8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 8-K

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported): July 30, 2014

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	(Commission	(IRS Employer
Formation)	File Number)	Identification No.)

Duke Realty Limited Partnership:

Indiana	0-20625	35-1898425
(State of	(Commission	(IRS Employer
Formation)	File Number)	Identification No.)

600 East 96th Street

Suite 100

Indianapolis, IN 46240

(Address of principal executive offices, zip code)

Registrant’s telephone number, including area code: (317) 808-6000

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02. Results of Operations and Financial Condition.

On July 30, 2014, 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 June 30, 2014. A copy of the Press Release is attached hereto as Exhibit 99.1 and is incorporated into this Item 2.02 by this reference.

On July 31, 2014, the Company also held a conference call to discuss the Company’s financial results for the quarter ended June 30, 2014. 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 9.01. Financial Statements and Exhibits.

(d) Exhibits

Exhibit Number	Description
99.1	Duke Realty Corporation press release dated July 30, 2014, with respect to its financial results for the quarter ended June 30, 2014.*
99.2	Duke Realty Corporation transcript from the conference call held on July 31, 2014, with respect to its financial results for the quarter ended June 30, 2014.*

* 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
	/s/ Ann C. Dee
	Ann C. Dee
	Executive Vice President, General Counsel and Corporate Secretary

Dated: August 5, 2014

EXHIBIT INDEX

Exhibit Number	Description
99.1	Duke Realty Corporation press release dated July 30, 2014, with respect to its financial results for the quarter ended June 30, 2014.*
99.2	Duke Realty Corporation transcript from the conference call held on July 31, 2014, with respect to its financial results for the quarter ended June 30, 2014.*

* 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.

EX-99.1

Exhibit 99.1

News Release

FOR IMMEDIATE RELEASE

DUKE REALTY REPORTS

SECOND QUARTER 2014 RESULTS

Core FFO per Share of $0.30

$213 million of New Development Starts

$297 million in Asset Dispositions

2014 Guidance Updated

(INDIANAPOLIS, July 30, 2014) – Duke Realty Corporation (NYSE: DRE), a leading industrial, suburban and medical office property REIT, today reported results for the second quarter of 2014.

Quarterly Highlights

• Core Funds from Operations (“Core FFO”) was $103 million, or $0.30 per diluted share, for the quarter. Funds from Operations (“FFO”), as defined by the National Association of Real Estate Investment Trusts (“NAREIT”), was also $103 million, or $0.30 per diluted share, for the quarter.

• Operating results:

• In-service portfolio occupancy of 94.5 percent and total portfolio occupancy of 93.2 percent;

• Total leasing activity of 9.0 million square feet;

• Same-property net operating income growth of 4.6 percent as compared to the quarter ended June 30, 2013 and 3.5 percent as compared to the twelve months ended June 30, 2013;

• Adjusted Funds from Operations (“AFFO”) of $0.25 per diluted share, which represents a dividend payout ratio of 68 percent.

Duke Realty Reports Second Quarter 2014 Results

July 30, 2014

Page 2 of 9

• Asset and capital activities:

• Started $213 million of new, primarily industrial, developments;

• Completed more than $278 million of non-strategic primarily suburban office building dispositions and more than $18 million of land dispositions;

• Completed one $73 million modern bulk industrial acquisition;

• Issued 9.6 million shares under the company’s ATM program for net proceeds of $167 million. Issued an additional 3.1 million shares for net proceeds of $55 million in early July;

• Reduced line of credit borrowings by $120 million and repaid four secured loans totaling $64 million.

Denny Oklak, Chairman and CEO, said, “We had another outstanding quarter. Overall in-service occupancy on our 146 million square feet is now at 94.5 percent. Our state of the art bulk industrial portfolio is 95.6 percent leased. These levels are the result of 9.0 million square feet of leasing activity for the quarter. We are particularly pleased with our growth in net effective rent of 7.6 percent overall on our renewals executed during the quarter and 9.0 percent for our industrial portfolio. This strong rental rate growth, along with our increase in occupancy, resulted in same property net operating income growth of 3.5 percent for the twelve months ended June 30, 2014. New development continues to be a strong growth driver as we started another $213 million of new projects during the quarter.”

Mark Denien, Chief Financial Officer, commented, “On the capital allocation front, we intend to use the proceeds from our property sales and ATM stock issuances to fund our growing development pipeline and to de-lever our balance sheet, including the recently announced redemption of our remaining $96 million of 6.625 percent Series J Preferred Shares in early August. We made significant progress in improving our key leverage metrics during the quarter and expect this improvement to continue.”

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 June 30, 2014 and 2013:

Duke Realty Reports Second Quarter 2014 Results

July 30, 2014

Page 3 of 9

	Three Months Ended June 30
	2014			2013
FFO per share - diluted, as defined by NAREIT	$	0.30		$	0.25
Adjustments:
Gain on land sales		(0.01	)		—
Charges for prepayment of debt		—			—
Impairment charges on non-depreciable properties		0.01			0.01
Acquisition-related activity		—			0.01
Core FFO per share – diluted	$	0.30		$	0.27

• Core FFO for the second quarter of 2014 increased by more than $13 million, or $0.03 per share, from the second quarter of 2013 due to improved rental operations as well as lower interest expense that resulted from refinancing $675 million of unsecured debt at lower rates during 2013. A reconciliation of net income to FFO as defined by NAREIT, as well as to Core FFO, is in the financial tables included with this release.

• Net income was $0.38 per diluted share for the second quarter of 2014 compared to $0.19 per diluted share for the same quarter in 2013. In addition to the above-mentioned factors that drove the increase in Core FFO, net income per share improved as the result of increased gains on sales of depreciable properties in 2014, when considering both wholly-owned properties and our share of one joint venture property sale.

Portfolio Operating Performance

Strong overall operating performance across all product types:

• In-service occupancy in the bulk distribution portfolio at June 30, 2014 of 95.6 percent compared to 95.0 percent at March 31, 2014;

• In-service occupancy in the suburban office portfolio of 87.7 percent at June 30, 2014 compared to 88.1 percent at March 31, 2014. This decrease in office occupancy was due to the sale of highly leased properties during the second quarter of 2014;

• In-service occupancy in the medical office portfolio of 93.9 percent at June 30, 2014 compared to 93.7 percent at March 31, 2014;

• Tenant retention rate of 68 percent for the quarter, with overall renewal rental rate growth of 7.6 percent;

Duke Realty Reports Second Quarter 2014 Results

July 30, 2014

Page 4 of 9

• Same-property net operating income growth of 3.5 percent for the twelve months ended June 30, 2014 and 4.6 percent for the three months ended June 30, 2014 as compared to the periods ended June 30, 2013.

Real Estate Investment Activity

Acquisitions

The company acquired for $73 million, a 100 percent leased 980,000 square-foot modern bulk industrial facility located in the Lehigh Valley region of Pennsylvania. The acquisition was a build-to-suit development committed to in the third quarter of 2013, which closed upon construction completion.

Development

Jim Connor, Chief Operating Officer, stated, “New development activity continues to be strong as we began 10 projects totaling 3.6 million square feet with total anticipated costs of $213 million during the second quarter. We are particularly pleased that during the quarter we fully leased our speculative industrial projects in Indianapolis, Indiana and Chino, California that we placed in service last year. We further utilized our land bank to start six build-to-suit projects, three speculative industrial developments, and one partially pre-leased industrial development. Including our second quarter development starts, our $722 million development pipeline is strongly pre-leased at 76 percent, with an average expected initial stabilized cash yield of 7.4 percent.”

The second quarter included the following development activity:

Wholly-Owned Properties

• During the quarter the company started $166 million of new wholly-owned development projects totaling 2.4 million square feet, which are 74 percent leased in total and have an average initial expected stabilized cash yield of 7.1 percent. These wholly-owned development starts consisted of six industrial projects, two of which were speculative and one which was partially pre-leased, one 100 percent pre-leased medical office project and one 100 percent pre-leased suburban office project;

• Wholly-owned development projects under construction at June 30, 2014 consisted of 18 industrial projects totaling 7.1 million square feet, seven medical office projects totaling 353,000 square feet and two suburban office projects totaling 358,000 square feet, which were 78 percent pre-leased in the aggregate;

Duke Realty Reports Second Quarter 2014 Results

July 30, 2014

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• One 97 percent leased suburban office development totaling 206,000 square feet was placed in service; along with one industrial building expansion and two medical office projects, all of which were 100 percent leased.

