told as of 10 days ago there were only five ships waiting in the bay; thats down from 30-some.
So I think thats one of those temporary things that happens every 5 to 10 years. It gets worked out and we are back to business as usual. I think if you drill down into the markets and you look at some of the absorption numbers in LA, particularly the Inland Empire, very, very strong numbers for the first quarter.
The Inland Empire had 4 million square feet of net absorption. For those of you keeping track, that is a 400 million square foot market, so thats 1% net absorption in one quarter.
Vance Edelson - Morgan Stanley - Analyst
Okay, good to hear. Then just for my second short question, you mentioned the strong office pricing making this a good time to divest. What can you tell us about the demand for land and your experience selling the 147 acres? You pocketed a modest gain there. Were you pleased with the bidding and have land prices continued to climb this year?
Jim Connor - Duke Realty Corporation - Senior EVP & COO
I think, as you would logically follow, with the amount of development that we are seeing in all sectors across the country now is a great time for us to sell land. So we have been very active in selling primarily office land as well as some of the nonstrategic industrial land or some residual pieces that we might have. We were very pleased with the pricing and the amount of activity in the first quarter and what we believe is a very strong pipeline to continue to move that land for the rest of the year.
Vance Edelson - Morgan Stanley - Analyst
Okay, terrific. Thank you.
Operator
Jamie Feldman.
Jamie Feldman - BofA Merrill Lynch - Analyst
Thank you, good afternoon. So, Denny, in your prepared remarks I think you said that you feel good about operations through the end of the year and we are in April already. Im just curious if you have any window at this point on supply pipelines as we head into 2016. I know its taking longer to build these days and entitlements are harder to come by, so just any preliminary thoughts?
Denny Oklak - Duke Realty Corporation - Chairman & CEO
Im going to let Jim respond to that because we in all of our markets that we are in we very closely track all the, I will call the spec development plus planned developments. Our local market guys pretty much know whats going on, so Jim will give you some color on that.
Jim Connor - Duke Realty Corporation - Senior EVP & COO
Sure. Jamie, just a couple of bullet points that I think we all see from the service providers and the different research companies.
THOMSON REUTERS STREETEVENTS | www.streetevents.com | Contact Us |
![]() | |
©2015 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. |
7
APRIL 30, 2015 / 7:00PM, DRE - Q1 2015 Duke Realty Corp Earnings Call
On the supply side, supply is up about 9% in the first quarter, but at the same time vacancy across the country is down. Its roughly 8.5%. You had totally last year 117 million of new supply and 130 million square feet of net absorption, so I think all the market dynamics are functioning well. And until we see a quarter or two of slowdown or narrowing of that gap, I think everybody is pretty optimistic right now that the foreseeable future looks pretty good.
Jamie Feldman - BofA Merrill Lynch - Analyst
Okay. Then we have seen a lot of institutional capital flowing into the sector. Any interest in selling off portfolios of higher quality warehouse, given where pricing has moved?
Denny Oklak - Duke Realty Corporation - Chairman & CEO
No, Jamie, I dont think so. You know that I dont think theres anybody in the business that has sold more than we have over the last four or five years.
The good news is we have really cleaned up the portfolio. And I say this, and I think people are beginning to believe me; that weve got the highest quality industrial and highest quality medical office portfolios in the business today. And that now makes up 70% of our NOI excuse me, almost 90% of our NOI; so were very comfortable with that portfolio. Its performing really on an outstanding basis. As I noted in the remarks, we have still got a bit of office to sell and really what we have left after this is just some office properties in Cincinnati and Indianapolis and then some miscellaneous joint venture office assets that are spread around the country where we are a minority partner in basically all of those.
So right now were focused on marketing some of the Cincinnati office assets that we have remaining and we are seeing pretty good activity on that. Then the other thing we did, obviously, was with this, what we call the Midwest industrial package, we really cleaned up the industrial portfolio. So we are very pleased with where we are and like our ability to really grow our earnings from this portfolio going forward.
Jamie Feldman - BofA Merrill Lynch - Analyst
Okay, thats very helpful. Thank you.
Operator
Ki Bin Kim.
Ki Bin Kim - SunTrust Robinson Humphrey - Analyst
Thank you. Can you maybe comment on how you view your portfolio quality compared to that of the KTR deal that recently transacted? And if you want and feel free to comment on your opinion on the cap rate on that deal, if you thought it was in line with your expectations or lower or higher.
