10-K 1 a201310kdoc.htm 10-K 2013 10K Doc


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
  X      ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2013
OR
           TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from             to             .
Commission File Number: 1-9044 (Duke Realty Corporation) 0-20625 (Duke Realty Limited Partnership)
DUKE REALTY CORPORATION
DUKE REALTY LIMITED PARTNERSHIP
(Exact Name of Registrant as Specified in Its Charter)
 
Indiana (Duke Realty Corporation)
 
35-1740409 (Duke Realty Corporation)
Indiana (Duke Realty Limited Partnership)
 
35-1898425 (Duke Realty Limited Partnership)
(State or Other Jurisdiction of
Incorporation or Organization)
 
(IRS Employer
Identification Number)
600 East 96th Street, Suite 100
Indianapolis, Indiana
 
46240
(Address of Principal Executive Offices)
 
(Zip Code)
Registrant's telephone number, including area code: (317) 808-6000
Securities registered pursuant to Section 12(b) of the Act:
 
 
Title of Each Class:
  
Name of Each Exchange on Which Registered:
Duke Realty Corporation
 
Common Stock ($.01 par value)
  
New York Stock Exchange
Duke Realty Corporation
 
Depositary Shares, each representing a 1/10 interest in a 6.625%
Series J Cumulative Redeemable Preferred Share ($.01 par value)
  
New York Stock Exchange
Duke Realty Corporation
 
Depositary Shares, each representing a 1/10 interest in a 6.5%
Series K Cumulative Redeemable Preferred Share ($.01 par value)
  
New York Stock Exchange
Duke Realty Corporation
 
Depositary Shares, each representing a 1/10 interest in a 6.6%
Series L Cumulative Redeemable Preferred Share ($.01 par value)
  
New York Stock Exchange
Duke Realty Limited Partnership
 
None
 
None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.   
Duke Realty Corporation
Yes x
 No   o
 
Duke Realty Limited Partnership
Yes x
 No   o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    
Duke Realty Corporation
Yes  o
No  x
 
Duke Realty Limited Partnership
Yes  o
No  x
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90
days.    
Duke Realty Corporation
Yes x
 No   o
 
Duke Realty Limited Partnership
Yes x
 No   o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).



Duke Realty Corporation
Yes x
 No   o
 
Duke Realty Limited Partnership
Yes x
 No   o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of "large accelerated filer", "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Duke Realty Corporation:
Large accelerated filer  x
Accelerated filer  o
Non-accelerated filer  o
Smaller reporting company  o
Duke Realty Limited Partnership:
Large accelerated filer  o
Accelerated filer  o
Non-accelerated filer  x
Smaller reporting company  o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    
Duke Realty Corporation
Yes  o
No  x
 
Duke Realty Limited Partnership
Yes  o
No  x
The aggregate market value of the voting shares of Duke Realty Corporation's outstanding common shares held by non-affiliates of Duke Realty Corporation is $5.0 billion based on the last reported sale price on June 30, 2013.
The number of common shares of Duke Realty Corporation, $.01 par value outstanding as of February 21, 2014 was 327,037,098.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of Duke Realty Corporation's Definitive Proxy Statement for its Annual Meeting of Shareholders (the "Proxy Statement") to be filed pursuant to Rule 14a-6 of the Securities Exchange Act of 1934, as amended, are incorporated by reference into this Form 10-K. Other than those portions of the Proxy Statement specifically incorporated by reference pursuant to Items 10 through 14 of Part III hereof, no other portions of the Proxy Statement shall be deemed so incorporated.



EXPLANATORY NOTE
This report combines the annual reports on Form 10-K for the year ended December 31, 2013 of both Duke Realty Corporation and Duke Realty Limited Partnership. Unless stated otherwise or the context otherwise requires, references to "Duke Realty Corporation" or the "General Partner" mean Duke Realty Corporation and its consolidated subsidiaries; and references to the "Partnership" mean Duke Realty Limited Partnership and its consolidated subsidiaries. The terms the "Company," "we," "us" and "our" refer to the General Partner and the Partnership, collectively, and those entities owned or controlled by the General Partner and/or the Partnership.
Duke Realty Corporation is a self-administered and self-managed real estate investment trust ("REIT") and is the sole general partner of the Partnership, owning 98.7% of the common partnership interests of the Partnership ("General Partner Units") as of December 31, 2013. The remaining 1.3% of the common partnership interests ("Limited Partner Units" and, together with the General Partner Units, the "Common Units") are owned by limited partners. As the sole general partner of the Partnership, the General Partner has full, exclusive and complete responsibility and discretion in the day-to-day management and control of the Partnership. The General Partner also owns preferred partnership interests in the Partnership ("Preferred Units").
The General Partner and the Partnership are operated as one enterprise. The management of the General Partner consists of the same members as the management of the Partnership. As the sole general partner with control of the Partnership, the General Partner consolidates the Partnership for financial reporting purposes, and the General Partner does not have any significant assets other than its investment in the Partnership. Therefore, the assets and liabilities of the General Partner and the Partnership are substantially the same.
We believe combining the annual reports on Form 10-K of the General Partner and the Partnership into this single report results in the following benefits:
enhances investors' understanding of the General Partner and the Partnership by enabling investors to view the business as a whole in the same manner as management views and operates the business;
eliminates duplicative disclosure and provides a more streamlined and readable presentation of information since a substantial portion of the Company's disclosure applies to both the General Partner and the Partnership; and
creates time and cost efficiencies through the preparation of one combined report instead of two separate reports.
We believe it is important to understand the few differences between the General Partner and the Partnership in the context of how we operate as an interrelated consolidated company. The General Partner's only material asset is its ownership of partnership interests in the Partnership. As a result, the General Partner does not conduct business itself, other than acting as the sole general partner of the Partnership and issuing public equity from time to time. The General Partner does not issue any indebtedness, but does guarantee the unsecured debt of the Partnership. The Partnership holds substantially all the assets of the business, directly or indirectly, and holds the ownership interests related to certain of the Company's investments. The Partnership conducts the operations of the business and has no publicly traded equity. Except for net proceeds from equity issuances by the General Partner, which are contributed to the Partnership in exchange for General Partner Units or Preferred Units, the Partnership generates the capital required by the business through its operations, its incurrence of indebtedness and the issuance of Limited Partner Units to third parties.
Noncontrolling interests, shareholders' equity and partners' capital are the main areas of difference between the consolidated financial statements of the General Partner and those of the Partnership. The noncontrolling interests in the Partnership's financial statements include the interests in consolidated investees not wholly owned by the Partnership. The noncontrolling interests in the General Partner's financial statements include the same noncontrolling interests at the Partnership level, as well as the common limited partnership interests in the Partnership, which are accounted for as partners' capital by the Partnership.



In order to highlight the differences between the General Partner and the Partnership, there are separate sections in this report, as applicable, that separately discuss the General Partner and the Partnership including separate financial statements, and separate Exhibit 31 and 32 certifications. In the sections that combine disclosure of the General Partner and the Partnership, this report refers to actions or holdings as being actions or holdings of the collective Company.





TABLE OF CONTENTS
Form 10-K
Item No.
 
Page(s)
 
 
 
 
 
 
 
 
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IMPORTANT INFORMATION ABOUT THIS REPORT
In this Annual Report on Form 10-K (this "Report") for Duke Realty Corporation (the "General Partner") and Duke Realty Limited Partnership (the "Partnership"), the terms the "Company," "we," "us" and "our" refer to the General Partner and the Partnership, collectively, and those entities owned or controlled by the General Partner and/or the Partnership.
Cautionary Notice Regarding Forward-Looking Statements
Certain statements contained in or incorporated by reference into this Report, including, without limitation, those related to our future operations, constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The words "believe," "estimate," "expect," "anticipate," "intend," "plan," "seek," "may" and similar expressions or statements regarding future periods are intended to identify forward-looking statements.
These forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause our actual results, performance or achievements, or industry results, to differ materially from any predictions of future results, performance or achievements that we express or imply in this Report or in the information incorporated by reference into this Report. Some of the risks, uncertainties and other important factors that may affect future results include, among others: 
Changes in general economic and business conditions, including the financial condition of our tenants and the value of our real estate assets;
The General Partner's continued qualification as a real estate investment trust ("REIT") for U.S. federal income tax purposes;
Heightened competition for tenants and potential decreases in property occupancy;
Potential changes in the financial markets and interest rates;
Volatility in the General Partner's stock price and trading volume;
Our continuing ability to raise funds on favorable terms;
Our ability to successfully identify, acquire, develop and/or manage properties on terms that are favorable to us;
Potential increases in real estate construction costs;
Our ability to successfully dispose of properties on terms that are favorable to us, including, without limitation, through one or more transactions that are consistent with our previously disclosed strategic plans;
Our ability to retain our current credit ratings;
Inherent risks in the real estate business, including, but not limited to, tenant defaults, potential liability relating to environmental matters and liquidity of real estate investments; and
Other risks and uncertainties described herein, as well as those risks and uncertainties discussed from time to time in our other reports and other public filings with the Securities and Exchange Commission ("SEC").
Although we presently believe that the plans, expectations and results expressed in or suggested by the forward-looking statements are reasonable, all forward-looking statements are inherently subjective, uncertain and subject to change, as they involve substantial risks and uncertainties, including those beyond our control. New factors emerge from time to time, and it is not possible for us to predict the nature, or assess the potential impact, of each new factor on our business. Given these uncertainties, we caution you not to place undue reliance on these forward-looking statements. We undertake no obligation to update or revise any of our forward-looking statements for events or circumstances that arise after the statement is made, except as otherwise may be required by law.