Joint Venture Properties

• Two new industrial development projects totaling 1.2 million square feet, with the company’s share of costs totaling $47 million, were started within two unconsolidated joint ventures. One project is speculative while the other is 100 percent leased;

• Joint venture development projects under construction at June 30, 2014 consisted of four industrial projects totaling nearly 3.0 million square feet, which are 69 percent pre-leased.

Land Monetization

Deployment of a portion of the company’s land holdings, through either sales or development, took place as follows during the second quarter:

• Dispositions of 79 acres of non-strategic land across several markets, with a sales price of $18 million and a net gain on sale of $4 million;

• Utilization of 183 acres of owned or jointly controlled land, with an improved basis of $23 million, for development projects.

Building Dispositions

Building dispositions totaled $278 million in the second quarter and were comprised of the following:

Wholly-Owned Properties

• Six suburban office properties in Cincinnati, Ohio, which were 96 percent leased and totaled 1,040,000 square feet, for $150 million;

• Four industrial properties in Minneapolis, Cincinnati and Savannah totaling 704,000 square feet, for $28 million.

Joint Venture Property

• An 86 percent-leased, 436,000 square-foot office tower in Atlanta, Georgia, from an unconsolidated joint venture for a total sales price of $170 million, the company’s share of which was $100 million.

Duke Realty Reports Second Quarter 2014 Results

July 30, 2014

Page 6 of 9

2014 Earnings Guidance

The company revised its previous Core FFO guidance for 2014 to a range of $1.15 to $1.19 per share, compared to previous guidance of $1.12 to $1.18 per share. Additionally, the following assumptions within the detailed guidance, which is available through the Investor Relations-Financials section of the company’s website, were revised in connection with the revision to 2014 Core FFO guidance:

• The guidance for AFFO per share was revised from a range of $0.91 to $0.97 per share to a range of $0.93 to $0.97 per share;

• The low-end estimate for average in-service occupancy was increased from 93.25 percent to 93.75 percent;

• The estimate for building acquisitions was decreased from a range of $150 million to $300 million to a range of $100 million to $200 million;

• The estimate for development starts was increased from a range of $350 million to $450 million to a range of $500 million to $600 million;

• The estimate for building disposition proceeds was increased from a range of $500 million to $700 million to a range of $600 million to $800 million.

Mr. Oklak stated, “The strong start for the first six months of 2014 caused us to increase our annual guidance in almost every area. With our current backlog of leasing and development activity, we also expect strong performance in the second half of the year.”

Dividends Declared

Our board of directors declared a quarterly cash dividend on our common stock of $0.17 per share, or $0.68 per share on an annualized basis. The second quarter dividend will be payable August 29, 2014 to shareholders of record on August 14, 2014. On July 2nd, the company issued a call for redemption of our 6.625 percent Series J Cumulative Redeemable Preferred Shares, which have a redemption value of $96 million. The board also declared the following dividends on our outstanding preferred stock:

Class	NYSE Symbol		Quarterly Amount/Share		Record Date		Payment Date
Series K		DREPRK	$	0.40625		August 14, 2014		August 29, 2014
Series L		DREPRL	$	0.4125		August 14, 2014		August 29, 2014

Duke Realty Reports Second Quarter 2014 Results

July 30, 2014

Page 7 of 9

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 company’s cash needs, including the company’s 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 activities. Although the company’s calculation of Core FFO differs from NAREIT’s 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.

Duke Realty Reports Second Quarter 2014 Results

July 30, 2014

Page 8 of 9

A description of the properties that are excluded from the company’s same-property measure is included on page 20 of our June 30, 2014 supplemental information.

About Duke Realty Corporation

Duke Realty Corporation owns and operates over 156.5 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.

Second Quarter Earnings Call and Supplemental Information

Duke Realty Corporation is hosting a conference call tomorrow, July 31, 2014, at 3:00 p.m. EDT to discuss its second quarter operating results. All investors and other interested parties are invited to listen to the call. Access is available through the Investor Relations section of the company’s website.

A copy of the company’s supplemental information will be available by 6:00 p.m. EDT today through the Investor Relations section of the company’s website.

Cautionary Notice Regarding Forward-Looking Statements

This news release may contain forward-looking statements within the meaning of the federal securities laws. All statements, other than statements of historical facts, including, among others, statements regarding the company’s 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 company’s 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 company’s 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 company’s common stock; (xii) the reduction in the company’s 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

Duke Realty Reports Second Quarter 2014 Results

July 30, 2014

Page 9 of 9

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 company’s filings with the Securities and Exchange Commission. The company refers you to the section entitled “Risk Factors” contained in the company’s Annual Report on Form 10-K for the year ended December 31, 2013. 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 Statement of Operations

(Unaudited and in thousands, except per share amounts)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2014			2013			2014			2013
Revenues:
Rental and related revenue	$	233,518		$	215,308		$	470,868		$	425,187
General contractor and service fee revenue		69,512			50,793			125,332			98,197
		303,030			266,101			596,200			523,384
Expenses:
Rental expenses		39,938			37,431			90,205			76,291
Real estate taxes		31,964			29,569			64,431			58,609
General contractor and other services expenses		63,857			45,192			111,128			83,533
Depreciation and amortization		97,641			95,322			195,700			188,316
		233,400			207,514			461,464			406,749
Other operating activities:
Equity in earnings of unconsolidated companies		60,826			1,091			63,147			50,469
Gain on sale of properties		70,318			940			86,171			1,108
Gain on land sales		3,889			—			4,041			—
Undeveloped land carrying costs		(1,858	)		(2,531	)		(3,982	)		(4,729	)
Impairment charges		(2,523	)		(3,777	)		(2,523	)		(3,777	)
Other operating expenses		(129	)		(35	)		(221	)		(103	)
General and administrative expenses		(10,365	)		(9,707	)		(25,059	)		(22,852	)
		120,158			(14,019	)		121,574			20,116
Operating income		189,788			44,568			256,310			136,751
Other income (expenses):
Interest and other income, net		229			921			580			1,074
Interest expense		(54,872	)		(57,019	)		(110,129	)		(114,343	)
Loss on debt extinguishment		(139	)		—			(139	)		—
Acquisition-related activity		(747	)		(2,423	)		(761	)		(1,780	)
Income (loss) from continuing operations, before income taxes		134,259			(13,953	)		145,861			21,702
Income tax expense		(364	)		—			(3,038	)		—
Income (loss) from continuing operations		133,895			(13,953	)		142,823			21,702
Discontinued operations:
Income (loss) before gain on sales		327			128			195			(358	)
Gain on sale of depreciable properties, net of tax		2,305			83,657			19,080			92,611
Income from discontinued operations		2,632			83,785			19,275			92,253
Net income		136,527			69,832			162,098			113,955
Dividends on preferred shares		(7,046	)		(7,355	)		(14,083	)		(16,905	)
Adjustments for redemption/repurchase of preferred shares		—			—			483			(5,932	)
Net income attributable to noncontrolling interests		(1,793	)		(983	)		(2,127	)		(1,581	)
Net income attributable to common shareholders	$	127,688		$	61,494		$	146,371		$	89,537
Basic net income (loss) per common share:
Continuing operations attributable to common shareholders	$	0.37		($	0.07	)	$	0.38		($	0.01	)
Discontinued operations attributable to common shareholders		0.01			0.26			0.06			0.29
Total	$	0.38		$	0.19		$	0.44		$	0.28
Diluted net income (loss) per common share:
Continuing operations attributable to common shareholders	$	0.37		($	0.07	)	$	0.38		($	0.01	)
Discontinued operations attributable to common shareholders		0.01			0.26			0.06			0.29
Total	$	0.38		$	0.19		$	0.44		$	0.28

Duke Realty Corporation and Subsidiaries

Summary of EPS, FFO and AFFO

Three Months Ended June 30

(Unaudited and in thousands, except per share amounts)

