EX-99.2 5 ex9923q2011.htm CONSOLIDATED FINANCIAL STATEMENTS AND NOTES TO CONSOLIDATED FINANCIAL STATEMENTS EX.99.2.3Q.2011
DUKE REALTY CORPORATION AND SUBSIDIARIES        Exhibit 99.2
Consolidated Balance Sheets
As of December 31,
(in thousands, except per share amounts) 
 
2010
 
2009
ASSETS
 
 
 
Real estate investments:
 
 
 
Land and improvements
$
1,166,409

 
$
1,106,016

Buildings and tenant improvements
5,396,339

 
5,284,103

Construction in progress
61,205

 
103,298

Investments in and advances to unconsolidated companies
367,445

 
501,121

Undeveloped land
625,353

 
660,723

 
7,616,751

 
7,655,261

Accumulated depreciation
(1,290,417
)
 
(1,311,733
)
Net real estate investments
6,326,334

 
6,343,528

 
 
 
 
Real estate investments and related assets held-for-sale
394,287

 
—

 
 
 
 
Cash and cash equivalents
18,384

 
147,322

Accounts receivable, net of allowance of $2,945 and $3,198
22,588

 
20,604

Straight-line rent receivable, net of allowance of $7,260 and $6,929
125,185

 
131,934

Receivables on construction contracts, including retentions
7,408

 
18,755

Deferred financing costs, net of accumulated amortization of $46,407 and $37,577
46,320

 
54,489

Deferred leasing and other costs, net of accumulated amortization of $269,000 and $240,151
517,934

 
371,286

Escrow deposits and other assets
185,836

 
216,361

 
$
7,644,276

 
$
7,304,279

LIABILITIES AND EQUITY
 
 
 
Indebtedness:
 
 
 
Secured debt
$
1,065,628

 
$
785,797

Unsecured notes
2,948,405

 
3,052,465

Unsecured lines of credit
193,046

 
15,770

 
4,207,079

 
3,854,032

Liabilities related to real estate investments held-for-sale
14,732

 
—

 
 
 
 
Construction payables and amounts due subcontractors, including retentions
44,782

 
43,147

Accrued real estate taxes
83,615

 
84,347

Accrued interest
62,407

 
62,971

Other accrued expenses
61,448

 
48,758

Other liabilities
129,860

 
198,906

Tenant security deposits and prepaid rents
50,450

 
44,258

Total liabilities
4,654,373

 
4,336,419

Shareholders’ equity:
 
 
 
Preferred shares ($.01 par value); 5,000 shares authorized; 3,618 and 4,067 shares issued and outstanding
904,540

 
1,016,625

Common shares ($.01 par value); 400,000 shares authorized; 252,195 and 224,029 shares issued and outstanding
2,522

 
2,240

Additional paid-in capital
3,573,720

 
3,267,196

Accumulated other comprehensive loss
(1,432
)
 
(5,630
)
Distributions in excess of net income
(1,533,740
)
 
(1,355,086
)
Total shareholders’ equity
2,945,610

 
2,925,345

Noncontrolling interests
44,293

 
42,515

Total equity
2,989,903

 
2,967,860

 
$
7,644,276

 
$
7,304,279

See accompanying Notes to Consolidated Financial Statements.

DUKE REALTY CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
For the Years Ended December 31,
(in thousands, except per share amounts)
 
 
2010
 
2009
 
2008
Revenues:
 
 
 
 
 
Rental and related revenue
$
869,130

 
$
830,993

 
$
791,855

General contractor and service fee revenue
515,361

 
449,509

 
434,624

 
1,384,491

 
1,280,502

 
1,226,479

Expenses:
 
 
 
 
 
Rental expenses
194,904

 
189,175

 
176,499

Real estate taxes
116,688

 
110,058

 
94,683

General contractor and other services expenses
486,865

 
427,666

 
418,743

Depreciation and amortization
346,789

 
320,965

 
289,744

 
1,145,246

 
1,047,864

 
979,669

Other operating activities:
 
 
 
 
 
Equity in earnings of unconsolidated companies
7,980

 
9,896

 
23,817

Gain on sale of properties
39,662

 
12,337

 
39,057

Earnings from sales of land
—

 
357

 
12,651

Undeveloped land carrying costs
(9,203
)
 
(10,403
)
 
(8,204
)
Impairment charges
(9,834
)
 
(275,360
)
 
(10,165
)
Other operating expenses
(1,231
)
 
(1,017
)
 
(8,298
)
General and administrative expense
(41,329
)
 
(47,937
)
 
(39,508
)
 
(13,955
)
 
(312,127
)
 
9,350

Operating income (loss)
225,290

 
(79,489
)
 
256,160

Other income (expenses):
 
 
 
 
 
Interest and other income, net
534

 
1,229

 
1,451

Interest expense
(237,848
)
 
(204,573
)
 
(181,637
)
Gain (loss) on debt transactions
(16,349
)
 
20,700

 
1,953

Gain (loss) on acquisitions, net
55,820

 
(1,062
)
 
—

Income (loss) from continuing operations before income taxes
27,447

 
(263,195
)
 
77,927

Income tax benefit (expense)
1,126

 
6,070

 
7,005

Income (loss) from continuing operations
28,573

 
(257,125
)
 
84,932

Discontinued operations:
 
 
 
 
 
Income before impairment charges and gain on sales
3,635

 
6,055

 
9,781

Impairment charges
—

 
(27,206
)
 
(1,266
)
Gain on sale of depreciable properties
33,054

 
6,786

 
16,961

Income (loss) from discontinued operations
36,689

 
(14,365
)
 
25,476

Net income (loss)
65,262

 
(271,490
)
 
110,408

Dividends on preferred shares
(69,468
)
 
(73,451
)
 
(71,426
)
Adjustments for repurchase of preferred shares
(10,438
)
 
—

 
14,046

Net (income) loss attributable to noncontrolling interests
536

 
11,340

 
(2,620
)
Net income (loss) attributable to common shareholders
$
(14,108
)
 
$
(333,601
)
 
$
50,408

Basic net income (loss) per common share:
 
 
 
 
 
Continuing operations attributable to common shareholders
$
(0.22
)
 
$
(1.60
)
 
$
0.16

Discontinued operations attributable to common shareholders
0.15

 
(0.07
)
 
0.17

Total
$
(0.07
)
 
$
(1.67
)
 
$
0.33

Diluted net income (loss) per common share:
 
 
 
 
 
Continuing operations attributable to common shareholders
(0.22
)
 
(1.60
)
 
0.16

Discontinued operations attributable to common shareholders
0.15

 
(0.07
)
 
0.17

Total
(0.07
)
 
(1.67
)
 
0.33

Weighted average number of common shares outstanding
238,920

 
201,206

 
146,915

Weighted average number of common shares and potential dilutive securities
238,920

 
201,206

 
154,553


See accompanying Notes to Consolidated Financial Statements.



2
DUKE REALTY CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Years Ended December 31,
(in thousands)
 
 
2010
 
2009
 
2008
Cash flows from operating activities:
 
 
 
 
 
Net income (loss)
$
65,262

 
$
(271,490
)
 
$
110,408

Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
 
 
Depreciation of buildings and tenant improvements
271,058

 
266,803

 
246,441

Amortization of deferred leasing and other costs
89,126

 
73,323

 
68,511

Amortization of deferred financing costs
13,897

 
13,679

 
13,640

Straight-line rent adjustment
(15,233
)
 
(18,832
)
 
(15,118
)
Impairment charges
9,834

 
302,567

 
11,431

(Gain) loss on debt extinguishment
16,349

 
(20,700
)
 
(1,953
)
(Gain) loss on acquisitions
(57,715
)
 
1,062

 
—

Deferred tax asset valuation allowance
—

 
7,278

 
—

Earnings from land and depreciated property sales
(72,716
)
 
(19,480
)
 
(29,612
)
Build-for-Sale operations, net
—

 
14,482

 
80,751

Third-party construction contracts, net
(6,449
)
 
(4,583
)
 
125,855

Other accrued revenues and expenses, net
68,892

 
47,830

 
26,875

Operating distributions received in excess of equity in earnings from unconsolidated companies
8,851

 
8,533

 
5,618

Net cash provided by operating activities
391,156

 
400,472

 
642,847

Cash flows from investing activities:
 
 
 
 
 
Development of real estate investments
(119,404
)
 
(268,890
)
 
(436,256
)
Acquisition of real estate investments and related intangible assets, net of cash acquired
(488,539
)
 
(31,658
)
 
(20,123
)
Acquisition of undeveloped land
(14,404
)
 
(5,474
)
 
(40,893
)
Second generation tenant improvements, leasing costs and building improvements
(88,723
)
 
(79,054
)
 
(74,814
)
Other deferred leasing costs
(38,905
)
 
(23,329
)
 
(30,498
)
Other assets
(7,260
)
 
(392
)
 
281

Proceeds from land and depreciated property sales, net
499,520

 
256,330

 
116,563

Capital distributions from unconsolidated companies
22,119

 
—

 
95,392

Capital contributions and advances to unconsolidated companies, net
(53,194
)
 
(23,481
)
 
(132,244
)
Net cash used for investing activities
(288,790
)
 
(175,948
)
 
(522,592
)
Cash flows from financing activities:
 
 
 
 
 
Proceeds from issuance of common shares, net
298,004

 
551,136

 
17,100

Proceeds from issuance of preferred shares, net
—

 
—

 
290,014

Payments for repurchases of preferred shares
(118,787
)
 
—

 
(12,405
)
Proceeds from unsecured debt issuance
250,000

 
500,000

 
325,000

Payments on and repurchases of unsecured debt
(392,597
)
 
(707,016
)
 
(261,479
)
Proceeds from secured debt financings
4,158

 
290,418

 
—

Payments on secured indebtedness including principal amortization
(207,060
)
 
(11,396
)
 
(55,600
)
Borrowings (payments) on lines of credit, net
177,276

 
(467,889
)
 
(62,408
)
Distributions to common shareholders
(162,015
)
 
(151,333
)
 
(283,375
)
Distributions to preferred shareholders
(69,468
)
 
(73,451
)
 
(71,439
)
Contributions from (distributions to) noncontrolling interests, net
(5,741
)
 
(1,524
)
 
(12,837
)
Cash settlement of interest rate swaps
—

 
—

 
(14,625
)
Deferred financing costs
(5,074
)
 
(28,679
)
 
(3,681
)
Net cash used for financing activities
(231,304
)
 
(99,734
)
 
(145,735
)
Net increase (decrease) in cash and cash equivalents
(128,938
)
 
124,790

 
(25,480
)
Cash and cash equivalents at beginning of year
147,322

 
22,532

 
48,012

Cash and cash equivalents at end of year
$
18,384

 
$
147,322

 
$
22,532

Non-cash investing and financing activities:
 
 
 
 
 
Assumption of indebtedness and other liabilities for real estate acquisitions
$
527,464

 
$
—

 
$
39,480

Contribution of properties to, net of debt assumed by, unconsolidated companies
$
41,609

 
$
20,663

 
$
133,312

Investments and advances related to acquisition of previously unconsolidated companies
$
184,140

 
$
206,852

 
$
—

Distribution of property from unconsolidated company
$
—

 
$
—

 
$
76,449

Conversion of Limited Partner Units to common shares
$
(8,055
)
 
$
592

 
$
13,149

See accompanying Notes to Consolidated Financial Statements.