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This list of risks and uncertainties, however, is only a summary of some of the most important factors and is not intended to be exhaustive. Additional information regarding risk factors that may affect us is included under the caption "Risk Factors" in this Report, and is updated by us from time to time in Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and other filings that we make with the SEC.
PART I
Item 1.  Business
Background
The General Partner is a self-administered and self-managed REIT, which began operations upon completion of an initial public offering in February 1986.
The Partnership was formed in October 1993, when the General Partner contributed all of its properties and related assets and liabilities, together with the net proceeds of $309.2 million from an offering of an additional 14,000,833 shares of its common stock, to the Partnership. Simultaneously, the Partnership completed the acquisition of Duke Associates, a full-service commercial real estate firm operating in the Midwest whose operations began in 1972. The General Partner is the sole general partner of the Partnership, owning 98.7% of the common partnership interests of the Partnership ("General Partner Units") at December 31, 2013. The remaining 1.3% of the common partnership interests ("Limited Partner Units" and, together with the General Partner Units, the "Common Units") are owned by limited partners. Limited Partners have the right to redeem their Limited Partner Units, subject to certain restrictions. Pursuant to the Fourth Amended and Restated Agreement of Limited Partnership, as amended (the "Partnership Agreement"), the General Partner is obligated to redeem the Limited Partner Units in shares of its common stock, unless it determines in its reasonable discretion that the issuance of shares of its common stock could cause it to fail to qualify as a REIT. Each Limited Partner Unit shall be redeemed for one share of the General Partner's common stock, or, in the event that the issuance of shares could cause the General Partner to fail to qualify as a REIT, cash equal to the fair market value of one share of the General Partner's common stock at the time of redemption, in each case, subject to certain adjustments described in the Partnership Agreement. The Limited Partner Units are not required, per the terms of the Partnership Agreement, to be redeemed in registered shares of the General Partner. The General Partner also owns preferred partnership interests in the Partnership ("Preferred Units" and, together with the Common Units, the "Units").
At December 31, 2013, our diversified portfolio of 754 rental properties (including 107 jointly controlled in-service properties with more than 22.5 million square feet, 22 consolidated properties under development with more than 4.3 million square feet and two jointly controlled properties under development with approximately 1.8 million square feet) encompassed approximately 152.6 million rentable square feet and was leased by a diverse base of approximately 2,900 tenants whose businesses include government services, manufacturing, retailing, wholesale trade, distribution, healthcare and professional services. We also owned, including through ownership interests in unconsolidated joint ventures, more than 4,100 acres of land and controlled an additional 1,600 acres through purchase options.
Our headquarters and executive offices are located in Indianapolis, Indiana. We additionally have regional offices or significant operations in 21 other geographic or metropolitan areas including Atlanta, Georgia; Baltimore, Maryland; Central Florida; Chicago, Illinois; Cincinnati, Ohio; Columbus, Ohio; Dallas, Texas; Houston, Texas; Minneapolis, Minnesota; Nashville, Tennessee; New Jersey; Northern and Southern California; Pennsylvania; Phoenix, Arizona; Raleigh, North Carolina; St. Louis, Missouri; Savannah, Georgia; Seattle, Washington; Washington D.C.; and Southern Florida. We had 790 employees at December 31, 2013.
See Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" for information related to our operational, asset and capital strategies.
Reportable Operating Segments
We have four reportable operating segments at December 31, 2013, the first three of which consist of the ownership and rental of (i) industrial, (ii) office and (iii) medical office real estate investments. The operations of our

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industrial, office and medical office properties, along with our retail properties, are collectively referred to as "Rental Operations." Our retail properties, as well as any other properties not included in our reportable segments, do not by themselves meet the quantitative thresholds for separate presentation as reportable segments. The fourth reportable segment consists of various real estate services such as property management, asset management, maintenance, leasing, development, general contractor and construction management to third-party property owners and joint ventures, 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. Our Service Operations segment also includes our taxable REIT subsidiary, a legal entity through which certain of the segment's aforementioned operations are conducted. See Item 6, "Selected Financial Data," Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Item 8, "Financial Statements and Supplementary Data" for financial information related to our reportable segments.
We assess and measure our overall operating results based upon a non-GAAP industry performance measure referred to as Funds From Operations ("FFO"), which management believes is a useful indicator of our consolidated operating performance. See Item 6, "Selected Financial Data," Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Item 8, "Financial Statements and Supplementary Data" for disclosures and financial information related to our use of FFO as an internal measure of operating performance.
Competitive Conditions
As a fully integrated commercial real estate firm, we provide in-house leasing, management, development and construction services which we believe, coupled with our significant base of commercially zoned and unencumbered land in existing business parks, should give us a competitive advantage as a real estate operator and in future development activities.
We believe that the management of real estate opportunities and risks can be done most effectively at regional or on local levels. As a result, we intend to continue our emphasis on increasing our market share, to the extent it is in markets or product types that align with our asset strategy (see Item 7), and effective rents in the primary markets where we own properties. We believe that this regional focus will allow us to assess market supply and demand for real estate more effectively as well as to capitalize on the strong relationships with our tenant base. In addition, we seek to further capitalize on strong customer relationships to provide third-party construction services across the United States. As a fully integrated real estate company, we are able to arrange for or provide to our industrial, office and medical office customers not only well located and well maintained facilities, but also additional services such as build-to-suit construction, tenant finish construction, and expansion flexibility.
All of our properties are located in areas that include competitive properties. Institutional investors, other REITs or local real estate operators generally own such properties; however, no single competitor or small group of competitors is dominant in our current markets. The supply and demand of similar available rental properties may affect the rental rates we will receive on our properties. Other competitive factors include the attractiveness of the property location, the quality of the property and tenant services provided, and the reputation of the owner and operator. In addition, our Service Operations face competition from a considerable number of other real estate companies that provide comparable services, some of whom may have greater marketing and financial resources than are available to us.
Corporate Governance
Since our inception, we not only have strived to be a top-performer operationally, but also to lead in issues important to investors such as disclosure and corporate governance. The General Partner's system of governance reinforces this commitment and, as a limited partnership that has one general partner owning over 90% of the Partnership's common interest, the governance of the Partnership is necessarily linked to the corporate governance of the General Partner. Summarized below are the highlights of the General Partner's Corporate Governance initiatives. 

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Board Composition
  
• The General Partner's Board is controlled by supermajority (91.7%) of "Independent Directors," as such term is defined under the rules of the New York Stock Exchange (the "NYSE") as of January 29, 2014 and thereafter
 
 
Board Committees
  
• The General Partner's Board Committee members are all Independent Directors
 
 
Lead Director
  
• The Chairman of the General Partner's Corporate Governance Committee serves as Lead Director of the Independent Directors
 
 
Board Policies
  
  No Shareholder Rights Plan (Poison Pill)
  Code of Conduct applies to all Directors and employees of the General Partner, including the Chief Executive Officer and senior financial officers; waivers applied to executive officers require the vote of a majority of (i) the General Partner's Board of Directors or (ii) the General Partner's Corporate Governance Committee
  Orientation program for new Directors of the General Partner
  Independence of Directors of the General Partner is reviewed annually
  Independent Directors of the General Partner meet at least quarterly in executive sessions
  Independent Directors of the General Partner receive no compensation from the General Partner other than as Directors
  Equity-based compensation plans require the approval of the General Partner's shareholders
  Board effectiveness and performance is reviewed annually by the General Partner's Corporate Governance Committee
  The General Partner's Executive Compensation Committee conducts an annual review, as delegated by the Corporate Governance Committee, of the Chief Executive Officer succession plan
  Independent Directors and all Board Committees of the General Partner may retain outside advisors, as they deem appropriate
  Prohibition on repricing of outstanding stock options of the General Partner
  Directors of the General Partner required to offer resignation upon job change
  Majority voting for election of Directors of the General Partner
  Shareholder Communications Policy

 
 
 
Ownership
 
Minimum Stock Ownership Guidelines apply to all Directors and Executive Officers of the General Partner
The General Partner's Code of Conduct (which applies to all Directors and employees of the General Partner, including the Chief Executive Officer and senior financial officers) and the Corporate Governance Guidelines are available in the Investor Relations/Corporate Governance section of the General Partner's website at www.dukerealty.com. A copy of these documents may also be obtained without charge by writing to Duke Realty Corporation, 600 East 96th Street, Suite 100, Indianapolis, Indiana 46240, Attention: Investor Relations. If we amend our Code of Conduct as it applies to the Directors, Chief Executive Officer or senior financial officers of the General Partner or grant a waiver from any provision of the Code of Conduct to any such person, we may, rather than filing a current report on Form 8-K, disclose such amendment or waiver in the Investor Relations/Corporate Governance section of the General Partner's website at www.dukerealty.com.
Additional Information
For additional information regarding our investments and operations, see Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Item 8, "Financial Statements and Supplementary Data." For additional information about our business segments, see Item 8, "Financial Statements and Supplementary Data."



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Available Information
In addition to this Report, we file quarterly and current reports, proxy statements and other information with the SEC. All documents that are filed with the SEC are available free of charge on the General Partner's corporate website, which is www.dukerealty.com. We are not incorporating the information on the General Partner's website into this Report, and the General Partner's website and the information appearing on the General Partner's website is not included in, and is not part of, this Report. You may also read and copy any document filed at the public reference facilities of the SEC at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at (800) SEC-0330 for further information about the public reference facilities. These documents also may be accessed through the SEC's Interactive Data Electronic Application ("IDEA") via the SEC's home page on the Internet (http://www.sec.gov). In addition, since some of the General Partner's securities are listed on the NYSE, you may read the General Partner's SEC filings at the offices of the NYSE, 20 Broad Street, New York, New York 10005.
Item 1A. Risk Factors
In addition to the other information contained in this Report, you should carefully consider, in consultation with your legal, financial and other professional advisors, the risks described below, as well as the risk factors and uncertainties discussed in our other public filings with the SEC under the caption "Risk Factors" in evaluating us and our business before making a decision regarding an investment in the General Partner's securities.
The risks contained in this Report are not the only risks that we face. Additional risks that are not presently known, or that we presently deem to be immaterial, also could have a material adverse effect on our financial condition, results of operations, business and prospects. The trading price of the General Partner's securities could decline due to the materialization of any of these risks, and its shareholders and/or the Partnership's unitholders may lose all or part of their investment.
This Report also contains forward-looking statements that may not be realized as a result of certain factors, including, but not limited to, the risks described herein and in our other public filings with the SEC. Please refer to the section in this Report entitled "Cautionary Notice Regarding Forward-Looking Statements" for additional information regarding forward-looking statements.
Risks Related to Our Business
Our use of debt financing could have a material adverse effect on our financial condition.
We are subject to the risks normally associated with debt financing, including the risk that our cash flow will be insufficient to meet required principal and interest payments and the long-term risk that we will be unable to refinance our existing indebtedness, or that the terms of such refinancing will not be as favorable as the terms of existing indebtedness. Additionally, we may not be able to refinance borrowings by our unconsolidated subsidiaries on favorable terms or at all. If our debt cannot be paid, refinanced or extended, we may not be able to make distributions to shareholders and unitholders at expected levels. Further, if prevailing interest rates or other factors at the time of a refinancing result in higher interest rates or other restrictive financial covenants upon the refinancing, then such refinancing would adversely affect our cash flow and funds available for operation, development and distribution.
We are also subject to financial covenants under our existing debt instruments. Should we fail to comply with the covenants in our existing debt instruments, then we would not only be in breach under the applicable debt instruments but we would also likely be unable to borrow any further amounts under our other debt instruments, which could adversely affect our ability to fund operations. We also have incurred, and may incur in the future, indebtedness that bears interest at variable rates. Thus, if market interest rates increase, so will our interest expense, which could reduce our cash flow and our ability to make distributions to shareholders and unitholders at expected levels.