	2014							2013
				Wtd.							Wtd.
				Avg.		Per					Avg.		Per
	Amount			Shares		Share		Amount			Shares		Share
Net income attributable to common shareholders	$	127,688						$	61,494
Less: dividends on participating securities		(646	)						(688	)
Net income per common share- basic		127,042			331,753	$	0.38		60,806			322,489	$	0.19
Add back:
Noncontrolling interest in earnings of unitholders		1,693			4,386				842			4,388
Other potentially dilutive securities					275							221
Net income attributable to common shareholders- diluted	$	128,735			336,414	$	0.38	$	61,648			327,098	$	0.19
Reconciliation to funds from operations (“FFO”)
Net income attributable to common shareholders	$	127,688			331,753			$	61,494			322,489
Adjustments:
Depreciation and amortization		97,641							99,259
Company share of joint venture depreciation, amortization and other		6,781							5,974
Gains on depreciable property sales—wholly owned, discontinued operations		(2,851	)						(83,657	)
Gains on depreciable property sales—wholly owned, continuing operations		(70,318	)						(940	)
Income tax expense triggered by depreciable property sales		910							—
Gains on depreciable property sales-JV		(58,447	)						9
Noncontrolling interest share of adjustments		352							(273	)
Funds from operations- basic		101,756			331,753	$	0.31		81,866			322,489	$	0.25
Noncontrolling interest in income of unitholders		1,693			4,386				842			4,388
Noncontrolling interest share of adjustments		(352	)						273
Other potentially dilutive securities					3,183							3,194
Funds from operations- diluted	$	103,097			339,322	$	0.30	$	82,981			330,071	$	0.25
Gain on land sales		(3,889	)						—
Loss on debt extinguishment		139							—
Impairment charges—non-depreciable properties		2,523							3,777
Acquisition-related activity		747							2,423
Core funds from operations- diluted	$	102,617			339,322	$	0.30	$	89,181			330,071	$	0.27
Adjusted funds from operations
Core funds from operations- diluted	$	102,617			339,322	$	0.30	$	89,181			330,071	$	0.27
Adjustments:
Straight-line rental income and expense		(5,372	)						(4,594	)
Amortization of above/below market rents and concessions		1,690							2,321
Stock based compensation expense		3,189							3,964
Noncash interest expense		1,449							2,226
Second generation concessions		—							(236	)
Second generation tenant improvements		(10,423	)						(6,779	)
Second generation leasing commissions		(8,715	)						(6,044	)
Building improvements		(1,124	)						(1,537	)
Adjusted funds from operations—diluted	$	83,311			339,322	$	0.25	$	78,502			330,071	$	0.24

Duke Realty Corporation and Subsidiaries

Summary of EPS, FFO and AFFO

Six Months Ended June 30

(Unaudited and in thousands, except per share amounts)

	2014							2013
				Wtd.							Wtd.
				Avg.		Per					Avg.		Per
	Amount			Shares		Share		Amount			Shares		Share
Net income attributable to common shareholders	$	146,371						$	89,537
Less: dividends on participating securities		(1,289	)						(1,375	)
Net income per common share- basic		145,082			329,442	$	0.44		88,162			318,733	$	0.28
Add back:
Noncontrolling interest in earnings of unitholders		1,943			4,386				1,234			4,397
Other potentially dilutive securities					274							220
Net income attributable to common shareholders- diluted	$	147,025			334,102	$	0.44	$	89,396			323,350	$	0.28
Reconciliation to funds from operations (“FFO”)
Net income attributable to common shareholders	$	146,371			329,442			$	89,537			318,733
Adjustments:
Depreciation and amortization		195,905							199,039
Company share of joint venture depreciation, amortization and other		13,177							13,603
Gains on depreciable property sales—wholly owned, discontinued operations		(22,603	)						(92,611	)
Gains on depreciable property sales—wholly owned, continuing operations		(86,171	)						(1,108	)
Income tax expense triggered by depreciable property sales		6,561							—
Gains on depreciable property sales-JV		(58,282	)						(48,805	)
Noncontrolling interest share of adjustments		(639	)						(955	)
Funds from operations- basic		194,319			329,442	$	0.59		158,700			318,733	$	0.50
Noncontrolling interest in income of unitholders		1,943			4,386				1,234			4,397
Noncontrolling interest share of adjustments		639							955
Other potentially dilutive securities					3,119							3,133
Funds from operations- diluted	$	196,901			336,947	$	0.58	$	160,889			326,263	$	0.49
Gain on land sales		(4,041	)						—
Loss on debt extinguishment		139							—
Adjustments for redemption/repurchase of preferred shares		(483	)						5,932
Impairment charges—non-depreciable properties		2,523							3,777
Acquisition-related activity		761							1,780
Core funds from operations- diluted	$	195,800			336,947	$	0.58	$	172,378			326,263	$	0.53
Adjusted funds from operations
Core funds from operations- diluted	$	195,800			336,947	$	0.58	$	172,378			326,263	$	0.53
Adjustments:
Straight-line rental income and expense		(12,073	)						(10,485	)
Amortization of above/below market rents and concessions		4,158							4,531
Stock based compensation expense		11,466							10,818
Noncash interest expense		3,051							4,536
Second generation concessions		(76	)						(304	)
Second generation tenant improvements		(17,884	)						(14,638	)
Second generation leasing commissions		(15,617	)						(11,680	)
Building improvements		(1,461	)						(2,171	)
Adjusted funds from operations—diluted	$	167,364			336,947	$	0.50	$	152,985			326,263	$	0.47

Duke Realty Corporation and Subsidiaries

Consolidated Balance Sheets

(Unaudited and in thousands)

	June 30,			December 31,
	2014			2013
Assets:
Rental property	$	7,102,883		$	7,031,660
Accumulated depreciation		(1,437,352	)		(1,382,757	)
Construction in progress		367,813			256,911
Undeveloped land		541,227			590,052
Net real estate investments		6,574,571			6,495,866
Cash and cash equivalents		21,225			19,275
Accounts receivable		33,936			26,664
Straight-line rents receivable		129,024			120,497
Receivables on construction contracts, including retentions		37,708			19,209
Investments in and advances to unconsolidated companies		334,473			342,947
Deferred financing costs, net		30,949			36,250
Deferred leasing and other costs, net		456,132			473,413
Escrow deposits and other assets		244,486			218,493
Total assets	$	7,862,504		$	7,752,614
Liabilities and Equity:
Secured debt	$	1,008,662		$	1,100,124
Unsecured debt		3,065,223			3,066,252
Unsecured line of credit		60,000			88,000
Construction payables and amounts due to subcontractors		101,792			69,391
Accrued real estate taxes		84,973			75,396
Accrued interest		56,736			52,824
Other accrued expenses		61,860			68,276
Other liabilities		122,143			142,589
Tenant security deposits and prepaid rents		49,255			45,133
Total liabilities		4,610,644			4,707,985
Preferred stock		428,926			447,683
Common stock and additional paid-in capital		4,824,325			4,624,228
Accumulated other comprehensive income		3,600			4,119
Distributions in excess of net income		(2,031,957	)		(2,062,787	)
Total shareholders’ equity		3,224,894			3,013,243
Noncontrolling interest		26,966			31,386
Total liabilities and equity	$	7,862,504		$	7,752,614

Note—Does not include reclassification, and separate presentation, of assets held-for-sale.

EX-99.2

Exhibit 99.2

THOMSON REUTERS STREETEVENTS

EDITED TRANSCRIPT

DRE—Q2 2014 Duke Realty Corp Earnings Call

EVENT DATE/TIME: JULY 31, 2014 / 07:00PM GMT

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JULY 31, 2014 / 07:00PM GMT, DRE - Q2 2014 Duke Realty Corp Earnings Call

CORPORATE PARTICIPANTS

Ron Hubbard Duke Realty Corp—IR

Denny Oklak Duke Realty Corp—Chairman and CEO

Jim Connor Duke Realty Corp—COO

Mark Denien Duke Realty Corp—CFO

CONFERENCE CALL PARTICIPANTS

James Feldman BofA Merrill Lynch—Analyst

Kevin Varin Citigroup—Analyst

Vance Edelson Morgan Stanley—Analyst

Brendan MaioranaAnalyst

David Rodgers Robert W. Baird & Company, Inc.—Analyst

Eric Frankel Green Street Advisors—Analyst

Neil Malkin RBC Capital Markets—Analyst

Michael Bilerman Citigroup—Analyst

Ki Bin Kim SunTrust Robinson Humphrey—Analyst

PRESENTATION

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Duke Second Quarter Earnings Conference Call.