3
DUKE REALTY CORPORATION AND SUBSIDIARIES
Consolidated Statements of Changes in Equity
(in thousands, except per share data)
 
 
Common Shareholders
 
 
 
 
 
Preferred
Stock
 
Common
Stock
 
Additional
Paid-in
Capital
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Distributions
in Excess of
Net Income
 
Non-
Controlling
Interests
 
Total
Balance at December 31, 2007
$
744,000

 
$
1,462

 
$
2,667,286

 
$
(1,279
)
 
$
(632,967
)
 
$
83,238

 
$
2,861,740

Comprehensive Income:
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income
—

 
—

 
—

 
—

 
107,788

 
2,620

 
110,408

Derivative instrument activity
—

 
—

 
—

 
(7,373
)
 
—

 
—

 
(7,373
)
Comprehensive income
 
 
 
 
 
 
 
 
 
 
 
 
103,035

Issuance of preferred shares
300,000

 
—

 
(10,000
)
 
—

 
—

 
—

 
290,000

Issuance of common shares
—

 
9

 
15,482

 
—

 
—

 
—

 
15,491

Stock based compensation plan activity
—

 
2

 
15,683

 
—

 
(2,017
)
 
—

 
13,668

Conversion of Limited Partner Units
—

 
11

 
13,138

 
—

 
—

 
(17,065
)
 
(3,916
)
Distributions to preferred shareholders
—

 
—

 
—

 
—

 
(71,426
)
 
—

 
(71,426
)
Repurchase of preferred shares
(27,375
)
 
—

 
924

 
—

 
14,046

 
—

 
(12,405
)
Distributions to common shareholders ($1.93 per share)
—

 
—

 
—

 
—

 
(283,375
)
 
—

 
(283,375
)
Distributions to noncontrolling interests, net
—

 
—

 
—

 
—

 
—

 
(12,837
)
 
(12,837
)
Balance at December 31, 2008
$
1,016,625

 
$
1,484

 
$
2,702,513

 
$
(8,652
)
 
$
(867,951
)
 
$
55,956

 
$
2,899,975

Comprehensive Loss:
 
 
 
 
 
 
 
 
 
 
 
 
 
Net loss
—

 
—

 
—

 
—

 
(260,150
)
 
(11,340
)
 
(271,490
)
Derivative instrument activity
—

 
—

 
—

 
3,022

 
—

 
—

 
3,022

Comprehensive loss
 
 
 
 
 
 
 
 
 
 
 
 
(268,468
)
Issuance of common shares
—

 
752

 
550,652

 
—

 
—

 
—

 
551,404

Stock based compensation plan activity
—

 
2

 
13,441

 
—

 
(2,186
)
 
—

 
11,257

Conversion of Limited Partner Units
—

 
2

 
590

 
—

 
(15
)
 
(577
)
 
—

Distributions to preferred shareholders
—

 
—

 
—

 
—

 
(73,451
)
 
—

 
(73,451
)
Distributions to common shareholders ($.76 per share)
—

 
—

 
—

 
—

 
(151,333
)
 
—

 
(151,333
)
Distributions to noncontrolling interests, net
—

 
—

 
—

 
—

 
—

 
(1,524
)
 
(1,524
)
Balance at December 31, 2009
$
1,016,625

 
$
2,240

 
$
3,267,196

 
$
(5,630
)
 
$
(1,355,086
)
 
$
42,515

 
$
2,967,860

Comprehensive Income:
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income
—

 
—

 
—

 
—

 
65,798

 
(536
)
 
65,262

Derivative instrument activity
—

 
—

 
—

 
4,198

 
—

 
—

 
4,198

Comprehensive income
 
 
 
 
 
 
 
 
 
 
 
 
69,460

Issuance of common shares
—

 
265

 
297,801

 
—

 
—

 
—

 
298,066

Stock based compensation plan activity
—

 
3

 
13,056

 
—

 
(2,531
)
 
—

 
10,528

Conversion of Limited Partner Units
—

 
14

 
(8,069
)
 
—

 
—

 
8,055

 
—

Distributions to preferred shareholders
—

 
—

 
—

 
—

 
(69,468
)
 
—

 
(69,468
)
Repurchase of preferred shares
(112,085
)
 
—

 
3,736

 
—

 
(10,438
)
 
—

 
(118,787
)
Distributions to common shareholders ($0.68 per share)
—

 
—

 
—

 
—

 
(162,015
)
 
—

 
(162,015
)
Distributions to noncontrolling interests
—

 
—

 
—

 
—

 
—

 
(5,741
)
 
(5,741
)
Balance at December 31, 2010
$
904,540

 
$
2,522

 
$
3,573,720

 
$
(1,432
)
 
$
(1,533,740
)
 
$
44,293

 
$
2,989,903

See accompanying Notes to Consolidated Financial Statements.


4
DUKE REALTY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements

(1)
The Company
Substantially all of our Rental Operations (see Note 9) are conducted through Duke Realty Limited Partnership (“DRLP”). We owned approximately 98.0% of the common partnership interests of DRLP (“Units”) at December 31, 2010. At the option of the holders, subject to certain restrictions, the remaining Units are redeemable for shares of our common stock on a one-to-one basis and earn dividends at the same rate as shares of our common stock. If determined to be necessary in order to continue to qualify as a real estate investment trust (“REIT”), we may elect to purchase the Units for an equivalent amount of cash rather than issuing shares of common stock upon redemption. We conduct our Service Operations (see Note 9) through Duke Realty Services, LLC, Duke Realty Services Limited Partnership and Duke Construction Limited Partnership (“DCLP”). DCLP is owned through a taxable REIT subsidiary. The terms “we”, “us” and “our” refer to Duke Realty Corporation and subsidiaries (the “Company”) and those entities owned or controlled by the Company.
 
(2)
Summary of Significant Accounting Policies
FASB Codification
On July 1, 2009, the Financial Accounting Standards Board (“FASB”) issued the FASB Accounting Standards Codification (“ASC” or the “Codification”) that established the exclusive authoritative reference for accounting principles generally accepted in the United States of America (“GAAP”) for use in financial statements, except for SEC rules and interpretive releases, which are also authoritative GAAP for SEC registrants. The Codification superseded all existing non-SEC accounting and reporting standards but did not impact any of our existing accounting policies.
Principles of Consolidation
The consolidated financial statements include our accounts and the accounts of our majority-owned or controlled subsidiaries. The equity interests in these controlled subsidiaries not owned by us are reflected as noncontrolling interests in the consolidated financial statements. All significant intercompany balances and transactions have been eliminated in the consolidated financial statements. Investments in entities that we do not control, and variable interest entities (“VIEs”) in which we are not the primary beneficiary, are not consolidated and are reflected as investments in unconsolidated companies under the equity method of reporting.
Reclassifications
Certain amounts in the accompanying consolidated financial statements for 2009 and 2008 have been reclassified to conform to the 2010 consolidated financial statement presentation.
Real Estate Investments
Rental real property, including land, land improvements, buildings and tenant improvements, are included in real estate investments and are generally stated at cost. Construction in process and undeveloped land are included in real estate investments and are stated at cost. Real estate investments also include our equity interests in unconsolidated joint ventures that own and operate rental properties and hold land for development.

 

5
DUKE REALTY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements


Depreciation
Buildings and land improvements are depreciated on the straight-line method over their estimated lives not to exceed 40 and 15 years, respectively, for properties that we develop, and not to exceed 30 and 10 years, respectively, for acquired properties. Tenant improvement costs are depreciated using the straight-line method over the term of the related lease.
Cost Capitalization
Direct and certain indirect costs clearly associated with the development, construction, leasing or expansion of real estate investments are capitalized as a cost of the property. In addition, all leasing commissions paid to third parties for new leases or lease renewals are capitalized. We capitalize a portion of our indirect costs associated with our construction, development and leasing efforts. In assessing the amount of direct and indirect costs to be capitalized, allocations are made based on estimates of the actual amount of time spent in each activity. We do not capitalize any costs attributable to downtime or to unsuccessful projects.
We capitalize direct and indirect project costs associated with the initial construction of a property up to the time the property is substantially complete and ready for its intended use. In addition, we capitalize costs, including real estate taxes, insurance, and utilities, that have been allocated to vacant space based on the square footage of the portion of the building not held available for immediate occupancy during the extended lease-up periods after construction of the building shell has been completed if costs are being incurred to ready the vacant space for its intended use. If costs and activities incurred to ready the vacant space cease, then cost capitalization is also discontinued until such activities are resumed. Once necessary work has been completed on a vacant space, project costs are no longer capitalized.
We cease capitalization of all project costs on extended lease-up periods when significant activities have ceased, which does not exceed the shorter of a one-year period after the completion of the building shell or when the property attains 90% occupancy.
Impairment
We evaluate our real estate assets, with the exception of those that are classified as held- for- sale, for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. If such an evaluation is considered necessary, we compare the carrying amount of that real estate asset, or asset group, with the expected undiscounted cash flows that are directly associated with, and that are expected to arise as a direct result of, the use and eventual disposition of that asset, or asset group. Our estimate of the expected future cash flows used in testing for impairment is based on, among other things, our estimates regarding future market conditions, rental rates, occupancy levels, costs of tenant improvements, leasing commissions and other tenant concessions, assumptions regarding the residual value of our properties at the end of our anticipated holding period and the length of our anticipated holding period and is, therefore, subjective by nature. These assumptions could differ materially from actual results. If our strategy changes or if market conditions otherwise dictate a reduction in the holding period and an earlier sale date, an impairment loss could be recognized and such loss could be material. To the extent the carrying amount of a real estate asset, or asset group, exceeds the associated estimate of undiscounted cash flows, an impairment loss is recorded to reduce the carrying value of the asset to its fair value.
 
The determination of the fair value of real estate assets is also highly subjective, especially in markets where there is a lack of recent comparable transactions. We primarily utilize the income approach to

6
DUKE REALTY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements


estimate the fair value of our income producing real estate assets. To the extent that the assumptions used in testing long-lived assets for impairment differ from those of a marketplace participant, the assumptions are modified in order to estimate the fair value of a real estate asset when an impairment charge is measured. In addition to determining future cash flows, which make the estimation of a real estate asset’s undiscounted cash flows highly subjective, the selection of the discount rate and exit capitalization rate used in applying the income approach is also highly subjective.
Real estate assets classified as held- for- sale are reported at the lower of their carrying value or their fair value, less estimated costs to sell. Once a property is designated as held-for-sale, no further depreciation expense is recorded.
Purchase Accounting
On January 1, 2009, we adopted the new accounting standard (FASB ASC 805) on purchase accounting, which required acquisition related costs to be expensed immediately as period costs. This new standard also requires that (i) 100% of the assets and liabilities of an acquired entity, as opposed to the amount proportional to the portion acquired, must be recorded at fair value upon an acquisition and (ii) a gain or loss must be recognized for the difference between the fair value and the carrying value of any existing ownership interests in acquired entities. Finally, this new standard requires that contingencies arising from a business combination be recorded at fair value if the acquisition date fair value can be determined during the measurement period.
We allocate the purchase price of acquired properties to net tangible and identified intangible assets based on their respective fair values, using all pertinent information available at the date of acquisition. The allocation to tangible assets (buildings, tenant improvements and land) is based upon management’s determination of the value of the property as if it were vacant using discounted cash flow models similar to those used by independent appraisers. Factors considered by management include an estimate of carrying costs during the expected lease-up periods considering current market conditions, and costs to execute similar leases. The purchase price of real estate assets is also allocated among three categories of intangible assets consisting of the above or below market component of in-place leases, the value of in-place leases and the value of customer relationships.
The value allocable to the above or below market component of an acquired in-place lease is determined based upon the present value (using a discount rate which reflects the risks associated with the acquired leases) of the difference between (i) the contractual amounts to be paid pursuant to the lease over its remaining term and (ii) management’s estimate of the amounts that would be paid using fair market rates over the remaining term of the lease. The amounts allocated to above market leases are included in deferred leasing and other costs in the balance sheet and below market leases are included in other liabilities in the balance sheet; both are amortized to rental income over the remaining terms of the respective leases.
The total amount of intangible assets is further allocated to in-place lease values and to customer relationship values based upon management’s assessment of their respective values. These intangible assets are included in deferred leasing and other costs in the balance sheet and are depreciated over the remaining term of the existing lease, or the anticipated life of the customer relationship, as applicable.
 