Denny Oklak - Duke Realty Corporation - Chairman & CEO
Well, I always hesitate to comment on what other people are doing, but Ill give you a few thoughts here. Weve I think, we obviously looked at the disclosure that was made on that transaction; its always helpful to understand whats going on in the market, like Im sure you all did.
THOMSON REUTERS STREETEVENTS | www.streetevents.com | Contact Us |
![]() | |
©2015 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. |
8
APRIL 30, 2015 / 7:00PM, DRE - Q1 2015 Duke Realty Corp Earnings Call
I believe the number was KTRs portfolio was average age of 18 years. Prologis I think pre was 23 years, so they are averaging down to 21 or something like that. As I mentioned in our remarks, after this most recent sale of our the smaller, older industrial stuff, we are at about a 10-year average age.
Now having said that, age doesnt always matter. It is location, and particularly in high barrier industrial markets older properties generally do very well. I would say, if Im looking at the KTR portfolio, we know that portfolio reasonably well because we compete with those guys and have known them for a long time. They have a pretty good older, I would say, properties in places like New Jersey, some in Southern California, some in a couple submarkets in Chicago that are older properties but they are very good properties.
They had really grown their portfolio over the last couple years with development projects, which they hadnt really done very much of before that. One of their bigger customers was Amazon. They have done a lot of development for Amazon over the last couple of years and, of course, we have done a lot of development with Amazon over the last few years too. So those were some of the newer, modern bulk facilities.
Guess what I would say is I think overall it was generally a good portfolio. It was quite a mixed portfolio. Ours really is today focused on the modern bulk, newer projects, and as you can see, they are doing extremely well when you look at our occupancy.
As far as the cap rate goes, even I would say everybody can see all the transactions that are out there. I would say that was a reasonably aggressive cap rate, but theres a lot of pretty aggressive people chasing industrial product today so cap rates, I think, continue to compress. I am not one to try to predict what the right cap rate is, but it certainly looked like it was a line generally with the transactions we have seen in the market here lately.
Ki Bin Kim - SunTrust Robinson Humphrey - Analyst
That was all really helpful color. Just one last thing, one last question for me.
You have really transformed the portfolio over the past three years in a pretty dramatic way. It looks like its largely done, the major pieces that had to move, but if a deal of something similar of KTRs size or quality came to the market, would you be highly interested in that? Or at the point where you are, do you think, you know what, you dont need to do megadeal like that and maybe just incremental one-off acquisitions and development is where you want to spend most of your time on?
So how do you balance maybe the two different possible options you have?
Denny Oklak - Duke Realty Corporation - Chairman & CEO
I would say, for us, the issue today I think on doing a major transaction a little bit is pricing. Pricing is pretty aggressive out there. So for a major transaction for us, if there was one out there, I think it would have to have a lot of significant strategic advantages for us.
And what I would define those as, generally speaking, is it would have to really expand our portfolio in some of the markets that we dont have a big presence in today. Then I think we would consider it, but we dont feel like we have to do anything. As I said, we are in great shape now that weve completed this repositioning.
We have terrific development capabilities within this company. We have a great reputation on the development side. We have a land bank that is in excellent position for us to do industrial development really in all the major markets. And, clearly, in todays market I would say development yields on the industrial side have gotten a bit compressed, too, but theres still a significant gap between the development yields and what you can buy anything at today.
We are very happy, at this point in the cycle, doing the development, funding it wisely, and keeping our balance sheet in great shape as we look forward to the next part of the cycle.
THOMSON REUTERS STREETEVENTS | www.streetevents.com | Contact Us |
![]() | |
©2015 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. |
9
APRIL 30, 2015 / 7:00PM, DRE - Q1 2015 Duke Realty Corp Earnings Call
Ki Bin Kim - SunTrust Robinson Humphrey - Analyst
All right, thank you.
Operator
Eric Frankel.
Eric Frankel - Green Street Advisors - Analyst
Thank you very much. I was hoping you can give a bit of a breakdown of some of the dispositions that youve executed during the quarter and then the bigger industrial portfolio outside the quarter. If you could provide little bit more cap rate color just to get an understanding of where those traded. Thanks.
Denny Oklak - Duke Realty Corporation - Chairman & CEO
Yes, let me get the list here, Eric. And, you know, just we try not to disclose specific transactions, we have been very cautious about that for competitive reasons and for buyers reasons, but I would say just some color on this.
