Exhibit 10.1
DUKE REALTY CORPORATION
2015 LONG-TERM INCENTIVE PLAN
ARTICLE 1
PURPOSE
1.1.
Purpose.
The purpose of the Duke Realty Corporation 2015 Long-Term Incentive Plan (the “Plan”) is to promote the
success, and enhance the value, of Duke Realty Corporation (the “Company”), by linking the personal interests of employees, officers, directors and consultants of the Company or any Affiliate (as defined below) to those of Company
stockholders and by providing such persons with an incentive for outstanding performance. The Plan is further intended to provide flexibility to the Company in its ability to motivate, attract, and retain the services of employees, officers,
directors and consultants upon whose judgment, interest, and special effort the successful conduct of the Company’s operation is largely dependent. Accordingly, the Plan permits the grant of incentive awards from time to time to selected
employees, officers, directors and consultants of the Company and its Affiliates.
ARTICLE 2
DEFINITIONS
2.1.
Definitions.
When a word or phrase appears in this Plan with the initial letter capitalized, and the word or phrase does not commence a sentence, the word or phrase shall generally be given the meaning ascribed to it in this Section or in
Section 1.1 unless a clearly different meaning is required by the context. The following words and phrases shall have the following meanings:
(a) “Affiliate” means (i) any Subsidiary or Parent, or (ii) an entity that directly or through one or more
intermediaries controls, is controlled by or is under common control with, the Company, as determined by the Committee.
(b) “Award” means any Option, Stock Appreciation Right, Restricted Stock Award, Restricted Stock Unit Award, Deferred
Stock Unit Award, Performance Award, Other Stock-Based Award, Performance-Based Cash Award, or any other right or interest relating to Stock or cash, granted to a Participant under the Plan.
(c) “Award Certificate” means a written document, in such form as the Committee prescribes from time to time, setting
forth the terms and conditions of an Award. Award Certificates may be in the form of individual award agreements or certificates or a program document describing the terms and provisions of an Award or series of Awards under the Plan. The Committee
may provide for the use of electronic, on-line or other non-paper Award Certificates, and the use of electronic, on-line or other non-paper means for the acceptance thereof and actions thereunder by a Participant.
(d) “Board” means the Board of Directors of the Company.
(e) “Cause” as a reason for a Participant’s termination of Continuous Status as a Participant shall have the
meaning assigned such term in the employment, consulting, severance or similar agreement, if any, between such Participant and the Company or an Affiliate,
provided, however
that if there is no such agreement in which such term is defined,
and unless otherwise defined in the applicable Award Certificate, “Cause” shall mean any of the following acts by the Participant, as determined by the Committee or the
Board: (i) the willful and continued failure of the Participant to perform his or her required duties as an officer, employee, director or consultant of the Company or any Affiliate,
(ii) any action by the Participant that involves willful misfeasance or gross negligence, (iii) the requirement of or direction by a federal or state regulatory agency that has jurisdiction over the Company or any Affiliate to terminate
the Continuous Status as a Participant of the Participant, (iv) the conviction of the Participant of the commission of any criminal offense that involves dishonesty or breach of trust, or (v) any intentional breach by the Participant of a
material term, condition or covenant of any agreement between the Participant and the Company or any Affiliate.
(f)
“Change in Control” means and includes the occurrence of any one of the following events:
(i) individuals who,
on the Effective Date, constitute the Board of Directors of the Company (the “Incumbent Directors”) cease for any reason to constitute at least a majority of such Board, provided that any person becoming a director after the Effective Date
and whose election or nomination for election was approved by a vote of at least a majority of the Incumbent Directors then on the Board shall be an Incumbent Director;
provided, however,
that no individual initially elected or nominated as a
director of the Company as a result of an actual or threatened election contest with respect to the election or removal of directors (“Election Contest”) or other actual or threatened solicitation of proxies or consents by or on behalf of
any Person other than the Board (“Proxy Contest”), including by reason of any agreement intended to avoid or settle any Election Contest or Proxy Contest, shall be deemed an Incumbent Director; or
(ii) any person becomes a “beneficial owner” (as defined in Rule 13d-3 under the 1934 Act), directly or indirectly,
of either (A) 25% or more of the then-outstanding shares of common stock of the Company (“Company Common Stock”) or (B) securities of the Company representing 25% or more of the combined voting power of the Company’s then
outstanding securities eligible to vote for the election of directors (the “Company Voting Securities”);
provided, however,
that for purposes of this subsection (ii), the following acquisitions of Company Common Stock or Company
Voting Securities shall not constitute a Change in Control: (w) an acquisition directly from the Company, (x) an acquisition by the Company or a Subsidiary of the Company, (y) an acquisition by any employee benefit plan (or related
trust) sponsored or maintained by the Company or any Subsidiary of the Company, or (z) an acquisition pursuant to a Non-Qualifying Transaction (as defined in subsection (iii) below); or
(iii) the consummation of a reorganization, merger, consolidation, statutory share exchange or similar form of corporate
transaction involving the Company or a Subsidiary (a “Reorganization”), or the sale or other disposition of all or substantially all of the Company’s assets (a “Sale”) or the acquisition of assets or stock of another
corporation (an “Acquisition”), unless immediately following such Reorganization, Sale or Acquisition: (A) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the outstanding
Company Common Stock and outstanding Company Voting Securities immediately prior to such Reorganization, Sale or Acquisition beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock and
the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the entity resulting from such Reorganization, Sale or Acquisition (including, without limitation, a
corporation which as a result of such transaction owns the Company or all or substantially all of the Company’s assets or stock either directly or through one or more subsidiaries, the “Surviving Entity”) in substantially the same
proportions as their ownership, immediately
prior to such Reorganization, Sale or Acquisition, of the outstanding Company Common Stock and the outstanding Company Voting Securities, as the case may be, and no person (other than
(x) the Company or any Subsidiary of the Company, (y) the Surviving Entity or its ultimate parent corporation, or (z) any employee benefit plan (or related trust) sponsored or maintained by any of the foregoing is the beneficial
owner, directly or indirectly, of 25% or more of the total common stock or 25% or more of the total voting power of the outstanding voting securities eligible to elect directors of the Surviving Entity, and at least a majority of the members of the
board of directors of the Surviving Entity were Incumbent Directors at the time of the Board’s approval of the execution of the initial agreement providing for such Reorganization, Sale or Acquisition (any Reorganization, Sale or Acquisition
which satisfies all of the criteria specified in (A), (B) and (C) above shall be deemed to be a “Non-Qualifying Transaction”); or
(iv) approval by the stockholders of the Company of a complete liquidation or dissolution of the Company; or
(v) the general partnership interest owned by the Company and its Subsidiaries in DRLP is reduced to a level below 50%.
Notwithstanding the foregoing, for any Awards that constitute nonqualified deferred compensation within the meaning of Section 409A(d) of
the Code, Change in Control shall mean any “change in control event” as such term is defined in Section 409A of the Code, without giving effect to any elective provisions that may be available under such definition.
(g) “Code” means the Internal Revenue Code of 1986, as amended from time to time. Reference to a specific Section of
the Code or regulation thereunder shall include such Section or regulation, any valid regulation promulgated under such Section, and any comparable provision of any future law, legislation or regulation amending, supplementing or superseding such
Section or regulation.
(h) “Committee” means the committee of the Board described in Article 4.
(i) “Company” means Duke Realty Corporation, an Indiana corporation, or any successor corporation.
(j) “Continuous Status as a Participant” means the absence of any interruption or termination of service as an
employee, officer, consultant or director of the Company or any Affiliate, as applicable;
provided, however
, that for purposes of an Incentive Stock Option, “Continuous Status as a Participant” means the absence of any interruption
or termination of service as an employee of the Company or any Parent or Subsidiary, as applicable, pursuant to applicable tax regulations. Continuous Status as a Participant shall not be considered interrupted in the case of any short-term
disability or leave of absence authorized in writing by the Company prior to its commencement;
provided, however
, that for purposes of Incentive Stock Options, no such leave may exceed 90 days, unless reemployment upon expiration of such
leave is guaranteed by statute or contract. If reemployment upon expiration of a leave of absence approved by the Company is not so guaranteed, on the 91st day of such leave any Incentive Stock Option held by the Participant shall cease to be
treated as an Incentive Stock Option and shall be treated for tax purposes as a Nonstatutory Stock Option. Whether military, government or other service or other leave of absence shall constitute a termination of Continuous Status as a Participant
shall be determined in each case by the Committee at its discretion, and any determination by the Committee shall be final and conclusive;
provided, however,
that for purposes of any Awards that constitute nonqualified deferred compensation
within the meaning of Section 409A(d) of the Code, (i) the determination of a leave of absence must comply with the requirements of a “bona fide
leave of absence” as provided in Treas. Reg. Section 1.409A-1(h), and (ii) Continuous Status as a Participant shall mean the absence of any “separation from service”
within the meaning given such term in Section 409A of the Code, without giving effect to any elective provisions that may be available under such definition.
(k) “Covered Employee” means a covered employee as defined in Code Section 162(m)(3).
(l) “Deferred Stock Unit” means a right granted to a Participant under Article 11 to receive Shares (or the
equivalent value in cash or other property if the Committee so provides) at a future time as determined by the Committee, or as determined by the Participant within guidelines established by the Committee in the case of voluntary deferral elections.
(m) “Disability” or “Disabled” has the same meaning as provided in the long-term disability plan or
policy maintained by the Company or if applicable, most recently maintained, by the Company or if applicable, an Affiliate, for the Participant, whether or not such Participant actually receives disability benefits under such plan or policy. If no
long-term disability plan or policy was ever maintained on behalf of Participant or if the determination of Disability relates to an Incentive Stock Option, Disability means Permanent and Total Disability as defined in Section 22(e)(3) of the
Code. Notwithstanding the foregoing, for any Awards that constitute nonqualified deferred compensation within the meaning of Section 409A(d) of the Code, Disability has the meaning given such term in Section 409A of the Code, without
giving effect to any elective provisions that may be available under such definition. In the event of a dispute, the determination whether a Participant is Disabled will be made by the Committee and may be supported by the advice of a physician
competent in the area to which such Disability relates.
(n) “Dividend Equivalent” means a right granted with
respect to an Award pursuant to Article 12.
(o) “DRLP” means Duke Realty Limited Partnership, an Indiana limited
partnership of which the Company is the sole general partner.
(p) “DRLP Units” means limited partnership
interests in DRLP that may be exchanged or redeemed for Shares on a one-for-one basis, or any profits interest in DRLP that may be exchanged or converted into such limited partnership interests.
(q) “Effective Date” has the meaning assigned such term in Section 3.1.
(r) “Eligible Participant” means an employee, officer, consultant or director of the Company or any Affiliate.
(s) “Exchange” means the New York Stock Exchange or any other national securities exchange on which the Stock may
from time to time be listed or traded.
(t) “Fair Market Value,” on any date, means (i) if the Stock is
listed on the New York Stock Exchange, the per share closing sales price for the Stock on the New York Stock Exchange on such date or, in the absence of reported sales on such date, the closing sales price on the immediately preceding date on which
sales were reported, or (ii) if the Stock is not listed on the New York Stock Exchange, but is listed on another securities exchange, the closing sales price on such exchange on such date or, in the absence of reported sales on such date, the
closing sales price on the immediately preceding date on which sales were reported, or (iii) if the Stock is not listed on the New York Stock Exchange or any other securities exchange, the mean between the bid and offered prices as
quoted by the applicable interdealer quotation system for such date, provided that if it is determined that the fair market value is not properly reflected by such quotation, Fair Market Value
will be determined by such other method as the Committee determines in good faith to be reasonable and in compliance with Code Section 409A.
(u) “Full Value Award” means an Award other than in the form of an Option or SAR, and which is settled by the
issuance of Stock or DRLP Units (or at the discretion of the Committee, settled in cash valued by reference to Stock value).
(v) “Grant Date” of an Award means the first date on which all necessary corporate action has been taken to approve
the grant of the Award as provided in the Plan, or such later date as is determined and specified as part of that authorization process. Notice of the grant shall be provided to the grantee within a reasonable time after the Grant Date.
(w) “Good Reason” after a Change in Control means, without the Participant’s prior written consent: (i) a
forced move to a location more than 60 miles from the Participant’s place of business immediately prior to the Change in Control; or (ii) a material reduction in the Participant’s base salary and/or annual incentive bonus target as
compared to that in effect immediately prior to the Change in Control. A Participant may not resign for Good Reason without providing the employer written notice of the grounds that the Participant believes constitute Good Reason and giving the
employer at least 30 days after such notice to cure and remedy the claimed event of Good Reason.
(x) “Incentive Stock
Option” means an Option that is intended to be an incentive stock option and meets the requirements of Section 422 of the Code or any successor provision thereto.
(y) “Independent Directors” means those members of the Board of Directors who qualify at any given time as
(a) an “independent” director within the meaning of Section 303A of the New York Stock Exchange Listed Company Manual, or otherwise under the applicable rules of the Exchange on which the Shares are listed, (b) a
“non-employee” director under Rule 16b-3 of the 1934 Act, and (c) an “outside” director under Section 162(m) of the Code.