Joint Ventures
We have equity interests in unconsolidated joint ventures that own and operate rental properties and hold land for development. We consolidate those joint ventures that are considered to be variable interest

7
DUKE REALTY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements


entities (“VIEs”) where we are the primary beneficiary. We analyze our investments in joint ventures to determine if the joint venture is considered a VIE and would require consolidation. We (i) evaluate the sufficiency of the total equity investment at risk, (ii) review the voting rights and decision-making authority of the equity investment holders as a group, and whether there are any guaranteed returns, protection against losses, or capping of residual returns within the group and (iii) establish whether activities within the venture are on behalf of an investor with disproportionately few voting rights in making this VIE determination. We would consolidate a venture that is determined to be a VIE if we were the primary beneficiary.
On January 1, 2010, we adopted a new accounting standard that eliminated the primarily quantitative model previously in effect to determine the primary beneficiary of a VIE and replaced it with a qualitative model that focuses on which entities have the power to direct the activities of the VIE as well as the obligation or rights to absorb the VIE’s losses or receive its benefits. This new standard requires assessments at each reporting period of which party within the VIE is considered the primary beneficiary and also requires a number of new disclosures related to VIEs. The reconsideration of the initial determination of VIE status is still based on the occurrence of certain events. We were not the primary beneficiary of any VIEs at January 1, 2010 and the implementation of this new accounting standard did not have a material impact on our results of operation or financial condition.
During 2010, events took place within two of our unconsolidated joint ventures that required us to re-evaluate our previous conclusions that these two joint ventures were not VIEs. Upon reconsideration, we determined that the fair values of the equity investments at risk were not sufficient, when considering their overall capital requirements, and we therefore concluded that these two ventures now meet the applicable criteria to be considered VIEs.
These two joint ventures were formed with the sole purpose of developing, constructing, leasing, marketing and selling properties for a profit. The majority of the business activities of these joint ventures are financed with third-party debt, with joint and several guarantees provided by the joint venture partners. All significant decisions for both joint ventures, including those decisions that most significantly impact each venture’s economic performance, require unanimous joint venture partner approval as well as, in certain cases, lender approval. In both joint ventures, unanimous joint venture partner approval requirements include entering into new leases, setting annual operating budgets, selling an underlying property, and incurring additional indebtedness. Because no single variable interest holder exercises control over the decisions that most significantly affect each venture’s economic performance, we determined that the equity method of accounting is still appropriate for these joint ventures.
 
The following is a summary of the carrying value in our consolidated balance sheet, as well as our maximum loss exposure under guarantees, for entities we have determined to be VIEs as of December 31, 2010: 
 
 
 
 
Carrying Value
Maximum Loss
Exposure
Investment in Unconsolidated Company
$ 31.7 million
$ 31.7 million
Guarantee Obligations (1)
$ (25.2) million
$ (63.7) million
 
(1)
We are party to joint and several guarantees of the third-party debt of both of these joint ventures and our maximum loss exposure is equal to the maximum monetary obligation pursuant to the guarantee agreements. In 2009, we recorded a liability for our probable future obligation under a guarantee to the lender of one of these ventures. Pursuant to an agreement with the lender, we may make member loans to this joint venture that will reduce our maximum guarantee obligation on a dollar- for- dollar basis. The carrying value of our recorded guarantee obligations is included in other liabilities in our Consolidated Balance Sheets.

8
DUKE REALTY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements


To the extent that our joint ventures do not qualify as VIEs, we consolidate those joint ventures that we control through majority ownership interests or where we are the managing member and our partner does not have substantive participating rights. Control is further demonstrated by the ability of the general partner to manage day-to-day operations, refinance debt and sell the assets of the joint venture without the consent of the limited partner and inability of the limited partner to replace the general partner. We use the equity method of accounting for those joint ventures where we do not have control over operating and financial policies. Under the equity method of accounting, our investment in each joint venture is included on our balance sheet; however, the assets and liabilities of the joint ventures for which we use the equity method are not included on our balance sheet.
To the extent that we contribute assets to a joint venture, our investment in the joint venture is recorded at our cost basis in the assets that were contributed to the joint venture. To the extent that our cost basis is different than the basis reflected at the joint venture level, the basis difference is amortized over the life of the related asset and included in our share of equity in net income of the joint venture. We recognize gains on the contribution or sale of real estate to joint ventures, relating solely to the outside partner’s interest, to the extent the economic substance of the transaction is a sale.
Cash Equivalents
Investments with an original maturity of three months or less are classified as cash equivalents.
Valuation of Receivables
We reserve the entire receivable balance, including straight-line rent, of any tenant with an amount outstanding over 90 days. Additional reserves are recorded for more current amounts, as applicable, where we have determined collectability to be doubtful. Straight-line rent receivables for any tenant with long-term risk, regardless of the status of current rent receivables, are reviewed and reserved as necessary.
Deferred Costs
Costs incurred in connection with obtaining financing are amortized to interest expense over the term of the related loan. All direct and indirect costs, including estimated internal costs, associated with the leasing of real estate investments owned by us are capitalized and amortized over the term of the related lease. We include lease incentive costs, which are payments made on behalf of a tenant to sign a lease, in deferred leasing costs and amortize them on a straight-line basis over the respective lease terms as a reduction of rental revenues. We include as lease incentives amounts funded to construct tenant improvements owned by the tenant. Unamortized costs are charged to expense upon the early termination of the lease or upon early payment of the financing.
 
Convertible Debt Accounting
On January 1, 2009, we adopted a new accounting standard (FASB ASC 470) for convertible debt instruments that may be settled in cash upon conversion. This new standard required separate accounting for the debt and equity components of certain convertible instruments. Our 3.75% Exchangeable Senior Notes (“Exchangeable Notes”), issued in November 2006, have an exchange rate of 20.47 common shares per $1,000 principal amount of the notes, representing an exchange price of $48.85 per share of our common stock. The Exchangeable Notes were subject to the accounting changes required by this new standard, which required that the value assigned to the debt component equal the estimated fair value of debt with similar contractual cash flows, but without the conversion feature, resulting in the debt being recorded at a discount. The resulting debt discount will be amortized over the period from its issuance through November 2011, the first optional redemption date, as additional non-cash interest expense. We

9
DUKE REALTY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements


were required to apply this new accounting standard retrospectively to prior periods.
At December 31, 2010, the Exchangeable Notes had $167.6 million of principal outstanding, an unamortized discount of $2.1 million and a net carrying amount of $165.6 million. The carrying amount of the equity component was $34.7 million at December 31, 2010. Subsequent to the implementation of the new standard, interest expense is recognized on the Exchangeable Notes at an effective rate of 5.6%. The increase to interest expense (in thousands) on the Exchangeable Notes, which led to a corresponding decrease to net income, for the years ended December 31, 2010, 2009 and 2008 is summarized as follows:
 
 
2010
 
2009
 
2008
Interest expense on Exchangeable Notes, excluding effect of accounting for convertible debt
$
7,136

 
$
14,850

 
$
21,574

Effect of accounting for convertible debt
2,474

 
5,024

 
6,536

Total interest expense on Exchangeable Notes
$
9,610

 
$
19,874

 
$
28,110

Noncontrolling Interests
On January 1, 2009, we adopted a new accounting standard (FASB ASC 810) on noncontrolling interests, which required noncontrolling interests (previously referred to as minority interests) to be reported as a component of total equity, resulting in retroactive changes to the presentation of the noncontrolling interests in the consolidated balance sheets and statements of operations. This new standard also modified the accounting for changes in the level of ownership in consolidated subsidiaries.
Noncontrolling interests relate to the minority ownership interests in DRLP and interests in consolidated property partnerships that are not wholly owned. Noncontrolling interests are subsequently adjusted for additional contributions, distributions to noncontrolling holders and the noncontrolling holders’ proportionate share of the net earnings or losses of each respective entity.
Prior to January 1, 2009, when a Unit was redeemed (Note 1), the difference between the aggregate book value and the purchase price of the Unit increased the recorded value of our net assets. For redemptions of Units subsequent to January 1, 2009, the change in ownership is treated as an equity transaction and there is no effect on our earnings or net assets.
Revenue Recognition
Rental and Related Revenue
The timing of revenue recognition under an operating lease is determined based upon ownership of the tenant improvements. If we are the owner of the tenant improvements, revenue recognition commences after the improvements are completed and the tenant takes possession or control of the space. In contrast, if we determine that the tenant allowances we are funding are lease incentives, then we commence revenue recognition when possession or control of the space is turned over to the tenant. Rental income from leases with free rental periods or scheduled rental increases during their terms is recognized on a straight-line basis.
We record lease termination fees when a tenant has executed a definitive termination agreement with us and the payment of the termination fee is not subject to any material conditions that must be met or waived before the fee is due to us.
General Contractor and Service Fee Revenue
Management fees are based on a percentage of rental receipts of properties managed and are recognized as

10
DUKE REALTY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements


the rental receipts are collected. Maintenance fees are based upon established hourly rates and are recognized as the services are performed. Construction management and development fees represent fee-based third-party contracts and are recognized as earned based on the terms of the contract, which approximates the percentage of completion method.
We recognize income on construction contracts where we serve as a general contractor on the percentage of completion method. Using this method, profits are recorded based on our estimates of the percentage of completion of individual contracts, commencing when the work performed under the contracts reaches a point where the final costs can be estimated with reasonable accuracy. The percentage of completion estimates are based on a comparison of the contract expenditures incurred to the estimated final costs. Changes in job performance, job conditions and estimated profitability may result in revisions to costs and income and are recognized in the period in which the revisions are determined.
Receivables on construction contracts were in an over-billed position of $160,000 and $470,000 at December 31, 2010 and 2009.
Property Sales
Gains on sales of all properties are recognized in accordance with FASB ASC 360-20. The specific timing of the sale of a building is measured against various criteria in FASB ASC 360-20 related to the terms of the transactions and any continuing involvement in the form of management or financial assistance from the seller associated with the properties. We make judgments based on the specific terms of each transaction as to the amount of the total profit from the transaction that we recognize considering factors such as continuing ownership interest we may have with the buyer (“partial sales”) and our level of future involvement with the property or the buyer that acquires the assets. If the full accrual sales criteria are not met, we defer gain recognition and account for the continued operations of the property by applying the finance, installment or cost recovery methods, as appropriate, until the full accrual sales criteria are met. Estimated future costs to be incurred after completion of each sale are included in the determination of the gain on sales.
To the extent that a property has had operations prior to sale, and that we do not have continuing involvement with the property, gains from sales of depreciated property are included in discontinued operations and the proceeds from the sale of these held-for-rental properties are classified in the investing activities section of the Consolidated Statements of Cash Flows.
Gains or losses from our sale of properties that were developed or repositioned with the intent to sell and not for long-term rental (“Build-for-Sale” properties) are classified as gain on sale of properties in the Consolidated Statements of Operations. Other rental properties that do not meet the criteria for presentation as discontinued operations are also classified as gain on sale of properties in the Consolidated Statements of Operations.
Net Income (Loss) Per Common Share
Basic net income (loss) per common share is computed by dividing net income (loss) attributable to common shareholders, less dividends on share-based awards expected to vest, by the weighted average number of common shares outstanding for the period. Diluted net income (loss) per common share is computed by dividing the sum of basic net income (loss) attributable to common shareholders and the noncontrolling interest in earnings allocable to Units not owned by us (to the extent the Units are dilutive), by the sum of the weighted average number of common shares outstanding and, to the extent they are dilutive, partnership Units outstanding, as well as any potential dilutive securities for the period.