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Debt financing may not be available and equity issuances could be dilutive to our shareholders and unitholders.
Our ability to execute our business strategy depends on our access to an appropriate blend of debt financing, including unsecured lines of credit and other forms of secured and unsecured debt, and equity financing, including common and preferred equity issued by the General Partner. Debt financing may not be available over a longer period of time in sufficient amounts, on favorable terms or at all. If the General Partner issues additional equity securities, instead of debt, to manage capital needs, the interests of our existing shareholders and unitholders could be diluted.
Financial and other covenants under existing credit agreements could limit our flexibility and adversely affect our financial condition.
The terms of our various credit agreements and other indebtedness require that we comply with a number of customary financial and other covenants, such as maintaining debt service coverage and leverage ratios and maintaining insurance coverage. These covenants may limit our flexibility in our operations, and breaches of these covenants could result in defaults under the instruments governing the applicable indebtedness even if we have satisfied our payment obligations. If we are unable to refinance our indebtedness at maturity or meet our payment obligations, the amount of our distributable cash flow would be adversely affected.
Downgrades in our credit ratings could increase our borrowing costs or reduce our access to funding sources in the credit and capital markets.
We have a significant amount of debt outstanding, consisting mostly of unsecured debt. We are currently assigned corporate credit ratings from Moody's Investors Service, Inc. and Standard and Poor's Ratings Group based on their evaluation of our creditworthiness. All of our debt ratings remain investment grade, but there can be no assurance that we will not be downgraded or that any of our ratings will remain investment grade. If our credit ratings are downgraded or other negative action is taken, we could be required, among other things, to pay additional interest and fees on outstanding borrowings under our revolving credit agreement.
Credit rating reductions by one or more rating agencies could also adversely affect our access to funding sources, the cost and other terms of obtaining funding as well as our overall financial condition, operating results and cash flow.
If we are unable to generate sufficient capital and liquidity, then we may be unable to pursue future development projects and other strategic initiatives.
To complete our ongoing and planned development projects, and to pursue our other strategic initiatives, we must continue to generate sufficient capital and liquidity to fund those activities. To generate that capital and liquidity, we rely upon funds from our existing operations, as well as funds that we raise through our capital raising activities. In the event that we are unable to generate sufficient capital and liquidity to meet our long-term needs, or if we are unable to generate capital and liquidity on terms that are favorable to us, then we may not be able to pursue development projects, acquisitions, or our other long-term strategic initiatives.
The General Partner's stock price and trading volume may be volatile, which could result in substantial losses to its shareholders and to the Partnership's unitholders, if and when they convert their Limited Partner Units to shares of the General Partner's common stock.
The market price of the General Partner's common and preferred stock could change in ways that may or may not be related to our business, our industry or our operating performance and financial condition. In addition, the trading volume in the General Partner's common stock may fluctuate and cause significant price variations to occur. Some of the factors that could negatively affect the General Partner's share price, or result in fluctuations in the price or trading volume of the General Partner's common stock, include uncertainty in the markets, general market and economic conditions, as well as those factors described in these "Risk Factors" and in other reports that we file with the SEC.

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Many of these factors are beyond our control, and we cannot predict their potential effects on the price of the General Partner's common and preferred stock. If the market prices of the General Partner's common and preferred stock decline, then its shareholders and the Partnership's unitholders, respectively, may be unable to resell their shares and units upon terms that are attractive to them. We cannot assure that the market price of the General Partner's common and preferred stock will not fluctuate or decline significantly in the future. In addition, the securities markets in general may experience considerable unexpected price and volume fluctuations.
We may issue debt and equity securities which are senior to the General Partner's common stock and preferred stock as to distributions and in liquidation, which could negatively affect the value of the General Partner's common and preferred stock and the Partnership's Common Units and Preferred Units.
In the future, we may attempt to increase our capital resources by entering into debt or debt-like financing that is unsecured or secured by certain of our assets, or by issuing debt or equity securities, which could include issuances of secured or unsecured commercial paper, medium-term notes, senior notes, subordinated notes, preferred stock or common stock. In the event of our liquidation, our lenders and holders of our debt securities would receive a distribution of our available assets before distributions to the holders of the General Partner's common stock and preferred stock and the Partnership's Common Units and Preferred Units. The General Partner's preferred stock and the Partnership's Preferred Units have a preference over the General Partner's common stock and the Partnership's Common Units with respect to distributions and upon liquidation, which could further limit our ability to make distributions to our common shareholders and unitholders. Any additional preferred stock or Preferred Units that the General Partner or the Partnership may issue may have a preference over the General Partner's common stock and existing series of preferred stock, as well as the Partnership's Common Units and Preferred Units, with respect to distributions and upon liquidation.
We may be required to seek commercial credit and issue debt securities to manage our capital needs. Because our decision to incur debt and issue securities in our future offerings will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings and debt financings. Further, market conditions could require us to accept less favorable terms for the issuance of our securities in the future. Thus, our shareholders and unitholders, respectively, will bear the risk of our future offerings reducing the value of their shares of common stock and Common Units and diluting their interest in us.
Our use of joint ventures may negatively impact our jointly-owned investments.
We currently have joint ventures that are not consolidated with our financial statements. We may develop and acquire properties in joint ventures with other persons or entities when circumstances warrant the use of these structures. Our participation in joint ventures is subject to the risks that: 
We could become engaged in a dispute with any of our joint venture partners that might affect our ability to develop or operate a property;
Our joint venture partners may have different objectives than we have regarding the appropriate timing and terms of any sale or refinancing of properties;
Our joint venture partners may have competing interests in our markets that could create conflict of interest issues; and
Maturities of debt encumbering our jointly owned investments may not be able to be refinanced at all or on terms that are as favorable as the current terms.
Risks Related to the Real Estate Industry
Our net earnings available for investment or distribution to shareholders and unitholders could decrease as a result of factors related to the ownership and operation of commercial real estate that are outside of our control.
Our business is subject to the risks incident to the ownership and operation of commercial real estate, many of which involve circumstances not within our control. Such risks include the following: 

-8-


Changes in the general economic climate;
The availability of capital on favorable terms, or at all;
Increases in interest rates;
Local conditions such as oversupply of property or a reduction in demand;
Competition for tenants;
Changes in market rental rates;
Oversupply or reduced demand for space in the areas where our properties are located;
Delay or inability to collect rent from tenants who are bankrupt, insolvent or otherwise unwilling or unable to pay;
Difficulty in leasing or re-leasing space quickly or on favorable terms;
Costs associated with periodically renovating, repairing and reletting rental space;
Our ability to provide adequate maintenance and insurance on our properties;
Our ability to control variable operating costs;
Changes in government regulations; and
Potential liability under, and changes in, environmental, zoning, tax and other laws.
Further, a significant portion of our costs, such as real estate taxes, insurance and maintenance costs and our debt service payments, are generally not reduced when circumstances cause a decrease in cash flow from our properties. Any one or more of these factors could result in a reduction in our net earnings available for investment or distribution to shareholders and unitholders.
Many real estate costs are fixed, even if income from properties decreases.
Our financial results depend on leasing space in our real estate to tenants on terms favorable to us. Our income and funds available for distribution to our shareholders and unitholders will decrease if a significant number of our tenants cannot meet their lease obligations to us or we are unable to lease properties on favorable terms. In addition, if a tenant does not pay its rent, we may not be able to enforce our rights as landlord without delays and we may incur substantial legal costs. Costs associated with real estate investment, such as real estate taxes and maintenance costs, generally are not reduced when circumstances cause a reduction in income from the investment. As a result, we may have a reduction in our net earnings available for investment or distribution to our shareholders and unitholders.
Our real estate development activities are subject to risks particular to development.
We continue to selectively develop new, pre-leased properties for rental operations in our existing markets when accretive returns are present. These development activities generally require various government and other approvals, which we may not receive. In addition, we also are subject to the following risks associated with development activities: 
Unsuccessful development opportunities could result in direct expenses to us;
Construction costs of a project may exceed original estimates, possibly making the project less profitable than originally estimated, or possibly unprofitable;
Time required to complete the construction of a project or to lease up the completed project may be greater than originally anticipated, thereby adversely affecting our cash flow and liquidity;