(z) “Non-Employee Director” means a director of the Company who is not a common law employee of the Company or an
Affiliate.
(aa) “Nonstatutory Stock Option” means an Option that is not an Incentive Stock Option.
(bb) “Option” means a right granted to a Participant under Article 7 of the Plan to purchase Stock at a specified
price during specified time periods. An Option may be either an Incentive Stock Option or a Nonstatutory Stock Option.
(cc) “Other Stock-Based Award” means a right, granted to a Participant under Article 13, that relates to or is valued
by reference to Stock or other Awards relating to Stock.
(dd) “Parent” means a corporation, limited liability
company, partnership or other entity which owns or beneficially owns a majority of the outstanding voting stock or voting power of the Company. Notwithstanding the above, with respect to an Incentive Stock Option, Parent shall have the meaning set
forth in Section 424(e) of the Code.
(ee) “Participant” means an Eligible Participant who has been granted
an Award under the Plan; provided that in the case of the death of a Participant, the term “Participant” refers to a beneficiary designated pursuant to Section 14.5 or the legal guardian or other legal representative acting in a
fiduciary capacity on behalf of the Participant under applicable state law and court supervision.
(ff) “Performance Award” means a Performance Share or Performance Unit
or Performance-Based Cash Award granted pursuant to Article 9.
(gg) “Performance-Based Cash Award” means a right
granted to a Participant under Article 9 to a cash award to be paid upon achievement of such performance goals as the Committee establishes with regard to such Award.
(hh) “Performance Share” means any right granted to a Participant under Article 9 to a unit to be valued by reference
to a designated number of Shares or DRLP Units to be paid upon achievement of such performance goals as the Committee establishes with regard to such Performance Share.
(ii) “Performance Unit” means a right granted to a Participant under Article 9 to a unit valued by reference to a
designated amount of cash or property other than Shares, including DRLP Units, to be paid to the Participant upon achievement of such performance goals as the Committee establishes with regard to such Performance Unit.
(jj) “Person” means any individual, entity or group, within the meaning of Section 3(a)(9) of the 1934 Act and
as used in Section 13(d)(3) or 14(d)(2) of the 1934 Act.
(kk) “Plan” means the Duke Realty Corporation 2015
Long-Term Incentive Plan, as amended from time to time.
(ll) “Qualified Performance-Based Award” means an Award
that is either (i) intended to qualify for the Section 162(m) Exemption and is made subject to performance goals based on Qualified Business Criteria as set forth in Section 14.10(b), or (ii) an Option or SAR having an exercise
price equal to or greater than the Fair Market Value of the underlying Stock as of the Grant Date.
(mm) “Qualified
Business Criteria” means one or more of the Business Criteria listed in Section 14.10(b) upon which performance goals for certain Qualified Performance-Based Awards may be established by the Committee.
(nn) “Restricted Stock Award” means Stock granted to a Participant under Article 10 that is subject to certain
restrictions and to risk of forfeiture.
(oo) “Restricted Stock Unit Award” means the right granted to a
Participant under Article 10 to receive shares of Stock (or the equivalent value in cash or other property if the Committee so provides) in the future, which right is subject to certain restrictions and to risk of forfeiture.
(pp) “Retirement” means a Participant’s termination of employment with the Company or an Affiliate, other than
for Cause, on or after the age of 55 years, provided that unless otherwise determined by the Committee, as of the date of termination of the Participant’s employment, the sum of (i) the number of whole years of the Participant’s
employment with the Company, any Affiliate and any company or business acquired by the Company or an Affiliate via a merger, share purchase, asset purchase or similar transaction, plus (ii) the Participant’s age, totals at least 65 years.
(qq) “Section 162(m) Exemption” means the exemption from the limitation on deductibility imposed by
Section 162(m) of the Code that is set forth in Section 162(m)(4)(C) of the Code or any successor provision thereto.
(rr) “Shares” means shares of the Company’s Stock. If there has
been an adjustment or substitution with respect to the Shares (whether or not pursuant to Article 15), the term “Shares” shall also include any shares of stock or other securities that are substituted for Shares or into which Shares
are adjusted.
(ss) “Stock” means the $.01 par value common stock of the Company and such other securities of the
Company as may be substituted for Stock pursuant to Article 15.
(tt) “Stock Appreciation Right” or
“SAR” means a right granted to a Participant under Article 8 to receive a payment equal to the difference between the Fair Market Value of a Share as of the date of exercise of the SAR over the base price of the SAR, all as determined
pursuant to Article 8.
(uu) “Subsidiary” means any corporation, limited liability company, partnership or other
entity of which a majority of the outstanding voting stock or voting power is beneficially owned directly or indirectly by the Company. Notwithstanding the above, with respect to an Incentive Stock Option, Subsidiary shall have the meaning set forth
in Section 424(f) of the Code.
(vv) “1933 Act” means the Securities Act of 1933, as amended from time to
time.
(ww) “1934 Act” means the Securities Exchange Act of 1934, as amended from time to time.
ARTICLE 3
EFFECTIVE TERM OF PLAN
3.1.
Effective Date.
The Plan, as amended and restated, shall be effective as of the date that it is approved by the stockholders
of the Company (the “Effective Date”).
3.2.
Termination of Plan.
Unless earlier terminated as provided herein, the Plan
shall terminate on the tenth anniversary of the Effective Date or, if the stockholders of the Company approve an amendment to the Plan that increases the number of Shares subject to the Plan, the tenth anniversary of the date of such approval. The
termination of the Plan on such date shall not affect the validity of any Award outstanding on the date of termination, which shall continue to be governed by the applicable terms and conditions of the Plan.
ARTICLE 4
ADMINISTRATION
4.1.
Committee.
The Plan shall be administered by a Committee appointed by the Board (which Committee shall consist of at least two
directors) or, at the discretion of the Board from time to time, the Plan may be administered by the Board. It is intended that at least two of the directors appointed to serve on the Committee shall be Independent Directors and that any such
members of the Committee who do not so qualify shall abstain from participating in any decision to make or administer Awards that are made to Eligible Participants who at the time of consideration for such Award (i) are persons subject to the
short-swing profit rules of Section 16 of the 1934 Act, or (ii) are reasonably anticipated to become Covered Employees during the term of the Award. However, the mere fact that a Committee member shall fail to qualify as an Independent
Director or shall fail to abstain from such action shall not invalidate any Award made by the Committee which Award is otherwise validly made under the Plan. The members of the Committee shall be appointed by, and may be changed at any time and from
time to time in the discretion of, the Board. Unless and until changed by the Board, the Executive Compensation Committee of the Board is designated as the Committee to administer the Plan. The Board may
reserve to itself any or all of the authority and responsibility of the Committee under the Plan or may act as administrator of the Plan for any and all purposes. To the extent the Board has
reserved any authority and responsibility or during any time that the Board is acting as administrator of the Plan, it shall have all the powers of the Committee hereunder, and any reference herein to the Committee (other than in this
Section 4.1) shall include the Board. To the extent any action of the Board under the Plan conflicts with actions taken by the Committee, the actions of the Board shall control.
4.2.
Action and Interpretations by the Committee.
For purposes of administering the Plan, the Committee may from time to time adopt
rules, regulations, guidelines and procedures for carrying out the provisions and purposes of the Plan and make such other determinations, not inconsistent with the Plan, as the Committee may deem appropriate. The Committee may correct any defect,
supply any omission or reconcile any inconsistency in the Plan or in any Award in the manner and to the extent it deems necessary to carry out the intent of the Plan. The Committee’s interpretation of the Plan, any Awards granted under the
Plan, any Award Certificate and all decisions and determinations by the Committee with respect to the Plan are final, binding, and conclusive on all parties. Each member of the Committee is entitled to, in good faith, rely or act upon any report or
other information furnished to that member by any officer or other employee of the Company or any Affiliate, the Company’s or an Affiliate’s independent certified public accountants, Company counsel or any executive compensation consultant
or other professional retained by the Company or the Committee to assist in the administration of the Plan. No member of the Committee will be liable for any good faith determination, act or omission in connection with the Plan or any Award.
4.3.
Authority of Committee.
Except as provided below, the Committee has the exclusive power, authority and discretion to:
(a) Grant Awards;
(b) Designate Participants;
(c) Determine the type or types of Awards to be granted to each Participant;
(d) Determine the number of Awards to be granted and the number of Shares, DRLP Units or dollar amount to which an Award will
relate;
(e) Determine the terms and conditions of any Award, not inconsistent with the provisions of the Plan, granted
under the Plan, including but not limited to, the exercise price, grant price, or purchase price, any restrictions or limitations on the Award, any schedule for lapse of forfeiture restrictions or restrictions on the exercisability of an Award, and
accelerations or waivers thereof, based in each case on such considerations as the Committee in its sole discretion determines;
(f) Determine whether, to what extent, and under what circumstances an Award may be settled in, or the exercise price of an
Award may be paid in, cash, Stock, other Awards, or other property, or an Award may be canceled, forfeited, or surrendered;
(g) Prescribe the form of each Award Certificate, which need not be identical for each Participant;
(h) Decide all other matters that must be determined in connection with an Award;
(i) Establish, adopt or revise any rules, regulations, guidelines or procedures as it may deem necessary or advisable to
administer the Plan;
(j) Make all other decisions and determinations that may be required under the
Plan or as the Committee deems necessary or advisable to administer the Plan;
(k) Amend the Plan or any Award Certificate
as provided herein; and
(l) Adopt such modifications, procedures, and subplans as may be necessary or desirable to comply
with provisions of the laws of the United States or any non-U.S. jurisdictions in which the Company or any Affiliate may operate, in order to assure the viability of the benefits of Awards granted to participants located in the United States or such
other jurisdictions and to further the objectives of the Plan.
Notwithstanding anything to the contrary in this Article 4, grants of
Awards to Non-Employee Directors hereunder shall (i) be subject to the applicable award limits set forth in Section 5.4 hereof, and (ii) be made only in accordance with the terms, conditions and parameters of a plan, program or policy
for the compensation of Non-Employee Directors as in effect from time to time that is approved and administered by a committee of the Board consisting solely of Independent Directors.
4.4.
Delegation.
(a) Administrative Duties.
The Committee may delegate to one or more of its members or to one or more officers of the
Company or an Affiliate or to one or more agents or advisors such administrative duties or powers as it may deem advisable, and the Committee or any individuals to whom it has delegated duties or powers as aforesaid may employ one or more
individuals to render advice with respect to any responsibility the Committee or such individuals may have under this Plan.
(b) Special Committee.
The Board or the Committee may, by resolution, expressly delegate to a special committee,
consisting of one or more directors who may but need not be officers of the Company, the authority, within specified parameters as to the number and terms of Awards, to (i) designate officers, employees and/or consultants of the Company or any
of its Affiliates to be recipients of Awards under the Plan, and (ii) to determine the number of such Awards to be granted to any such Participants; provided that a limit on the total number or dollar value of Awards to be granted to any such
Participants shall be approved in advance by the Board or the Committee and provided further that such delegation of duties and responsibilities to such special committee may not be made with respect to the grant of Awards to eligible participants
(a) who are subject to Section 16(a) of the 1934 Act at the Grant Date, or (b) who as of the Grant Date are reasonably anticipated to be become Covered Employees during the term of the Award. The acts of such delegates shall be
treated hereunder as acts of the Board and such delegates shall report regularly to the Board and the Committee regarding the delegated duties and responsibilities and any Awards so granted.
4.5.
Award Certificates.
Each Award shall be evidenced by an Award Certificate. Each Award Certificate shall include such provisions,
not inconsistent with the Plan, as may be specified by the Committee.
ARTICLE 5
SHARES SUBJECT TO THE PLAN
5.1.
Number of Shares.
Subject to adjustment as provided in Section 5.2 and 15.1, the aggregate number of Shares reserved and available for issuance pursuant to Awards granted under the Plan shall be (i) 6,000,000, plus (ii) the
number of Shares reserved but unissued under the Company’s Amended and Restated 2005 Long-Term Incentive Plan, as amended (the “Prior
Plan”), and (iii) the number of Shares underlying awards outstanding as of the Effective Date under the Prior Plan that thereafter terminate or expire unexercised, or are cancelled,
forfeited or lapse for any reason; provided that, as of the Effective Date, no further awards shall be made pursuant to the Prior Plan. The maximum number of Shares that may be issued upon exercise of Incentive Stock Options granted under the Plan
shall be 6,000,000.
5.2.
Share Counting.
Shares covered by an Award shall be subtracted from the Plan share reserve as of the
Grant Date, but shall be added back to the Plan share reserve or otherwise treated in accordance with subsections (a) through (g) of this Section 5.2.
(a) Shares subject to Awards settled in cash shall be added back to the Plan share reserve and again be available for issuance
pursuant to Awards granted under the Plan.