(Operator Instructions)

I would now like to turn the conference over to our host, Mr. Ron Hubbard. Please go ahead.

Ron Hubbard — Duke Realty Corp—IR

Thank you. Good afternoon, everyone, and welcome to our Second 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 would refer you to our December 31, 2013 10-K that we have on file with the SEC. Now for our prepared statement, I’ll turn it over to Denny Oklak.

Denny Oklak —Duke Realty Corp—Chairman and CEO

Thank you, Ron. Good afternoon, everyone.

Today, I will highlight some of our key accomplishments for the quarter and then Jim Connor will give you an update on our leasing activity and development activity. I’ll review our asset recycling transactions and Mark will then address our second quarter financial performance and balance sheet.

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JULY 31, 2014 / 07:00PM GMT, DRE - Q2 2014 Duke Realty Corp Earnings Call

By all counts, the second quarter was a great success for Duke Realty and I’m very proud of our team for their accomplishments. We signed 9 million square feet of leases and finished the quarter at 94.5% in-service occupancy rate, our highest level since 1999. Rents on renewal leases for the quarter grew by 7.6%, a level consistent with the first quarter and reflecting the strong supply/demand fundamentals and solid pricing power.

We started at $213 million of new development projects at solid yields and we made significant progress on the disposition front with nearly $300 million closed in the second quarter, both exceeding our expectations as of midyear. We also opportunistically issued common stock on our ATM program.

We used the disposition and the ATM proceeds to redeem our Series J Preferred Shares and to fund our increased development expectations for the full year. Mark will touch more on this later. Now I’ll turn it over to Jim Connor to give a little more color on our leasing activity and development pipeline.

Jim Connor —Duke Realty Corp—COO

Thanks, Denny, and good afternoon, everyone.

From an operational standpoint, we had a very strong quarter with leasing of 9 million square feet, as Denny noted. Our total in-service occupancy ended up at 94.5%. That’s up 50 basis points from the previous quarter.

Our tenant retention was solid at about 68%, and rental rate growth on renewals continues to prove across the portfolio, with growth of 7.6%. We continue to be very focused on pushing rents throughout our portfolio, and 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 7.8 million square feet of total leasing, including 1.9 million square feet of build-to-suit development, 680,000 square feet of leasing in our recently completed spec projects.

In-service occupancy in the bulk industrial portfolio at the end of the quarter was 95.6%, that’s 120 basis points higher than a year ago, and a 15-year high for us. Compared to general market vacancy in our 22 markets, our in-service occupancy is outperforming the competition by almost 250 basis points.

As I noted, we signed two deals totaling nearly 680,000 square feet that filled the remaining space in two of our speculative projects. One in Chino, California and one in Indianapolis, Indiana that were both placed in service in 2013.

Also contributing to growth in our industrial occupancy was a new 300,000-square foot lease that we signed with Amazon in the Atlanta market. And on the renewal side, we executed three notable industrial leases between 200,000 and 430,000 square feet with Georgia Pacific, Home Depot, and Coca-Cola in our Atlanta, Indianapolis, and Dallas markets, respectively.

With the tightening of conditions across most of our markets and high occupancies in our own portfolio, we’ve been highly focused on capturing rent growth, as we’ve been saying now for the last few quarters. I’m proud to note that our industrial rent growth accelerated to 9% during the second quarter, bringing our year-to-date average to 8.7%.

Now I would like to turn to the medical office portfolio. We continue to have positive trajectory with our in-service occupancy increasing to 93.9%. That’s 120 basis points above a year ago, and with a weighted average remaining lease term of over 10 years.

The suburban office market continues to show slight improvement across most of our markets. Rent growth is still relatively flat in most markets, but concessions are on a downward trend.

Our in-service office portfolio ended the quarter at 87.7% leased, which is down 40 basis points from the first quarter. This decrease is entirely attributable to our second quarter dispositions, which had an average occupancy of 93%.

Now I’ll turn to the development side, where we had $213 million of starts across 10 projects in the second quarter that totaled 3.6 million square feet, and expect to generate a 7.2% weighted average initial stabilized yield. We commenced three speculative projects this quarter, as we had alluded on previous calls regarding support coming speculative projects in 2014.

With our recent signing, our 2.4 million square feet of speculative projects that we’ve started since 2009 and are now in service are 97% leased. I think we’ve done a great job covering all of our spec bets across all of our markets.

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JULY 31, 2014 / 07:00PM GMT, DRE - Q2 2014 Duke Realty Corp Earnings Call

The projects in particular we started, a 144,000-square foot speculative project in Northern New Jersey in our Legacy Commerce Center. We started the 324,000-square foot speculative facility in Chicago down on the I-55 Corridor, which was a redevelopment site we acquired in late 2013. I should also note our Chicago industrial market has been 95%-plus leased for close to five years, and we’ve got great leasing momentum down in the I-55 Corridor.

The third project we started was a 937,000-square foot development within an existing joint venture at our AllPoints Midwest Park in the Indianapolis Airport submarket. We are currently 99.3% leased on our entire 19.5 million-square foot bulk industrial portfolio in Indianapolis.

In addition to these three spec developments, we commenced construction on a 270,000-square foot facility that’s 47% preleased in a Dallas Airport submarket. Our Dallas portfolio is over 97% leased and our team has been generating excellent rent growth and renewals over the last year.

We also executed six 100% preleased build-to-suit development projects in the second quarter. Four of these were bulk industrial as follows. One was 486,000 square feet on land — on our own land in Minneapolis in the Northwest submarket, a 305,000-square foot development in Columbus, Ohio on our land at the Rickenbacker Global Logistics Park, a 757,000-square foot building in the Northwest submarket of Chicago, and lastly, a 240,000-square foot development in Houston, down near the Port of Houston.

These industrial build-to-suit projects have terms ranging from 10 to 15 years. And lastly, the fifth build-to-suit project was a 54,000-square foot medical office expansion with TriHealth in Cincinnati. This represents the fifth development completed with TriHealth in the last seven years, which is really a reflection of our reputation as a trusted provider and advisor of facility needs in the health care industry.

Lastly, the sixth build-to-suit we started in the second quarter was 112,000-square foot Class A office project for Interactive Intelligence on our land in the Woodland Corporate Park in Indianapolis. We simultaneously negotiated expansions and extensions of our leases with Interactive on two existing leases that totaled 272,000 square feet within that same park.

From an overall development pipeline perspective at quarter end, we have 31 projects under construction, totaling 10.8 million square feet, at a projected $722 million in stabilized costs at our share, that is 76% preleased in aggregate. These projects have an initial cash stabilized yield of 7.4%, and a GAAP yield of 8.1%; again, highlighting the tremendous value creation being executed by our teams and our strategic land holdings. Thank you, and now I’ll turn it back over to Denny to cover our recycling activities.

Denny Oklak —Duke Realty Corp—Chairman and CEO

Thanks, Jim.

With respect to investment activity, we had $278 million of building dispositions during the quarter, consisting of five transactions. The two largest transactions were the sale of the 3630 Peachtree office building in Buckhead and an office portfolio in Cincinnati. We closed on the 3630 Peachtree tower in Atlanta’s Buckhead submarket, a deal that most of you probably saw in the news late last month.

The deal sold for a Buckhead record $390 per square foot, and our share of the proceeds was about $100 million. The project was 86% leased at closing. While this project went through some rough times during the downturn, including a large impairment charge, it ended up with a great result, as we fully recouped all of our invested capital and made a nice profit.

The portfolio in Cincinnati was sold for $150 million, or roughly $144 per square foot. The six office buildings making up this portfolio were, on average, 16 years old. The portfolio was 96% leased, but I would qualify that saying that nearly 75% of the leases roll in the next three and a half years.

On the land side, we sold $18 million of nonstrategic parcels during the quarter. In addition, I’ll note that combining land sales with development projects on our land year-to-date, we’ve monetized 350 acres, or about $69 million of land.