-9-


Occupancy rates and rents of a completed project may not be sufficient to make the project profitable; and
Favorable sources to fund our development activities may not be available.
We may be unsuccessful in operating completed real estate projects.
We face the risk that the real estate projects we develop or acquire will not perform in accordance with our expectations. This risk exists because of factors such as the following: 
Prices paid for acquired facilities are based upon a series of market judgments; and
Costs of any improvements required to bring an acquired facility up to standards to establish the market position intended for that facility might exceed budgeted costs.
As a result, we may develop or acquire projects that are not profitable.
We are exposed to the risks of defaults by tenants.
Any of our tenants may experience a downturn in their businesses that may weaken their financial condition. In the event of default or the insolvency of a significant number of our tenants, we may experience a substantial loss of rental revenue and/or delays in collecting rent and incur substantial costs in enforcing our rights as landlord. If a tenant files for bankruptcy protection, a court could allow the tenant to reject and terminate its lease with us. Our income and distributable cash flow would be adversely affected if a significant number of our tenants became unable to meet their obligations to us, became insolvent or declared bankruptcy.
We may be unable to renew leases or relet space.
When our tenants decide not to renew their leases upon their expiration, we may not be able to relet the space. Even if our tenants do renew or we are able to relet the space, the terms of renewal or reletting (including the cost of renovations, if necessary) may be less favorable than current lease terms. If we are unable to promptly renew the leases or relet the space, or if the rental rates upon such renewal or reletting are significantly lower than current rates, then our income and distributable cash flow would be adversely affected, especially if we were unable to lease a significant amount of the space vacated by tenants in our properties.
Our insurance coverage on our properties may be inadequate.
We maintain comprehensive insurance on each of our facilities, including property, liability, and environmental coverage. We believe this coverage is of the type and amount customarily obtained for real property. However, there are certain types of losses, generally of a catastrophic nature, such as hurricanes, earthquakes and floods or acts of war or terrorism that may be uninsurable or not economically insurable. We use our discretion when determining amounts, coverage limits and deductibles for insurance. These terms are determined based on retaining an acceptable level of risk at a reasonable cost. This may result in insurance coverage that in the event of a substantial loss would not be sufficient to pay the full current replacement cost of our lost investment. Inflation, changes in building codes and ordinances, environmental considerations and other factors also may make it unfeasible to use insurance proceeds to replace a facility after it has been damaged or destroyed. Under such circumstances, the insurance proceeds we receive may not be adequate to restore our economic position in a property. If an insured loss occurred, we could lose both our investment in and anticipated profits and cash flow from a property, and we would continue to be obligated on any mortgage indebtedness or other obligations related to the property. We are also subject to the risk that our insurance providers may be unwilling or unable to pay our claims when made.
Our acquisition and disposition activity may lead to long-term dilution.
Our asset strategy is to reposition our investment concentration among product types and further diversify our geographic presence. There can be no assurance that we will be able to execute the repositioning of our assets according to our strategy or that our execution will lead to improved results.


-10-


Acquired properties may expose us to unknown liability.
From time to time, we may acquire properties subject to liabilities and without any recourse, or with only limited recourse, with respect to unknown liabilities. As a result, if a liability were asserted against us based upon ownership of those properties, we might have to pay substantial sums to settle or contest it, which could adversely affect our results of operations and cash flow. Unknown liabilities with respect to acquired properties might include: 

liabilities for clean-up of undisclosed environmental contamination;
claims by tenants, vendors or other persons against the former owners of the properties;
liabilities incurred in the ordinary course of business; and
claims for indemnification by general partners, directors, officers and others indemnified by the former owners of the properties.
We could be exposed to significant environmental liabilities as a result of conditions of which we currently are not aware.
As an owner and operator of real property, we may be liable under various federal, state and local laws for the costs of removal or remediation of certain hazardous substances released on or in our property. Such laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the release of the hazardous substances. In addition, we could have greater difficulty in selling real estate on which hazardous substances were present or in obtaining borrowings using such real estate as collateral. It is our general policy to have Phase I environmental audits performed for all of our properties and land by qualified environmental consultants at the time of purchase. These Phase I environmental audits have not revealed any environmental liability that would have a material adverse effect on our business. However, a Phase I environmental audit does not involve invasive procedures such as soil sampling or ground water analysis, and we cannot be sure that the Phase I environmental audits did not fail to reveal a significant environmental liability or that a prior owner did not create a material environmental condition on our properties or land which has not yet been discovered. We could also incur environmental liability as a result of future uses or conditions of such real estate or changes in applicable environmental laws.
We are exposed to the potential impacts of future climate change and climate-change related risks.
We are exposed to potential physical risks from possible future changes in climate. Our properties may be exposed to rare catastrophic weather events, such as severe storms and/or floods. If the frequency of extreme weather events increases due to climate change, our exposure to these events could increase.
We do not currently consider that we are exposed to regulatory risk related to climate change. However, we may be adversely impacted as a real estate developer in the future by stricter energy efficiency standards for buildings.
Risks Related to Our Organization and Structure
If the General Partner were to cease to qualify as a REIT, it and its shareholders would lose significant tax benefits.
The General Partner intends to continue to operate so as to qualify as a REIT under the Internal Revenue Code of 1986, as amended (the "Code"). Qualification as a REIT provides significant tax advantages to the General Partner and its shareholders. However, in order for the General Partner to continue to qualify as a REIT, it must satisfy numerous requirements established under highly technical and complex Code provisions for which there are only limited judicial and administrative interpretations. Satisfaction of these requirements also depends on various factual circumstances not entirely within our control. The fact that the General Partner holds its assets through the Partnership further complicates the application of the REIT requirements. Even a technical or inadvertent mistake could jeopardize the General Partner's REIT status. Although we believe that the General Partner can continue to operate so as to qualify as a REIT, we cannot offer any assurance that it will continue to do so or that legislation, new regulations, administrative interpretations or court decisions will not significantly change the qualification

-11-


requirements or the federal income tax consequences of qualification. If the General Partner were to fail to qualify as a REIT in any taxable year, it would have the following effects: 
The General Partner would not be allowed a deduction for distributions to shareholders and would be subject to federal income tax (including any applicable alternative minimum tax) on its taxable income at regular corporate rates;
Unless the General Partner was entitled to relief under certain statutory provisions, it would be disqualified from treatment as a REIT for the four taxable years following the year during which it ceased to qualify as a REIT;
The General Partner's net earnings available for investment or distribution to its shareholders would decrease due to the additional tax liability for the year or years involved; and
The General Partner would no longer be required to make any distributions to shareholders in order to qualify as a REIT.
As such, the General Partner's failure to qualify as a REIT would likely have a significant adverse effect on the value of the General Partner's securities and, consequently, the Partnership's Units.
REIT distribution requirements limit the amount of cash we have available for other business purposes, including amounts that we need to fund our future capital needs.
To maintain its qualification as a REIT under the Code, the General Partner must annually distribute to its shareholders at least 90% of its REIT taxable income, determined without regard to the dividends-paid deduction and excluding net capital gains. The General Partner intends to continue to make distributions to its shareholders to comply with the 90% distribution requirement. However, this requirement limits our ability to accumulate capital for use for other business purposes. If we do not have sufficient cash or other liquid assets to meet the distribution requirements of the General Partner, we may have to borrow funds or sell properties on adverse terms in order to meet the distribution requirements. If the General Partner fails to make a required distribution, it would cease to qualify as a REIT.
U.S. federal income tax treatment of REITs and investments in REITs may change, which may result in the loss of our tax benefits of operating as a REIT.
The present U.S. federal income tax treatment of a REIT and an investment in a REIT may be modified by legislative, judicial or administrative action at any time. Revisions in U.S. federal income tax laws and interpretations of these laws could adversely affect us and the tax consequences of an investment in the General Partner's common shares.
We are subject to certain provisions that could discourage change-of-control transactions, which may reduce the likelihood of the General Partner's shareholders receiving a control premium for their shares.
Indiana anti-takeover legislation and certain provisions in our governing documents, as we discuss below, may discourage potential acquirers from pursuing a change-of-control transaction with us. As a result, the General Partner's shareholders may be less likely to receive a control premium for their shares.
Unissued Preferred Stock. The General Partner's charter permits its board of directors to classify unissued preferred stock by setting the rights and preferences of the shares at the time of issuance. This power enables the General Partner's board to adopt a shareholder rights plan, also known as a poison pill. Although the General Partner has repealed its previously existing poison pill and its current board of directors has adopted a policy not to issue preferred stock as an anti-takeover measure, the General Partner's board can change this policy at any time. The adoption of a poison pill would discourage a potential bidder from acquiring a significant position in the General Partner without the approval of its board.
Business-Combination Provisions of Indiana Law. The General Partner has not opted out of the business-combination provisions of the Indiana Business Corporation Law. As a result, potential bidders may have to

-12-


negotiate with the General Partner's board of directors before acquiring 10% of its stock. Without securing board approval of the proposed business combination before crossing the 10% ownership threshold, a bidder would not be permitted to complete a business combination for five years after becoming a 10% shareholder. Even after the five-year period, a business combination with the significant shareholder would either be required to meet certain per share price minimums as set forth in the Indiana Business Corporation Law or to receive the approval of a majority of the disinterested shareholders.
Control-Share-Acquisition Provisions of Indiana Law. The General Partner has not opted out of the provisions of the Indiana Business Corporation Law regarding acquisitions of control shares. Therefore, those who acquire a significant block (at least 20%) of the General Partner's shares may only vote a portion of their shares unless its other shareholders vote to accord full voting rights to the acquiring person. Moreover, if the other shareholders vote to give full voting rights with respect to the control shares and the acquiring person has acquired a majority of the General Partner's outstanding shares, the other shareholders would be entitled to special dissenters' rights.
Supermajority Voting Provisions. The General Partner's charter prohibits business combinations or significant disposition transactions with a holder of 10% of its shares unless: 
The holders of 80% of the General Partner's outstanding shares of capital stock approve the transaction;
The transaction has been approved by three-fourths of those directors who served on the General Partner's board before the shareholder became a 10% owner; or
The significant shareholder complies with the "fair price" provisions of the General Partner's charter.
Among the transactions with large shareholders requiring the supermajority shareholder approval are dispositions of assets with a value greater than or equal to $1,000,000 and business combinations.
Operating Partnership Provisions. The limited partnership agreement of the Partnership contains provisions that could discourage change-of-control transactions, including a requirement that holders of at least 90% of the outstanding Common Units approve: 
Any voluntary sale, exchange, merger, consolidation or other disposition of all or substantially all of the assets of the Partnership in one or more transactions other than a disposition occurring upon a financing or refinancing of the Partnership;
The General Partner's merger, consolidation or other business combination with another entity unless after the transaction substantially all of the assets of the surviving entity are contributed to the Partnership in exchange for Common Units;
The General Partner's assignment of its interests in the Partnership other than to one of its wholly-owned subsidiaries; and
Any reclassification or recapitalization or change of outstanding shares of the General Partner's common stock other than certain changes in par value, stock splits, stock dividends or combinations.
We are dependent on key personnel.
The General Partner's executive officers and other senior officers have a significant role in the success of our Company. Our ability to retain our management group or to attract suitable replacements should any members of the management group leave our Company is dependent on the competitive nature of the employment market. The loss of services from key members of the management group or a limitation in their availability could adversely impact our financial condition and cash flow. Further, such a loss could be negatively perceived in the capital markets.
Item 1B.  Unresolved Staff Comments
We have no unresolved comments with the SEC staff regarding our periodic or current reports under the Exchange Act.