11
DUKE REALTY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements


During the first quarter of 2009, we adopted a new accounting standard (FASB ASC 260-10) on participating securities, which we have applied retrospectively to prior period calculations of basic and diluted earnings per common share. Pursuant to this new standard, certain of our share-based awards are considered participating securities because they earn dividend equivalents that are not forfeited even if the underlying award does not vest.
The following table reconciles the components of basic and diluted net income (loss) per common share (in thousands):
 
 
2010
 
2009
 
2008
Net income (loss) attributable to common shareholders
$
(14,108
)
 
$
(333,601
)
 
$
50,408

Less: Dividends on share-based awards expected to vest
(2,513
)
 
(1,759
)
 
(1,631
)
Basic net income (loss) attributable to common shareholders
(16,621
)
 
(335,360
)
 
48,777

Noncontrolling interest in earnings of common unitholders
—

 
—

 
2,640

Diluted net income (loss) attributable to common shareholders
$
(16,621
)
 
$
(335,360
)
 
$
51,417

 
 
 
 
 
 
Weighted average number of common shares outstanding
238,920

 
201,206

 
146,915

Weighted average partnership Units outstanding
—

 
—

 
7,619

Other potential dilutive shares
—

 
—

 
19

Weighted average number of common shares and potential dilutive securities
238,920

 
201,206

 
154,553

 
The partnership Units are anti-dilutive for the years ended December 31, 2010 and 2009, as a result of the net loss for these periods. In addition, substantially all potential shares related to our stock-based compensation plans as well as our 3.75% Exchangeable Senior Notes (“Exchangeable Notes”) are anti-dilutive for all years presented. The following table summarizes the data that is excluded from the computation of net income (loss) per common share as a result of being anti-dilutive (in thousands):
 
 
2010
 
2009
 
2008
Noncontrolling interest in earnings of common unitholders
$
351

 
$
11,099

 
$
—

Weighted average partnership Units outstanding
5,950

 
6,687

 
—

Other potential dilutive shares:
 
 
 
 
 
Anti-dilutive potential shares under stock-based compensation plans
4,713

 
7,872

 
8,219

Anti-dilutive potential shares under the Exchangeable Notes
3,890

 
8,089

 
11,771

Federal Income Taxes
We have elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended. To qualify as a REIT, we must meet a number of organizational and operational requirements, including a requirement to distribute at least 90% of our adjusted taxable income to our stockholders. Management intends to continue to adhere to these requirements and to maintain our REIT status. As a REIT, we are entitled to a tax deduction for some or all of the dividends we pay to shareholders. Accordingly, we generally will not be subject to federal income taxes as long as we currently distribute to shareholders an amount equal to or in excess of our taxable income. We are also generally subject to federal income taxes on any taxable income that is not currently distributed to our shareholders. If we fail to qualify as a REIT in any taxable year, we will be subject to federal income taxes and may not be able to qualify as a REIT for four subsequent taxable years.
REIT qualification reduces, but does not eliminate, the amount of state and local taxes we pay. In addition, our financial statements include the operations of taxable corporate subsidiaries that are not entitled to a dividends paid deduction and are subject to corporate federal, state and local income taxes. As a REIT, we

12
DUKE REALTY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements


may also be subject to certain federal excise taxes if we engage in certain types of transactions.
The following table reconciles our net income (loss) to taxable income (loss) before the dividends paid deduction for the years ended December 31, 2010, 2009 and 2008 (in thousands):
 
 
2010
 
2009
 
2008
Net income (loss)
$
65,262

 
$
(271,490
)
 
$
110,408

Book/tax differences
78,178

 
441,784

 
127,607

Taxable income before adjustments
143,440

 
170,294

 
238,015

Less: capital gains
(62,477
)
 
(10,828
)
 
(80,069
)
Adjusted taxable income subject to 90% distribution requirement
$
80,963

 
$
159,466

 
$
157,946

Our dividends paid deduction is summarized below (in thousands):
 
 
2010
 
2009
 
2008
Cash dividends paid
$
231,446

 
$
224,784

 
$
355,782

Cash dividends declared and paid in current year that apply to previous year
—

 
—

 
(52,471
)
Less: Capital gain distributions
(62,477
)
 
(10,828
)
 
(80,069
)
Less: Return of capital
(82,283
)
 
(49,321
)
 
(59,709
)
Total dividends paid deduction attributable to adjusted taxable income
$
86,686

 
$
164,635

 
$
163,533

 
A summary of the tax characterization of the dividends paid for the years ended December 31, 2010, 2009 and 2008 follows:
 
 
2010
 
2009
 
2008
Common Shares
 
 
 
 
 
Ordinary income
24.9
%
 
69.0
%
 
39.3
%
Return of capital
56.3
%
 
26.4
%
 
27.3
%
Capital gains
18.8
%
 
4.6
%
 
33.4
%
 
100.0
%
 
100.0
%
 
100.0
%
Preferred Shares
 
 
 
 
 
Ordinary income
57.0
%
 
93.7
%
 
70.2
%
Capital gains
43.0
%
 
6.3
%
 
29.8
%
 
100.0
%
 
100.0
%
 
100.0
%
Refinements to our operating strategy in 2009 caused us to reduce our projections of taxable income in our taxable REIT subsidiary. As the result of these changes in our projections, we determined that it was more likely than not that the taxable REIT subsidiary would not generate sufficient taxable income to realize any of its deferred tax assets. Accordingly, a full valuation allowance was established for our deferred tax assets in 2009, which we have continued to maintain through December 31, 2010. Income taxes are not material to our operating results or financial position.
We received income tax refunds, net of federal and state income tax payments, of $19.7 million in 2010. We paid federal and state income taxes of $800,000 and $3.5 million in 2009 and 2008, respectively. The taxable REIT subsidiaries have no significant net deferred income tax or unrecognized tax benefit items.
Derivative Financial Instruments
We periodically enter into certain interest rate protection agreements to effectively convert or cap floating rate debt to a fixed rate, and to hedge anticipated future financing transactions, both of which qualify for cash flow hedge accounting treatment. Net amounts paid or received under these agreements are recognized as an adjustment to the interest expense of the corresponding debt. We do not utilize derivative

13
DUKE REALTY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements


financial instruments for trading or speculative purposes.
If a derivative qualifies as a cash flow hedge, the change in fair value of the derivative is recognized in other comprehensive income to the extent the hedge is effective, while the ineffective portion of the derivative’s change in fair value is recognized in earnings. Gains and losses on our interest rate protection agreements are subsequently included in earnings as an adjustment to interest expense in the same periods in which the related interest payments being hedged are recognized in earnings.
We estimate the fair value of derivative instruments using standard market conventions and techniques such as discounted cash flow analysis, option pricing models and termination cost at each balance sheet date. For all hedging relationships, we formally document the hedging relationship and its risk-management objective and strategy for undertaking the hedge, the hedging instrument, the hedged item, the nature of the risk being hedged, how the hedging instrument’s effectiveness in offsetting the hedged risk will be assessed prospectively and retrospectively, and a description of the method of measuring ineffectiveness.
Fair Value Measurements
On January 1, 2009, we adopted a new accounting standard (FASB ASC 820) that establishes a framework for measuring fair value of non-financial assets and liabilities that are not required or permitted to be measured at fair value on a recurring basis but only in certain circumstances, such as a business combination.
 
Assets and liabilities recorded at fair value on the consolidated balance sheets are categorized based on the inputs to the valuation techniques as follows:
Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities to which we have access.
Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices), such as interest rates and yield curves that are observable at commonly quoted intervals.
Level 3 inputs are unobservable inputs for the asset or liability, which are typically based on an entity’s own assumptions, as there is little, if any, related market activity.
In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.
Use of Estimates
The preparation of the financial statements requires management to make a number of estimates and assumptions that affect the reported amount of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. The most significant estimates, as discussed within our Summary of Significant Accounting Policies, pertain to the critical assumptions utilized in testing real estate assets for impairment as well as in estimating the fair value of real estate assets when an impairment event has taken place.

14
DUKE REALTY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements


Actual results could differ from those estimates.
 
(3)
Significant Acquisitions and Dispositions
2010 Acquisition of Remaining Interest in Dugan Realty, L.L.C.
On July 1, 2010, we acquired our joint venture partner’s 50% interest in Dugan Realty, L.L.C. (“Dugan”), a real estate joint venture that we had previously accounted for using the equity method, for a payment of $166.7 million. Dugan held $28.1 million of cash at the time of acquisition, which resulted in a net cash outlay of $138.6 million. As the result of this transaction we obtained 100% of Dugan’s membership interests.
At the date of acquisition, Dugan owned 106 industrial buildings totaling 20.8 million square feet and 63 net acres of undeveloped land located in Midwest and Southeast markets. Dugan had a secured loan with a face value of $195.4 million due in October 2010, which was repaid at its scheduled maturity date, and a secured loan with a face value of $87.6 million due in October 2012 (see Note 8). The acquisition was completed in order to pursue our strategy to increase our overall allocation to industrial real estate assets.
 
The following table summarizes our allocation of the fair value of amounts recognized for each major class of assets and liabilities (in thousands):
 
 
 
Real estate assets
$
502,418

Lease related intangible assets
107,155

Other assets
28,658

Total acquired assets
$
638,231

 
 
Secured debt
$
285,376

Other liabilities
20,243

Total assumed liabilities
$
305,619

 
 
Fair value of acquired net assets (represents 100% interest)
$
332,612

We previously managed and performed other ancillary services for Dugan’s properties and, as a result, Dugan had no employees of its own and no separately recognizable brand identity. As such, we determined that the consideration paid to the seller, plus the fair value of the incremental share of the assumed liabilities, represented the fair value of the additional interest in Dugan that we acquired, and that no goodwill or other non-real estate related intangible assets were required to be recognized through the transaction. Accordingly, we also determined that the fair value of the acquired ownership interest in Dugan equaled the fair value of our existing ownership interest.
In conjunction with acquiring our partner’s ownership interest in Dugan, we derecognized a $50.0 million liability related to a put option held by our partners. The put liability was originally recognized in October 2000, in connection with a sale of industrial properties and undeveloped land to Dugan, at which point our joint venture partner was given an option to put up to $50.0 million of its interest in Dugan to us in exchange for our common stock or cash (at our option). Our gain on acquisition, considering the derecognition of the put liability, was calculated as follows (in thousands):
 

15
DUKE REALTY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements


 
 
Fair value of existing interest (represents 50% interest)
$
166,306

Less:
 
Carrying value of investment in Dugan
158,591

Put option liability derecognized
(50,000
)
 
108,591

Gain on acquisition
$
57,715

Since the acquisition date, Dugan’s results of operations have been included in continuing operations in our consolidated financial statements and have generated $38.7 million of incremental rental revenue, $4.4 million of incremental rental expenses, and $7.1 million of incremental real estate tax expense. We additionally have recognized $5.2 million of interest expense, subsequent to the acquisition date, related to Dugan’s two secured loans.
Other 2010 Acquisitions
We also acquired additional properties during the year ended December 31, 2010 as shown below:
 
 
 
 
Location
Product Type
Number of Buildings
Phoenix, Arizona
Industrial
1

South Florida
Industrial
40

Houston, Texas
Industrial
3

Chicago, Illinois
Industrial
2

Nashville, Tennessee
Industrial
1

Columbus, Ohio
Industrial
1

Charlotte, North Carolina
Medical Office
1

South Florida
Office
3

 
The following table summarizes our preliminary allocation of the fair value of amounts recognized for each major class of assets and liabilities (in thousands):
 
 
 
Real estate assets
$
483,396

Lease related intangible assets
122,069

Other assets
6,822

Total acquired assets
$
612,287

 
 
Secured and unsecured debt
$
221,696

Other liabilities
9,194

Total assumed liabilities
$
230,890

 
 
Fair value of acquired net assets
$
381,397

The above acquisitions include the first tranche of a portfolio of primarily industrial properties in South Florida (the “Premier Portfolio”), which we purchased on December 30, 2010 for $281.7 million, including the assumption of secured debt that had a face value of $155.7 million. The first tranche included 39 buildings totaling more than 3.4 million square feet, comprised of 38 industrial properties and one office property. We intend, and are under contract, to acquire another 17 buildings to complete the

16
DUKE REALTY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements


acquisition of the Premier Portfolio in early 2011. The acquisition of the Premier Portfolio includes an earn-out provision where we have agreed to pay the sellers 25% of any increase in the fair value of the properties over an agreed-upon value, less our additional capital investments in the buildings, at the end of the five year period subsequent to the acquisition. At the time of acquisition, we estimated the fair value of this contingent payment to be inconsequential and, as such, have not recorded any liability as part of purchase accounting. Any subsequent changes to this estimate will be recognized through future earnings. Overall purchase accounting allocations for the first tranche of the Premier Portfolio are preliminary as of December 31, 2010.
2009 Consolidation of Retail Joint Ventures
Through March 31, 2009, we were a member in two retail real estate joint ventures with a retail developer. Both entities were jointly controlled by us and our partner, through equal voting interests, and were accounted for as unconsolidated subsidiaries under the equity method. As of April 1, 2009, we had made combined equity contributions of $37.9 million to the two entities and we also had combined outstanding principal and accrued interest of $173.0 million on advances to the two entities.
We advanced $2.0 million to the two entities, who then distributed the $2.0 million to our partner in exchange for the redemption of our partner’s membership interests, effective April 1, 2009, at which time we obtained 100% control of the voting interests of both entities. We entered into these transactions to gain control of these two entities because it allowed us to operate and potentially dispose of the entities in a manner that best serves our capital needs.
In conjunction with the redemption of our partner’s membership interests, we entered a profits interest agreement that entitles our former partner to additional payments should the combined sale of the two acquired entities, as well as the sale of another retail real estate joint venture that we and our partner still jointly control, result in an aggregate profit. Aggregate profit on the sale of these three projects will be calculated by using a formula defined in the profits interest agreement. We have estimated that the fair value of the potential additional payment to our partner is insignificant.
 