(b) The full number of Shares subject to an Option shall count against the
number of Shares remaining available for issuance pursuant to Awards made under the Plan, even if the exercise price of an Option, or the related tax withholding requirements, is satisfied through net-settlement or by delivering Shares to the
Company (by either actual delivery or attestation).
(c) Upon exercise of Stock Appreciation Rights that are settled in
Shares, the full number of Stock Appreciation Rights (rather than the net number of Shares actually delivered upon exercise) shall count against the number of Shares remaining available for issuance pursuant to Awards granted under the Plan, even if
the related tax withholding requirements are satisfied through net-settlement or by delivering Shares to the Company (by either actual delivery or attestation).
(d) Shares withheld from an Award or delivered by a Participant to satisfy tax withholding requirements (by either actual
delivery or attestation) for Full Value Awards shall be added back the share reserve as of the withholding date and again be available for issuance pursuant to Awards granted under the Plan.
(e) To the extent that all or a portion of an Award is canceled, terminates, expires, is forfeited or lapses for any reason,
including by reason of failure to meet time-based vesting requirements or to achieve performance goals, any unissued or forfeited Shares subject to the Award will be added back to the Plan share reserve and again be available for issuance pursuant
to Awards made under the Plan.
(f) Substitute Awards made pursuant to Section 14.12 of the Plan shall not count
against the Shares otherwise available for issuance under the Plan under Section 5.1.
(g) Subject to applicable
Exchange requirements, shares available under a shareowner-approved plan of a company acquired by the Company (as appropriately adjusted to Shares to reflect the transaction) may be issued under the Plan pursuant to Awards made to individuals who
were not employees of the Company or its Affiliates immediately before such transaction and will not count against the maximum share limitation specified in Section 5.1.
5.3.
Stock Distributed.
Any Stock distributed pursuant to an Award may consist, in whole or in part, of authorized and unissued Stock,
treasury Stock or Stock purchased on the open market.
5.4.
Limitation on Awards.
Notwithstanding any provision in the Plan to the
contrary (but subject to adjustment as provided in Article 15):
(a)
Options.
The maximum number of Shares with respect to one or
more Options that may be granted during any one calendar year under the Plan to any one Participant shall be 500,000.
(b)
SARs.
The maximum number of Shares with respect to one or more SARs that may be
granted during any one calendar year under the Plan to any one Participant shall be 500,000.
(c)
Performance Awards.
With respect
to any one calendar year (i) the maximum amount that may be paid to any one Participant for Performance Awards that are intended to qualify for the Section 162(m) Exemption and are payable in cash or property other than Shares shall be
$5,000,000, and (ii) the maximum number of Shares that may be paid to any one Participant for Performance Awards that are intended to qualify for the Section 162(m) Exemption and are payable in Stock shall be 500,000 Shares. For purposes
of applying these limits in the case of multi-year performance periods, the amount of cash or property or number of Shares deemed paid with respect to any one calendar year is the total amount payable or Shares earned for the performance period
divided by the number of calendar years in the performance period. With respect to any election to defer the payment of Full Value Awards or Performance-Based Cash Awards to a later date, any Shares, Share equivalents, DRLP Units or cash payments
made to a Participant in excess of the amounts payable at the time of the deferral shall not be subject to the above limitations, provided that the additional amount paid is based either on a reasonable rate of interest or one or more predetermined
actual investments in accordance with Treasury Regulation 1.162-27(e)(2)(iii)(B).
(d)
Awards to Non-Employee Directors.
The
maximum aggregate Fair Market Value of the Shares associated with any Award granted under the Plan in any 12-month period to any one Non-Employee Director, determined as of the Grant Date of any such Award, shall be $500,000.
ARTICLE 6
ELIGIBILITY
6.1.
General.
Awards may be granted only to Eligible Participants; except that Incentive Stock Options may be granted to only to
Eligible Participants who are employees of the Company or a Parent or Subsidiary as defined in Section 424(e) and (f) of the Code. Eligible Participants who are service providers to an Affiliate may be granted Options or SARs under this
Plan only if the Affiliate qualifies as an “eligible issuer of service recipient stock” within the meaning of §1.409A-1(b)(5)(iii)(E) of the final regulations under Code Section 409A.
ARTICLE 7
STOCK OPTIONS
7.1.
General.
The Committee is authorized to grant Options to Participants subject to terms and conditions,
not
inconsistent
with the provisions of the Plan, as the Committee shall establish, including the following:
(a)
Exercise Price.
The
exercise price per Share under an Option shall be determined by the Committee;
provided, however
, that the exercise price of an Option (other than an Option issued as a substitute Award pursuant to Section 14.12) shall not be less than
the Fair Market Value as of the Grant Date.
(b)
Prohibition on Repricing.
Except as otherwise provided in Article
15, without the prior approval of stockholders of the Company: (i) the exercise price of an Option may
not be reduced, directly or indirectly, (ii) an Option may not be cancelled in exchange for other Awards or Options or SARs with an exercise or base price that is less than the exercise
price of the original Option, or otherwise, and (iii) the Company may not repurchase an Option for value (in cash or otherwise) from a Participant if the current Fair Market Value of the Shares underlying the Option is lower than the exercise
price per share of the Option.
(c)
Time and Conditions of Exercise.
The Committee shall determine the time or times
at which an Option may be exercised in whole or in part, subject to Section 7.1(d), and may include in the Award Certificate a provision that an Option that is otherwise exercisable and has an exercise price that is less than the Fair Market
Value of the Stock on the last day of its term will be automatically exercised on such final date of the term by means of a “net exercise,” thus entitling the optionee to Shares equal to the intrinsic value of the Option on such exercise
date, less the number of Shares required for tax withholding. The Committee shall also determine the performance or other conditions, if any, that must be satisfied before all or part of an Option may be exercised or vested. Except (i) under
certain circumstances contemplated by Section 14.9, (ii) with respect to substitute awards granted under Section 14.12, or (iii) as may be set forth in an Award Certificate with respect to death, Disability or Retirement of a
Participant, Options subject solely to continued employment requirements shall be subject to a vesting period of not less than three years from the Grant Date (but permitting pro-rata vesting over such time).
(d)
Payment.
The Committee shall determine the methods by which the exercise price of an Option may be paid, the form of
payment, and the methods by which Shares shall be delivered or deemed to be delivered to Participants. As determined by the Committee at or after the Grant Date, payment of the exercise price of an Option may be made, in whole or in part, in the
form of (i) cash or cash equivalents, (ii) delivery (by either actual delivery or attestation) of previously-acquired Shares based on the Fair Market Value of the Shares on the date the Option is exercised, (iii) withholding of Shares
from the Option based on the Fair Market Value of the Shares on the date the Option is exercised, (iv) broker-assisted market sales, or (iv) any other “cashless exercise” arrangement.
(e)
Exercise Term.
In no event may any Option granted under the Plan be exercisable for more than ten years after the
Grant Date.
(f)
No Deferral Feature
. No Option shall provide for any feature for the deferral of compensation other
than the deferral of recognition of income until the exercise or disposition of the Option.
(g)
No Dividend
Equivalents
. No Option shall provide for Dividend Equivalents.
7.2.
Incentive Stock Options.
The terms of any Incentive Stock
Options granted under the Plan must comply with the requirements of Section 422 of the Code. Without limiting the foregoing, any Incentive Stock Option granted to a Participant who at the Grant Date owns more than 10% of the voting power of all
classes of shares of the Company must have an exercise price per Share of not less than 110% of the Fair Market Value per Share on the Grant Date and an Option term of not more than five years. If all of the requirements of Section 422 of the
Code (including the above) are not met, the Option shall automatically become a Nonstatutory Stock Option.
ARTICLE 8
STOCK APPRECIATION RIGHTS
8.1.
Grant of Stock Appreciation Rights.
The Committee is authorized to grant SARs to Participants subject to such terms and conditions, not inconsistent with the provisions of the Plan, as the Committee shall establish, including the following:
(a)
Right to Payment.
Upon the exercise of a SAR, the Participant to whom it is granted has the right to receive,
for each Share with respect to which the SAR is being exercised, the excess, if any, of:
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(1)
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The Fair Market Value of one Share on the date of exercise; over
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(2)
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The base price of the SAR, as determined by the Committee, which (other than a SAR issued as a substitute Award pursuant to Section 14.12), shall not be less than the Fair Market Value of one Share on the Grant
Date.
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(b)
No Deferral Feature.
No SAR shall provide for any feature for the deferral of compensation
other than the deferral of recognition of income until the exercise or disposition of the SAR.
(c)
Time and Conditions
of Exercise
. The Committee shall determine the time or times at which a SAR may be exercised in whole or in part, and may include in the Award Certificate a provision that a SAR that is otherwise exercisable and has a base price that is less
than the Fair Market Value of the Stock on the last day of its term will be automatically exercised on such final date of the term, thus entitling the holder to cash or Shares equal to the intrinsic value of the SAR on such exercise date, less the
cash or number of Shares required for tax withholding. The Committee shall also determine the performance or other conditions, if any, that must be satisfied before all or part of a SAR may be exercised or vested. Except (i) under certain
circumstances contemplated by Section 14.9, (ii) with respect to substitute awards granted under Section 14.12, or (iii) as may be set forth in an Award Certificate with respect to death, Disability or Retirement of a
Participant, SARs subject solely to continued employment requirements shall be subject to a vesting period of not less than three years from the Grant Date (but permitting pro-rata vesting over such time).
(d)
Exercise Term
. In no event may any SAR granted under the Plan be exercisable for more than ten years after the Grant
Date.
(e)
No Dividend Equivalents
. No SAR shall provide for Dividend Equivalents.
(f)
Prohibition on Repricing
. Except as otherwise provided in Article 15, without the prior approval of stockholders of
the Company: (i) the base price of a SAR may not be reduced, directly or indirectly, (ii) a SAR may not be cancelled in exchange for other Awards or Options or SARs with an exercise or base price that is less than the exercise price of the
original SAR, or otherwise, and (iii) the Company may not repurchase a SAR for value (in cash or otherwise) from a Participant if the current Fair Market Value of the Shares underlying the SAR is lower than the base price per share of the SAR.
(g)
Other Terms.
All awards of SARs shall be evidenced by an Award Certificate. Subject to the terms of this
Article 8, the terms, methods of exercise, methods of settlement, form of consideration payable in settlement, and any other terms and conditions of any SAR shall be determined by the Committee at the time of the grant of the Award and shall be
reflected in the Award Certificate.
ARTICLE 9
PERFORMANCE AWARDS
9.1.
Grant
of Performance Awards.
The Committee is authorized to grant Performance Shares, Performance Units or Performance-Based Cash Awards to Participants on such terms and conditions as may be selected by the Committee. The Committee shall have the
complete discretion to determine the number of Performance Awards granted to each Participant, subject to Section 5.4, and to designate the provisions of such Performance Awards as provided in Section 4.3. All Performance Awards shall be
evidenced by an Award Certificate or a written program established by the Committee, pursuant to which Performance Awards are awarded under the Plan under uniform terms, conditions and restrictions set forth in such written program.
9.2.
Performance Goals.
The Committee may establish performance goals for Performance Awards which may be based on any performance
criteria selected by the Committee. Such performance criteria may be described in terms of Company-wide objectives or in terms of objectives that relate to the performance of the Participant, an Affiliate or a division, region, department or
function within the Company or an Affiliate. The length of a performance period shall be determined by the Committee;
provided, however
, that a performance period shall not be shorter than 12 months. If the Committee determines that a
spin-off, change in the business, operations, corporate structure or capital structure of the Company or the manner in which the Company or an Affiliate conducts its business, or other events or circumstances render performance goals to be
unsuitable, the Committee may modify such performance goals in whole or in part, as the Committee deems appropriate. If a Participant is promoted, demoted or transferred to a different business unit or function during a performance period, the
Committee may determine that the performance goals or performance period are no longer appropriate and may (i) adjust, change or eliminate the performance goals or the applicable performance period as it deems appropriate to make such goals and
period comparable to the initial goals and period, or (ii) make a cash payment to the participant in an amount determined by the Committee. The foregoing two sentences shall not apply with respect to a Performance Award that is intended to be a
Qualified Performance-Based Award if the recipient of such award (a) was a Covered Employee on the date of the proposed modification, adjustment, change or elimination of the performance goals or performance period, or (b) in the
reasonable judgment of the Committee, may be a Covered Employee on the date the Performance Award is expected to be paid.
9.3.
Right
to Payment.
The grant of a Performance Share to a Participant will entitle the Participant to receive at a specified later time a specified number of Shares or DRLP Units, variable under conditions specified in the Award, or the equivalent cash
value, if the performance goals established by the Committee are achieved and the other terms and conditions thereof are satisfied. The grant of a Performance Unit to a Participant will entitle the Participant to receive at a specified later time a
specified dollar value, which may be settled in cash or other property, including Shares or DRLP Units, variable under conditions specified in the Award, if the performance goals in the Award are achieved and the other terms and conditions thereof
are satisfied. The grant of a Performance-Based Cash Award to a Participant will entitle the Participant to receive at a specified later time a specified dollar value in cash variable under conditions specified in the Award, if the performance goals
in the Award are achieved and the other terms and conditions thereof are satisfied. The Committee shall set performance goals and other terms or conditions to payment of the Performance Awards in its discretion which, depending on the extent to
which they are met, will determine the value of the Performance Awards that will be paid to the Participant.