-13-


Item 2.  Properties
Product Review
As of December 31, 2013, we own interests in a diversified portfolio of 754 commercial properties encompassing approximately 152.6 million net rentable square feet (including 107 jointly controlled in-service properties with more than 22.5 million square feet, 22 consolidated properties under development with more than 4.3 million square feet and two jointly controlled properties under development with approximately 1.8 million square feet).
Industrial Properties: We own interests in 507 industrial properties encompassing more than 126.0 million square feet (82% of total square feet). These properties primarily consist of bulk warehouses (industrial warehouse/distribution centers with clear ceiling heights of 28 feet or more), but also include service center properties (also known as flex buildings or light industrial, having 12-18 foot clear ceiling heights and a combination of drive-up and dock-height loading access). Of these properties, 438 buildings with more than 107.7 million square feet are consolidated and 69 buildings with more than 18.3 million square feet are jointly controlled.
Office Properties: We own interests in 168 office buildings totaling more than 19.7 million square feet (13% of total square feet). These properties include primarily suburban office properties. Of these properties, 132 buildings with approximately 15.1 million square feet are consolidated and 36 buildings with more than 4.6 million square feet are jointly controlled.
Medical Office Properties: We own interests in 74 medical office buildings totaling approximately 5.9 million square feet (4% of total square feet). Of these properties, 72 buildings with approximately 5.2 million square feet are consolidated and two buildings with approximately 732,000 square feet are jointly controlled.
Other Properties: We own interests in five retail buildings totaling more than 936,000 square feet (1% of total square feet). Of these properties, three buildings with more than 348,000 square feet are consolidated and two buildings with more than 588,000 square feet are jointly controlled.
Land: We own, including through ownership interests in unconsolidated joint ventures, more than 4,100 acres of land and control an additional 1,600 acres through purchase options.










-14-


Property Descriptions
The following tables represent the geographic highlights of consolidated and jointly controlled in-service properties in our primary markets.
Consolidated Properties
 
Square Feet
 
Annual Net
Effective
Rent (1)
 
Annual Net
Effective
Rent per Square Foot (2)
 
Percent of
Annual  Net
Effective
Rent
 
Industrial
 
Office
 
Medical Office
 
Other
 
Overall
 
Percent of
Overall
 
Primary Market
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Indianapolis
15,054,561

 
2,913,149

 
371,505

 
38,366

 
18,377,581

 
14.8
%
 
$
89,154,092

 
$
5.04

 
13.5
%
Cincinnati
9,568,619

 
3,311,264

 
370,180

 

 
13,250,063

 
10.7
%
 
69,218,995

 
5.51

 
10.5
%
South Florida
4,915,895

 
1,406,411

 
107,000

 

 
6,429,306

 
5.2
%
 
53,101,994

 
9.29

 
8.0
%
Raleigh
2,800,680

 
2,272,744

 
356,836

 
20,061

 
5,450,321

 
4.4
%
 
51,616,304

 
9.94

 
7.8
%
Atlanta
8,531,361

 
468,285

 
890,892

 

 
9,890,538

 
8.0
%
 
49,827,112

 
5.62

 
7.5
%
Chicago
11,447,070

 

 
161,443

 

 
11,608,513

 
9.4
%
 
48,112,078

 
4.20

 
7.3
%
St. Louis
4,231,755

 
2,264,278

 

 

 
6,496,033

 
5.2
%
 
37,444,216

 
6.50

 
5.7
%
Dallas
7,060,095

 

 
666,971

 

 
7,727,066

 
6.2
%
 
37,146,276

 
4.83

 
5.6
%
Nashville
3,932,170

 
987,671

 
120,660

 

 
5,040,501

 
4.1
%
 
34,325,330

 
7.62

 
5.2
%
Columbus
8,103,817

 

 
73,238

 

 
8,177,055

 
6.6
%
 
26,003,363

 
3.18

 
3.9
%
Central Florida
3,360,479

 

 
348,690

 

 
3,709,169

 
3.0
%
 
21,634,774

 
5.97

 
3.3
%
Other (3)
912,500

 

 
829,044

 

 
1,741,544

 
1.4
%
 
20,670,591

 
13.49

 
3.1
%
Savannah
6,935,446

 

 

 

 
6,935,446

 
5.6
%
 
19,151,017

 
3.29

 
2.9
%
Houston
2,691,611

 
159,056

 
168,850

 

 
3,019,517

 
2.4
%
 
18,812,325

 
6.29

 
2.8
%
Minneapolis
3,720,250

 

 

 

 
3,720,250

 
3.0
%
 
16,018,032

 
4.48

 
2.4
%
New Jersey
2,351,204

 

 

 

 
2,351,204

 
1.9
%
 
12,355,127

 
5.25

 
1.9
%
Northern California
2,571,630

 

 

 

 
2,571,630

 
2.1
%
 
10,953,257

 
4.26

 
1.7
%
Southern California
2,339,379

 

 

 

 
2,339,379

 
1.9
%
 
10,914,228

 
6.08

 
1.6
%
Pennsylvania
1,368,500

 

 

 
289,855

 
1,658,355

 
1.3
%
 
10,546,341

 
6.52

 
1.6
%
Seattle
1,136,109

 

 

 

 
1,136,109

 
0.9
%
 
10,256,153

 
9.03

 
1.6
%
Washington DC
78,560

 
219,464

 
100,952

 

 
398,976

 
0.3
%
 
4,363,284

 
16.03

 
0.7
%
Phoenix
1,048,965

 

 

 

 
1,048,965

 
0.9
%
 
4,215,397

 
4.34

 
0.6
%
Baltimore
462,070

 

 

 

 
462,070

 
0.4
%
 
2,696,875

 
5.84

 
0.4
%
Cleveland

 
420,869

 

 

 
420,869

 
0.3
%
 
2,494,840

 
10.36

 
0.4
%
Total
104,622,726

 
14,423,191

 
4,566,261

 
348,282

 
123,960,460

 
100.0
%
 
$
661,032,001

 
$
5.67

 
100.0
%
Percent of Overall
84.4
%
 
11.6
%
 
3.7
%
 
0.3
%
 
100.0
%
 
 
 
 
 
 
 
 
Annual Net Effective Rent per Square Foot (2)
$
3.93

 
$
13.35

 
$
22.51

 
$
19.71

 
$
5.67

 
 
 
 
 
 
 
 


-15-


Jointly Controlled Properties
 
Square Feet
 
Annual Net
Effective
Rent (1)
 
Annual Net
Effective
Rent per Square Foot (2)
 
Percent of
Annual  Net
Effective
Rent
 
Industrial
 
Office
 
Medical Office
 
Other
 
Overall
 
Percent of
Overall
 
Primary Market
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Washington DC
669,802

 
2,146,775

 

 

 
2,816,577

 
12.5
%
 
$
46,394,845

 
$
19.02

 
28.6
%
Dallas
7,698,728

 

 
458,396

 

 
8,157,124

 
36.2
%
 
32,390,508

 
4.06

 
19.9
%
Indianapolis
4,908,975

 

 
273,479

 

 
5,182,454

 
23.0
%
 
22,227,756

 
4.55

 
13.7
%
Atlanta

 
780,751

 

 

 
780,751

 
3.5
%
 
12,360,642

 
17.70

 
7.6
%
Central Florida
908,422

 
415,373

 

 

 
1,323,795

 
5.9
%
 
9,218,936

 
7.16

 
5.7
%
Minneapolis

 

 

 
381,922

 
381,922

 
1.7
%
 
8,572,820

 
27.92

 
5.3
%
South Florida

 
388,112

 

 

 
388,112

 
1.7
%
 
8,286,695

 
21.85

 
5.1
%
Columbus
1,142,400

 
253,705

 

 

 
1,396,105

 
6.2
%
 
5,913,073

 
4.46

 
3.6
%
Phoenix
1,009,351

 

 

 

 
1,009,351

 
4.5
%
 
4,691,802

 
4.65

 
2.9
%
Nashville

 
180,147

 

 

 
180,147

 
0.8
%
 
2,976,335

 
16.52

 
1.8
%
Chicago

 
203,304

 

 

 
203,304

 
0.9
%
 
2,919,936

 
16.81

 
1.8
%
Houston

 
159,175

 

 

 
159,175

 
0.7
%
 
2,559,523

 
16.08

 
1.6
%
Raleigh

 
122,087

 

 

 
122,087

 
0.5
%
 
2,130,574

 
17.45

 
1.3
%
Cincinnati
57,886

 

 

 
206,315

 
264,201

 
1.2
%
 
1,225,314

 
4.64

 
0.8
%
Other (3)
152,944

 

 

 

 
152,944

 
0.7
%
 
512,362

 
3.35

 
0.3
%
Total
16,548,508

 
4,649,429

 
731,875

 
588,237

 
22,518,049

 
100.0
%
 
$
162,381,121

 
$
7.60

 
100.0
%
Percent of Overall
73.5
%
 
20.6
%
 
3.3
%
 
2.6
%
 
100.0
%
 
 
 
 
 
 
 
 
Annual Net Effective Rent per Square Foot (2)
$
3.70

 
$
19.56

 
$
19.14

 
$
18.31

 
$
7.60

 
 
 
 
 
 
 
 
 
 
Occupancy %
 
Consolidated Properties
 
Jointly Controlled Properties
 
Industrial
 
Office
 
Medical Office
 
Other
 
Overall
 
Industrial
 
Office
 
Medical Office
 
Other
 
Overall
Primary Market
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Indianapolis
96.8
%
 
93.7
%
 
95.8
%
 
92.1
%
 
96.3
%
 
93.9
%
 

 
100.0
%
 

 
94.2
%
Cincinnati
97.4
%
 
86.9
%
 
98.4
%
 

 
94.8
%
 
100.0
%
 

 

 
100.0
%
 
100.0
%
South Florida
88.3
%
 
90.4
%
 
100.0
%
 

 
88.9
%
 

 
97.7
%
 

 

 
97.7
%
Atlanta
88.7
%
 
94.5
%
 
95.7
%
 

 
89.6
%
 

 
89.4
%
 

 