On the acquisition side, this quarter we closed on a 980,000-square foot modern bulk facility located in the Lehigh Valley region of Pennsylvania, which was just completed for a purchase price of $73 million. We actually went under contract on the facility in a forward commitment structure in the third quarter of 2013, just after the project commenced construction and after a prelease for 100% of the space was signed. Given the cap rate compression in this market over the last nine months, we believe our acquisition cap rate was approximately 50 basis points above today’s levels.

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JULY 31, 2014 / 07:00PM GMT, DRE - Q2 2014 Duke Realty Corp Earnings Call

As noted on the last few calls, the acquisition market continues to be intensely competitive and given our very strong development pipeline and opportunities, we expect the acquisition activity for the remainder of this year to be low. I’ll now turn it over to Mark to discuss the financial results and our capital plans.

Mark Denien —Duke Realty Corp—CFO

Thanks, Denny. Good afternoon, everyone.

As Denny mentioned, I would like to provide an update on our financial performance, as well as an overview of our capital transactions. Core FFO for the second quarter of 2014 was $0.30 per share, compared to $0.28 per share in the first quarter of 2014, and $0.27 per share in the second quarter of 2013. Core FFO was up $0.02 per share from the first quarter of 2014 as a result of improved occupancy and the negative impact the extreme winter weather conditions had on first-quarter operating results.

Carrying a higher base of operating properties through the second quarter also contributed to the improvement, as our Cincinnati office portfolio disposition did not close until the end of the quarter. Same-property NOI growth for the 12 and 3 months ended June 30 was 3.5% and 4.6%, respectively. The 12-month number is reflective of our current annual run rate, driven by increased occupancy and rental rates in all product types.

The quarterly number is higher primarily because of timing of certain items. As Jim noted, our growth and average net effect of rental renewals was 7.6%, and we are happy to say that this is the third consecutive quarter that we have been able to report increased quarter-over-quarter rental rate growth on renewals across all three product types. We are optimistic about our ability to continue to push rental rates.

We generated $0.25 per share in AFFO, which equates to a dividend payout ratio of 68%. Although core FFO increased $0.02 per share from the first quarter, the increased capital expenditures that coincided with the second quarter’s increased leasing volume resulted in AFFO per share of being equal to the $0.25 per share reported for the first quarter of 2014.

On the balance sheet side, we finished the quarter with $60 million outstanding on our $850 million line of credit, as compared to $180 million outstanding at March 31. Building and land sales generated $297 million of proceeds during the quarter, which allowed us to reduce line of credit borrowings and overall leverage. We anticipate continued strong disposition activity for the last half of the year, which will allow us to fund development and minimize use of our line of credit.

We also repaid four secured loans totaling $64 million during the second quarter. In the process, we unencumbered about $155 million of properties to enhance our financial flexibility and credit profile.

During the second quarter and in early July, we issued 12.7 million common shares for net proceeds of $222 million. We are using the proceeds from ATM issuances, as well as proceeds from property dispositions to fund our increased development pipeline in the recently announced redemption of our $96 million in Series J Preferred Shares that carry a coupon of 6.625%.

The redemption of these Preferred Shares will result in an over $6 million of annualized reduction in preferred dividends. Our ATM shelf that we filed in the first part of 2013 has now been fully utilized.

All of these capital transactions, coupled with our operational performance, resulted in noteworthy improvements to our key financial metrics during the quarter. We reported a fixed charge coverage ratio of 2.3 times for the rolling 12 months ended June 30, compared to 2.2 times we reported last quarter, and 1.9 times that we reported one year ago. For just the second quarter, fixed charge coverage is now up to 2.4 times.

Net debt plus preferred EBITDA for the rolling 12 months ended June 30, 2014 was 7.4 times compared to the 7.8 times we reported last quarter, and the 8.2 times we reported for the rolling 12 months ended June 30, 2013. When looking at this metric for just the current quarter, it improves to 7.1 times. We expect to see continued improvement in these financial metrics, as development projects continue to come online and as we realize the benefit of the redemption from the Series J Preferred Shares.

We are in an excellent liquidity position and have no significant debt maturities until February of 2015. I will conclude by saying that we’re very happy to have reported another strong quarter and with that, I’ll turn it back over to Denny.

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JULY 31, 2014 / 07:00PM GMT, DRE - Q2 2014 Duke Realty Corp Earnings Call

Denny Oklak —Duke Realty Corp—Chairman and CEO

Thanks, Mark.

Yesterday, we raised and narrowed our guidance for FFO for 2014 to a range of $1.15 to $1.19 per share. This change is reflective of our overall strong start to the year across all aspects of our operations, and includes increased anticipated development starts, dispositions, and overall leasing activity for the year, which are expected to be better than what was originally anticipated. As noted in yesterday’s earnings release, additional detail upon revisions to certain guidance factors can be found on the Investor Relations section of our website.

In closing, we’re pleased with our team’s outstanding operational performance and allocation of capital year-to-date, which should set the stage for solid future growth to the benefit our stakeholders. So we’ll now open up the lines to the audience and we ask participants to keep your dialogue to one question or perhaps two very short questions.

You are, of course, welcome to get back into the queue. Thank you, and with that, we’ll open it up.

QUESTION AND ANSWER

Operator

Thank you.

(Operator Instructions)

Jamie Feldman.

James Feldman—BofA Merrill Lynch—Analyst

I just want to get your latest thoughts on supply in the warehouse market. How are you guys feeling this quarter? What are your thoughts on the markets that are the greatest risk and concern?

Looks like you are ramping up your development pipeline even more. So how should we be thinking about that?

Jim Connor —Duke Realty Corp—COO

Jamie, it’s Jim Connor. I would tell you, much like last quarter when we talk about some of the specific markets, there are really only a couple around the country that look a little uncertain at this point in time. Dallas has unfortunately got a lot of questions, Dallas had a huge year last year of net absorption, between 16 million and 17 million square feet.

They were off to a great first quarter, north of 6 million square feet of absorption. That slowed down a little bit in the second quarter. So I think there’s a little bit of uncertainty there in the Dallas market.

All of the other major industrial markets, Chicago, Pennsylvania, New Jersey, Atlanta, even the Inland Empire, as the large as the development there pipeline is, there is just a great deal of leasing and a great deal of positive absorption. So I wouldn’t tell you outside of Dallas that we’ve got, you know, our eyes on any particular market right now.

James Feldman —BofA Merrill Lynch—Analyst

Okay. And then as a follow-up to that on the demand side, what did you guys see in the quarter? Did you see continuation of the same level of demand? Is it picking up?

We certainly saw better GDP announced yesterday. What are you seeing recently?

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JULY 31, 2014 / 07:00PM GMT, DRE - Q2 2014 Duke Realty Corp Earnings Call

Jim Connor —Duke Realty Corp—COO

I would tell you across the board demand is up. We’re just compiling our own internal study of all of the spec products in all of the different markets, but the spec that’s out there, in the second quarter, we’re tracking about 18 million square feet of that was absorbed. That’s not true net absorption of the market, that’s just of the specs base that was complete or under construction.

You know, leading that would be the Inland Empire, north of 9 million square feet of absorption, so a big quarter. But a lot of good numbers across the board. So I — we still think the vast majority of the markets are in very good health and very much in balance.

Denny Oklak —Duke Realty Corp—Chairman and CEO

Well, and Jamie, our 9 million square feet of leases that we signed in the second quarter was really our second highest quarter for the last two years. So momentum is certainly still out there with the wind at our back right now.

James Feldman —BofA Merrill Lynch—Analyst

Okay, great. Thanks, guys.

Operator

Michael Bilerman.

Kevin Varin —Citigroup—Analyst

Hi, This is Kevin Varin with Michael. You know, how should we think about development spreads going forward, just based on the new starts and guidance?

You mentioned in your opening remarks that yields on the new projects were 7.1%, which is down from the overall pipeline. So are they starting — are the spreads starting to tighten to acquisition cap rates, given either increased development competition or maybe higher construction costs?

Jim Connor —Duke Realty Corp—COO

I would tell you that it is a competitive market out there and, you know, there’s a lot of local developers that are in the markets. There’s no shortage of capital. So that’s one piece of it.

You know, we’ve seen construction price go up, but I think we covered this on the last call, we have not seen significant increases that some of our peers have pointed out, which we think is probably because we have our own construction company, so we have a little bit better handle on managing the costs there. While we’ve seen a little bit of compression on the yields, as long as we’re doing stabilized yields north of 7%, with overall yields north of 8%, given where cap rates are, there’s just huge value creation.