As I mentioned in prepared remarks, the industrial portfolio got split out between two buyers, because we have one buyer that was very interested in the Minneapolis assets and the other buyer that we had didnt really wasnt they didnt need to have those assets I guess. They were fine with not closing of the rest of the portfolio without those. So we did close in the first quarter on the Minneapolis portion of that industrial, which is about 100,000 square feet. Cap rate on that was kind of in the mid-6%s, so I think we did obviously very well on that.
And then we also, as we said, sold the rest of the office buildings in Cleveland and we sold the shops at Montage. Those were in those were obviously higher cap rate assets and the occupancy was generally pretty low in those, so the in-place cap rate on those was in the high single digits. I would say between the 9% and 10% range.
And then overall, for the first quarter, we were at about 8.1%. We essentially disclose sort of the cap rate on a suburban office sale. You can see the NOI that we had taken out and we put it in the back of the supplemental this time.
The NOI that we took out in both the fourth quarter and the first quarter annualized there and thats very similar to how we showed the economics of the transaction with the Blackstone sale three or four years ago now. So I think that ones pretty self-explanatory.
And then I think we also did very well on the Midwest, the rest of the Midwest industrial sale that closed in early April. And that cap rate we will disclose. You will see that in the second quarter, but I think for the type of portfolio that it was, as we said, it was an average of 23 years old and basically just over 100,000 square foot buildings. We were I cant remember exactly what it was, because Im still looking at the first-quarter stuff, but it was I think a very competitive pricing.
Mark Denien - Duke Realty Corporation - EVP & CFO
Eric, the only other thing I would add on those especially on the projects in the first quarter, those were all, if you just think about it, Cleveland office and the Montage retail were all very capital-intensive projects. So on a cash basis, the cap rate on those is a lot lower than the leasing OI cap rate.
THOMSON REUTERS STREETEVENTS | www.streetevents.com | Contact Us |
![]() | |
©2015 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. |
10
APRIL 30, 2015 / 7:00PM, DRE - Q1 2015 Duke Realty Corp Earnings Call
Denny Oklak - Duke Realty Corporation - Chairman & CEO
Yes, their occupancy was low and it would cost you a lot of money to get the occupancy in those up.
Eric Frankel - Green Street Advisors - Analyst
Understood, great. Thanks for the color there. Just a final question on Jims departure from the MOB business. Maybe you could expand a little bit more on the platform you have there and the team you have in place and just the confidence of keeping the business going as you have for the past 10 years or I should say about eight years since you formally bought the business from him.
Denny Oklak - Duke Realty Corporation - Chairman & CEO
I will start, then Ill let Jim chime in. That has been a very stable business. Jim has been, as we both said, a terrific leader of that and really built a great business, but he really has built a great team. He had a great team that he brought with him when he came to Duke, as you said, about eight years ago now and a number of those folks are still with us and are planning on staying with us.
I would say even though the leader, Keith Konkoli, was with Duke pretty much right after the Bremner team came onboard, Keith moved over to work with them and has been an integral part of that. And then three of the other key leaders of that group going forward are all folks that came to Duke with Jim. So weve got great people there and I think weve got great customer relationships that we will continue to move forward. So we are not really worried about continuing the momentum in that business that we have built.
Jim Connor - Duke Realty Corporation - Senior EVP & COO
I think the only other thing, as we transition to Keith, that team is very deep, as Denny alluded to. Our senior leadership there is going to stay the same in terms of the asset management, finance, construction, and development leadership. All those guys have been in place, so we think from that perspective its very stable and we dont think we will lose any ground on the development pipeline that weve got out there.
Eric Frankel - Green Street Advisors - Analyst
Okay. Thanks, guys.
Operator
Brendan Maiorana.
Brendan Maiorana - Wells Fargo Securities - Analyst
Thanks, so probably for Mark. Your guidance outlook so your same-store is up 100 basis points. Your average occupancy is up 50, AFFO is up $0.01 at the midpoint, and FFO is unchanged at the midpoint. Is it sort of the better NOI growth offset by earlier-than-expected dispositions or something on the capital plan?
Mark Denien - Duke Realty Corporation - EVP & CFO
That is actually the main thing, Brendan. Our guidance on dispositions for the year was $1.5 billion to $1.8 billion and weve already closed $1.5 billion, so we are already at the low end of the guidance. So I think its pretty safe to assume were trending much closer to the top end of the guidance and maybe even a little bit above that from a disposition side. And not only at the top end or a little above, but then your next point was right on as well, the timing of it.