 
89.4
%
Raleigh
95.3
%
 
95.1
%
 
97.2
%
 
71.7
%
 
95.3
%
 

 
100.0
%
 

 

 
100.0
%
Dallas
100.0
%
 

 
95.4
%
 

 
99.6
%
 
98.0
%
 

 
94.9
%
 

 
97.8
%
Chicago
98.7
%
 

 
98.9
%
 

 
98.7
%
 

 
85.4
%
 

 

 
85.4
%
St. Louis
94.6
%
 
77.7
%
 

 

 
88.7
%
 

 

 

 

 

Nashville
88.2
%
 
92.9
%
 
100.0
%
 

 
89.4
%
 

 
100.0
%
 

 

 
100.0
%
Columbus
100.0
%
 

 
100.0
%
 

 
100.0
%
 
100.0
%
 
71.7
%
 

 

 
94.9
%
Central Florida
100.0
%
 

 
75.0
%
 

 
97.7
%
 
100.0
%
 
91.2
%
 

 

 
97.2
%
Minneapolis
96.1
%
 

 

 

 
96.1
%
 

 

 

 
80.4
%
 
80.4
%
Houston
100.0
%
 
100.0
%
 
84.4
%
 

 
99.1
%
 

 
100.0
%
 

 

 
100.0
%
Savannah
83.9
%
 

 

 

 
83.9
%
 

 

 

 

 

Washington DC
91.5
%
 
45.3
%
 
100.0
%
 

 
68.2
%
 
92.6
%
 
84.7
%
 

 

 
86.6
%
New Jersey
100.0
%
 

 

 

 
100.0
%
 

 

 

 

 

Northern California
100.0
%
 

 

 

 
100.0
%
 

 

 

 

 

Southern California
76.8
%
 

 

 

 
76.8
%
 

 

 

 

 

Pennsylvania
100.0
%
 

 

 
85.9
%
 
97.5
%
 

 

 

 

 

Seattle
100.0
%
 

 

 

 
100.0
%
 

 

 

 

 

Phoenix
92.7
%
 

 

 

 
92.7
%
 
100.0
%
 

 

 

 
100.0
%
Baltimore
100.0
%
 

 

 

 
100.0
%
 

 

 

 

 

Cleveland

 
57.2
%
 

 

 
57.2
%
 

 

 

 

 

Other (3)
87.8
%
 

 
88.3
%
 

 
88.0
%
 
100.0
%
 

 

 

 
100.0
%
Total
95.0
%
 
87.8
%
 
93.2
%
 
85.7
%
 
94.1
%
 
96.9
%
 
88.0
%
 
96.8
%
 
87.3
%
 
94.8
%

-16-


(1)
Represents the average annual base rental payments, on a straight-line basis for the term of each lease, from space leased to tenants as of December 31, 2013, excluding additional amounts paid by tenants as reimbursement for operating expenses. Joint venture properties are shown at 100% of square feet and net effective rents, without regard to our ownership percentage.
(2)
Annual net effective rent per leased square foot.
(3)
Represents properties not located in our primary markets, totaling 1.4% of the total square footage of our consolidated properties.
Item 3.  Legal Proceedings
We are not subject to any material pending legal proceedings, other than routine litigation arising in the ordinary course of business. Our management expects that these ordinary routine legal proceedings will be covered by insurance and does not expect these legal proceedings to have a material adverse effect on our financial condition, results of operations, or liquidity.
Item 4.  Mine Safety Disclosures
Not applicable.


-17-


PART II
Item 5.  Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
The General Partner's common stock is listed for trading on the NYSE under the symbol "DRE." The following table sets forth the high and low sales prices of the General Partner's common stock for the periods indicated and the dividend or distribution paid per share or Common Unit by the General Partner or the Partnership, respectively, during each such period. There is no established trading market for the Partnership's Common Units. As of February 21, 2014, there were 7,012 record holders of the General Partner's common stock and 142 record holders of the Partnership's Common Units. 
 
2013
 
2012
Quarter Ended
High
 
Low
 
Dividend/Distribution
 
High
 
Low
 
Dividend/Distribution
December 31
$
17.23

 
$
14.18

 
$
0.17

 
 
$
15.93

 
$
12.71

 
$
0.17

September 30
17.56

 
14.12

 
0.17

 
 
16.00

 
13.85

 
0.17

June 30
18.80

 
14.29

 
0.17

 
 
15.31

 
13.06

 
0.17

March 31
17.16

 
13.94

 
0.17

 
 
14.85

 
11.85

 
0.17

On January 29, 2014, the General Partner declared a quarterly cash dividend or distribution of $0.17 per share or Common Unit, payable by the General Partner or the Partnership, respectively, on February 28, 2014, to common shareholders or common unitholders of record on February 14, 2014.
A summary of the tax characterization of the dividends paid per common share of the General Partner for the years ended December 31, 2013, 2012 and 2011 follows:
 
 
2013
 
2012
 
2011
Total dividends paid per share
$
0.68

 
$
0.68

 
$
0.68

Ordinary income
52.6
%
 
14.1
%
 
3.3
%
Return of capital
4.4
%
 
85.9
%
 
96.7
%
Capital gains
43.0
%
 
%
 
%
 
100.0
%
 
100.0
%
 
100.0
%
Sales of Unregistered Securities
The General Partner did not sell any of its securities during the year ended December 31, 2013 that were not registered under the Securities Act.
Item 6. Selected Financial Data
The following table sets forth selected financial and operating information on a historical basis for each of the years in the five-year period ended December 31, 2013. The following information should be read in conjunction with Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Item 8, "Financial Statements and Supplementary Data" included in this Form 10-K (in thousands, except per share or per Common Unit):

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2013
 
2012
 
2011
 
2010
 
2009
Results of Operations:
 
 
 
 
 
 
 
 
 
General Partner and Partnership
 
 
 
 
 
 
 
 
 
Revenues:
 
 
 
 
 
 
 
 
 
Rental and related revenue from continuing operations
$
875,194

 
$
771,625

 
$
686,242

 
$
618,315

 
$
581,200

General contractor and service fee revenue
206,596

 
275,071

 
521,796

 
515,361

 
449,509

Total revenues from continuing operations
$
1,081,790

 
$
1,046,696

 
$
1,208,038

 
$
1,133,676

 
$
1,030,709

Income (loss) from continuing operations
$
61,546

 
$
(85,549
)
 
$
(3,096
)
 
$
44,340

 
$
(222,651
)
 
 
 
 
 
 
 
 
 
 
General Partner
 
 
 
 
 
 
 
 
 
Net income (loss) attributable to common shareholders
$
153,044

 
$
(126,145
)
 
$
31,416

 
$
(14,108
)
 
$
(333,601
)
 
 
 
 
 
 
 
 
 
 
Partnership
 
 
 
 
 
 
 
 
 
Net income (loss) attributable to common unitholders
$
155,138

 
$
(128,418
)
 
$
32,275

 
$
(14,459
)
 
$
(344,700
)
 
 
 
 
 
 
 
 
 
 
General Partner
 
 
 
 
 
 
 
 
 
Per Share Data:
 
 
 
 
 
 
 
 
 
Basic income (loss) per common share:
 
 
 
 
 
 
 
 
 
Continuing operations
$
0.06

 
$
(0.52
)
 
$
(0.27
)
 
$
(0.16
)
 
$
(1.43
)
Discontinued operations
0.41

 
0.04

 
0.38

 
0.09

 
(0.24
)
Diluted income (loss) per common share:
 
 
 
 
 
 
 
 
 
Continuing operations
0.06

 
(0.52
)
 
(0.27
)
 
(0.16
)
 
(1.43
)
Discontinued operations
0.41

 
0.04

 
0.38

 
0.09

 
(0.24
)
Dividends paid per common share
$
0.68

 
$
0.68

 
$
0.68

 
$
0.68

 
$
0.76

Weighted average common shares outstanding
322,133

 
267,900

 
252,694

 
238,920

 
201,206

Weighted average common shares and potential dilutive securities
326,712

 
267,900

 
259,598

 
238,920

 
201,206

Balance Sheet Data (at December 31):
 
 
 
 
 
 
 
 
 
Total Assets
$
7,752,614

 
$
7,560,101

 
$
7,004,437

 
$
7,644,276

 
$
7,304,279

Total Debt
4,254,376

 
4,446,170

 
3,809,589

 
4,207,079

 
3,854,032

Total Preferred Equity
447,683

 
625,638

 
793,910

 
904,540

 
1,016,625

Total Shareholders' Equity
3,013,243

 
2,591,414

 
2,714,686

 
2,945,610

 
2,925,345

Total Common Shares Outstanding
326,399

 
279,423

 
252,927

 
252,195

 
224,029

Other Data:
 
 
 
 
 
 
 
 
 
Funds from Operations attributable to common shareholders (1)
$
347,041

 
$
265,204

 
$
274,616

 
$
297,955

 
$
142,597

 
 
 
 
 
 
 
 
 
 
Partnership
 
 
 
 
 
 
 
 
 
Per Unit Data:
 
 
 
 
 
 
 
 
 
Basic income (loss) per Common Unit:
 
 
 
 
 
 
 
 
 
Continuing operations
$
0.06

 
$
(0.52
)
 
$
(0.27
)
 
$
(0.16
)
 
$
(1.43
)
Discontinued operations
0.41

 
0.04

 
0.38

 
0.09

 
(0.24
)
Diluted income (loss) per Common Unit:
 
 
 
 
 
 
 
 
 
Continuing operations
0.06

 
(0.52
)
 
(0.27
)
 
(0.16
)
 
(1.43
)
Discontinued operations
0.41

 
0.04

 
0.38

 
0.09

 
(0.24
)
Distributions paid per Common Unit
$
0.68

 
$
0.68

 
$
0.68

 
$
0.68

 
$
0.76

Weighted average Common Units outstanding
326,525

 
272,729

 
259,598

 
244,870

 
207,893

Weighted average Common Units and potential dilutive securities
326,712

 
272,729

 
259,598

 
244,870

 
207,893

Balance Sheet Data (at December 31):
 
 
 
 
 
 
 
 
 