A summary of the fair value of amounts recognized for each major class of assets and liabilities acquired is as follows (in thousands):
 
 
 
Buildings, land and tenant improvements
$
176,038

Undeveloped land
6,500

Total real estate assets
182,538

Lease related intangible assets
24,350

Other assets
3,987

Total acquired assets
210,875

Liabilities assumed
(4,023
)
Fair value of acquired net assets
$
206,852

The fair values recognized from the real estate and related assets acquired were primarily determined using the income approach. The most significant assumptions in the fair value estimates were the discount rates and the exit capitalization rates. The estimates of fair value were determined to have primarily relied upon Level 3 inputs.
We recognized a loss of $1.1 million upon acquisition, which represents the difference between the fair value of the recognized assets and the carrying value of our pre-existing equity interest. The acquisition

17
DUKE REALTY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements


date fair value of the net recognized assets as compared to the acquisition date carrying value of our outstanding advances and accrued interest, as well as the acquisition date carrying value of our pre-existing equity interests, is shown as follows (in thousands):
 
 
 
Net fair value of acquired assets and liabilities
$
206,852

Less advances to acquired entities eliminated upon consolidation
(173,006
)
Less acquisition date carrying value of equity in acquired entities
(34,908
)
Loss on acquisition
$
(1,062
)
Since April 1, 2009, the results of operations for both acquired entities have been included in continuing operations in our consolidated financial statements. Due to our significant pre-existing ownership and financing positions in the two acquired entities, the inclusion of their results of operations did not have a material effect on our operating income.
Fair Value Measurements
The fair value estimates used in allocating the aggregate purchase price of each acquisition among the individual components of real estate assets and liabilities were determined primarily through calculating the “as-if vacant” value of each building, using the income approach, and relied significantly upon internally determined assumptions. We have, thus, determined these estimates to have been primarily based upon Level 3 inputs, which are unobservable inputs based on our own assumptions. The most significant assumptions utilized in these estimates, for our 2010 acquisitions, are summarized as follows:
 
 
 
Discount rate
8.9% -12.5%
Exit capitalization rate
7.6% - 10.5%
Lease up period
12 - 36 months
Net rental rate per square foot - Industrial
$1.80 - $8.00
Net rental rate per square foot - Office
$19.00
Net rental rate per square foot - Medical Office
$19.27
Acquisition-Related Transaction Costs
The gain on acquisition, in our consolidated Statements of Operations, for the year ended December 31, 2010 is presented net of $1.9 million of transaction costs.
 
Dispositions
We disposed of undeveloped land and income producing real estate related assets and received net proceeds of $499.5 million, $288.2 million and $459.6 million in 2010, 2009 and 2008, respectively. Included in the building dispositions in 2010 is the sale of seven suburban office buildings, totaling over 1.0 million square feet, to a newly formed subsidiary of an existing 20% owned joint venture. These buildings were sold to the new entity for an agreed value of $173.9 million, of which our 80% share of proceeds totaled $139.1 million.
All other dispositions were not individually material.
 
(4)
Related Party Transactions
We provide property management, asset management, leasing, construction and other tenant related

18
DUKE REALTY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements



services to unconsolidated companies in which we have equity interests. We recorded the corresponding fees based on contractual terms that approximate market rates for these types of services and we have eliminated our ownership percentage of these fees in the consolidated financial statements. The following table summarizes the fees earned from these companies for the years ended December 31, 2010, 2009 and 2008, respectively (in millions):
 
 
2010
 
2009
 
2008
Management fees
$
7.6

 
$
8.4

 
$
7.8

Leasing fees
2.7

 
4.2

 
2.8

Construction and development fees
10.3

 
10.2

 
12.7

 
(5)
Investments in Unconsolidated Companies
We have equity interests in unconsolidated joint ventures that develop, own and operate rental properties and hold land for development.
Combined summarized financial information for the unconsolidated companies as of December 31, 2010 and 2009, and for the years ended December 31, 2010, 2009 and 2008, are as follows (in thousands):
 
 
2010
 
2009
 
2008
Rental revenue
$
228,378

 
$
254,787

 
$
250,312

Net income
$
19,202

 
$
9,760

 
$
40,437

 
 
 
 
 
 
Land, buildings and tenant improvements, net
$
1,687,228

 
$
2,072,435

 
 
Construction in progress
120,834

 
128,257

 
 
Undeveloped land
177,473

 
176,356

 
 
Other assets
242,461

 
260,249

 
 
 
$
2,227,996

 
$
2,637,297

 
 
 
 
 
 
 
 
Indebtedness
$
1,082,823

 
$
1,319,696

 
 
Other liabilities
66,471

 
75,393

 
 
 
1,149,294

 
1,395,089

 
 
Owners’ equity
1,078,702

 
1,242,208

 
 
 
$
2,227,996

 
$
2,637,297

 
 
 
Dugan generated $42.5 million in revenues and $6.4 million of net income in the six months of 2010 prior to its July 1 consolidation. Dugan generated $85.7 million and $90.3 million of revenues and $12.5 million and $16.8 million of net income during 2009 and 2008, respectively, and had total assets of $649.3 million as of December 31, 2009.
Our share of the scheduled principal payments of long term debt for the unconsolidated joint ventures for each of the next five years and thereafter as of December 31, 2010 are as follows (in thousands):
 

19
DUKE REALTY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements


 
Year
Future Repayments
 
 
2011
$
72,349

 
2012
3,710

 
2013
70,522

 
2014
30,157

 
2015
57,486

 
Thereafter
127,614

 
 
$
361,838

 
(6)
Discontinued Operations and Assets Held for Sale

The amounts described in the following paragraphs and tables have been reclassified from the previously filed consolidated financial statements to reflect the reclassification of the operations of certain properties to discontinued operations. The results of operations for properties sold or classified as held for sale in the first nine months of 2011 have been reclassified as income from discontinued operations for the years ended December 31, 2010, 2009 and 2008 in the consolidated statements of operations. Of the 14 properties sold during the period January 1, 2011 through September 30, 2011, eight properties were classified as held for sale as of December 31, 2010.
The following table illustrates the number of properties in discontinued operations:
 
 
Held for Sale as of September 30, 2011
 
Sold in 2011
 
Sold in 2010
 
Sold in 2009
 
Sold in 2008
 
Total
 
 
 
 
 
 
Office
3

 
11

 
11

 
5

 
4

 
34

Industrial
—

 
3

 
6

 
—

 
4

 
13

Retail
—

 
—

 
2

 
—

 
—

 
2

 
3

 
14

 
19

 
5

 
8

 
49

We allocate interest expense to discontinued operations and have included such interest expense in computing income from discontinued operations. Interest expense allocable to discontinued operations includes interest on any secured debt for properties included in discontinued operations and an allocable share of our consolidated unsecured interest expense for unencumbered properties. The allocation of unsecured interest expense to discontinued operations was based upon the gross book value of the unencumbered real estate assets included in discontinued operations as it related to the total gross book value of our unencumbered real estate assets.
The following table illustrates operations of the buildings reflected in discontinued operations for the years ended December 31 (in thousands):
 
 
2010
 
2009
 
2008
Revenues
$
48,437

 
$
67,702

 
$
87,529

Operating expenses
(19,292
)
 
(25,234
)
 
(31,053
)
Depreciation and amortization
(13,395
)
 
(19,161
)
 
(25,208
)
Operating income
15,750

 
23,307

 
31,268

Interest expense
(12,115
)
 
(17,252
)
 
(21,487
)
Income before impairment charges and gain on sales
3,635

 
6,055

 
9,781

Impairment charges
—

 
(27,206
)
 
(1,266
)
Gain on sale of depreciable properties
33,054

 
6,786

 
16,961

Income (loss) from discontinued operations
$
36,689

 
$
(14,365
)
 
$
25,476

 

20
DUKE REALTY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements


Dividends on preferred shares and adjustments for repurchase of preferred shares are allocated entirely to continuing operations. The following table illustrates the allocation of the income (loss) attributable to common shareholders between continuing operations and discontinued operations, reflecting an allocation of income or loss attributable to noncontrolling interests between continuing and discontinued operations, for the years ended December 31, 2010, 2009 and 2008, respectively (in thousands):
 
 
2010
 
2009
 
2008
Income (loss) from continuing operations attributable to common shareholders
$
(49,906
)
 
$
(319,698
)
 
$
26,188

Income (loss) from discontinued operations attributable to common shareholders
35,798

 
(13,903
)
 
24,220

Net income (loss) attributable to common shareholders
$
(14,108
)
 
$
(333,601
)
 
$
50,408

At December 31, 2010, we classified nine properties as held-for-sale, which were included in discontinued operations. Additionally, we have classified 15 in-service properties as held-for-sale, but have included the results of operations of these properties in continuing operations, either based on our present intention to sell the properties to entities in which we will retain a minority equity ownership interest or because of continuing involvement through a management agreement. The following table illustrates aggregate balance sheet information of the aforementioned nine properties included in discontinued operations, as well as the 15 held-for-sale properties whose results are included in continuing operations at December 31, 2010 (in thousands):
 
 
Properties
Included in
Discontinued
Operations
 
Properties
Included in
Continuing
Operations
 
Total
Held-for-Sale
Properties
Balance Sheet:
 
 
 
 
 
Real estate investment, net
$
89,643

 
$
265,049

 
$
354,692

Other assets
9,557

 
30,038

 
39,595

Total assets held-for-sale
$
99,200

 
$
295,087

 
$
394,287

 
 
 
 
 
 
Accrued expenses
$
2,936

 
$
6,679

 
$
9,615

Other liabilities
1,789

 
3,328

 
5,117

Total liabilities held-for-sale
$
4,725

 
$
10,007

 
$
14,732

 
(7)
Impairments and Other Charges
The following table illustrates impairment and other charges recognized during the years ended December 31, 2010, 2009 and 2008, respectively (in thousands):
 
 
2010
 
2009
 
2008
Undeveloped land
$
9,834

 
$
136,581

 
$
8,632

Buildings
—

 
78,087

 
2,799

Investments in unconsolidated companies
—

 
56,437

 
—

Other real estate related assets
—

 
31,461

 
—

Impairment charges
$
9,834

 
$
302,566

 
$
11,431

Less: Impairment charges included in discontinued operations
—

 
(27,206
)
 
(1,266
)
Impairment charges - continuing operations
$
9,834

 
$
275,360

 
$
10,165

 
Land and Buildings
During 2009, we refined our operating strategy and one result of this change in strategy was the decision to dispose of approximately 1,800 acres of land, which had a total cost basis of $385.3 million, rather than holding them for future development. Our change in strategy for this land triggered the requirement to