THOMSON REUTERS STREETEVENTS | www.streetevents.com | Contact Us |
![]() | |
©2015 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. |
11
APRIL 30, 2015 / 7:00PM, DRE - Q1 2015 Duke Realty Corp Earnings Call
As Denny mentioned, we are ready have several office assets on the market right now in Cincinnati and at the beginning of the year when we gave guidance we were probably looking more towards the end of the year to get some of those deals closed. Now I think we are thinking more like maybe even the end of the second quarter. So its more about extra dispositions and earlier timing of dispositions that offset some of the good operating results.
The other thing I would point out, I think I mentioned this briefly, we are still sitting on some cash through these office dispositions because we want to fund our development pipeline here for the rest of the year without having to go back to the capital markets. So theres little bit of drag sitting on some cash for the next six months or so as well.
Brendan Maiorana - Wells Fargo Securities - Analyst
Okay. And just point of clarification. Average occupancy 95% to 96% for the year. Does that compare to average commenced occupancy of 95.1% during Q1 or is that the ending lease-up occupancy of 96.0%?
Mark Denien - Duke Realty Corporation - EVP & CFO
No, it does not compare to the 96.0%. It compares to your first number.
Brendan Maiorana - Wells Fargo Securities - Analyst
Okay, so average kind of moves up a little bit during the year.
Mark Denien - Duke Realty Corporation - EVP & CFO
Its an average lease-up basis, Brendan, not an average commencement and not an ending lease-up. I know we throw a lot of those numbers around. So its average lease signed that 95% to 96%, which compares to I believe we were at 94.5% last year, as an example.
Brendan Maiorana - Wells Fargo Securities - Analyst
Okay. Then just last one. The development projects that came online were in line with your average yield last quarter, so it was 7.4 last quarter, 7.4 is what came online. The overall yield came down to 7.1 on the pipeline.
Is it more competitive out there in terms of projects, either build-to-suit or spec, which is having yield compression hit had current projects that are coming online?
Jim Connor - Duke Realty Corporation - Senior EVP & COO
Yes, the competition is out there, but I would tell you that is a very, very small component. I would make a couple of points. I would not read too much into the change in numbers from quarter to quarter, because theres a handful of things that change, one of which is the number of build-to-suits versus the number of spec that we have. Clearly, the yields on build-to-suit are going to be lower than those on spec. Its a mix of industrial versus MOB, how many weve got at any given time.
The other big contributing factor is how much of the active projects are in Tier 1 markets versus Tier 2 markets.
And then the last two points I would make, if you go back and you are looking at some of the historical numbers from years gone by or even a few quarters ago, we had some office development mixed in there that had generally some very high yields on it. Then the last point I would make is
THOMSON REUTERS STREETEVENTS | www.streetevents.com | Contact Us |
![]() | |
©2015 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. |
12
APRIL 30, 2015 / 7:00PM, DRE - Q1 2015 Duke Realty Corp Earnings Call
just you have to remember in some cases some of those yields are a little bit more compressed because we never impaired any of the land was held for development. So some of that land was land that we bought back in the peak in maybe 2007 or 2008 and have carried it for a little while, but we are putting it in at our original basis, without any impairment an developing it. And those are the true adjusted yields.
Brendan Maiorana - Wells Fargo Securities - Analyst
Okay, great. All right, thanks, guys.
Operator
Dave Rodgers.
Stephen Dye - Robert W. Baird & Company - Analyst
Yes, this is Stephen Dye here with Dave. Im going to switch gears back to kind of some more macro commentary, specifically with regards to the Midwest. You just disposed of maybe your non-core portfolio there.
But Indianapolis and Chicago are they seeing strength really from demand from online vendors? And in general, can you just comment on the demand dynamics across the various Midwest markets? Thanks.
Jim Connor - Duke Realty Corporation - Senior EVP & COO
Sure, Steve. E-commerce continues to be a big driver in our business, so you will see not only the big-name retailers continuing to demand space. And thats not only existing space, spec space, but also build-to-suits. But its beyond that.
I would tell you that retail in general is still very strong. Food, food and beverage, all the food-related services companies are up. The other contributing factor is just the 3PLs, which are doing more business with all of the different consumer products companies across the country.
Stephen Dye - Robert W. Baird & Company - Analyst
Great. And then with regards to the suburban office portfolio, moving into the single digits in terms of NOI by year-end; is there any opportunity there or does that go to zero at some point in the future? And do you have any guidance on that timing?
Denny Oklak - Duke Realty Corporation - Chairman & CEO
Well, I would say we dont know whether its going to zero yet. As I mentioned, we are basically I think you will see us exit the Cincinnati market here over time, probably over the next 12 to 18 months. The joint ventures will play out with our partners since theyre controlling.