Total Assets
$
7,752,614

 
$
7,560,101

 
$
7,003,982

 
$
7,644,124

 
$
7,304,493

Total Debt
4,254,376

 
4,446,170

 
3,809,589

 
4,207,079

 
3,854,032

Total Preferred Equity
447,683

 
625,638

 
793,910

 
904,540

 
1,016,625

Total Partners' Equity
3,037,330

 
2,616,803

 
2,775,037

 
2,984,619

 
2,960,516

Total Common Units Outstanding
330,786

 
283,842

 
259,872

 
257,426

 
230,638

Other Data:
 
 
 
 
 
 
 
 
 
Funds from Operations attributable to common unitholders (1)
$
351,780

 
$
269,985

 
$
282,119

 
$
305,375

 
$
147,324

(1) In addition to net income (loss) computed in accordance with accounting principles generally accepted in the United States of America ("GAAP"), we assess and measure the overall operating results of the General Partner and the Partnership based upon Funds From Operations ("FFO"), which is an industry performance measure that management believes is a useful indicator of consolidated operating performance. FFO is used by industry analysts and investors as a supplemental operating performance measure of an equity real estate investment trust ("REIT") like Duke Realty Corporation. The National Association of Real Estate Investment Trusts ("NAREIT") created FFO as a non-GAAP supplemental measure of REIT operating performance. FFO, as defined by NAREIT, represents GAAP net income (loss), excluding extraordinary items as defined under GAAP, gains or losses from sales of previously depreciated real estate assets, impairment charges related to depreciable real estate assets, plus certain non-cash items such as real estate asset depreciation and amortization, and after similar

-19-


adjustments for unconsolidated partnerships and joint ventures. The most comparable GAAP measure is net income (loss) attributable to common shareholders or common unitholders. FFO attributable to common shareholders or common unitholders should not be considered as a substitute for net income (loss) attributable to common shareholders or common unitholders 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.
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. Management believes that the use of FFO attributable to common shareholders or common unitholders, 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 the use of FFO as a performance measure enables investors and analysts to readily identify the operating results of the long-term assets that form the core of a REIT's activity and assist them in comparing these operating results between periods or between different companies.
See reconciliation of FFO to GAAP net income (loss) attributable to common shareholders or common unitholders under the caption "Year in Review" under Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations."
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Business Overview
The General Partner is a self-administered and self-managed REIT that began operations in 1986 and is the sole general partner of the Partnership. The Partnership is a limited partnership formed in 1993, at which time all of the properties and related assets and liabilities of the General Partner, as well as proceeds from a secondary offering of the General Partner's common shares, were contributed to the Partnership. Simultaneously, the Partnership completed the acquisition of Duke Associates, a full-service commercial real estate firm operating in the Midwest whose operations began in 1972. We operate the General Partner and the Partnership as one enterprise, and therefore, our discussion and analysis refers to the General Partner and its consolidated subsidiaries, including the Partnership, collectively.
At December 31, 2013, we: 
Owned or jointly controlled 754 industrial, office, medical office and other properties, of which 730 properties with approximately 146.5 million square feet were in service and 24 properties with approximately 6.1 million square feet were under development. The 730 in-service properties were comprised of 623 consolidated properties with approximately 124.0 million square feet and 107 jointly controlled properties with more than 22.5 million square feet. The 24 properties under development consisted of 22 consolidated properties with more than 4.3 million square feet and two jointly controlled properties with approximately 1.8 million square feet.
Owned, including through ownership interests in unconsolidated joint ventures, more than 4,100 acres of land and controlled an additional 1,600 acres through purchase options.
A key component of our overall strategy is to increase our investment in quality industrial properties in both existing and select new markets and to reduce our investment in suburban office properties and other non-strategic assets. By the end of 2013, we had achieved the asset allocation objectives that we had established in late 2009 to increase our industrial assets to 60%, while reducing our office assets to 25% or less, of our total asset concentration.
We have four reportable operating segments at December 31, 2013, the first three of which consist of the ownership and rental of (i) industrial, (ii) office and (iii) medical office real estate investments. The operations of our industrial, office and medical office properties, along with our retail properties, are collectively referred to as "Rental Operations." Our retail properties, as well as any other properties not included in our reportable segments, do not by themselves meet the quantitative thresholds for separate presentation as a reportable segment. The fourth reportable segment consists of various real estate services such as property management, asset management, maintenance, leasing, development, general contractor and construction management to third-party property owners and joint ventures, 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

-20-


management expertise. Our Service Operations segment also includes our taxable REIT subsidiary, a legal entity through which certain of the segment's operations are conducted.
Operational Strategy
Our operational focus is to drive profitability by maximizing cash from operations as well as FFO through (i) maintaining and increasing property occupancy and rental rates, while also keeping lease-related capital costs contained, by effectively managing our portfolio of existing properties; (ii) selectively developing new build-to-suit, substantially pre-leased and, in limited circumstances, speculative development projects; (iii) leveraging our construction expertise to act as a general contractor or construction manager on a fee basis; and (iv) providing a full line of real estate services to our tenants and to third parties.
Asset Strategy
Our asset strategy is to reposition our investment concentration among product types and further diversify our geographic presence. Our strategic objectives include (i) increasing our investment in quality industrial properties in both existing markets and select new markets; (ii) managing our medical office portfolio nationally to focus on hospital system relationships in order to take advantage of demographic trends; (iii) increasing our asset investment in markets we believe provide the best potential for future rental growth; (iv) reducing our investment in suburban office properties located primarily in the Midwest as well as reducing our investment in other non-strategic assets; and (v) monetizing our land inventory through new development activity as well as sales of surplus land. We are continuing to execute our asset strategy through a disciplined approach by identifying development and acquisition opportunities, while continually evaluating our portfolio for disposition by regularly identifying assets that no longer meet our long-term objectives.
Capital Strategy
Our capital strategy is to maintain a strong balance sheet by actively managing the components of our capital structure, in coordination with the execution of our overall operational and asset strategies. We are focused on maintaining investment grade ratings from our credit rating agencies with the ultimate goal of further improving the key metrics that formulate our credit ratings.
In support of our capital strategy, we employ an asset disposition program to sell non-strategic real estate assets, which generates proceeds that can be recycled into new property investments that better fit our growth objectives or can be used to reduce leverage and otherwise manage our capital structure.
We continue to focus on improving our balance sheet by maintaining a balanced and flexible capital structure which includes: (i) extending and sequencing the maturity dates of our outstanding debt obligations; (ii) borrowing primarily at fixed rates by targeting a variable rate component of total debt less than 20%; and (iii) issuing common equity as needed to maintain appropriate leverage parameters or support significant strategic developments or acquisitions. With our successes to date and continued focus on maintaining a strong balance sheet, we believe we are well-positioned for future growth.
Year in Review
The overall economic environment improved modestly in 2013. Unresolved issues of spending cuts, the national debt ceiling and the government shutdown led to uncertainty for the U.S. economy during much of the year. While some of these issues are now resolved for the short term, they did have an impact on the economy and our business. Despite these challenges, we believe 2013 to have been a very successful year across all aspects of our strategic focus. Our performance in 2013 included increasing the already strong level of occupancy at which we completed 2012 as well as increasing the size and pre-leased percentage of our development pipeline.
Net income attributable to the common shareholders of the General Partner for the year ended December 31, 2013, was $153.0 million, or $0.47 per share (diluted), compared to net loss of $126.1 million, or $0.48 per share (diluted) for the year ended December 31, 2012. Net income attributable to the common unitholders of the Partnership for the year ended December 31, 2013, was $155.1 million, or $0.47 per unit (diluted), compared to net loss of $128.4 million, or $0.48 per unit (diluted) for the year ended December 31, 2012. The net income position for 2013, when

-21-


compared to the net loss reported for 2012, was primarily the result of significant gains on property sales, for both consolidated properties and for our share of gains recognized within our unconsolidated joint ventures. The significant increase to gains from property sales was partially offset by increased depreciation expense in 2013 that resulted from carrying a larger base of properties. A substantial portion of the property sale activity occurred late in 2013, which mitigated the impact on operations from these dispositions.
FFO attributable to common shareholders of the General Partner totaled $347.0 million for the year ended December 31, 2013, compared to $265.2 million for 2012. FFO attributable to common unitholders of the Partnership totaled $351.8 million for the year ended December 31, 2013, compared to $270.0 million for 2012. We executed a 79-building suburban office portfolio sale (the "Blackstone Office Disposition") in late 2011, and the proceeds were not fully re-invested until the second half of 2012. Additionally, the General Partner issued 41.4 million shares of common stock in January 2013, generating net proceeds of approximately $571.9 million, which were re-invested into new property acquisitions as well as used to redeem the General Partner's $178.0 million of 8.375% Series O Cumulative Redeemable Preferred Shares ("Series O Shares"). The investment of both the proceeds from the Blackstone Office Disposition and the General Partner's January 2013 common stock offering resulted in the Company carrying a significantly higher base of real estate assets in 2013 compared to 2012, and therefore generating increased rental income throughout 2013. The higher base of real estate assets, coupled with the reduction of preferred dividends resulting from the aforementioned redemption, drove the increased FFO in 2013. Improved occupancy and operations throughout our real estate portfolio also contributed to the increase in FFO from 2012.
In addition to net income (loss) computed in accordance with GAAP, we assess and measure the overall operating results of the General Partner and the Partnership based upon FFO, which is an industry performance measure that management believes is a useful indicator of consolidated operating performance. FFO is used by industry analysts and investors as a supplemental operating performance measure of a REIT. NAREIT created FFO as a non-GAAP supplemental measure of REIT operating performance. FFO, as defined by NAREIT, represents GAAP net income (loss), excluding extraordinary items as defined under GAAP, gains or losses from sales of previously depreciated real estate assets, impairment charges related to depreciable 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. The most comparable GAAP measure is net income (loss) attributable to common shareholders or common unitholders. FFO attributable to common shareholders or common unitholders should not be considered as a substitute for net income (loss) attributable to common shareholders or common unitholders 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.
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. Management believes that the use of FFO attributable to common shareholders or common unitholders, 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 the use of FFO as a performance measure enables investors and analysts to readily identify the operating results of the long-term assets that form the core of a REIT's activity and assist them in comparing these operating results between periods or between different companies.
The following table shows a reconciliation of net income (loss) attributable to common shareholders or common unitholders to the calculation of FFO attributable to common shareholders or common unitholders for the years ended December 31, 2013, 2012 and 2011, respectively (in thousands):