9.4.
Other Terms.
Performance Awards may be payable in cash, Stock, DRLP Units or other property, and have such other terms and conditions as determined by the Committee and
reflected in the Award Certificate. For purposes of determining the number of Shares to be used in payment of a Performance Award denominated in cash but payable in whole or in part in Shares or
Restricted Stock, the number of Shares to be so paid will be determined by dividing the cash value of the Award to be so paid by the Fair Market Value of a Share on the date of determination by the Committee of the amount of the payment under the
Award, or, if the Committee so directs, the date immediately preceding the date the Award is paid.
ARTICLE 10
RESTRICTED STOCK AND RESTRICTED STOCK UNIT AWARDS
10.1.
Grant of Restricted Stock and Restricted Stock Units.
The Committee is authorized to make Awards of Restricted Stock or
Restricted Stock Units to Participants in such amounts and subject to such terms and conditions as may be selected by the Committee. An Award of Restricted Stock or Restricted Stock Units shall be evidenced by an Award Certificate setting forth the
terms, conditions, and restrictions applicable to the Award.
10.2.
Issuance and Restrictions.
Restricted Stock or Restricted Stock
Units shall be subject to such restrictions on transferability and other restrictions as the Committee may impose (including, without limitation, limitations on the right to vote Restricted Stock or the right to receive dividends on the Restricted
Stock or Dividend Equivalents on the Restricted Stock units). These restrictions may lapse separately or in combination at such times, under such circumstances, in such installments, upon the satisfaction of performance goals or otherwise, as the
Committee determines at the time of the grant of the Award or thereafter. Except as otherwise provided in an Award Certificate or any special Plan document governing an Award, the Participant shall have all of the rights of a stockholder with
respect to the Restricted Stock, and the Participant shall have none of the rights of a stockholder with respect to Restricted Stock Units until such time as Shares of Stock are paid in settlement of the Restricted Stock Units.
10.3.
Forfeiture.
Except (i) under certain circumstances contemplated by Section 14.9, (ii) with respect to substitute
awards granted under Section 14.12, or (iii) as may be set forth in an Award Certificate with respect to death, Disability or Retirement of a Participant, Restricted Stock Awards and Restricted Stock Unit Awards subject solely to continued
employment requirements shall be subject to a restriction period of not less than one year from the Grant Date (but permitting pro-rata vesting over such time). Except as otherwise determined by the Committee at the time of the grant of the Award or
thereafter, immediately after termination of Continuous Status as a Participant during the applicable restriction period or upon failure to satisfy a performance goal during the applicable restriction period, Restricted Stock or Restricted Stock
Units that are at that time subject to restrictions shall be forfeited.
10.4.
Delivery of Restricted Stock.
Shares of Restricted
Stock shall be delivered to the Participant as of the Grant Date either by book-entry registration or by delivering to the Participant, or a custodian or escrow agent (including, without limitation, the Company or one or more of its employees)
designated by the Committee, a stock certificate or certificates registered in the name of the Participant. If physical certificates representing shares of Restricted Stock are registered in the name of the Participant, such certificates must bear
an appropriate legend referring to the terms, conditions, and restrictions applicable to such Restricted Stock.
ARTICLE 11
DEFERRED STOCK UNITS
11.1.
Grant of Deferred Stock Units.
The Committee is authorized to grant Deferred Stock Units to Participants subject to such terms and conditions as may be selected by the
Committee. Deferred Stock Units shall entitle the Participant to receive Shares of Stock (or the equivalent value in cash or other property if so determined by the Committee) at a future time as
determined by the Committee, or as determined by the Participant within guidelines established by the Committee in the case of voluntary deferral elections. An Award of Deferred Stock Units shall be evidenced by an Award Certificate setting forth
the terms and conditions applicable to the Award.
ARTICLE 12
DIVIDENDS AND DIVIDEND EQUIVALENTS
12.1.
Grant of Dividend Equivalents.
The Committee is authorized to grant Dividend Equivalents with respect to Full Value Awards
granted hereunder (and actual dividends with respect to Restricted Stock granted hereunder), subject to such terms and conditions as may be selected by the Committee. Dividend Equivalents shall entitle the Participant to receive payments equal to
ordinary cash dividends or distributions with respect to all or a portion of the number of Shares subject to a Full Value Award, as determined by the Committee.
With respect to Full Value Awards that are not Performance Awards, the Committee may provide that Dividend Equivalents (and actual dividends
with respect to Restricted Stock) be paid or distributed when accrued or be deemed to have been reinvested in additional Shares or units or otherwise reinvested (subject to Share availability under Section 5.1 hereof).
With respect to Full Value Awards that are Performance Awards, Dividend Equivalents (or actual dividends with respect to Restricted Stock)
shall, as provided in the Award Certificate, either (i) be reinvested in the form of additional Shares or units equivalent to Shares, which shall be subject to the same performance and vesting provisions as provided for the host Performance
Award, or (ii) be credited by the Company to an account for the Participant and accumulated without interest until the date upon which the host Award becomes earned and vested. Dividend Equivalents (and actual dividends with respect to
Restricted Stock) credited to a Participant’s account with respect to vested Performance Awards shall be distributed to the Participant at the same time as the distribution of cash or Shares under the host Performance Award. A Participant shall
have no right to Dividend Equivalents or dividends accumulated with respect to Performance Awards that are forfeited, and any such unearned Dividend Equivalents or dividends will be reconveyed to the Company without further consideration or any act
or action by the Participant. Unless otherwise provided in the applicable Award Certificate, Dividend Equivalents paid on Full Value Awards that are not Performance Awards, and dividends paid on Restricted Stock awards that not Performance Awards,
will be paid or distributed to the Participant no later than the 15
th
day of the 3
rd
month following the later of (A) the calendar year in
which the corresponding dividends were paid to stockholders, or (B) the first calendar year in which the Participant’s right to such Dividends Equivalents or dividends is no longer subject to a substantial risk of forfeiture.
Notwithstanding the foregoing, up to 10% of the Dividend Equivalents pertaining to a Performance Award payable in DRLP Units may be paid in
cash to the Participant prior to the date upon which such award becomes earned and vested, and such Dividend Equivalents will be not be required to be reconveyed to the Company.
ARTICLE 13
STOCK OR OTHER
STOCK-BASED AWARDS
13.1.
Grant of Stock or Other Stock-based Awards.
The Committee is authorized, subject to limitations under
applicable law, to grant to Participants such other Awards that are
payable in, valued in whole or in part by reference to, or otherwise based on or related to Shares or other property, as deemed by the Committee to be consistent with the purposes of the Plan,
including without limitation Shares awarded purely as a “bonus” and not subject to any restrictions or conditions, convertible or exchangeable debt securities, DRLP Units, other rights convertible or exchangeable into Shares, and Awards
valued by reference to book value of Shares or the value of securities of or the performance of specified Parents or Affiliates (“Other Stock-Based Awards”). Such Other Stock-Based Awards shall also be available as a form of payment in the
settlement of other Awards granted under the Plan (other than Options or SARs). The Committee shall determine the terms and conditions of such Other Stock-Based Awards. Except (i) under certain circumstances contemplated by Section 14.9,
(ii) with respect to substitute awards granted under Section 14.12, or (iii) as may be set forth in an Award Certificate with respect to death, Disability or Retirement of a Participant, Other Stock-Based Awards subject solely to
continued employment restrictions shall be subject to restrictions imposed by the Committee for a period of not less than one year from the Grant Date (but permitting pro-rata vesting over such time); provided that such restrictions shall not be
applicable to grants of Other Stock-Based Awards in payment of Performance Awards pursuant to Article 9 or grants of Other Stock-Based Awards granted in lieu of cash or other compensation.
ARTICLE 14
PROVISIONS APPLICABLE
TO AWARDS
14.1.
Award Certificates.
Each Award shall be evidenced by an Award Certificate. Each Award Certificate shall include
such provisions, not inconsistent with the Plan, as may be specified by the Committee.
14.2.
Term of Award.
The term of each Award
shall be for the period as determined by the Committee, provided that in no event shall the term of any Option or SAR exceed a period of ten years from its Grant Date (or, with respect to an Incentive Stock Option granted to a Participant who, at
the Grant Date, owns stock possessing more than ten percent of the total combined voting power of all classes of stock of the Company or any Parent or Subsidiary, five years from its Grant Date).
14.3.
Form of Payment for Awards.
Subject to the terms of the Plan and any applicable law or Award Certificate, payments or transfers
to be made by the Company or an Affiliate on the grant or exercise of an Award may be made in such form as the Committee determines at the Grant Date, including without limitation, cash, Stock, other Awards, or other property, or any combination,
and may be made in a single payment or transfer, in installments, or (other than Options or SARs) on a deferred basis, in each case determined in accordance with rules adopted by, and at the discretion of, the Committee;
provided,
that any
payment or transfer elected to be made on a deferred basis must be in accordance with the election provisions and all other requirements of one of the Company’s then-existing deferred compensation plans that would be applicable to such
Participant.
14.4.
Limits on Transfer.
No right or interest of a Participant in any unexercised or restricted Award may be
pledged, encumbered, or hypothecated to or in favor of any party other than the Company or an Affiliate, or shall be subject to any lien, obligation, or liability of such Participant to any other party other than the Company or an Affiliate. No
unexercised or restricted Award shall be assignable or transferable by a Participant without stockholder approval other than by will or the laws of descent and distribution or, except in the case of an Incentive Stock Option, pursuant to a domestic
relations order that would satisfy Section 414(p)(1)(A) of the Code if such Section applied to an Award under the Plan. Notwithstanding the foregoing, the Committee may (but need not), without stockholder approval, permit the transfer of
Nonqualified
Stock Options by an optionee to: (i) the spouse, child or grandchildren of the optionee (“Immediate Family Members”); (ii) a trust or trusts for the exclusive benefit of
Immediate Family Members; or (iii) a partnership or limited liability company in which the optionee and/or the Immediate Family Members are the only equity owners (collectively, “Eligible Transferees”); provided that, in the event the
Committee permits the transferability of Nonqualified Stock Options granted to an optionee, the Committee may subsequently, in its discretion, restrict the ability of the optionee to transfer Nonqualified Stock Options granted to the optionee
thereafter. An option that is transferred to an Immediate Family Member shall not be transferable by such Immediate Family Member, except for any transfer by such Immediate Family Member’s will or by the laws of descent and distribution upon
the death of such Immediate Family Member. Incentive Stock Options granted under the Plan shall be nontransferable.
In the event that the
Committee, in its sole discretion, permits the transfer of Nonqualified Stock Options by an optionee to an Eligible Transferee under this Section 14.4, the options transferred to the Eligible Transferee must be exercised by such Eligible
Transferee and, in the event of the death of such Eligible Transferee, by such Eligible Transferee’s executor or administrator only in the same manner, to the same extent and under the same circumstances (including, without limitation, the time
period within which the options must be exercised) as the optionee or, in the event of the optionee’s death, the executor or administrator of the optionee’s estate, could have exercised such options. The optionee, or in the event of
optionee’s death, the optionee’s estate, shall remain liable for all federal, state, city and local taxes applicable upon the exercise of a Nonqualified Stock Option by an Eligible Transferee.
14.5.
Beneficiaries.
Notwithstanding Section 14.4, a Participant may, in the manner determined by the Committee, designate a
beneficiary to exercise the rights of the Participant and to receive any distribution with respect to any Award upon the Participant’s death. A beneficiary, legal guardian, legal representative, or other person claiming any rights under the
Plan is subject to all terms and conditions of the Plan and any Award Certificate applicable to the Participant, except to the extent the Plan and Award Certificate otherwise provide, and to any additional restrictions deemed necessary or
appropriate by the Committee. If no beneficiary has been designated or survives the Participant, any payment due to the Participant shall be made to the Participant’s estate. Subject to the foregoing, a beneficiary designation may be changed or
revoked by a Participant, in the manner provided by the Company, at any time provided the change or revocation is filed with the Company.
14.6.
Stock Trading Restrictions.
All Stock issuable under the Plan is subject to any stop-transfer orders and other restrictions as
the Committee deems necessary or advisable to comply with federal or state securities laws, rules and regulations and the rules of any national securities exchange or automated quotation system on which the Stock is listed, quoted, or traded. The
Committee may place legends on any Stock certificate or issue instructions to the transfer agent to reference restrictions applicable to the Stock.
14.7.
Treatment Upon Death.