So the only assets we will have are in Indianapolis, which is obviously our hometown. Were actually sitting in one of our office buildings right now, which I enjoy being my own landlord. But there are a few Indianapolis, a couple Indianapolis office projects that we will sell here.
Part of the issue is, as Mark was saying, we dont need the money right now because of the two major transactions we just closed this month. Were trying to time the sales with our needs of funds.
Again, I think and the only other thing I would point out there is we have just a bit of office land left around the system. As Jim said, we sold a lot of it. We continue to sell a lot of it. We sold some that will come through in the second quarter as part of what we are calling the Starwood transaction.
THOMSON REUTERS STREETEVENTS | www.streetevents.com | Contact Us |
![]() | |
©2015 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. |
13
APRIL 30, 2015 / 7:00PM, DRE - Q1 2015 Duke Realty Corp Earnings Call
But we do have a speculative project going up in South Florida and I think we can do two more buildings on that. And that market is still very, very hot, so we will likely develop those out and then decide what to do with them when thats complete. As far as opportunity, yes, there is a little bit there, but we are really now just focused on building the industrial and MOBs.
Stephen Dye - Robert W. Baird & Company - Analyst
Great. Good color, thank you.
Operator
Mike Salinsky.
Mike Salinsky - RBC Capital Markets - Analyst
So you got the balance sheet where you want right now. You are sitting on cash. Development pipeline is churning out good value creation and acquisitions you are pretty aggressive just in light of the KTR transaction. Any thoughts of potentially ramping up development a bit? You are still delivering over 7% spread. I mean if you look where the KTR transaction is in place, I think youre talking almost 200 basis points of spread right there, yet youve got leverage now so youve taken risk youve reduced the risk profile, so just curious as to any thoughts internally about that.
Jim Connor - Duke Realty Corporation - Senior EVP & COO
It all depends on who you ask. I would tell you, yes, we could ramp up. We could do five or six spec projects and take that development pipeline up, but we would just be taking on that much more risk. Youd see that prelease percentage of that development pipeline fall dramatically from where it is now at 55%.
Most of us, in this room anyway, remember what happened in the market in 2008 when we all had plenty of spec development out there.
We have been trying to be a little bit restrained and just manage that pipeline. We like it in that $500 million to $700 million range. We can continue to get some more build-to-suits. I think youll see us tee up some more spec project.
Because we have been covering our bets; as we reported this quarter and I think we talked a little bit about last quarter, the success we had in Houston and New Jersey with those four projects essentially being about 80% leased in total. The next round are weve got a few under construction right now, but we will evaluate the market this summer and see where else we want to make some bets.
Mike Salinsky - RBC Capital Markets - Analyst
Then just as my follow-up. In light of the KTR transaction and the pricing on that, is your expectation you will see more hit the market in the back half of the year? Just talking with local guys right now is that kind of an eye-popping price? Do you think thats going to motivate more product on the market than we are seeing currently?
Denny Oklak - Duke Realty Corporation - Chairman & CEO
Well, I think theres always a fair amount of industrial product out in the market, but more in smaller one-off or smaller portfolios. You just dont see the big portfolios that often. There arent that many of them out there.
THOMSON REUTERS STREETEVENTS | www.streetevents.com | Contact Us |
![]() | |
©2015 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. |
14
APRIL 30, 2015 / 7:00PM, DRE - Q1 2015 Duke Realty Corp Earnings Call
So I dont know that I dont think that transaction, Mike, is really going to trigger a big flurry of some other kind of activity here. Because everybody now kind of knows who the major industrial players are out there. There has been a fair amount of consolidation when you look at it over the last few years in the US industrial market.
A lot of it is still in institutional ownership hands; it wont trade much. So I dont think just that transaction itself would trigger a big flurry of other people saying. I think you will see continued assets out in the market, maybe a larger portfolio or two here, but I dont think a whole lot is going to change.
Mike Salinsky - RBC Capital Markets - Analyst
Fair enough, thank you much.
Operator
Michael Bilerman.
Michael Bilerman - Citigroup - Analyst
Its me and Im here with Manny as well. Denny, Im just curious as you think about the KTR deal and one of the big things that drove their pricing obviously was the ability to bring in Norges for 45% and have the asset management platform and create the fee off of that.
Im curious, as you look at the transaction, the ability to effectively get 60 million more square feet, well over a 40% increase to your platform, which is already the second-largest industrial platform in the US, was there any appetite for you to find a capital partner and be able to bring that in-house?