-22-


 
2013
 
2012
 
2011
Net income (loss) attributable to common shareholders of the General Partner
$
153,044

 
$
(126,145
)
 
$
31,416

Add back: Net income (loss) attributable to noncontrolling interests - common limited partnership interests in the Partnership
2,094

 
(2,273
)
 
859

Net income (loss) attributable to common unitholders of the Partnership
155,138

 
(128,418
)
 
32,275

Adjustments:
 
 
 
 
 
Depreciation and amortization
409,050

 
379,419

 
385,679

Company share of joint venture depreciation and amortization
31,220

 
34,702

 
33,687

Earnings from depreciable property sales—wholly owned
(192,421
)
 
(13,811
)
 
(169,431
)
Earnings from depreciable property sales—share of joint venture
(51,207
)
 
(1,907
)
 
(91
)
Funds From Operations attributable to common unitholders of the Partnership
$
351,780

 
$
269,985

 
$
282,119

Additional General Partner Adjustments:
 
 
 
 
 
Net (income) loss attributable to noncontrolling interests - common limited partnership interests in the Partnership
(2,094
)
 
2,273

 
(859
)
        Noncontrolling interest share of adjustments
(2,645
)
 
(7,054
)
 
(6,644
)
Funds From Operations attributable to common shareholders of the General Partner
$
347,041

 
$
265,204

 
$
274,616

In accordance with our strategic plans, we increased our investment in industrial and medical office properties while reducing our investment in suburban office properties. Additionally, we continued to improve our operational metrics, which evidences the continued execution of our operational strategy. Highlights of our 2013 strategic and operational activities are as follows: 
We had development starts with expected total costs of $665.8 million during 2013 across all product types, which includes our share of expected total costs for two industrial development starts within a 50%-owned unconsolidated joint venture. These 2013 development starts were, in aggregate, 90.5% pre-leased.
During 2013, we placed 19 wholly-owned developments in service, across all product types, which totaled 4.4 million square feet with estimated total costs, after the properties are fully leased, of $481.7 million. These properties were 90.5% leased at December 31, 2013.
We increased our level of development investment during 2013 as compared to the last few years. The total estimated cost of our consolidated properties under construction was $572.6 million at December 31, 2013, with $249.9 million of such costs incurred through that date. The total estimated cost for jointly controlled properties under construction was $76.5 million at December 31, 2013, with $10.9 million of costs incurred through that date. The consolidated properties under construction are 85% pre-leased, while the jointly controlled properties under construction are 100% pre-leased.
During 2013, we acquired 16 industrial properties, totaling 8.0 million rentable square feet, and one medical office property with a total combined value of $553.3 million. These properties were, in aggregate, 99.8% leased at their acquisition dates.
We generated $740.0 million of total net cash proceeds from the disposition of 38 consolidated buildings and 277 acres of wholly-owned undeveloped land. These dispositions included 18 medical office properties in markets, or associated with healthcare systems, where we did not anticipate significant future growth. An additional 13 of the properties sold during 2013 were suburban office properties, primarily located in the Midwest.
The percentage of total square feet leased for our in-service portfolio of consolidated properties increased from 92.7% at December 31, 2012 to 94.1% at December 31, 2013.
We continued to have strong total leasing activity for our consolidated properties, with total leasing activity of 24.5 million square feet in 2013 compared to 24.2 million square feet in 2012.
Total leasing activity for our consolidated properties in 2013 included 11.7 million square feet of renewals, which represented a 68.3% retention rate on a square foot basis, and resulted in a 2.4% increase in net

-23-


effective rents. Lease expirations for the year were, for the most part, backfilled with new tenants, and the increased second generation leasing volume more than compensated for a decreased level of renewals.
We executed a number of significant transactions in support of our capital strategy during 2013 in order to optimally sequence our unsecured debt maturities, manage our overall leverage profile, reduce our cost of capital and support our development and acquisition priorities in alignment with our asset strategy. Highlights of our key financing activities are as follows:
In January 2013, the General Partner completed a public offering of 41.4 million common shares at an issue price of $14.25 per share, resulting in gross proceeds of $590.0 million and, after deducting underwriting fees and offering costs, net proceeds of approximately $571.9 million.
Throughout 2013, the General Partner issued 4.8 million shares of common stock pursuant to its at the market ("ATM") equity program at an average price of $16.67 per share, generating gross proceeds of approximately $79.3 million and, after considering commissions and other costs, net proceeds of approximately $77.8 million.
In February 2013, the General Partner redeemed all of the outstanding shares of its Series O Shares, which were redeemable as of February 22, 2013, at a liquidation amount of $178.0 million. The redemption of the Series O Shares resulted in an on-going annual reduction to preferred dividends of nearly $15 million per year.
During 2013, we issued $500.0 million of unsecured bonds at a weighted average stated and effective rate of 3.8%, and a $250.0 million unsecured term loan that bears interest at a variable rate of LIBOR plus 1.35%.
During 2013, we repaid $675.0 million of unsecured bonds, which had a weighted average stated interest rate of 5.57%. We also repaid twelve secured loans during 2013, totaling $153.8 million, which had a weighted average stated interest rate of 5.52%.
Key Performance Indicators
Our operating results depend primarily upon rental income from our Rental Operations. The following discussion highlights the areas of Rental Operations that we consider critical drivers of future revenues.
Occupancy Analysis: As previously discussed, our ability to maintain high occupancy rates is a principal driver of maintaining and increasing rental revenue from continuing operations. The following table sets forth percent leased and average net effective rent information regarding our in-service portfolio of consolidated rental properties at December 31, 2013 and 2012, respectively (in thousands, except percentage data):
 
Total
Square Feet
 
Percent of
Total Square Feet
 
Percent Leased*
 
Average Annual Net Effective Rent**
Type
2013
 
2012
 
2013
 
2012
 
2013
 
2012
 
2013
 
2012
Industrial
104,623

 
94,080

 
84.4
%
 
81.4
%
 
95.0
%
 
94.3
%
 
$3.93
 
$3.89
Office
14,423

 
15,715

 
11.6
%
 
13.6
%
 
87.8
%
 
84.3
%
 
$13.35
 
$13.30
Medical Office
4,566

 
5,048

 
3.7
%
 
4.4
%
 
93.2
%
 
91.1
%
 
$22.51
 
$21.57
Other
348

 
739

 
0.3
%
 
0.6
%
 
85.7
%
 
88.1
%
 
$19.71
 
$24.24
Total
123,960

 
115,582

 
100.0
%
 
100.0
%
 
94.1
%
 
92.7
%
 
$5.67
 
$5.94
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
* Represents the percentage of total square feet leased based on executed leases and without regard to whether the leases have commenced.
** Represents average annual base rental payments per leased square foot, on a straight-line basis for the term of each lease, from space leased to tenants at the end of the most recent reporting period. This amount excludes additional amounts paid by tenants as reimbursement for operating expenses.

The increase in occupancy at December 31, 2013 compared to December 31, 2012 was driven by increased leasing activity, as well as acquisition and disposition activity in 2013. The 3.7 million square feet of properties that we

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disposed of during 2013 were less than 90% leased in the aggregate, while the 8.1 million square feet of properties that we acquired during the year were nearly 100% leased.
The average annual net effective rent for our industrial, office and medical office properties increased from 2012 to 2013 within each of these product types. The decrease in our overall average annual net effective rent per square foot is primarily the result of a shift in product mix, as we have increased our concentration in industrial properties.
Total Leasing Activity
The initial leasing of development projects or vacant space in acquired properties is referred to as first generation lease activity. The leasing of such space that we have previously held under lease is referred to as second generation lease activity. The total leasing activity for our consolidated rental properties, expressed in square feet of leases signed during the period, is as follows for the years ended December 31, 2013 and 2012, respectively (in thousands):
 
2013
 
2012
New Leasing Activity - First Generation
5,787

 
5,628

New Leasing Activity - Second Generation
7,019

 
4,911

Renewal Leasing Activity
11,684

 
13,626

Total Leasing Activity
24,490

 
24,165

We were able to quickly backfill expiring leases in 2013, which compensated for the decreased renewal volume, while slightly increasing our volume of first generation leases in new developments.
New Second Generation Leases
The following table sets forth the estimated costs of tenant improvements and leasing commissions, on a per square foot basis, that we are obligated to fulfill under the new second generation leases signed for our consolidated rental properties during the years ended December 31, 2013 and 2012, respectively (square feet data in thousands):
 
Square Feet of New Second Generation Leases Signed
 
Average Term in Years
 
Estimated Tenant Improvement Cost per Square Foot
 
Leasing Commissions per Square Foot
 
2013
 
2012
 
2013
 
2012
 
2013
 
2012
 
2013
 
2012
Industrial
5,811

 
3,900

 
5.2

 
7.0

 
$
2.45

 
$
2.65

 
$
1.53

 
$
1.55

Office
1,167

 
972

 
6.8

 
6.7

 
$
17.95

 
$
17.36

 
$
7.08

 
$
7.33

Medical Office
41

 
39

 
5.6

 
6.6

 
$
13.00

 
$
15.41

 
$
3.38

 
$
6.67

Total
7,019

 
4,911

 
5.5

 
6.9

 
$
5.09

 
$
5.66

 
$
2.46

 
$
2.73

The increase in new second generation leases in 2013 was, to a large extent, correlated with the decrease in renewals and was driven by our ability to backfill several planned lease expirations throughout the year.








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Lease Renewals
The following table summarizes our lease renewal activity within our consolidated rental properties for the years ended December 31, 2013 and 2012, respectively (square feet data in thousands):
 
Square Feet of Leases Renewed
 
Percent of Expiring Leases Renewed
 
Average Term in Years
 
Growth (Decline) in Net Effective Rents*
 
Estimated Tenant Improvement Cost per Square Foot
 
Leasing Commissions per Square Foot
 
2013
 
2012
 
2013
 
2012
 
2013
 
2012
 
2013
 
2012
 
2013
 
2012
 
2013
 
2012
Industrial
9,653

 
12,168

 
66.2
%
 
85.4
%
 
4.3

 
5.2

 
4.0
%
 
1.0
%
 
$
0.72

 
$
0.42