Mark Denien —Duke Realty Corp—CFO

Kevin, this is Mark. I would add to that, too, that the product mix has a little bit to do with the decrease in our yields this quarter because a higher percentage of our development starts this quarter was on the industrial side, whereas the prior couple quarters we had a little bit more office and medical office in that number.

So I agree with what Jim said. The overall quality of the yields is still really there, holding up.

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JULY 31, 2014 / 07:00PM GMT, DRE - Q2 2014 Duke Realty Corp Earnings Call

Jim Connor —Duke Realty Corp—COO

Yes, I think if you were to look at where yields have come down slightly, I’ve seen substantially more cap rate compression in the last two quarters. So I still think — I could make a compelling case that spreads have probably increased slightly as opposed to going down.

Kevin Varin —Citigroup—Analyst

Okay, thanks, that’s helpful. Then just one follow-up question is, I just wanted to see if you had more clarity on what the new incremental sales are in terms of what asset types you’re looking to market out there and then also how we should think about timing as well.

Jim Connor —Duke Realty Corp—COO

Well, Kevin, it really hasn’t changed much for us. We’re still focused on selling, primarily again, the Midwest suburban office assets with a couple selected suburban office assets in the Southeast, where, like we did with 3630, there’s just some very opportunistic sales we can do right now. And then in the second half of the year, I mean you’ll also see us selling a couple of, just the little bit of remaining retail that we have left, which is something we’ve been planning on teeing up here for a while.

The only other thing I would add is you might see a bit of selective pruning of the industrial portfolio also in the second half of the year, and this will mainly be, I would say, the older, smaller, lower clear height type product that we have in a few of our markets. The pricing on that out there seems very good right now. So I think we’ll selectively prune some of that.

As far as timing goes, we closed quite a bit right near the end of June, things we’ve been working on for a while, including those two office dispositions. So the pipeline, I would say, is sort of getting geared back up right now. So I would tell you likely the dispositions will be later in the third quarter and then throughout the fourth quarter.

Kevin Varin —Citigroup—Analyst

Okay. Thank you.

Operator

Vance Edelson.

Vance Edelson —Morgan Stanley—Analyst

On the industrial side, the development projects range in size from under 100,000 to more than 1 million square feet and just about every size in between. So presumably you get a good feel for where the build-to-suit and other demand is coming from. So can you share with us your thoughts on which size category you’re seeing the most active demand and how that shapes your speculative build plans going forward, or is it pretty much across the board regardless of size?

Jim Connor —Duke Realty Corp—COO

Well, I would say that build-to-suit activity, as leasing activity, is pretty strong across all segments. The one, the one probable clarification I would make, there are fewer large buildings available in the inventory, either spec, second generation, out there today.

So the tenants that need 500,000 square feet or greater, more of those have to consider build-to-suit than perhaps, say, a 100,000-foot prospect that was in the market. But as you stated in the question, we’re seeing activity all over the board.

Vance Edelson —Morgan Stanley—Analyst

Okay. That’s helpful. And then as my quick follow-up, on the industrial leases expiring, say, over the next 12 to 18 months, could you give us an updated feel for the portion that were signed during the recession and what the potential price rolls might look like on those?

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JULY 31, 2014 / 07:00PM GMT, DRE - Q2 2014 Duke Realty Corp Earnings Call

Mark Denien —Duke Realty Corp—CFO

Yes, Vance, you know, it’s quite similar to what’s been rolling the last couple quarters. We look out about 18 months. And of all of our industrial leases expiring over the next 18 months, right at about 50% of those were signed between 2009 and 2011, and then the other 50% is split fairly even between deals signed before 2009 and after 2011.

So the way we look at it, the deals before 2009 and after 2011, probably fairly modest rent growth on those deals, the deals signed in the 2009 to 2011 timeframe, we’re getting deals up into the high teens on some of those. So we think when you average it out it’s pretty close to the run rate we’ve been at the last couple quarters, which is, you know, close to the high single digits, I would call it.

Vance Edelson —Morgan Stanley—Analyst

Okay. Terrific. Thanks.

Operator

Brendan Maiorana.

Brendan Maiorana Analyst

Mark, if I look at sources and uses as it relates to the guidance for the back half of the year, it seems like you’ve gotten — as I think maybe you or Denny mentioned in the script, you’ve gotten more aggressive in terms of where the dispositions are coming out more conservative in terms of acquisitions. Seems like a portion of that is related to the Series J redemption. But is there a portion that you’re using opportunistically to delever a little bit more? It seems like maybe, relative to what you have coming in the door, there’s a little bit less in terms of what you need to spend it on.

Mark Denien —Duke Realty Corp—CFO

Yes, Brendan, I would say that if you just kind of look at the midpoint of our guidance from acquisitions and development dispositions, where we have to go, when you factor in the two large office dispositions that we had that closed late in the second quarter, we probably have about a net, I would call it, $100 million of excess capital coming in the door. So you’re probably right. Absent an even further increase in the development pipeline, the way we’ve seen it, we’ve really prefunded a little bit of that development pipeline as we look forward over the next six to nine months.

So that’s really what we’ve got it earmarked for right now, is development. As that picks up or decreases, that will drive how much additional capital we need. As we sit here today, we don’t really see any needs for capital for the next six months to speak of, with any significance.

Brendan Maiorana Analyst

Okay, that’s helpful. Just as a follow-up, so the guidance, there were a couple of changes all around and you guys moved the range up a little bit. I saw the same-store range didn’t change and you’re kind of tracking ahead.

You’ve got nice rent spreads and it seems like you feel pretty good about occupancy. If you’re 3.5% in a year-to-date and you add a little bit of a tough Q1 with some weather issues, is it fair to think that you’re likely to be towards the upper end of the 2% to 4% same-store range this year?

Mark Denien —Duke Realty Corp—CFO

Yes, I think we can get to the upper end. I think the first quarter was a little deceivingly low, like you said, for — to weather reasons. And then the second quarter is a little bit higher than a run rate for some other small reasons.

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JULY 31, 2014 / 07:00PM GMT, DRE - Q2 2014 Duke Realty Corp Earnings Call

So you average it out, that 3.5% on a 12-month is pretty close to what we believe our current run rate can be for the foreseeable future. Now, I’ll caveat that a little bit with saying that we have had significant occupancy increases over this period of time, and we’re getting closer and closer to full occupancy, although we do still think we have some room to go on the occupancy, we just don’t know that it will be at the pace that we’ve been increasing the occupancy by. So we’ll have to come down to the rental rate growth side.

Denny Oklak —Duke Realty Corp—Chairman and CEO

And Brendan, the other reason we didn’t really change it is because that number can fluctuate so much based on our dispositions, and, you know, we’ve got a pretty good plan in place for dispositions, but you never know the timing of closings and those types of things. So as we looked at that, we just selected not to change it.

Brendan Maiorana Analyst

Okay. That makes sense. Thanks, guys.

Operator

Dave Rodgers.

David Rodgers —Robert W. Baird & Company, Inc.—Analyst

Jim, maybe a question for you on the spec developments that you’re doing and the spec developments you’re tracking in the market. It might be easier, I guess, if you address your own. But I guess I’m wondering how much market rents are being pushed at the high end by these spec developments.

I guess another way of asking that is when you’re going to an area, putting in a new spec building, what’s your premium rent that you’re seeking? Or are you really targeting markets that maybe have already gotten replacement cost rents back from the recovery? Just a little more color on that would be helpful.

Jim Connor —Duke Realty Corp—COO

I would tell you without any specifics, probably half of the markets across the US are there. Deals are being done in existing space, first and second generation, to support the yields, the rents and the yields we need on spec development. The remaining half is probably within $0.05 to $0.10.

For the right users, for the right timing, for the right location — that’s not too big a premium. That’s why you’re seeing as much build-to-suit activity as you’re seeing around the country.

David Rodgers —Robert W. Baird & Company, Inc.—Analyst

And that’s consistent with your portfolio as well? You’ve been a little late to the spec game, but that’s probably been why there’s a little bit more conservatism?