Denny Oklak - Duke Realty Corporation - Chairman & CEO
Mike, the answer to that is, no, not really. I would just say this. I think our business model as to where we are in our lifecycle here, whatever you want to call it, is probably fairly significantly different than where Prologis is and their business. Obviously a big part of their business is aggregating assets and generating fees, doing development to sell into the funds, as well as operating the portfolio.
We are not looking to be a fee-generating company. We want to have the best real estate and give people give our investors return on the real estate assets and create value for our own for our shareholders by owning great assets long term that we develop. And, for us, I guess what I would say is one thing I would say that we probably dont really agree with is that we need to be significantly bigger to chase deals with the big major customers out there.
We have relationships with all the major customers. Weve done deals with them all. They know us. I dont feel like I need 60 million more square feet to do that.
Now if I can find 60 million square feet that I really like and would like to own for the next 10, 15 years that I think is going to perform very well in the right markets, then that is a transaction I would be interested in. But to use somebody elses money to generate fees, thats just not the business model we are running right now.
Michael Bilerman - Citigroup - Analyst
Thats helpful color. You talked a little bit about how the Amazon exposure that you have; obviously your largest tenant was KTRs largest tenant.
THOMSON REUTERS STREETEVENTS | www.streetevents.com | Contact Us |
![]() | |
©2015 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. |
15
APRIL 30, 2015 / 7:00PM, DRE - Q1 2015 Duke Realty Corp Earnings Call
If you think about the developments, the build-to-suits that you pursued with Amazon versus what they did, was there any difference in the lease structure or differences in assets? Because I assume you had probably a look at those build-to-suits as well. Im just curious as you think about your Amazon efforts versus those or others that are in the marketplace.
Denny Oklak - Duke Realty Corporation - Chairman & CEO
Well, we dont specifically know probably the terms of their deals. We probably have some pretty good ideas on most of them, but I guess what I would tell you is a couple things on that kind of business, and then Jim can chime in too.
Its driven by a couple things. One is land positions. If you have the land position where these customers want to be, then you are going to get the business. All these major customers and Im not just referring to Amazon here, but I think all these big players in the e-commerce business now want to have major have good relationships with several major developers.
They are not putting all their eggs in one basket, so they are spreading these deals around and you have seen other REITs do them. We did them. KTR does them. Other folks do them, and I think that is from their point of view its a good business philosophy.
And then from our point of view, too, we have been very select on where we build those and only really doing them in the major distribution markets, because a number of those big e-commerce build-to-suits have been done in what I would call tertiary markets. And we are not really interested in that.
Then I guess the last thing I would add is I think the terms the industry has evolved is the terms on these big e-commerce distribution centers from a lease structure standpoint have evolved to be relatively standard. They differ from market to market based on pricing and cost of development, but the structures are all fairly similar.
Michael Bilerman - Citigroup - Analyst
Right. Can I sneak one other quick one in? Just on the operating expenses, and I apologize if I missed this on the call, was there anything that drove that down 2.2 in the quarter? I know last year was had some obviously weather issues on the East Coast. I just didnt know if there was anything particular this quarter versus last year that would have caused a 2% decline in OpEx.
Mark Denien - Duke Realty Corporation - EVP & CFO
Yes, Michael. Its all weather-related. While I know places like Boston had a very bad 2015, we really didnt have it in our markets compared to 2014. We had a ton of snow and actually colder weather driving up heating and things like that in 2014, so its all weather related.
I would tell you that if you back about that out, that negative 2% change in operating expenses wouldve probably been more like a 2% increase in operating expenses. But what I did say in my opening remarks, all of those operating expenses are really offset by a decrease in reimbursement revenue as well.
It doesnt look like it in our supplemental because the revenue number is so much bigger. So if you have a dollar of operating expenses and you recover that same dollar, it has much less of a percentage impact on the revenues than it does the expense side. So the expenses look a little bit out of whack, but from a net operating income basis, that whole story is really negligible.
Michael Bilerman - Citigroup - Analyst
Great, thank you.
THOMSON REUTERS STREETEVENTS | www.streetevents.com | Contact Us |
![]() | |
©2015 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. |
16
APRIL 30, 2015 / 7:00PM, DRE - Q1 2015 Duke Realty Corp Earnings Call
Operator
John Guinee.
John Guinee - Stifel Nicolaus - Analyst
Quick question, Denny. On the dividend and special dividends, etc., back of the envelope it looks like you guys are going to make a lot of money in 2015 and REIT rules usually require that to be taxed. Can you kind of walk through what thats looking like?