Except as otherwise provided in the Award Certificate or any special Plan document governing an Award, upon
a Participant’s death during his or her Continuous Status as a Participant, all of such Participant’s outstanding Options, SARs, and other Awards in the nature of rights that may be exercised shall become fully exercisable, and all
time-based vesting restrictions on the Participant’s outstanding Awards shall lapse. In addition, with respect to any Awards containing performance-based criteria that have not been met as of the date of termination due to the
Participant’s death, the performance-based Award shall be payable to the Participant within thirty (30) days after the date on which the Award would have been paid if the Participant’s service had not terminated due to death, and
shall be based on actual performance during the period. Any Awards shall thereafter continue or lapse in accordance with
the other provisions of the Plan and the Award Certificate;
provided, however
, that any Awards in the nature of rights that may be exercised shall remain exercisable until the earlier of
the original expiration of the Award or two years after the Participant’s death. To the extent that this Section 14.7 causes Incentive Stock Options to exceed the dollar limitation set forth in Code Section 422(d), the excess Options
shall be deemed to be Nonstatutory Stock Options.
14.8.
Treatment Upon Disability.
Except as otherwise provided in the Award
Certificate or any special Plan document governing an Award, upon termination of employment due to a Participant’s Disability, all of such Participant’s outstanding Options, SARs, and other Awards in the nature of rights that may be
exercised shall become fully exercisable, and all time-based vesting restrictions on the Participant’s outstanding Awards shall lapse. In addition, with respect to any Awards containing performance-based criteria that have not been met as of
the date of termination due to the Participant’s Disability, the performance-based Award shall be payable to the Participant within thirty (30) days after the date on which the Award would have been paid if the Participant’s service
had not terminated due to Disability, and shall be based on actual performance during the period. Any Awards shall thereafter continue or lapse in accordance with the other provisions of the Plan and the Award Certificate;
provided, however
,
that any Awards in the nature of rights that may be exercised shall remain exercisable until the earlier of the original expiration of the Award or two years following the date of termination due to the Participant’s Disability. To the extent
that this provision causes Incentive Stock Options to exceed the dollar limitation set forth in Code Section 422(d), the excess Options shall be deemed to be Nonstatutory Stock Options. If any Incentive Stock Option is not exercised within one
year after the date of termination due to Disability, it shall be deemed to be a Nonstatutory Stock Option.
14.9.
Treatment Upon a
Change in Control
. The provisions of this Section 14.9 shall apply in the case of a Change in Control, unless otherwise provided in the Award Certificate or any special Plan document or separate agreement with a Participant governing an
Award.
(a)
Awards Assumed or Substituted by Surviving Entity
. With respect to Awards assumed by the Surviving Entity or otherwise
equitably converted or substituted in connection with a Change in Control: if within one year after the effective date of the Change in Control, a Participant’s employment is terminated without Cause or the Participant resigns for Good Reason,
then (i) all of that Participant’s outstanding Options, SARs and other Awards in the nature of rights that may be exercised shall become fully exercisable, (ii) all time-based vesting restrictions on his or her outstanding Awards
shall lapse, and (iii) the Participant’s performance-based Awards that were outstanding immediately prior to effective time of the Change in Control shall vest based upon assumed or actual performance, as provided in the Award Certificates
or any special Plan documents or separate agreements governing the Awards. Any Awards shall thereafter continue or lapse in accordance with the other provisions of the Plan and the Award Certificate. To the extent that this provision causes
Incentive Stock Options to exceed the dollar limitation set forth in Code Section 422(d), the excess Options shall be deemed to be Nonstatutory Stock Options.
(b)
Awards Not Assumed or Substituted by Surviving Entity
. Upon the occurrence of a Change in Control, and except with respect to any
Awards assumed by the Surviving Entity or otherwise equitably converted or substituted in connection with the Change in Control: (i) outstanding Options, SARs, and other Awards in the nature of rights that may be exercised shall become fully
exercisable, (ii) time-based vesting restrictions on outstanding Awards shall lapse, and (iii) the performance-based Awards that were outstanding immediately prior to effective time of the Change in Control shall vest based upon assumed or
actual performance, as provided in the Award Certificates or any special Plan documents or separate agreements governing the Awards.
Any Awards shall thereafter continue or lapse in accordance with the other provisions of the Plan and the Award Certificate. To the extent that this provision causes Incentive Stock Options to
exceed the dollar limitation set forth in Code Section 422(d), the excess Options shall be deemed to be Nonstatutory Stock Options.”
14.10.
Qualified Performance-Based Awards.
(a) The provisions of the Plan are intended to ensure that all Options and SARs granted hereunder to any Covered Employee
shall qualify for the Section 162(m) Exemption.
(b) When granting any other Award, the Committee may designate such
Award as a Qualified Performance-Based Award, based upon a determination that the recipient is or may be a Covered Employee with respect to such Award, and the Committee wishes such Award to qualify for the Section 162(m) Exemption. If an Award
is so designated, the Committee shall establish performance goals for such Award within the time period prescribed by Section 162(m) of the Code based on one or more of the following Qualified Business Criteria, which may be expressed in terms
of Company-wide objectives or in terms of objectives that relate to the performance of an Affiliate or a division, region, department or function within the Company or an Affiliate:
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Profit (net profit, gross profit, operating profit, economic profit, profit margins or other corporate profit measures)
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Earnings (EBIT, EBITDA, earnings per share, or other corporate earnings measures)
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Funds from Operations (“FFO”) as defined by the National Association of Real Estate Investment Trusts (“NAREIT”), or a similar performance measure adopted by NAREIT
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Adjusted Funds from Operations (FFO as adjusted for certain specified income, expense or cash flow amounts that are not considered in the computation of FFO)
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Net income (before or after taxes, operating income or other income measures)
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Cash (cash flow, cash generation or other cash measures)
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Stock price or performance
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Growth in annualized dividends per share to common stockholders
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Total stockholder return (stock price appreciation plus reinvested dividends divided by beginning share price)
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Return measures (including, but not limited to, return on assets, capital, equity, or sales, and cash flow return on assets, capital, equity, or sales)
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Balance sheet and operating leverage metrics
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Volume of asset acquisitions or dispositions
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Occupancy rates of real estate rental properties
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Volume of lease transactions
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Volume and/or profitability of real estate developments
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Volume and/or profitability of construction contracts
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Debt or capital raising transactions (debt or equity placements and joint venture transactions)
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Improvements in capital structure
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Expenses (expense management, expense ratio, expense efficiency ratios or other expense measures)
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Business expansion or consolidation (acquisitions and divestitures)
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Internal rate of return or increase in net present value
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Working capital targets relating to inventory and/or accounts receivable
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Planning accuracy (as measured by comparing planned results to actual results)
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Performance goals with respect to the foregoing Qualified Business Criteria may be specified in absolute terms, in percentages,
or in terms of growth from period to period or growth rates over time, as well as measured relative to an established or specially-created performance index of Company competitors or peers. Any member of a specially-created performance index that
disappears during a measurement period shall be disregarded for the entire measurement period. Performance goals need not be based upon an increase or positive result under a business criterion and could include, for example, the maintenance of the
status quo or the limitation of economic losses (measured, in each case, by reference to a specific business criterion). Unless otherwise provided in the Award Certificate, performance goals that are based upon earnings per share or FFO shall be
calculated without regard to any change in accounting standards or definitions that may be required by the Financial Accounting Standards Board, the Securities and Exchange Commission or the National Association of Real Estate Investment Trusts.
(c) Each Qualified Performance-Based Award (other than a market-priced Option or SAR) shall be earned, vested and payable
(as applicable) only upon the achievement of performance goals established by the Committee based upon one or more of the Qualified Business Criteria, together with the satisfaction of any other conditions, such as continued employment, as the
Committee may determine to be appropriate;
provided, however
, that the Committee may provide, either in connection with the grant thereof or by amendment thereafter, that achievement of such performance goals will be waived upon the death or
Disability of the Participant, or upon a Change in Control. The Committee has the right, in connection with the grant of a Qualified Performance-Based Award, to exercise negative discretion to determine that the portion of such Award actually
earned, vested and/or payable (as applicable) shall be less than the portion that would be earned, vested and/or payable based solely upon application of the applicable performance goals.
(d) The Committee may provide in any Qualified Performance-Based Award, at the time the performance goals are established,
that any evaluation of performance shall exclude or otherwise objectively adjust for any specified event that occurs during a performance period, including by way of example but without limitation the following: (a) asset write-downs or
impairment charges; (b) Company stock or debt buybacks, (c) litigation or claim judgments or settlements; (d) the effect of changes in tax laws, accounting principles or other laws or provisions affecting reported results;
(e) accruals for reorganization and restructuring programs; (f) extraordinary nonrecurring items as described in Accounting Principles Board
Opinion No. 30 and/or in management’s discussion and analysis of financial condition and results of operations appearing in the Company’s annual report to stockholders for the
applicable year; (g) acquisitions or divestitures; (h) foreign exchange gains and losses; and (i) a spin-off of a division of the Company. To the extent such inclusions or exclusions affect Awards to Covered Employees, they shall be
prescribed in a form that meets the requirements of Code Section 162(m) for deductibility.
(e) Any payment of a
Qualified Performance-Based Award granted with performance goals pursuant to subsection (c) above shall be conditioned on the written certification of the Committee in each case that the performance goals and any other material conditions were
satisfied. Except as specifically provided in subsection (c), no Qualified Performance-Based Award held by a Covered Employee or by an employee who in the reasonable judgment of the Committee may be a Covered Employee on the date of payment, may be
amended, nor may the Committee exercise any discretionary authority it may otherwise have under the Plan with respect to a Qualified Performance-Based Award under the Plan, in any manner to waive the achievement of the applicable performance goal
based on Qualified Business Criteria or to increase the amount payable pursuant thereto or the value thereof, or otherwise in a manner that would cause the Qualified Performance-Based Award to cease to qualify for the Section 162(m) Exemption.
(f) Section 5.4 sets forth the maximum number of Shares or dollar value that may be granted in any one-year period
to a Participant in designated forms of Qualified Performance-Based Awards.
14.11.
Forfeiture Events
. Awards granted under the
Plan shall be subject to any compensation recoupment policy that the Company may adopt from time to time that is applicable by its terms to the Participant. In addition, the Committee may specify in an Award Certificate that the Participant’s
rights, payments and benefits with respect to an Award shall be subject to reduction, cancellation, forfeiture or recoupment upon the occurrence of certain specified events, in addition to any otherwise applicable vesting or performance conditions
of an Award. Such events may include, but shall not be limited to, termination of employment for cause, violation of material Corporation or Affiliate policies, breach of non-competition, confidentiality or other restrictive covenants that may apply
to the Participant, or other conduct by the Participant that is detrimental to the business or reputation of the Company or any Affiliate.
14.12.
Substitute Awards.
The Committee may grant Awards under the Plan in substitution for stock and stock-based awards held by
employees of another entity who become employees of the Company or an Affiliate as a result of a merger or consolidation of the former employing entity with the Company or an Affiliate or the acquisition by the Company or an Affiliate of property or
stock of the former employing corporation. The Committee may direct that the substitute awards be granted on such terms and conditions as the Committee considers appropriate in the circumstances.
14.13
Standalone or Tandem Awards.
Awards granted under the Plan (other than Options or SARs) may, in the discretion of the Committee,
be granted either alone or in addition to, or in tandem with, any other Award granted under the Plan. Subject to Section 16.2, awards granted in addition to or in tandem with other Awards may be granted either at the same time as or at a
different time from the grant of such other Awards.
ARTICLE 15
CHANGES IN CAPITAL STRUCTURE
15.1.
Mandatory Adjustments.
In the event of a nonreciprocal transaction between the Company and its stockholders that causes the
per-share value of the Stock to change (including, without limitation, any stock dividend, stock split, spin-off, rights offering or large nonrecurring cash dividend), the Committee shall make such adjustments to the Plan and Awards as it deems
necessary, in its sole discretion, to prevent dilution or enlargement of rights immediately resulting from such transaction. Action by the Committee may include: (i) adjustment of the number and kind of shares that may be delivered under the
Plan; (ii) adjustment of the number and kind of shares subject to outstanding Awards; (iii) adjustment of the exercise price of outstanding Awards or the measure to be used to determine the amount of the benefit payable on an Award; and
(iv) any other adjustments that the Committee determines to be equitable. Notwithstanding the foregoing, the Committee shall not make any adjustments to outstanding Options or SARs that would constitute a modification or substitution of the
stock right under Treas. Reg. Section 1.409A-1(b)(5)(v) that would be treated as the grant of a new stock right or change in the form of payment for purposes of Code Section 409A. Without limiting the foregoing, in the event of a
subdivision of the outstanding Stock (stock-split), a declaration of a dividend payable in Shares or a combination or consolidation of the outstanding Stock into a lesser number of Shares, the authorization limits under Section 5.1 and 5.4
shall automatically be adjusted proportionately, and the Shares then subject to each Award shall automatically, without the necessity for any additional action by the Committee, be adjusted proportionately without any change in the aggregate
purchase price therefor.
15.2
Discretionary Adjustments.