Jim Connor —Duke Realty Corp—COO

Yes, we have tried to exercise a little conservatism. We can still remember 2007—2008, but, you know, we’ve got — we had so many really good build-to-suit opportunities across the spectrum that it hasn’t really paid for us to on that much spec risk.

Now that so many of our portfolios, industrial portfolios in particular, are north of 95%, there’s an opportunity there that we need to take advantage of, just to handle the growth of our existing clients in some of these markets. So that’s why you’ll continue to see us selectively pick some markets that we feel comfortable where our portfolio is, where rents are, where absorptions are, and we’ll continue to do a modest number going forward.

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JULY 31, 2014 / 07:00PM GMT, DRE - Q2 2014 Duke Realty Corp Earnings Call

David Rodgers —Robert W. Baird & Company, Inc.—Analyst

All right, great. Mark, maybe one for you. I think we’ve talked about this before, but I’ll ask it again.

Given your comfort just more recently, issuing equity on the ATM and given, maybe, some comfort going a little bit lower into your preferreds, breaking that 6%, 7% barrier in terms of the yield and buying back that Series J. As you look at the rest of the preferreds, I don’t know if you commented on this already, but if you would, what stops you at this point, given where the equity is, given where some of these 15-year bonds are pricing out in terms of getting rid of the rest of those preferreds?

Mark Denien —Duke Realty Corp—CFO

Yes, Dave, the biggest thing is the development pipeline and the disposition. We want to make sure, like we’ve said before, that we’ve got all of our bets covered on the development side first, and if we’ve got some excess capital and our stock’s trading at a nice price, then we’ll look to opportunistically take some more preferreds down over time.

But with the disposition pipeline that we have in front of us we may have the opportunity to do some of that through the dispositions. We just need to see how that plays out first.

David Rodgers —Robert W. Baird & Company, Inc.—Analyst

Okay, great. Thanks.

Operator

Eric Frankel.

Eric Frankel —Green Street Advisors—Analyst

Thank you very much. I’m curious, if your development pipeline increases further for whatever reason, how would you likely fund it?

Mark Denien —Duke Realty Corp—CFO

It would be through some combination of disposition proceeds or the ATM. Like we said at the beginning of the year, Eric, our plan all along was to fund our net growth 60/40. 60% equity/disposition proceeds, 40% debt.

We’ve been able to fund everything thus far for the most part through the disposition program. But to the extent that we still have attractive development out there and we don’t have the dispositions to pay for it, we will look to fund it through the ATM.

Denny Oklak —Duke Realty Corp—Chairman and CEO

I would also say, Eric, I don’t think you’re going to see that pipeline get much bigger than it is right now. We kind of keep our eye on that on a regular basis and know about where we want to keep it and, you know, it’s been running more in the $600 million to $700 million range.

We’re a bit over $700 million this quarter. But, you know, I don’t see or think you’ll ever see it ramp up significantly above that.

Eric Frankel —Green Street Advisors—Analyst

Okay, okay. It’s just interesting that this quarter, obviously, as you’ve stated yourself, you essentially prefunded your increased development with almost all equity, I thought that was an interesting move.

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JULY 31, 2014 / 07:00PM GMT, DRE - Q2 2014 Duke Realty Corp Earnings Call

I think the only other question I have is regarding the leasing of some of the spec developments that came online in the last year or two. Did those leases come in at or above pro forma in terms of rental rates?

Jim Connor —Duke Realty Corp—COO

Yes, they came in above pro forma. You know, the only differential is sometimes you underwrite five-year leases and you end up doing 10-year leases. If you look at the net rents across the term of the yields we’re above across the board.

Eric Frankel —Green Street Advisors—Analyst

Terrific. Thank you very much.

Operator

Neil Malkin.

Neil Malkin —RBC Capital Markets—Analyst

I just had a question. The Cincinnati portfolio you sold, can you give us a cap rate on that, you know, from a, I guess, GAAP or EBITDA perspective and then what it would be from an AFFO or economic standpoint, like what’s the spread there? And then also, can you at all quantify how much, around how much TIs, total CapEx you could probably take out of your portfolio once the majority of the suburban office dispositions are completed?

Mark Denien —Duke Realty Corp—CFO

Well, I guess the answer to the first question is we really don’t disclose cap rates on specific transactions, obviously, for competitive reasons. That is blended in with our overall cap rate or in-place yield, as we call it, that we disclosed. And — but on the second question, the difference between sort of the in-place NOI cap rate and what we would believe is kind of a normal after-CapEx, really, as we look out on that portfolio, it’s about 150 basis points lower on a cash basis than on an NOI basis, on a pretty consistent basis.

And that’s probably about average or maybe even a bit low, on the low side for some of our office. Probably goes between 150 basis points and 200 basis points from cash to NOI. And I’m sorry, the last question was—

Neil Malkin —RBC Capital Markets—Analyst

Well, I mean, if you — I’m not exactly sure. I guess maybe if you can quantify the amount that you could possibly sell and you have left to sell of the suburban office assets and then, I guess we could actually figure out how much the — how much spend you could possibly be saving, right? Because those are obviously CapEx-intensive assets you’re selling.

Jim Connor —Duke Realty Corp—COO

Yes, that’s right. I think we — if you look back probably over the last couple years, I think we disclose every quarter pretty much how much CapEx we’re spending by product type. So you can see that.

And clearly, the suburban office is where the higher number is, as well as for the higher percentage, and so that’s coming down. Again, if you look at our remaining dispositions for the rest of the year in our guidance, which is probably $300 million to $400 million, at least 50% of that, I would say, is going to be in the suburban office, probably a little bit more than 50% of it.

Neil Malkin —RBC Capital Markets—Analyst

Okay, great. Thank you, guys.

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JULY 31, 2014 / 07:00PM GMT, DRE - Q2 2014 Duke Realty Corp Earnings Call

Operator

Jamie Feldman.

James Feldman —BofA Merrill Lynch—Analyst

I was hoping you guys could spend a little bit more time on your comments on the office business. Sounds like rents aren’t necessarily moving, concessions are coming in. Can you give a little bit more color in terms of what you’re seeing on both the demand side and rent growth and maybe a little more granularity on the different markets?

Jim Connor —Duke Realty Corp—COO

Sure, Jamie. I think as we outlined in the script, you know, there’s not a great deal of rent growth in the suburban office market yet. But where we are making up some ground is concessions are trending down, less free rent, less TIs in particular going into the deals, better term is probably a big factor that doesn’t get talked about a lot.

You know, office tenants in the last few years have been a little nervous to make commitments beyond that three- to five-year period. Now we’re starting to see tenants making longer-term commitments, which improves the economics of a lot of our deals.

Denny Oklak —Duke Realty Corp—Chairman and CEO

Just adding to what Jim said, the Midwest ramps are still pretty flat, but I think we’ve actually seen some decent rent growth in a couple of the Southeast markets, and we’re not in all that many office markets anymore, but Raleigh’s held up extremely well in both from a volume and a very stable and growing rental rate stream. South Florida, the activity has been pretty good across the board and rents continue to creep up down there. So, you know, the suburban office market is coming back slowly, slowly, and even in the Midwest, I think, I would say I think our activity is probably up a little bit, but rental rates probably are not.

James Feldman —BofA Merrill Lynch—Analyst

Do you get the sense that maybe three quarters or a year from now we’ll be talking about a much more robust office market or it just feels like we’re stuck in neutral here in your markets, outside the Southeast, I guess?

Jim Connor —Duke Realty Corp—COO

Well, we would love to be talking about that, Jamie. But I don’t — realistically, I don’t think so. I don’t think — we’re not seeing the trends where you’re going to see a real significant turnaround where you’ve got some substantial rent growth in the next 12 months.

I just — I don’t think we’re that bullish on the suburban office market yet. I think we’ll continue to make modest increases in occupancy, like we have over the last 18 months.

You know, in some of the better markets, as Denny alluded to, Raleigh, South Florida, even Texas, those markets, you know, rents have gotten back to where they are supporting new construction. I think the Midwest still lags behind and is a little bit softer.

James Feldman —BofA Merrill Lynch—Analyst

Okay. I appreciate the color.

Operator

Michael Bilerman.