Denny Oklak - Duke Realty Corporation - Chairman & CEO
Well, I will start and then Mark can chime in and correct me here, John. One of the things we did when we structured the Starwood transaction that you all saw was we structured it as an installment sale basically for tax purposes. Thats really what that $200 million of seller financing did for us.
And that wont be paid until sometime in 2016. They can pay it off anytime during 2016. And so that will defer some of the gain on that transaction, fairly significant portion, into 2016.
Then we have some possible 1031 transactions. We put some money in escrow from that sale, as Mark said, to fund. I think acquisitions probably wont be very significant this year, but even a few acquisitions can move that taxable number pretty far. We can do some 1031s with that.
Then, third, there are some ways to use 1031 when youre doing some development, if you are buying land or something like that. So we think we can use some.
Truth is, John, were not really going to know exactly where we are on that until later in the year, when all these other transactions occur. The sale occurred and we know what the gain is. We just dont know how much were going to be able to push back into that to the deferral piece between now and year-end.
Mark Denien - Duke Realty Corporation - EVP & CFO
John, the only other thing I would add to that is we have traditionally had a very conservative methodology on how we treat certain things from a tax perspective, mainly depreciation expense. And, quite frankly, its because we didnt need any we didnt need to accelerate depreciation expense or anything like that because we have never really bumped up against a special dividend issue before.
So were in the process of just getting started to take a look to see if there are some alternative methodologies we can implement from a tax perspective that may accelerate some depreciation and lower our taxable income and also reduce any special dividend requirement that way. So with all that moving around and going on and what I will call the 1031 clock having just started a week ago, Dennys right; we are not going to have a lot more clarity around with that number may be for probably at least another three to five months.
John Guinee - Stifel Nicolaus - Analyst
Call us when you know the answer.
Mark Denien - Duke Realty Corporation - EVP & CFO
Will do.
THOMSON REUTERS STREETEVENTS | www.streetevents.com | Contact Us |
![]() | |
©2015 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. |
17
APRIL 30, 2015 / 7:00PM, DRE - Q1 2015 Duke Realty Corp Earnings Call
Operator
(Operator Instructions) Speakers, there are no further questions in queue at this time.
Ron Hubbard - Duke Realty Corporation - VP-IR
I would like to thank everyone for joining the call today. We look forward to seeing many of you at the NAREIT conference in June in a little over a month. Or if not, we will reconvene during our second-quarter call and it will be scheduled for July 30. Thank you very much.