Upon the occurrence or in anticipation of any corporate event or
transaction involving the Company (including, without limitation, any recapitalization, reorganization, merger, consolidation, combination or exchange of shares or any transaction described in Section 15.1), the Committee may, in its sole
discretion, provide (i) that Awards will be settled in cash rather than Stock, (ii) that Awards will become immediately vested and exercisable and will expire after a designated period of time to the extent not then exercised,
(iii) that Awards will be assumed by another party to a transaction or otherwise be equitably converted or substituted in connection with such transaction, (iv) that outstanding Awards may be settled by payment in cash or cash equivalents
equal to the excess of the Fair Market Value of the underlying Stock, as of a specified date associated with the transaction, over the exercise price or base price of the Award, (v) that performance targets and performance periods for
Performance Awards will be modified, consistent with Code Section 162(m) where applicable, or (vi) any combination of the foregoing. The Committee’s determination need not be uniform and may be different for different Participants
whether or not such Participants are similarly situated.
15.3
General
. Any discretionary adjustments made pursuant to this Article
15 shall be subject to the provisions of Section 16.2. To the extent that any adjustments made pursuant to this Article 15 cause Incentive Stock Options to cease to qualify as Incentive Stock Options, such Options shall be deemed to be
Nonstatutory Stock Options.
ARTICLE 16
AMENDMENT, MODIFICATION AND TERMINATION
16.1.
Amendment, Modification and Termination.
The Board or the Committee may, at any time and from time to time, amend, modify or
terminate the Plan without stockholder approval;
provided, however
, that if an amendment to the Plan would, in the reasonable opinion of the Board or the Committee, constitute a material change requiring stockholder approval under applicable
laws, policies or regulations or the applicable listing or other requirements of an
Exchange, then such amendment shall be subject to stockholder approval; and
provided, further
, that the Board or Committee may condition any other amendment or modification on the approval
of stockholders of the Company for any reason, including (i) by reason of such approval being necessary or deemed advisable to comply with the listing or other requirements of an Exchange, or (ii) to satisfy any other tax, securities or
other applicable laws, policies or regulations. Without the prior approval of the stockholders of the Company, the Plan may not be amended to permit: (x) the exercise price or base price of an Option or SAR to be reduced, directly or
indirectly, (y) an Option or SAR to be cancelled in exchange for cash, other Awards, or Options or SARs with an exercise or base price that is less than the exercise price or base price of the original Option or SAR, or otherwise, or
(z) the Company to repurchase an Option or SAR for value (in cash or otherwise) from a Participant if the current Fair Market Value of the Shares underlying the Option or SAR is lower than the exercise price or base price per share of the
Option or SAR.
16.2.
Awards Previously Granted.
At any time and from time to time, the Committee may amend, modify or terminate
any outstanding Award without approval of the Participant;
provided, however
:
(a) Subject to the terms of the
applicable Award Certificate, such amendment, modification or termination shall not, without the Participant’s consent, materially reduce or diminish the economic value of such Award;
(b) The original term of an Option or SAR may not be extended without the prior approval of the stockholders of the Company;
(c) Except as otherwise provided in Article 15, without the prior approval of the stockholders of the Company:
(i) the exercise price or base price of an Option or SAR may not be reduced, directly or indirectly, (ii) an Option or SAR may not be cancelled in exchange for other Awards, or Options or SARs with an exercise or base price that is less
than the exercise price or base price of the original Option or SAR, or otherwise, and (iii) the Company may not repurchase an Option or SAR for value (in cash or otherwise) from a Participant if the current Fair Market Value of the Shares
underlying the Option or SAR is lower than the exercise price or base price per share of the Option or SAR; and
(d) No
termination, amendment, or modification of the Plan shall materially reduce or diminish the economic value or otherwise materially adversely affect any Award previously granted under the Plan, without the written consent of the Participant affected
thereby.
16.3
Compliance Amendments.
Notwithstanding anything in the Plan or in any Award Certificate to the contrary, the Board
may amend the Plan or an Award Certificate, to take effect retroactively or otherwise, as deemed necessary or advisable for the purpose of conforming the Plan or Award Certificate to any present or future law relating to plans of this or similar
nature (including, but not limited to, Section 409A of the Code), and to the administrative regulations and rulings promulgated thereunder. By accepting an Award under this Plan, a Participant agrees to any amendment made pursuant to this
Section 16.3 to any Award granted under the Plan without further consideration or action.
ARTICLE 17
GENERAL PROVISIONS
17.1.
No
Rights to Awards; Non-Uniform Determinations.
No Participant or any Eligible Participant shall have any claim to be granted any Award under the Plan. Neither the Company, its Affiliates nor the Committee is obligated to treat Participants or
Eligible
Participants uniformly, and determinations made under the Plan may be made by the Committee selectively among Eligible Participants who receive, or are eligible to receive, Awards (whether or not
such Eligible Participants are similarly situated).
17.2.
No Stockholder Rights.
No Award gives a Participant any of the rights of
a stockholder of the Company unless and until Shares are in fact issued to such person in connection with such Award.
17.3.
Special Provisions Related to Section 409A of the Code.
(a)
General
. It is intended that the payments
and benefits provided under the Plan and any Award shall either be exempt from the application of, or comply with, the requirements of Section 409A of the Code. The Plan and all Award Certificates shall be construed in a manner that effects
such intent. Nevertheless, the tax treatment of the benefits provided under the Plan or any Award is not warranted or guaranteed. Neither the Company, its Affiliates nor their respective directors, officers, employees or advisers (other than in his
or her capacity as a Participant) shall be held liable for any taxes, interest, penalties or other monetary amounts owed by any Participant or other taxpayer as a result of the Plan or any Award.
(b)
Definitional Restrictions.
Notwithstanding anything in the Plan or in any Award Certificate to the contrary, to the
extent that any amount or benefit that would constitute non-exempt “deferred compensation” for purposes of Section 409A of the Code would otherwise be payable or distributable, or a different form of payment (e.g., lump sum or
installment) would be effected, under the Plan or any Award Certificate by reason of the occurrence of a Change in Control, or the Participant’s Disability, termination of employment or separation from service, such amount or benefit will not
be payable or distributable to the Participant, and/or such different form of payment will not be effected, by reason of such circumstance unless (i) the circumstances giving rise to such Change in Control, Disability, termination of employment
or separation from service meet any description or definition of “change in control event”, “disability” or “separation from service”, as the case may be, in Section 409A of the Code and applicable regulations
(without giving effect to any elective provisions that may be available under such definition), or (ii) the payment or distribution of such amount or benefit would be exempt from the application of Section 409A of the Code by reason of the
short-term deferral exemption or otherwise. This provision does not prohibit the vesting of any Award. If this provision prevents the payment or distribution of any amount or benefit, such payment or distribution shall be made on the next earliest
payment or distribution date or event specified in the Award Certificate that is permissible under Section 409A. If this provision prevents the application of a different form of payment of any amount or benefit, such amount or benefit shall be
paid or distributed in the form that would have applied absent the Change in Control, Disability, termination of employment, or separation from service, as applicable.
(c)
Allocation among Possible Exemptions.
If any one or more Awards granted under the Plan to a Participant could
qualify for any separation pay exemption described in Treas. Reg. Section 1.409A-1(b)(9), but such Awards in the aggregate exceed the dollar limit permitted for the separation pay exemptions, the Company (acting through the Committee or the
Head of Human Resources) shall determine which Awards or portions thereof will be subject to such exemptions.
(d)
Six-Month Delay in Certain Circumstances
. Notwithstanding anything in the Plan or in any Award Certificate to the contrary, if any amount or benefit that would
constitute non-exempt “deferred compensation” for purposes of Section 409A of the Code would otherwise be payable or distributable under this Plan or any Award Certificate by
reason of a Participant’s separation from service during a period in which the Participant is a Specified Employee (as defined below), then, subject to any permissible acceleration of payment by the Committee under Treas. Reg.
Section 1.409A-3(j)(4)(ii) (domestic relations order), (j)(4)(iii) (conflicts of interest), or (j)(4)(vi) (payment of employment taxes):
(i) the amount of such non-exempt deferred compensation that would otherwise be payable during the six-month period
immediately following the Participant’s separation from service will be accumulated through and paid or provided on the first day of the seventh month following the Participant’s separation from service (or, if the Participant dies during
such period, within thirty (30) days after the Participant’s death) (in either case, the “Required Delay Period”); and
(ii) the normal payment or distribution schedule for any remaining payments or distributions will resume at the end of the
Required Delay Period.
For purposes of this Plan, the term “Specified Employee” has the meaning given such term
in Code Section 409A and the final regulations thereunder,
provided, however
, that, as permitted in such final regulations, the Company’s Specified Employees and its application of the six-month delay rule of Code
Section 409A(a)(2)(B)(i) shall be determined in accordance with rules adopted by the Board or a committee thereof, which shall be applied consistently with respect to all nonqualified deferred compensation arrangements of the Company, including
this Plan.
(e)
Grants to Employees of Affiliates
. Eligible Participants who are service providers to an Affiliate
may be granted Options or SARs under this Plan only if the Affiliate qualifies as an “eligible issuer of service recipient stock” within the meaning of §1.409A-1(b)(5)(iii)(E) of the final regulations under Code Section 409A. For
the avoidance of doubt, as of the Effective Date, Duke Realty Limited Partnership, Duke Realty Services Limited Partnership, and Duke Construction Limited Partnership qualify as “eligible issuers of service recipient stock.”
(f)
Installment Payments
. If, pursuant to an Award, a Participant is entitled to a series of installment payments, such
Participant’s right to the series of installment payments shall be treated as a right to a series of separate payments and not to a single payment. For purposes of the preceding sentence, the term “series of installment payments” has
the meaning provided in Treas. Reg. Section 1.409A-2(b)(2)(iii) (or any successor thereto).
(g)
Timing of Release
of Claims
. Whenever an Award conditions a payment or benefit on a Participant’s execution and non-revocation of a release of claims, such release must be executed and all revocation periods shall have expired within 60 days after the date
of termination of the Participant’s employment; failing which such payment or benefit shall be forfeited. If such payment or benefit is exempt from Section 409A of the Code, the Company may elect to make or commence payment at any time
during such 60-day period. If such payment or benefit constitutes non-exempt deferred compensation for purpose of Code Section 409A, then, subject to subsection (d) above, (i) if such 60-day period begins and ends in a single calendar
year, the Company may make or commence payment at any time during such period at its discretion, and (ii) if such 60-day period begins in one calendar year and ends in the next calendar year, the payment shall be made or commence during the
second such calendar year (or any later date specified for such payment under the applicable Award), even if such signing and non-revocation of the release occur during the first such calendar year included within such 60-day period. In other words,
a Participant is not permitted to influence the calendar year of payment based on the timing of signing the release.
(h)
Permitted Acceleration
. The Company shall have the sole authority to make any accelerated distribution permissible under Treas. Reg. section 1.409A-3(j)(4) to Participants of deferred amounts, provided that such distribution(s) meets the
requirements of Treas. Reg. Section 1.409A-3(j)(4).
17.4.
Withholding.
The Company or any Affiliate shall have the authority and the right to
deduct or withhold, or require a Participant to remit to the Company or such Affiliate, an amount sufficient to satisfy federal, state, and local taxes (including the Participant’s FICA obligation) required by law to be withheld with respect to
any exercise, lapse of restriction or other taxable event arising as a result of the Plan. The Company shall have the authority to require a Participant to remit cash to the Company in lieu of the surrender of Shares for tax withholding obligations
if the surrender of Shares in satisfaction of such withholding obligations would result in the Company’s recognition of expense under generally accepted accounting principles. With respect to withholding required upon any taxable event under
the Plan, the Committee may, at the time the Award is granted or thereafter, require or permit that any such withholding requirement be satisfied, in whole or in part, by withholding from the Award Shares having a Fair Market Value on the date of
withholding equal to the minimum amount (and not any greater amount) required to be withheld for tax purposes, all in accordance with such procedures as the Committee establishes.
17.5
No Right to Continued Service.
Nothing in the Plan, any Award Certificate or any other document or statement made with respect to
the Plan, shall interfere with or limit in any way the right of the Company or any Affiliate to terminate any Participant’s employment or status as an officer, director or consultant at any time, nor confer upon any Participant any right to
continue as an employee, officer, director or consultant of the Company or any Affiliate, whether for the duration of a Participant’s Award or otherwise.
17.6.
Unfunded Status of Awards.
The Plan is intended to be an “unfunded” plan for incentive and deferred compensation. With
respect to any payments not yet made to a Participant pursuant to an Award, nothing contained in the Plan or any Award Certificate shall give the Participant any rights that are greater than those of a general creditor of the Company or any
Affiliate. This Plan is not intended to be subject to ERISA.
17.7.
Relationship to Other Benefits.
No payment under the Plan shall
be taken into account in determining any benefits under any pension, retirement, savings, profit sharing, group insurance, welfare or benefit plan of the Company or any Affiliate unless provided otherwise in such other plan.
17.8.
Expenses.
The expenses of administering the Plan shall be borne by the Company and its Affiliates.
17.9.
Titles and Headings.
The titles and headings of the Sections in the Plan are for convenience of reference only, and in the event
of any conflict, the text of the Plan, rather than such titles or headings, shall control.