21
DUKE REALTY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements


conduct an impairment analysis, which resulted in a determination that a significant portion of the land was impaired. We recognized impairment charges on land of $136.6 million in 2009, primarily as the result of writing down the land that was identified for disposition, and determined to be impaired, to fair value. As part of determining the fair value of the non-strategic land in connection with the impairment analysis, we considered estimates made by national and local independent real estate brokers who were familiar both with the land parcels subject to evaluation as well as with conditions in the specific markets where the land was located. There were few, if any, recent and representative transactions in many of the markets where our non-strategic land was, or is still, located upon which we could base our impairment analysis. In such instances, we considered older comparable transactions, while adjusting estimated values downward to reflect the troubled condition of the overall economy at the time, constraints on available capital for potential buyers, and the resultant effect of both of these factors on real estate prices. In all cases, members of our senior management that were responsible for the individual markets where the non-strategic land was located and members of the Company’s accounting and financial management team reviewed the broker’s estimates for factual accuracy and reasonableness. In almost all cases, our estimate of fair value was comparable to that estimated by the brokers; however, we were ultimately responsible for all valuation estimates made in determining the extent of the impairment. Actual sales of our undeveloped land targeted for disposition could be at prices that differ significantly from our estimates and additional impairments may be necessary in the future in the event market conditions deteriorate further. Our valuation estimates primarily relied upon Level 3 inputs, as defined earlier in this report.
During 2009, we also reviewed our existing portfolio of buildings and determined that several buildings, which had previously not been actively marketed for disposal, were not strategic and would not be held as long-term investments. Additionally, at various times throughout the year, we determined it appropriate to re-evaluate certain other buildings that were in various stages of the disposition process for impairment because new information was available that triggered further analysis. Impairment charges of $78.1 million were recognized for 28 office, industrial and retail buildings that were determined to be impaired, either as the result of a refinement in management’s strategy or changes in market conditions. Of the 28 commercial buildings that were determined to be impaired during 2009, the Company utilized an income approach in determining the fair value of 16 of the buildings and a market approach in determining the fair value of the other twelve buildings. The most significant assumptions, when using the income approach, included the discount rate as well as future exit capitalization rates, occupancy levels, rental rates and capital expenditures. The twelve buildings to which the market approach was applied were in various stages of the selling process. The Company’s estimates of fair value for these twelve buildings were based upon asset-specific purchase and sales contracts, letters of intent or otherwise agreed upon offer prices, with third parties. These negotiated prices were based upon, and comparable to, income approach calculations we completed as part of the selling process. Ten of these twelve properties were sold subsequent to the recognition of the impairment charge. There were no material differences in the ultimate selling price of the buildings compared to the selling price used in measuring the initial impairment charge. Fair value measurements for the buildings that were determined to be impaired relied primarily upon Level 3 inputs, as defined earlier in this report.
 
Investments in Unconsolidated Subsidiaries
We have an investment in an unconsolidated entity (the “3630 Peachtree joint venture”) whose sole activity is the development and operation of the office component of a multi-use office and residential high-rise building located in the Buckhead sub-market of Atlanta. As the result of declines in rental rates and projected increases in capital costs, we analyzed our investment during the three-month period ended September 30, 2009 and recognized an impairment charge to write off our $14.4 million investment, as we determined that an other-than-temporary decline in value had taken place. As a result of the 3630

22
DUKE REALTY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements


Peachtree joint venture’s obligations to the lender in its construction loan agreement, the likelihood that our partner will be unable to contribute its share of the additional equity to fund the 3630 Peachtree joint venture’s future capital costs, and ultimately the obligation stemming from our joint and several guarantee of the 3630 Peachtree joint venture loan, we recorded an additional liability of $36.3 million, and an equal charge to impairment expense, for our probable future obligations to the lender. The estimates of fair value utilized in determining the aforementioned charges relied primarily on Level 3 inputs, as defined earlier in this report.
Due to credit issues with its most significant tenant, an inability to renew third-party financing on acceptable terms and an increase to its projected capital expenditures, we analyzed an investment in an unconsolidated joint venture (the “Park Creek joint venture”) during the three-month period ended June 30, 2009 to determine whether there was an other-than-temporary decline in value. As a result of that analysis, we determined that an other-than-temporary decline in value had taken place and we wrote our investment in the Park Creek joint venture down to its fair value, thus recognizing a $5.8 million impairment charge. We estimated the fair value of the Park Creek joint venture using the income approach and the most significant assumption in the estimate was the expected period of time in which we would hold our investment in the joint venture. We concluded that the estimate of fair value relied primarily upon Level 3 inputs, as defined earlier in this report.
Other Real Estate Related Assets
We recognized $31.5 million of impairment charges on other real estate related assets during 2009. The impairment charges related primarily to reserving loans receivable from other real estate entities as well as writing off previously deferred development costs.
 
(8)
Indebtedness
Indebtedness at December 31, 2010 and 2009 consists of the following (in thousands):
 
 
2010
 
2009
Fixed rate secured debt, weighted average interest rate of 6.41% at December 31, 2010, and 6.67% at December 31, 2009, maturity dates ranging from 2011 to 2027
$
1,042,722

 
$
766,299

Variable rate secured debt, weighted average interest rate of 3.69% at December 31, 2010, and 3.33% at December 31, 2009, maturity dates ranging from 2012 to 2025
22,906

 
19,498

Fixed rate unsecured debt, weighted average interest rate of 6.43% at December 31, 2010, and 6.32% at December 31, 2009, maturity dates ranging from 2011 to 2028
2,948,405

 
3,052,465

Unsecured lines of credit, weighted average interest rate of 2.83% at December 31, 2010, and 1.08% at December 31, 2009, maturity dates ranging from 2011 to 2013
193,046

 
15,770

 
$
4,207,079

 
$
3,854,032

 
Fixed Rate Secured Debt
As of December 31, 2010, our secured debt was collateralized by rental properties with a carrying value of $1.8 billion and by letters of credit in the amount of $7.0 million.
The fair value of our fixed rate secured debt as of December 31, 2010 was $1.1 billion. Because our fixed rate secured debt is not actively traded in any marketplace, we used a discounted cash flow methodology to determine its fair value. Accordingly, we calculated fair value by applying an estimate of the current market rate to discount the debt’s remaining contractual cash flows. Our estimate of a current market rate, which is the most significant input in the discounted cash flow calculation, is intended to replicate debt of similar maturity and loan-to-value relationship. The estimated rates ranged from 4.80% to 6.70%, depending on the attributes of the specific loans. The current market rates we utilized were internally estimated; therefore, we have concluded that our determination of fair value for our fixed rate secured

23
DUKE REALTY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements


debt was primarily based upon Level 3 inputs, as defined earlier in this report.
On July 1, 2010, we assumed two non-recourse secured loans associated with the acquisition of Dugan, which had acquisition-date fair values of $196.6 million and $88.8 million and face values of $195.4 million and $87.6 million. The $196.6 million loan, which bore interest at a rate of 7.52%, was repaid at its maturity in October 2010 while the $88.8 million loan, which bears interest at 5.92%, matures in October 2012. Both loans were determined at acquisition to have a market interest rate of 5.25%.
In December 2010, we assumed 14 secured loans which had an acquisition date fair value of $158.2 million and a face value of $155.7 million, in conjunction with the acquisition of the Premier Portfolio. The loans carry a weighted average interest rate of 5.58% and a weighted remaining term of 3.4 years. The assumed loans were determined to have market interest rates of 5.00%.
In conjunction with two other acquisitions, we assumed two loans, with a combined acquisition date fair value of $36.4 million, in December 2010. These two loans had a combined face value of $35.8 million. The loans mature in May 2014 and October 2016 and were determined to have market interest rates of 5.25% and 5.12%.
In February, March and July 2009, we borrowed a total of $270.0 million from three 10-year fixed rate secured debt financings that are secured by 32 rental properties. The secured debt bears interest at a weighted average rate of 7.69% and matures at various points in 2019. Additionally, in June 2009, we borrowed $8.5 million from two 6.50% 10-year fixed rate mortgages due in 2019, which are secured by two properties.
Fixed Rate Unsecured Debt
Gains and losses on repurchase are shown after the write off of applicable issuance costs and other accounting adjustments.
We took the following actions during 2010 and 2009 as it pertains to our fixed rate unsecured indebtedness:
 
•
In January 2010, we repaid $99.8 million of corporate unsecured debt, which had an effective interest rate of 5.37%, at its scheduled maturity date. 
•
Throughout 2010, through a cash tender offer and open market transactions, we repurchased certain of our outstanding series of senior unsecured notes scheduled to mature in 2011 and 2013 for $292.2 million. The total face value of these repurchases was $279.9 million. We recognized a loss of $16.3 million on the repurchases after writing off applicable issuance costs and other accounting adjustments.
•
On April 1, 2010, we issued $250.0 million of senior unsecured notes that bear interest at 6.75% and mature on March 15, 2020.
•
In conjunction with one of our acquisitions in 2010, we assumed a $22.4 million unsecured loan that matures in June 2020 and bears interest at an effective rate of 6.26%. This loan was originated less than one year prior to the acquisition and we concluded that the loan’s fair value equaled its face value.
•
In February 2009, we repaid $124.0 million of 6.83% corporate unsecured debt at its scheduled maturity date.
•
Throughout 2009, we repurchased portions of various series of our senior unsecured notes with various scheduled maturity dates through December 2011, both on the open market and through cash tender offers, for $500.9 million. The total face value of these repurchases was $542.9 million. We recognized a gain of $27.5 million on the repurchases after writing off applicable

24
DUKE REALTY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements


issuance costs and other accounting adjustments. The aforementioned gains on repurchase were partially offset by a $6.8 million charge to write off fees paid for a canceled secured debt transaction.
•
In August 2009, we issued $500.0 million of senior unsecured notes in two equal tranches. The first $250.0 million of the senior unsecured notes mature in February 2015 and bear interest at an effective rate of 7.50%, while the other $250.0 million of the senior unsecured notes mature in August 2019 and bear interest at an effective rate of 8.38%.
•
In November 2009, we repaid $82.1 million of senior unsecured notes with an effective interest rate of 7.86% on their scheduled maturity date.
The fair value of our fixed rate unsecured debt as of December 31, 2010 was approximately $3.2 billion. We utilized broker estimates in estimating the fair value of our fixed rate unsecured debt. Our unsecured notes are thinly traded and, in many cases, the broker estimates were not based upon comparable transactions. The broker estimates took into account any recent trades within the same series of our fixed rate unsecured debt, comparisons to recent trades of other series of our fixed rate unsecured debt, trades of fixed rate unsecured debt from companies with profiles similar to ours, as well as overall economic conditions. We reviewed these broker estimates for reasonableness and accuracy, considering whether the estimates were based upon market participant assumptions within the principal and most advantageous market and whether any observable inputs would be more preferable indicators of fair value to the broker estimates. We concluded that the broker estimates were representative of fair value. We have determined that our estimation of the fair value of our fixed rate unsecured debt was primarily based upon Level 3 inputs. The estimated trading values of our fixed rate unsecured debt, depending on the maturity and coupon rates, ranged from 101.00% to 117.30% of face value.
The indentures (and related supplemental indentures) governing our outstanding series of notes also require us to comply with financial ratios and other covenants regarding our operations. We were in compliance with all such covenants as of December 31, 2010.
 