Operator
Thank you. Ladies and gentlemen, that does conclude your conference for today. 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 may indicate 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 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.
©2015, Thomson Reuters. All Rights Reserved.
THOMSON REUTERS STREETEVENTS | www.streetevents.com | Contact Us |
![]() | |
©2015 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. |
18
,C/&,B7'*&9[@=]NWG;)8V%2S#99>LS M$M&$EXH#4B]2,7)L#%'S'$;/PM[]L7.<$W&1["T2$H$4 7N@/+B-M]5;$JI0T"J3B0 $SFI='I;#D')VUJ]WHJX,8V-4FTZ M_ IMZW1Q=I4`M)FJ1,_%B)RGR., M4[O':5'O:X*N5D<"E.$J7(F +/.(.G#9K8'-.B8P9>21<42\1,?',`63 M027DII]7PBV0NU3&(@0ZOFK'(8"%-TFZ9'8MW6^^+E2SEV@<,.!,2.P;QMU^ M<+=)J/L'=P48:HKWX^TPQ>R$=([RJ5&/XI\\B9-I(TG+3-=E)Q[E=F\9*IKT M%,QU6[IJH01*`D-TZE,(>,K6?%IX1+7$E)[(>)M6WS[7][<;)M [DV[82$(B>:W`9YGS'3*9,5`E<\94$ M!,/+J/JT'WO:)N&"I4SC#@`E&_\`8WVFX.WL=PK'V"=QE4<7C%LI1LH6*5KR M$W8X!9W(5BH/I&&.66JSZ.F6Y6\@4AS`FL0#D`2CX\*023CRC"@`(/&:_3P= MG<&I$@V<-C"8@&%1?-^XPK@FNINDY2Y?+Y9BZZ"4"AIX>SAV$1%OO4^D^V\7 MZ(=6'8]D67V_6]J1PH7'^3W,]D;%LTH(&!JDWL2CU>\U`IU0**RZAYP")ZAY M"0B!@(("GM]5W5]OC,5R2>94VY9[QC,2#%"4@9>Q4J?:(-'R[,9*K6>*"' M-/U";-'F41=M%7#-V@(I*',8BJ1&ED@X0M(!$%W=E?ZCJWY#MM"VA;]Y;YCM MUWLJ58QKN6$("N,TW4@B!HJO9;25/#1R:ZLJFFT82[5)==P=^W(Y24\AZ\!/ MJ*3C`H"6.4$^[VMH]2W=8;?U&1(TC+O%HN)?'5K=(.GBE F>M0,/414H@`J)HB$3WCM*AW%1:'&DJ6!A]GM^F(/O7:-#N&AT+:2I MP3E]GM^F4!D99Q9=<(Y#M>,LAPRL+;*G+.(I\(E7!H^3(8X)R40Z,1).0A)- M$Y#-W(%`%DS>`"(@''=_VS5V.Y.*+:OV3JDIRP2DD"7L&$<5;BVR]M2M>9JV M=;"GEZ0<0!J,I2.0$I0Y[MMO;NWWHX)2I#F334 M($'R0;%C"'4`Q@T!5,GM$!XF73:OJ:G=E.TT@H;TJUR'F.&F<_T?%+O,3OI: MY7C 4I2X?-#2L<8VNN7KA#8_Q[79.SVJ?<%;QT?% M-_/4*4P"11XY4-JW:L6)3^H655_+311.8WN``E]<0V MP;=N&X:T!A"DM'@)`?/C!HFQO9O4-H6(X^IMV49+9`L"I9C(UR;LB(N)J7%5 M0[2/(J83K?`:TW7%LQ( '-2N<)@OSA^,1YJ'/F'+QY^'[_L\.""%J M'VA[1\?LY#_(/!!"ZBCX&`=.8\P]OA_+P01[P00N""%P015'=]YF1EW)L\=/ M('MSR8Y]@ZK*YZS&LJ(\N7N(!QKJ\Q[X=&4.+^F#_P`VO&'_``GSA_N(]X4W MYO9"5919RAX?>/\`2/#T(CPQ>K301`0'4-#"7Q`2CKH`ZZ`;4/VZ<$$"F?57 M;,JGD_9Y"[PHZ)7)D_;?9:G7Y67:+]'Q3%.1["%77BY9F"8IO#0V09>'>-W` MF*HT;'?%)U"L``RYG[(6F*[T#'(('2.JFJ4P&240.=-=-4H@*2B*B9BJ)K$4 M`!*8H@)3``AP@:9^+*%8< N6DE'QUJQK=)!](Q9WA53E35 M.1LJ8P*&;IGYDCMWVQ:+LH_%H3KGCX0<>.?;.(_==HV3<"=5V;2IP9>$'#$\ M>$XEU[5K/8KE/#3W<9LCIUF;5"W3TY2GMMOR,RA9)Q:IOT1D4465@FIE5K$F M>+E`/+!L"QT@\P#=`<:]JV;8;.I51;VTIJC*2M('/W?(0S:=GV6RJ4[1MI2\ M):3I&7'++A']WN@5K932\(26Y?>C3IYY2<4FB8MY::$$VM=8MG<[#'UUH@BE M`RD*YE8L9.134<-U2N0*`F$@#H(&7>=GV2_A#MS;2:A''2#[)F%WK:%BW#I= MN+:55"1GI!/=,Q#/B'OK=BO:/&2KO!E>SG)R\J*:\P]BL6RDM:Y0&Y53H-OC M>1;;!)L05((E.BV72;"`!U@(@3AVT;:LUD_<6P#ST@'WCA],9M&TK39!_P!" MVD'G(`^_Z8*XHUH:WFDU"[1[=\UC[A6(&U,&LDD@WDFK"P1;679M7Z#5R\;) M/6[9V4BI4U52`H40*8P:",CP5XI9Q(TD:IGS13?;NVPL=U^Z!@)1+Z+<5FEF M/V`9KD2P(V_F$-H/M`.$+``C:<*2V-//[8.>^D+:F+L?W'/1)R7W6/VY# M#]C/$N+S\OW?$3\-QK05?:K/7ZC7)NUVB8C:Y6JQ&OYZPV*<>MXN%@8:(;J/ M)27EY-THDWCXR/9)&577.=+%%N$@S9J>6!E%"$`I^ MD@@A*-L/76VL_9XXM*62ATIF 5^J6W08]@JCDW M,':FN]!P;?3-1IEWE;S?H*-L+9