17.10.
Gender and Number.
Except where
otherwise indicated by the context, any masculine term used herein also shall include the feminine; the plural shall include the singular and the singular shall include the plural.
17.11.
Fractional Shares.
No fractional Shares shall be issued and the Committee shall
determine, in its discretion, whether cash shall be given in lieu of fractional Shares or whether such fractional Shares shall be eliminated by rounding up or down.
17.12.
Government
and
Other Regulations.
(a) Notwithstanding any other provision of the Plan, no Participant who acquires Shares pursuant to the Plan may, during any
period of time that such Participant is an affiliate of the Company (within the meaning of the rules and regulations of the Securities and Exchange Commission under the 1933 Act), sell such Shares, unless such offer and sale is made
(i) pursuant to an effective registration statement under the 1933 Act, which is current and includes the Shares to be sold, or (ii) pursuant to an appropriate exemption from the registration requirement of the 1933 Act, such as that set
forth in Rule 144 promulgated under the 1933 Act.
(b) Notwithstanding any other provision of the Plan, if at any time the
Committee shall determine that the registration, listing or qualification of the Shares covered by an Award upon any Exchange or under any foreign, federal, state or local law or practice, or the consent or approval of any governmental regulatory
body, is necessary or desirable as a condition of, or in connection with, the granting of such Award or the purchase or receipt of Shares thereunder, no Shares may be purchased, delivered or received pursuant to such Award unless and until such
registration, listing, qualification, consent or approval shall have been effected or obtained free of any condition not acceptable to the Committee. Any Participant receiving or purchasing Shares pursuant to an Award shall make such representations
and agreements and furnish such information as the Committee may request to assure compliance with the foregoing or any other applicable legal requirements. The Company shall not be required to issue or deliver any certificate or certificates for
Shares under the Plan prior to the Committee’s determination that all related requirements have been fulfilled. The Company shall in no event be obligated to register any securities pursuant to the 1933 Act or applicable state or foreign law or
to take any other action in order to cause the issuance and delivery of such certificates to comply with any such law, regulation or requirement.
17.13.
Governing Law.
To the extent not governed by federal law, the Plan and all Award Certificates shall be construed in accordance
with and governed by the laws of the State of Indiana.
17.14.
Additional Provisions.
Each Award Certificate may contain such other
terms and conditions as the Committee may determine; provided that such other terms and conditions are not inconsistent with the provisions of the Plan.
17.15.
No Limitations on Rights of Company.
The grant of any Award shall not in any way affect the right or power of the Company to
make adjustments, reclassification or changes in its capital or business structure or to merge, consolidate, dissolve, liquidate, sell or transfer all or any part of its business or assets. The Plan shall not restrict the authority of the Company,
for proper corporate purposes, to draft or assume awards, other than under the Plan, to or with respect to any person. If the Committee so directs, the Company may issue or transfer Shares to an Affiliate, for such lawful consideration as the
Committee may specify, upon the condition or understanding that the Affiliate will transfer such Shares to a Participant in accordance with the terms of an Award granted to such Participant and specified by the Committee pursuant to the provisions
of the Plan.
17.16.
Indemnification.
Each person who is or shall have been a member of the Committee,
or of the Board, or an officer of the Company to whom authority was delegated in accordance with Article 4 shall be indemnified and held harmless by the Company against and from any loss, cost, liability, or expense that may be imposed upon or
reasonably incurred by him or her in connection with or resulting from any claim, action, suit, or proceeding to which he or she may be a party or in which he or she may be involved by reason of any action taken or failure to act under the Plan and
against and from any and all amounts paid by him or her in settlement thereof, with the Company’s approval, or paid by him or her in satisfaction of any judgment in any such action, suit, or proceeding against him or her, provided he or she
shall give the Company an opportunity, at its own expense, to handle and defend the same before he or she undertakes to handle and defend it on his or her own behalf, unless such loss, cost, liability, or expense is a result of his or her own
willful misconduct or except as expressly provided by statute. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such persons may be entitled under the Company’s Articles of
Incorporation or Bylaws, as a matter of law, or otherwise, or any power that the Company may have to indemnify them or hold them harmless.
The foregoing is hereby acknowledged as being the Duke Realty Corporation 2015 Long-Term Incentive Plan, as most recently adopted by the Board
on January 28, 2015, and approved by the stockholders on April 29, 2015.
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DUKE REALTY CORPORATION
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By:
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/s/ D
ENNIS
D. O
KLAK
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Dennis D. Oklak,
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Chairman of the Board and Chief Executive Officer
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Exhibit 99.2
THOMSON REUTERS STREETEVENTS
EDITED TRANSCRIPT
DRE - Q1 2015 Duke Realty Corp Earnings Call
EVENT DATE/TIME:
APRIL 30, 2015 / 7:00PM GMT
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THOMSON REUTERS STREETEVENTS | www.streetevents.com | Contact Us
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©2015 Thomson Reuters. All rights reserved. Republication or
redistribution of Thomson Reuters content, including by framing or similar means, is prohibited without the prior written consent of Thomson Reuters. ‘Thomson Reuters’ and the Thomson Reuters logo are registered trademarks of Thomson
Reuters and its affiliated companies.
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APRIL 30, 2015 / 7:00PM, DRE - Q1 2015 Duke Realty Corp Earnings Call
CORPORATE PARTICIPANTS
Ron Hubbard
Duke Realty
Corporation - VP-IR
Denny Oklak
Duke Realty Corporation - Chairman & CEO
Jim Connor
Duke Realty Corporation - Senior EVP & COO
Mark Denien
Duke Realty Corporation - EVP & CFO
CONFERENCE CALL PARTICIPANTS
Vance
Edelson
Morgan Stanley - Analyst
Jamie Feldman
BofA Merrill Lynch - Analyst
Ki Bin Kim
SunTrust Robinson Humphrey - Analyst
Eric Frankel
Green Street Advisors - Analyst
Brendan Maiorana
Wells Fargo Securities - Analyst
Stephen Dye
Robert W. Baird & Company - Analyst
Mike Salinsky
RBC Capital Markets - Analyst
Michael Bilerman
Citigroup - Analyst
John Guinee
Stifel Nicolaus - Analyst
PRESENTATION
Operator
Ladies and gentlemen, thank you for standing by and welcome to the Duke Realty quarterly earnings conference call. (Operator Instructions) As a reminder,
today’s conference is being recorded.
I would now like to turn the conference over to your host, Mr. Ron Hubbard. Please go ahead, sir.
Ron Hubbard
- Duke Realty Corporation - VP-IR
Thank you. Good afternoon, everyone, and welcome to our first-quarter earnings call. Joining me today are Denny Oklak, Chairman and CEO; Jim Connor, Chief
Operating Officer; and Mark Denien, Chief Financial Officer.
Before we make our prepared remarks, let me remind you that statements we make today are
subject to certain risks and uncertainties that could cause actual results to differ materially from expectations. For more information about those risk factors, we refer you to our December 31, 2014, 10-K that we have on file with the SEC.
Now for our prepared statement I will turn it over to Denny Oklak.
Denny Oklak
- Duke Realty
Corporation - Chairman & CEO
Thank you, Ron. Good afternoon, everyone. Today I will highlight our key metrics for the quarter and some of our
thoughts on the overall real estate and economic environment. Jim Connor will give you an update on our leasing activity and development status. I will review our disposition activity, including some of the major transactions that closed just after
quarter end in April, and Mark will then address our first-quarter financial performance and balance sheet activity.
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APRIL 30, 2015 / 7:00PM, DRE - Q1 2015 Duke Realty Corp Earnings Call
We followed up our very strong 2014 with a solid start to 2015. We signed
6.5 million square feet of leases in the first quarter and ended with overall occupancy at 94.5%, including projects under development. The occupancy of our in-service portfolio was 96%.
Rents and renewal leases for the quarter grew by nearly 8.4%, reflecting continued strong supply and demand fundamentals and pricing power. We started $80
million of new bulk industrial development projects and we have a strong backlog of both industrial and medical office projects, and expect development starts to accelerate in the coming quarters.
With the closing of the previously announced $1.1 billion office sale, bulk distribution now makes up over 70% of our total NOI and medical office is
approaching 20%. The overall fundamentals and operating environment for our business remains strong. On the industrial front, our occupancies remained at or near historic highs. New supply in substantially all markets is in balance and demand for
modern bulk space is still high. Our outlook is for these fundamentals to continue to be favorable for the remainder of 2015.
The medical office
development business is also seeing a significant pickup in demand, driven by major hospitals adjusting their service delivery models. At this point in the cycle, we see continued opportunities to create value through our development platform.
Now I will turn it over to Jim to give you some color on our first-quarter operations.
Jim Connor
- Duke Realty Corporation - Senior EVP & COO
Thanks, Denny. Operationally we had another solid quarter with leasing of 6.5 million square feet, as Denny noted earlier. Our total in-service occupancy
ended the quarter at 96%. That’s up 70 basis points from the previous quarter.
Our tenant retention was high at 77% and our rental rate growth on
renewals continues to be strong across the portfolio with growth of 8.4%. We are very focused on pushing rents throughout the portfolio, in particular on the industrial side.
Now let me touch on some of the key activity within each of our product types. With respect to our industrial portfolio, we continue to see fundamentals
improve with completion of 6.2 million square feet of total leasing, including 1.2 million square feet of build-to-suit or partially preleased developments, and 842,000 square feet of leasing in our recently completed spec projects.
Overall, industrial market fundamentals remain positive with 21 of our 22 markets at 94% occupancy or better and all realizing positive market rent growth.
In-service occupancy in the bulk industrial portfolio at the end of the quarter was 96.8%. That’s up 100 basis points over a year ago. Compared to the
general market vacancy in 22 markets, our in-service occupancy is outperforming those markets by 330 basis points.
Regarding specific lease activity, we
signed six deals totaling 842,000 square feet in four speculative projects in Houston and northern New Jersey. Two notable leases, including a 358,000 square foot lease with McKesson Corporation to occupy 100% of our Gateway Northwest One project in
Houston and a 282,000 square foot lease with a food and beverage company to lease 57% of one of our two speculative projects in our Legacy Commerce Center in Linden, New Jersey.
We also signed three other leases totaling 144,000 square feet to bring the second speculative project in Linden to 100% leased. With these leases, occupancy
in Houston has improved from 86.2% at year-end to 98.4% and New Jersey has improved from 73% to 83.8%, which is evidence we continue to deliver on speculative projects ahead of pro forma.
Also contributing to growth in our industrial occupancy were four new leases signed in Savannah totaling 692,000 square feet, bringing occupancy there to
94.7% from a year-end occupancy of 85.9%. With the tightening of conditions across most of our markets and high occupancies in our own portfolio, we continue to be able to push rents as indicated by the rent growth on renewal in our industrial
leases of nearly 9%, which is a range which we expect to be able to maintain throughout 2015.
Now let me touch on the medical office portfolio. We
continue to have strong momentum with our in-service occupancy remaining at 94.2% and a robust list of prospects for future development to go along with our existing development pipeline. The development fundamentals for modern medical space coupled
with long-term leases with rent escalations and top tier tenant roster provide an excellent risk-adjusted return component to our overall portfolio.
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APRIL 30, 2015 / 7:00PM, DRE - Q1 2015 Duke Realty Corp Earnings Call
I would also like to make an announcement on a leadership transition in our medical
office platform. Jim Bremner, the President of our Healthcare division, will be stepping down this summer after leading the reins of that business for the last 10 years.
Looking back, Jim and his deeply talented team grew our healthcare business from just under 800,000 square feet and nine buildings in 2007 to over
6 million square feet and 77 buildings today, representing 18% of our overall business. On behalf of the Duke Realty team we want to acknowledge Jim’s great leadership and hard work in growing the platform, his flawless execution of
strategic and profitable investment and development transactions, and an appreciation for his cultivation of a very deep and talented medical office leadership team.
As many of you know or have seen firsthand in our markets, Duke Realty has always been very focused on talent development and retention of the best
professionals in the business. With this, we are pleased to announce that Keith Konkoli, an 18-year veteran of Duke Realty, will assume leadership of the Healthcare team effective July 1, 2015.
Keith has been a leader and an integral part of our healthcare business for the past seven years. We have the utmost confidence that Keith will assume this
new leadership role and continue to generate profitable, relationship-driven medical developments with our premier healthcare system clients. As Denny alluded earlier, Keith and his team have a very strong pipeline of the development deals for 2015
and beyond.
We also note that Jim Bremner is not going away completely. Jim will enter into a consulting agreement with us for the next year to help
assist with any transition needs.
Let me also say that the team of professionals at our medical office have risen to be one of the very best development
franchises of the country, a development franchise that has fit very well into the Duke Realty culture of being reliable, highly-trusted partners. While operationally there may not be many synergies between the medical office and industrial
business, the medical office niche is a complementary growth business from a development and construction franchise perspective, particularly the build-to-suit strategy. And medical is complementary from the long-term durable nature of cash flows
perspective, very similar to our bulk industrial product.