Unsecured Lines of Credit
Our unsecured lines of credit as of December 31, 2010 are described as follows (in thousands):
 
Description
Borrowing
Capacity
 
Maturity Date
 
Outstanding
at December 31, 2010
Unsecured Line of Credit – DRLP
$
850,000

 
February 2013
 
$
175,000

Unsecured Line of Credit – Consolidated Subsidiary
$
30,000

 
July 2011
 
$
18,046

The DRLP unsecured line of credit has a borrowing capacity of $850.0 million with an interest rate on borrowings of LIBOR plus 2.75% (equal to 3.01% for borrowings as of December 31, 2010), and matures in February 2013. Subject to certain conditions, the terms also include an option to increase the facility by up to an additional $200.0 million, for a total of up to $1.05 billion. This line of credit provides us with an option to obtain borrowings from financial institutions that participate in the line, at rates that may be lower than the stated interest rate, subject to certain restrictions.
This line of credit contains financial covenants that require us to meet certain financial ratios and defined levels of performance, including those related to fixed charge coverage and debt-to-asset value (with asset value being defined in the DRLP unsecured line of credit agreement). As of December 31, 2010, we were in compliance with all covenants under this line of credit.
The consolidated subsidiary’s unsecured line of credit allows for borrowings up to $30.0 million at a rate of LIBOR plus .85% (equal to 1.11% for outstanding borrowings as of December 31, 2010). This

25
DUKE REALTY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements


unsecured line of credit is used to fund development activities within the consolidated subsidiary and matures in July 2011 with, at our option, a 12-month extension.
To the extent that there are outstanding borrowings, we utilize a discounted cash flow methodology in order to estimate the fair value of our unsecured lines of credit. The net present value of the difference between future contractual interest payments and future interest payments based on our estimate of a current market rate represents the difference between the book value and the fair value. Our estimate of a current market rate is based upon the rate, considering current market conditions and our specific credit profile, at which we estimate we could obtain similar borrowings. The current market rate of 2.91% that we utilized was internally estimated; therefore, we have concluded that our determination of fair value for our unsecured lines of credit was primarily based upon Level 3 inputs, as defined earlier in this report.
Changes in Fair Value
As all of our fair value debt disclosures relied primarily on Level 3 inputs, the following table summarizes the book value and changes in the fair value of our debt for the year ended December 31, 2010 (in thousands):
 
 
Book
Value at
12/31/09
 
Book
Value at
12/31/10
 
Fair
Value at
12/31/09
 
Total Realized
Losses/(Gains)
 
Issuances
and
Assumptions
 
Payoffs
 
Adjustments
to Fair
Value
 
Fair Value
at 12/31/10
Fixed rate secured debt
$
766,299

 
$
1,042,722

 
$
770,255

 
$
—

 
$
479,038

 
$
(207,061
)
 
$
27,330

 
$
1,069,562

Variable rate secured debt
19,498

 
22,906

 
14,419

 
—

 
4,158

 
—

 
4,329

 
22,906

Fixed rate unsecured notes
3,052,465

 
2,948,405

 
3,042,230

 
12,317

 
272,352

 
(380,280
)
 
218,032

 
3,164,651

Unsecured lines of credit
15,770

 
193,046

 
14,714

 
—

 
177,276

 
—

 
1,234

 
193,224

Total
$
3,854,032

 
$
4,207,079

 
$
3,841,618

 
$
12,317

 
$
932,824

 
$
(587,341
)
 
$
250,925

 
$
4,450,343

 
Scheduled Maturities and Interest Paid
At December 31, 2010, the scheduled amortization and maturities of all indebtedness, excluding fair value and other accounting adjustments, for the next five years and thereafter were as follows (in thousands):
 
 
 
Year
Amount
2011
$
401,311

2012
320,780

2013
702,337

2014
319,150

2015
321,254

Thereafter
2,139,529

 
$
4,204,361

The amount of interest paid in 2010, 2009 and 2008 was $246.5 million, $224.0 million and $235.6 million, respectively. The amount of interest capitalized in 2010, 2009 and 2008 was $11.5 million, $26.9 million and $53.5 million, respectively.
 
(9)
Segment Reporting
We have three reportable operating segments, the first two of which consist of the ownership and rental of office and industrial real estate investments. The operations of our office and industrial properties, along

26
DUKE REALTY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements


with our medical office and retail properties, are collectively referred to as “Rental Operations.” Our medical office and retail properties do not meet the quantitative thresholds for separate presentation as reportable segments. The third reportable segment consists of providing various real estate services such as property management, asset management, maintenance, leasing, development and construction management to third-party property owners and joint ventures, as well as our Build-for-Sale operations (defined below), and is collectively referred to as “Service Operations.” Our reportable segments offer different products or services and are managed separately because each segment requires different operating strategies and management expertise.
Gains on sale of properties developed or acquired with the intent to sell (“Build-for-Sale” properties), and whose operations prior to sale are insignificant, are classified as part of the income of the Service Operations business segment. The periods of operation for Build-for-Sale properties prior to sale were of short duration. Build-for-Sale properties, which are no longer part of our operating strategy, did not represent a significant component of our operations in 2010 or 2009.
Other revenue consists of other operating revenues not identified with one of our operating segments. Interest expense and other non-property specific revenues and expenses are not allocated to individual segments in determining our performance measure.
 
We assess and measure our overall operating results based upon an industry performance measure referred to as Funds From Operations (“FFO”), which management believes is a useful indicator of our consolidated operating performance. FFO is used by industry analysts and investors as a supplemental operating performance measure of a REIT. The National Association of Real Estate Investment Trusts (“NAREIT”) created FFO as a supplemental measure of REIT operating performance that excludes historical cost depreciation, among other items, from net income determined in accordance with GAAP. FFO is a non-GAAP financial measure. The most comparable GAAP measure is net income (loss) attributable to common shareholders. Consolidated FFO attributable to common shareholders should not be considered as a substitute for net income (loss) attributable to common shareholders or any other measures derived in accordance with GAAP and may not be comparable to other similarly titled measures of other companies. FFO is calculated in accordance with the definition that was adopted by the Board of Governors of NAREIT. We do not allocate certain income and expenses (“Non-Segment Items” as shown in the table below) to our operating segments. Thus, the operational performance measure presented here on a segment-level basis represents net earnings excluding depreciation expense, as well as excluding the Non-Segment Items not allocated, and is not meant to present FFO as defined by NAREIT.
Historical cost accounting for real estate assets in accordance with GAAP implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values instead have historically risen or fallen with market conditions, many industry analysts and investors have considered presentation of operating results for real estate companies that use historical cost accounting to be insufficient by themselves. FFO, as defined by NAREIT, represents GAAP net income (loss), excluding extraordinary items as defined under GAAP and gains or losses from sales of previously depreciated real estate assets, plus certain non-cash items such as real estate asset depreciation and amortization, and after similar adjustments for unconsolidated partnerships and joint ventures.
Management believes that the use of consolidated FFO attributable to common shareholders, combined with net income (which remains the primary measure of performance), improves the understanding of operating results of REITs among the investing public and makes comparisons of REIT operating results more meaningful. Management believes that, by excluding gains or losses related to sales of previously depreciated real estate assets and excluding real estate asset depreciation and amortization, investors and analysts are able to readily identify the operating results of the long-term assets that form the core of a

27
DUKE REALTY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements


REIT’s activity and assist in comparing these operating results between periods or as compared to different companies.
 
The following table shows (i) the revenues and FFO for each of the reportable segments and (ii) a reconciliation of consolidated FFO attributable to common shareholders to net income (loss) attributable to common shareholders for the years ended December 31, 2010, 2009 and 2008 (in thousands):
 
 
2010
 
2009
 
2008
Revenues
 
 
 
 
 
Rental Operations:
 
 
 
 
 
Office
$
495,845

 
$
512,693

 
$
498,778

Industrial
295,815

 
254,278

 
245,152

Non-reportable Rental Operations segments
66,376

 
51,645

 
28,023

General contractor and service fee revenue
515,361

 
449,509

 
434,624

Total Segment Revenues
1,373,397

 
1,268,125

 
1,206,577

Other Revenue
11,094

 
12,377

 
19,902

Consolidated Revenue from continuing operations
1,384,491

 
1,280,502

 
1,226,479

Discontinued Operations
48,437

 
67,702

 
87,529

Consolidated Revenue
$
1,432,928

 
$
1,348,204

 
$
1,314,008

Reconciliation of Consolidated Funds From Operations
 
 
 
 
 
Net earnings excluding depreciation and Non-Segment Items
 
 
 
 
 
Office
$
286,744

 
$
300,964

 
$
298,150

Industrial
219,238

 
191,005

 
188,158

Non-reportable Rental Operations segments
43,424

 
33,886

 
17,033

Service Operations
28,496

 
21,843

 
54,938

 
577,902

 
547,698

 
558,279

Non-Segment Items:
 
 
 
 
 
Interest expense
(237,848
)
 
(204,573
)
 
(181,637
)
Impairment charges
(9,834
)
 
(275,360
)
 
(10,165
)
Interest and other income
534

 
1,229

 
1,451

Other operating expenses
(1,231
)
 
(1,017
)
 
(8,298
)
General and administrative expenses
(41,329
)
 
(47,937
)
 
(39,508
)
Gain on land sales
—

 
357

 
12,651

Undeveloped land carrying costs
(9,203
)
 
(10,403
)
 
(8,204
)
Gain (loss) on debt transactions
(16,349
)
 
20,700

 
1,953

Gain (loss) on acquisitions, net
55,820

 
(1,062
)
 
—

Income tax benefit (expense)
1,126

 
6,070

 
7,005

Other non-segment income
8,132

 
5,905

 
17,332

Net (income) loss attributable to noncontrolling interests
536

 
11,340

 
(2,620
)
Noncontrolling interest share of FFO adjustments
(7,771
)
 
(11,514
)
 
(16,527
)
Joint venture items
40,346

 
46,862

 
61,643

Dividends on preferred shares
(69,468
)
 
(73,451
)
 
(71,426
)
Adjustments for repurchase of preferred shares
(10,438
)
 
—

 
14,046

Discontinued operations
17,030

 
(1,990
)
 
33,723

Consolidated FFO attributable to common shareholders
297,955

 
12,854

 
369,698

Depreciation and amortization on continuing operations
(346,789
)
 
(320,965
)
 
(289,744
)
Depreciation and amortization on discontinued operations
(13,395
)
 
(19,161
)
 
(25,208
)
Company's share of joint venture adjustments
(34,674
)
 
(36,966
)
 
(38,321
)
Earnings (loss) from depreciated property sales on continuing operations
39,662

 
12,337

 
—

Earnings from depreciated property sales on discontinued operations
33,054

 
6,786

 
16,961

Earnings from depreciated property sales - share of joint venture
2,308

 
—

 
495

Noncontrolling interest share of FFO adjustments
7,771

 
11,514

 
16,527

Net income (loss) attributable to common shareholders
$
(14,108
)
 
$
(333,601
)
 
$
50,408

 



28
DUKE REALTY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements



The assets for each of the reportable segments as of December 31, 2010 and 2009 are as follows (in thousands):
 
 
December 31,
2010
 
December 31,
2009
Assets
 
 
 
Rental Operations:
 
 
 
Office
$
3,122,565

 
$
3,394,229

Industrial
3,210,566

 
2,233,607

Non-reportable Rental Operations segments
627,491

 
605,102

Service Operations
231,662

 
332,676

Total Segment Assets
7,192,284

 
6,565,614

Non-Segment Assets
451,992

 
738,665

Consolidated Assets
$
7,644,276

 
$
7,304,279

Tenant improvements and leasing costs to re-let rental space that had been previously under lease to tenants are referred to as second generation expenditures. Building improvements that are not specific to any tenant but serve to improve integral components of our real estate properties are also second generation expenditures. In addition to revenues and FFO, we also review our second generation capital expenditures in measuring the performance of our individual Rental Operations segments. We review these expenditures to determine the costs associated with re-leasing vacant space and maintaining the condition of our properties. Our second generation capital expenditures by segment are summarized as follows for the years ended December 31, 2010, 2009 and 2008 (in thousands):
 
 
2010
 
2009
 
2008
Second Generation Capital Expenditures
 
 
 
 
 
Office
$
65,203

 
$
64,281

 
$
56,844

Industrial
23,271

 
13,845

 
16,443

Non-reportable Rental Operations segments
249

 
928

 
1,527

Total
$
88,723

 
$
79,054

 
$
74,814

 
(10)
Leasing Activity
Future minimum rents due to us under non-cancelable operating leases at December 31, 2010 are as follows (in thousands):
 
 
 
Year
Amount
2011
$
725,006

2012
685,716

2013
601,796

2014
499,821

2015
413,880

Thereafter
1,302,113

 
$
4,228,332

In addition to minimum rents, certain leases require reimbursements of specified operating expenses that amounted to $190.0 million, $191.0 million and $183.2 million for the years ended December 31, 2010, 2009 and 2008, respectively.
 
(11)
Employee Benefit Plans
We maintain a 401(k) plan for full-time employees. We have historically made matching contributions up

29
DUKE REALTY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements


to an amount equal to three percent of the employee’s salary and may also make annual discretionary contributions. We temporarily suspended the Company’s matching program beginning in July 2009; however, a discretionary contribution was made at the end of 2010. The total expense recognized for this plan was $1.3 million, $1.6 million and $3.0 million for the years ended December 31, 2010, 2009 and 2008, respectively.
 
We make contributions to a contributory health and welfare plan as necessary to fund claims not covered by employee contributions. The total expense we recognized related to this plan was $10.4 million, $11.2 million and $9.6 million for 2010, 2009 and 2008, respectively. These expense amounts include estimates based upon the historical experience of claims incurred but not reported as of year-end.
 