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JULY 31, 2014 / 07:00PM GMT, DRE - Q2 2014 Duke Realty Corp Earnings Call

Michael Bilerman —Citigroup—Analyst

Denny, just on the Lehigh Valley industrial asset that was a build-to-suit, that was a build-to-suit that you had committed to take out from the tenant or from another developer?

Denny Oklak —Duke Realty Corp—Chairman and CEO

That one was from another developer.

Michael Bilerman —Citigroup—Analyst

And what was the, I guess, this is just you were attracted by the asset or — what was it — what drove you to —

Denny Oklak —Duke Realty Corp—Chairman and CEO

Yes Michael, that was — you know, the Pennsylvania area and New Jersey are the geographic area we’re trying to grow in and this was a good opportunity for us from a group, you know, that we have a relationship with and we like the price per pound and, you know, it’s an excellent building in an excellent location. So it’s always good for certain private developers to be able to have a takeout and if they can get that up front, a lot of times you get a bit better deal on it than if it’s fully complete. So we believe we did on that one.

Jim Connor —Duke Realty Corp—COO

Yes, Michael, the other thing I would add is we have a long-standing relationship with the tenant. We have that tenant in four or five other buildings around the country.

So we have a very high level of comfort with them, a strong relationship. So we think there’s actually an opportunity to grow.

Michael Bilerman —Citigroup—Analyst

And what’s that lease length like?

Denny Oklak —Duke Realty Corp—Chairman and CEO

10 years I think, and annual rent growth.

Michael Bilerman —Citigroup—Analyst

Yes, so what is that? And what was your sort of going in versus the GAAP rate, cap rate on it?

Denny Oklak —Duke Realty Corp—Chairman and CEO

I don’t remember exactly, but the going in was 6% and I think it’s 1.5% to 2% bumps for sure. But I think closer to 2% on that deal.

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JULY 31, 2014 / 07:00PM GMT, DRE - Q2 2014 Duke Realty Corp Earnings Call

Michael Bilerman —Citigroup—Analyst

Okay. On the medical office, do you have any desire as you think about the acquisition market being pricey, and you’re continuing to sell assets and raising that guidance, are you thinking about capping the medical office assets at all for proceeds?

Denny Oklak —Duke Realty Corp—Chairman and CEO

No, as you recall we did about — we sold and improved net portfolio at the end of last year, about $250 million. Couple of those closed, I think, early this year.

And, you know, we said at the time that that really — we took advantage of the market, what we thought was good pricing, sold some assets that weren’t as strategic to us as the ones we retained for hospital relationships or geographical purposes. So we’re very comfortable with where that portfolio is now and quite honestly there’s really none of that in our disposition guidance.

Michael Bilerman —Citigroup—Analyst

And then as you think about just, Mark, on the balance sheet, sort of the target ratios in terms of funding from here and, you know, definitely raising the equity, certainly, was a big positive in terms of funding and making sure you have the capacity, I’m just curious, and obviously buying back the preferred’s is going to help fixed charge as well. How should we think about where you want your ratios to be going forward? From a debt-to-EBITDA, debt-to-gross assets, and a fixed charge perspective?

Mark Denien —Duke Realty Corp—CFO

Michael, we haven’t really set any, you know, targets in the sand like we did back in 2009, but what I would tell you is this, a couple things. As we look out towards the end of the year, we fully expect our debt-to-EBITDA to be under 6.5 by the end of the year, our debt plus preferred to EBITDA to be well under 7 by the end of the year, and our fixed charge closer up to 2.5.

And then from that point on, what I would say our plan is, is to grow the Company, to grow mainly through development and to fund that growth at a better leverage profile than we set here today, more in that 60/40 range. And if we do that, all those ratios naturally will just continue to improve.

Michael Bilerman —Citigroup—Analyst

Right. Okay. And how much do you have left on the ATM right now?

Mark Denien —Duke Realty Corp—CFO

We are out of our ATM. That—

Michael Bilerman —Citigroup—Analyst

So you’re going to reload that?

Mark Denien —Duke Realty Corp—CFO

I’m sorry?

Michael Bilerman —Citigroup—Analyst

Are you going to reload it?

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JULY 31, 2014 / 07:00PM GMT, DRE - Q2 2014 Duke Realty Corp Earnings Call

Mark Denien —Duke Realty Corp—CFO

Yes, I think it’s prudent to always have it out there just if we need it, to have it, so you’ll probably see us reload that sometime in the not-too-distant future.

Michael Bilerman —Citigroup—Analyst

Okay. Thanks for the time.

Operator

Ki Bin Kim.

Ki Bin Kim —SunTrust Robinson Humphrey—Analyst

Sorry if someone has already asked this question or not but you guys have been pretty much a net disposer short of developments, just on buying and selling for a couple years now. How should we think about that next year? How does that dynamic change a little bit next year?

Denny Oklak —Duke Realty Corp—Chairman and CEO

Well, I think, Ki Bin, we’re now at the point — I guess I would say a couple things there. When you look from here on out for the next six months to, say, 12 months, we’re still targeting some of the Midwest suburban office assets, which are just not long-term holds for us, and we’re — we obviously did some of that in the first half of this year and we’ve got some more that you’ll see us do in the second half of the year. And then we also are targeting our — just these couple retail assets that we still own or own a partial interest in, because those are pretty much stabilized now, and I think the pricing will be pretty good on those, so we’re going to get rid of those.

I think looking forward, you know, when you look around the rest of our portfolio, including industrial, suburban office, medical office, it’s going to be properties that we really like. So I think you’ll see us be more opportunistic and strategic on the dispositions, once we get through a little bit of those targeted assets again, and the dispositions will really depend on a lot of different things. First of all, what cap rates are, and if we think it’s a really good time to sell, we’ll look at selling, what our development pipeline might be if we’ve got a development pipeline that we can sell some older assets and redeploy those back — the proceeds back into great new development assets, we’ll do that.

So I think, sitting here today, we don’t really have any specific targets for a dollar volume and what it might be after this year. I think it will be more strategic and really based on market conditions.

Ki Bin Kim —SunTrust Robinson Humphrey—Analyst

No — I guess, I guess are you still — are you ruling out any kind of sizable dispositions, or is that still kind of possible?

Denny Oklak —Duke Realty Corp—Chairman and CEO

Well, I don’t think it’s very likely because, you know, we don’t have — our office portfolio’s getting down to the point now where it isn’t that sizable. So I don’t think you’re going to see any particularly sizable transactions, but I suppose something could come along, but I don’t think it’s likely.

Ki Bin Kim —SunTrust Robinson Humphrey—Analyst

Okay, and just one last one. Your service operations income, I know we’ve talked about it in the past, there’s other reasons why it’s there, not just to make the $18 million a year. Any change in terms of the right staff level and especially as it relates to that part of the business?

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JULY 31, 2014 / 07:00PM GMT, DRE - Q2 2014 Duke Realty Corp Earnings Call

Denny Oklak —Duke Realty Corp—Chairman and CEO

Well, the staffing in that piece of the business is just part of our — there’s no separate staffing for that piece of the business. You know, we get that business really primarily I would say through our land positions, because — and as you know, since we have been around for a long, long time, and definitely since we’ve been a public company, you know, if we can make some money by selling some land and doing a third-party construction project for a customer who wants to own their building, we’re happy to do that. And those are the same people that would develop a build-to-suit that we owned on that land or develop a spec building on that land.

So it’s all part of the same group, and it’s — I would say the earnings are probably up a bit this year because we had a couple larger projects that were exactly like that, but we sold the land and entered into a third-party construction contract that proved pretty profitable for us. But again, we’ve had this discussion over the years. Our service operations are all there, have been very consistent, higher, obviously, in the years we were working on the BRAC project in DC, because that was such a large project. And has consistently has stayed about 5% of our overall FFO and that’s it.

Ki Bin Kim —SunTrust Robinson Humphrey—Analyst

Okay. That’s it for me. Thank you.

Operator

Thank you. There are no further questions in queue at this time. Please continue.

Ron Hubbard —Duke Realty Corp—IR

I would like to thank everyone for joining the call today. We look forward to reconvening during our third quarter call, tentatively scheduled for October 30. Thank you again.

Operator

Thank you, and ladies and gentlemen, that does conclude our conference for today. Thanks, again, for your participation and for using AT&T Executive Teleconference Services. You may now disconnect.

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