(12)
Shareholders’ Equity
We periodically use the public equity markets to fund the development and acquisition of additional rental properties or to pay down debt. The proceeds of these offerings are contributed to DRLP in exchange for an additional interest in DRLP.
In June 2010, we issued 26.5 million shares of common stock for net proceeds of approximately $298.1 million. The proceeds from this offering were used for acquisitions, general corporate purposes and repurchases of preferred shares and fixed rate unsecured debt.
Throughout 2010, pursuant to the share repurchase plan approved by our board of directors, we repurchased 4.5 million shares of our 8.375% Series O Cumulative Redeemable Preferred Shares. The preferred shares that we repurchased had a total face value of approximately $112.1 million, and were repurchased for $118.8 million. An adjustment of approximately $10.4 million, which included a ratable portion of issuance costs, increased the net loss attributable to common shareholders. All shares repurchased were retired prior to December 31, 2010.
In April 2009, we issued 75.2 million shares of common stock for net proceeds of $551.4 million. The proceeds from the issuance were used to repay outstanding borrowings under the DRLP unsecured line of credit and for other general corporate purposes.
During the fourth quarter of 2008, pursuant to the share repurchase plan approved by our board of directors, we repurchased 109,500 preferred shares from all of our outstanding series of preferred shares. The preferred shares repurchased had a total redemption value of approximately $27.4 million, and were repurchased for $12.4 million. An adjustment of approximately $14.0 million, net of a ratable portion of issuance costs, increased income attributable to common shareholders. All shares repurchased were retired prior to December 31, 2008.
The following series of preferred shares were outstanding as of December 31, 2010 (in thousands, except percentage data):
 
Description
Shares
Outstanding
 
Dividend
Rate
 
Optional
Redemption
Date
 
Liquidation
Preference
Series J Preferred
396

 
6.625
%
 
August 29, 2008
 
$
99,058

Series K Preferred
598

 
6.500
%
 
February 13, 2009
 
$
149,550

Series L Preferred
796

 
6.600
%
 
November 30, 2009
 
$
199,075

Series M Preferred
673

 
6.950
%
 
January 31, 2011
 
$
168,272

Series N Preferred
435

 
7.250
%
 
June 30, 2011
 
$
108,630

Series O Preferred
720

 
8.375
%
 
February 22, 2013
 
$
179,955


30
DUKE REALTY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements


All series of preferred shares require cumulative distributions and have no stated maturity date (although we may redeem all such preferred shares on or following their optional redemption dates at our option, in whole or in part).

(13)
Stock Based Compensation
We are authorized to issue up to 12.4 million shares of our common stock under our stock based employee and non-employee compensation plans.
Cash flows resulting from tax deductions in excess of recognized compensation cost from the exercise of stock options (excess tax benefits) were not significant in any period presented.
Fixed Stock Option Plans
We had options outstanding under five fixed stock option plans as of December 31, 2010. Additional grants may be made under one of those plans. Stock option awards granted under our stock based employee and non-employee compensation plans generally vest over five years at 20% per year and have contractual lives of ten years. Our most recent annual grant of stock options was in February 2008. The exercise price for stock option grants is set at the fair value of our common stock on the day of grant.
On June 7, 2010, we completed a one-time stock option exchange program, which was approved by our shareholders at our annual meeting, to allow the majority of our employees to surrender for cancellation their outstanding stock options in exchange for a lesser number of restricted stock units (“RSUs”) based on both the fair value of the options and the RSUs at the time of the exchange. As a result of the program, 4.4 million options were surrendered and cancelled and 1.2 million RSUs were granted.
The total compensation cost for the new RSUs, which is equal to the unamortized compensation expense associated with the related eligible unvested options surrendered, will be recognized over the applicable vesting period of the new RSUs. As the fair value of the RSUs granted was less than the fair value of the eligible options surrendered in exchange for the RSUs, each measured on June 7, 2010, there was no incremental expense recognized through the exchange program. The most significant assumption used in estimating the fair value of the surrendered options was the assumption for expected volatility, which was 70%. The volatility assumption was made based on both historical experience and our best estimate of future volatility. The assumption for dividend yield was 5% while the assumptions for expected term and risk-free rate varied based upon the remaining contractual lives of the surrendered options.
The following table summarizes transactions under our stock option plans as of December 31, 2010:
 
 
 
 
2010
 
 
 
Shares
 
Weighted
Average
Exercise
Price
 
Weighted
Average
Remaining
Life
 
Aggregate
Intrinsic
Value (1)
(in Millions)
Outstanding, beginning of year
6,473,388

 
$
27.96

 
 
 
 
Surrendered for exchange
(4,421,648
)
 
$
27.97

 
 
 
 
Exercised
—

 
$
—

 
 
 
 
Forfeited
(14,596
)
 
$
27.88

 
 
 
 
Expired
(256,345
)
 
$
21.77

 
 
 
 
Outstanding, end of year
1,780,799

 
$
28.82

 
4.71

 
$
—

Options exercisable, end of year
1,305,583

 
$
29.18

 
3.95

 
$
—

 
(1)
Although this amount changes continuously based upon the market prices of the stock, none of the exercisable options outstanding had any pre-tax intrinsic value as of December 31, 2010.

31
DUKE REALTY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements


 
Options granted in the year ended December 31, 2008 had a weighted average fair value per option of $1.76. As of December 31, 2010, there was $47,000 of total unrecognized compensation expense related to stock options granted under the plans, which is expected to be recognized over a weighted average remaining period of 1.8 years. The total intrinsic value of options exercised during the year ended December 31, 2008 was approximately $898,000. Compensation expense recognized for fixed stock option plans was $820,000, $2.6 million and $3.9 million for the years ended December 31, 2010, 2009 and 2008, respectively. The weighted average grant date fair value of options vested during the years ended December 31, 2010, 2009 and 2008 was $2.6 million, $3.0 million and $2.6 million, respectively.
The fair values of the options were determined using the Black-Scholes option-pricing model with the following assumptions:
 
 
 
 
2008
Dividend yield
6.75
%
Volatility
20.0
%
Risk-free interest rate
2.79
%
Expected life
5 years

The risk free interest rate assumption is based upon observed interest rates appropriate for the term of our employee stock options. The dividend yield assumption is based on the history of and our present expectation of future dividend payouts. Our computation of expected volatility for the valuation of stock options granted in the year ended December 31, 2008 is based on historic, and our present expectation of future volatility over a period of time equal to the expected term. The expected life of employee stock options represents the weighted average period the stock options are expected to remain outstanding.
Restricted Stock Units
Under our 2005 Long-Term Incentive Plan and our 2005 Non-Employee Directors Compensation Plan approved by our shareholders in April 2005, RSUs may be granted to non-employee directors, executive officers and selected management employees. An RSU is economically equivalent to one share of our common stock. RSUs generally vest 20% per year over five years, have contractual lives of five years and are payable in shares of our common stock with a new share of such common stock issued upon each RSU’s vesting. However, RSUs granted to existing non-employee directors vest 100% over one year, and have contractual lives of one year. Also, RSUs granted on June 7, 2010 in exchange for stock options will vest, depending on the original terms of the surrendered options, in either June 2012 or June 2013. We recognize the value of the granted RSUs over this vesting period as expense.
The following table summarizes transactions for our RSUs, excluding dividend equivalents, for 2010:
 
Restricted Stock Units
Number of
RSUs
 
Weighted
Average
Grant Date
Fair Value
RSUs at December 31, 2009
1,683,606

 
$
12.23

Granted
2,203,063

 
$
10.86

Vested
(455,765
)
 
$
13.75

Forfeited
(52,065
)
 
$
10.99

RSUs at December 31, 2010
3,378,839

 
$
11.15


32
DUKE REALTY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements


Compensation cost recognized for RSUs totaled $9.0 million, $7.3 million and $4.9 million for the years ended December 31, 2010, 2009 and 2008, respectively.
 
As of December 31, 2010, there was $12.6 million of total unrecognized compensation expense related to nonvested RSUs granted under the Plan, which is expected to be recognized over a weighted average period of 3.5 years.
 
(14)
Financial Instruments
We are exposed to capital market risk, such as changes in interest rates. In an effort to manage interest rate risk, we may enter into interest rate hedging arrangements from time to time. We do not utilize derivative financial instruments for trading or speculative purposes.
In November 2007, we entered into forward starting interest swaps with notional amounts appropriate to hedge interest rates on $300.0 million of anticipated debt offerings in 2009. The forward starting swaps were appropriately designated and tested for effectiveness as cash flow hedges. In March 2008, we settled the forward starting swaps and made a cash payment of $14.6 million to the counterparties. An effectiveness test was performed as of the settlement date and it was concluded that a highly effective cash flow hedge was still in place for the expected debt offering. Of the amount paid in settlement, approximately $700,000 was immediately reclassified to interest expense, as the result of partial ineffectiveness calculated at the settlement date. The net amount of $13.9 million was recorded in Other Comprehensive Income (“OCI”) and is being recognized through interest expense over the life of the hedged debt offering, which took place in May 2008. The remaining unamortized amount included as a reduction to accumulated OCI as of December 31, 2010 is $5.5 million.
In August 2005, we entered into $300.0 million of cash flow hedges through forward starting interest rate swaps to hedge interest rates on $300.0 million of anticipated debt offerings in 2007. The swaps qualified for hedge accounting, with any changes in fair value recorded in OCI. In conjunction with the September 2007 issuance of $300.0 million of senior unsecured notes, we terminated these cash flow hedges as designated. The settlement amount received of $10.7 million is being recognized to earnings through a reduction of interest expense over the term of the hedged cash flows. The remaining unamortized amount included as an increase to accumulated OCI as of December 31, 2010 is $7.2 million. The ineffective portion of the hedge was insignificant.
The effectiveness of our hedges is evaluated throughout their lives using the hypothetical derivative method under which the change in fair value of the actual swap designated as the hedging instrument is compared to the change in fair value of a hypothetical swap. We had no material interest rate derivatives, when considering both fair value and notional amount, at December 31, 2010.
 
(15)
Commitments and Contingencies
We have guaranteed the repayment of $95.4 million of economic development bonds issued by various municipalities in connection with certain commercial developments. We will be required to make payments under our guarantees to the extent that incremental taxes from specified developments are not sufficient to pay the bond debt service. Management does not believe that it is probable that we will be required to make any significant payments in satisfaction of these guarantees.

We also have guaranteed the repayment of secured and unsecured loans of six of our unconsolidated subsidiaries. At December 31, 2010, the maximum guarantee exposure for these loans was approximately $245.4 million. Included in our total guarantee exposure is a joint and several guarantee of the construction loan agreement of the 3630 Peachtree joint venture. A contingent liability in the amount of

33
DUKE REALTY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements


$36.3 million was established in 2009 based on the probability of us being required to pay this obligation to the lender.
We lease certain land positions with terms extending to December 2080, with a total obligation of $103.6 million. No payments on these ground leases are material in any individual year.
We are subject to various legal proceedings and claims that arise in the ordinary course of business. In the opinion of management, the amount of any ultimate liability with respect to these actions will not materially affect our consolidated financial statements or results of operations.
 
(16)
Subsequent Events
Declaration of Dividends
Our board of directors declared the following dividends at its regularly scheduled board meeting held on January 26, 2011:
 
Class
Quarterly
Amount/Share
 
Record Date
 
Payment Date
Common
$
0.17

 
February 14, 2011
 
February 28, 2011
Preferred (per depositary share):
 
 
 
 
 
Series J
$
0.414063

 
February 14, 2011
 
February 28, 2011
Series K
$
0.406250

 
February 14, 2011
 
February 28, 2011
Series L
$
0.412500

 
February 14, 2011
 
February 28, 2011
Series M
$
0.434375

 
March 17, 2011
 
March 31, 2011
Series N
$
0.453125

 
March 17, 2011
 
March 31, 2011
Series O
$
0.523438

 
March 17, 2011
 
March 31, 2011
In January and February 2011, we acquired an additional twelve buildings pursuant to our planned acquisition of the Premier Portfolio. These additional buildings were acquired for $115.7 million, which included the assumption of secured loans with a total face value of $90.8 million.


34