Turning to development for the quarter, we started 80 million square feet of build-to-suit
and partially preleased projects totaling 1.3 million square feet with a weighted average GAAP yield of 7%. As Denny noted, we have a very solid pipeline for prospects for the remainder of the year.
We started two projects in Chicago in our Butterfield Corporate Park totaling 742,000 feet. Both facilities were 100% preleased build-to-suits for Shorr
Packaging and Fellowes corporation, with lease terms of 12 and 10 years, respectively. We also started a 451,000 square foot build-to-suit project in our AllPoints Midwest Park in Indianapolis. This facility is 100% preleased to Integrated
Distribution Services for a term of over 13 years.
Finally, in Washington DC we started a 94,000 square foot industrial project at our TransDulles Center
near Dulles International Airport. That facility is 57% preleased.
On the land side, during the quarter we sold $35 million of nonstrategic parcels at a
book gain of $5.5 million, or a 16% margin. Additionally we monetized another 14 million of land in related development projects.
From an overall
development pipeline perspective, at quarter end we have 19 projects under construction totaling 5.2 million square feet and a projected $405 million in stabilized costs at our share that are 55% preleased. These projects have an initial cash
yield of 7.1% and a GAAP yield of 7.8% and provide evidence of our ability to create significant value as they are being developed at high-teen’s margins of value over cost.
Given that we have title land positions that can support roughly 48 million square feet of bulk industrial product, and given our relationships and track
record at winning major build-to-suit proposals with top customers, our development platform is in a dominant position to drive incremental cash flow growth over the long haul.
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APRIL 30, 2015 / 7:00PM, DRE - Q1 2015 Duke Realty Corp Earnings Call
I will now turn it back over to Denny to cover our investment activities for the
quarter.
Denny Oklak
- Duke Realty Corporation - Chairman & CEO
Thanks, Jim. With respect to the investment activity, we closed $161 million of dispositions during the quarter, including transactions that represented the
completion of our exit from the Cleveland office market and the exit from the retail property sector. Further, on the disposition front, we announced early in April that we successfully closed a $1.1 billion suburban office portfolio sale to an
affiliate of Starwood Capital that was originally announced in late January. The transaction divests all the Company’s wholly-owned, in-service, suburban office properties located in Nashville, Raleigh, South Florida, and St. Louis, and is
consistent with our strategy of opportunistically reducing our investment in suburban office. After the closing of the Starwood office sale, our percent of NOI from suburban office is down to roughly 12%, and in the context of our 2015 earnings
guidance and disposition strategy, suburban office should be in the single digit percentage by year-end.
Let me also once more frame the office sales
strategy as follows. The abundance of private capital chasing commercial real estate now and given the unencumbered nature of the portfolio, which made it attractive from the buyer’s perspective, we firmly believe the execution pricing and the
use of the proceeds toward industrial and MOB development — and towards significant balance sheet deleveraging — is a big win for our shareholders.
Also, just after the Starwood closing in mid-April, we closed on a 5.2 million square foot older industrial portfolio primarily located in the Midwest,
generating proceeds of $270 million. This transaction represents the majority of the 5.9 million square foot Midwest industrial portfolio we began marketing in the fourth quarter of 2014, and as we’ve previously disclosed on the October
and January earnings calls. The other 700,000 square feet of this portfolio was sold in a separate transaction in the first quarter.
The average age of
these industrial properties was 23 years, compared to 10 years for the remainder of our industrial portfolio. With these two post-quarter transactions, dispositions for the year already total $1.5 billion, just below the midpoint of our guidance.
The remaining dispositions for the year will be focused on additional suburban office properties.
So with that, I will now turn the call over to Mark to
discuss our financial results and capital transactions.
Mark Denien
- Duke Realty Corporation - EVP & CFO
Thanks, Denny. Core FFO was $0.31 per share for the first quarter of 2015, compared to $0.30 per share for the fourth quarter of 2014. The increase in FFO was
primarily due to realizing the benefit of the full-quarter dividend savings from the preferred stock redemptions that we completed in late 2014.
In
addition to the preferred dividend savings, the increase of $0.03 per share and the $0.28 per share of core FFO reported in the first quarter of 2014 was driven by improved occupancy and rental rate growth, as well as the impact of developments
being placed in service. We generated $0.28 per share in core AFFO for the quarter, which equates to a dividend payout ratio of 61%.
Same-property NOI
growth for the twelve and three months ended March 31, 2015, was 5.4% and 6.8%, respectively. Same-property operating expenses decreased from prior periods due to milder winter conditions the first quarter of 2015, but this was generally offset
by a decrease in reimbursement revenue, so this did not really have a significant impact on overall net operating income.
The significant growth for the
quarter in NOI was mainly due to our positive results in driving occupancy higher and rental rate growth. We anticipate that same-property growth for the remainder of 2015 will moderate a bit from the first-quarter level as occupancy growth slows,
but will continue to be strong, which resulted in our increased guidance for the year.
As Denny noted, shortly after the end of the quarter we closed on
a $1.1 billion suburban office portfolio disposition and a $270 million Midwest bulk industrial portfolio disposition. Using the proceeds from these transactions, we’ve repurchased $425 million of face value, unsecured notes as part of a $500
million debt tender offer, repaid a significant portion of our unsecured line of credit, repaid an additional $137 million of secured debt, and still retained enough cash to cover our capital needs for the rest of the year.
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APRIL 30, 2015 / 7:00PM, DRE - Q1 2015 Duke Realty Corp Earnings Call
All of these capital transactions, coupled with our operational performance, resulted in
a continued trend of improvement in our key financial metrics. We reported a fixed charge coverage ratio of 2.7 times for the quarter ended March 31, 2015, and we expect fixed charge coverage to approximate 3.0 times by the end of the year.
Net debt to EBITDA for the rolling 12 months ended March 31, 2015, was 6.9 times compared to the 7.8 times that we reported for the rolling 12
months ended one year ago. After adjusting for the April dispositions and debt repayments, pro forma net debt to EBITDA for the three months ended March 31, 2015, is down to 6.2 times.
We are very proud of the progress we have made in improving our overall leverage profile and having reported another strong quarter. With that I will turn it
back over to Denny.
Denny Oklak
- Duke Realty Corporation - Chairman & CEO
Thanks, Mark. Yesterday we narrowed our guidance for FFO per share for 2015 to $1.13 to $1.19 and also raised our guidance for adjusted funds from operations
per share to $0.98 to $1.04 per share. We also raised same-property guidance from a range of 2% to 4% up to a range of 3% to 5%, and raised our average occupancy guidance by 50 basis points to 95% to 96%. With solid results in the first quarter and
capital markets execution in April, we set the stage for a continued strong 2015 and beyond.
I would also like to personally thank Jim Bremner for all
his efforts on behalf of Duke Realty. It’s been a great partnership between Jim and I, and he has built a terrific business for Duke Realty that will continue to grow under Keith’s leadership.
In closing, I will reiterate that we believe our team and our portfolio is in a unique position to take advantage of the strong fundamentals in our
businesses. The value creation potential for shareholders is very high. We thank you again for your interest and support of Duke Realty.
We will now open
up the lines to the audience and we ask that participants to keep the dialogue to one question or perhaps two very short questions. You are, of course, welcome to get back in queue. Thank you.
QUESTIONS AND ANSWERS
Operator
(Operator Instructions) Vance Edelson.
Vance Edelson
- Morgan Stanley -
Analyst
Terrific, thank you. So with the weaker GDP figures just out, there has been a lot of talk about the temporary impact from West Coast labor
disputes and the severe weather in other parts of the country, your leasing activity was obviously quite strong in the first quarter, so do you think there was any material impact from any nonrecurring events that might have weighed on GDP? Or do
you feel more like it was business as usual for Duke?
Jim Connor
- Duke Realty Corporation - Senior EVP & COO
Vance, I will tell you I think it’s been business as usual. There’s been a lot of dialogue, particularly about the ports of LA and Long Beach.
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APRIL 30, 2015 / 7:00PM, DRE - Q1 2015 Duke Realty Corp Earnings Call
The quarter-end numbers that have just been posted out of California are very
encouraging. March was the strongest month ever for the Port of Long Beach and the second-strongest month ever for the Port of LA, so clearly they are clearing up that backlog quicker than anticipated. We were recently told as of 10 days ago there
were only five ships waiting in the bay; that’s down from 30-some.
So I think that’s one of those temporary things that happens every 5 to 10
years. It gets worked out and we are back to business as usual. I think if you drill down into the markets and you look at some of the absorption numbers in LA, particularly the Inland Empire, very, very strong numbers for the first quarter.
The Inland Empire had 4 million square feet of net absorption. For those of you keeping track, that is a 400 million square foot market, so
that’s 1% net absorption in one quarter.
Vance Edelson
- Morgan Stanley - Analyst
Okay, good to hear. Then just for my second short question, you mentioned the strong office pricing making this a good time to divest. What can you tell us
about the demand for land and your experience selling the 147 acres? You pocketed a modest gain there. Were you pleased with the bidding and have land prices continued to climb this year?
Jim Connor
- Duke Realty Corporation - Senior EVP & COO
I think, as you would logically follow, with the amount of development that we are seeing in all sectors across the country now is a great time for us to sell
land. So we have been very active in selling primarily office land as well as some of the nonstrategic industrial land or some residual pieces that we might have. We were very pleased with the pricing and the amount of activity in the first quarter
and what we believe is a very strong pipeline to continue to move that land for the rest of the year.
Vance Edelson
- Morgan Stanley -
Analyst
Okay, terrific. Thank you.
Operator
Jamie Feldman.
Jamie Feldman
- BofA Merrill
Lynch - Analyst
Thank you, good afternoon. So, Denny, in your prepared remarks I think you said that you feel good about operations through the end of
the year and we are in April already. I’m just curious if you have any window at this point on supply pipelines as we head into 2016. I know it’s taking longer to build these days and entitlements are harder to come by, so just any
preliminary thoughts?
Denny Oklak
- Duke Realty Corporation - Chairman & CEO
I’m going to let Jim respond to that because we — in all of our markets that we are in we very closely track all the, I will call the spec
development plus planned developments. Our local market guys pretty much know what’s going on, so Jim will give you some color on that.
Jim Connor
- Duke Realty
Corporation - Senior EVP & COO
Sure. Jamie, just a couple of bullet points that I think we all see from the service providers and the
different research companies.
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APRIL 30, 2015 / 7:00PM, DRE - Q1 2015 Duke Realty Corp Earnings Call
On the supply side, supply is up about 9% in the first quarter, but at the same time
vacancy across the country is down. It’s roughly 8.5%. You had totally last year 117 million of new supply and 130 million square feet of net absorption, so I think all the market dynamics are functioning well. And until we see a
quarter or two of slowdown or narrowing of that gap, I think everybody is pretty optimistic right now that the foreseeable future looks pretty good.
Jamie Feldman
- BofA Merrill
Lynch - Analyst
Okay. Then we have seen a lot of institutional capital flowing into the sector. Any interest in selling off portfolios of higher
quality warehouse, given where pricing has moved?
Denny Oklak
- Duke Realty Corporation - Chairman & CEO
No, Jamie, I don’t think so. You know that — I don’t think there’s anybody in the business that has sold more than we have over the last
four or five years.
The good news is we have really cleaned up the portfolio. And I say this, and I think people are beginning to believe me; that
we’ve got the highest quality industrial and highest quality medical office portfolios in the business today. And that now makes up 70% of our NOI — excuse me, almost 90% of our NOI; so we’re very comfortable with that portfolio.
It’s performing really on an outstanding basis. As I noted in the remarks, we have still got a bit of office to sell and really what we have left after this is just some office properties in Cincinnati and Indianapolis and then some
miscellaneous joint venture office assets that are spread around the country where we are a minority partner in basically all of those.
So right now
we’re focused on marketing some of the Cincinnati office assets that we have remaining and we are seeing pretty good activity on that. Then the other thing we did, obviously, was with this, what we call the Midwest industrial package, we really
cleaned up the industrial portfolio. So we are very pleased with where we are and like our ability to really grow our earnings from this portfolio going forward.
Jamie Feldman
- BofA Merrill
Lynch - Analyst
Okay, that’s very helpful. Thank you.
Operator
Ki Bin Kim.
Ki Bin Kim
- SunTrust Robinson
Humphrey - Analyst
Thank you. Can you maybe comment on how you view your portfolio quality compared to that of the KTR deal that recently transacted?
And if you want — and feel free to comment on your opinion on the cap rate on that deal, if you thought it was in line with your expectations or lower or higher.
Denny Oklak
- Duke Realty
Corporation - Chairman & CEO
Well, I always hesitate to comment on what other people are doing, but I’ll give you a few thoughts here.
We’ve — I think, we obviously looked at the disclosure that was made on that transaction; it’s always helpful to understand what’s going on in the market, like I’m sure you all did.
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APRIL 30, 2015 / 7:00PM, DRE - Q1 2015 Duke Realty Corp Earnings Call
I believe the number was KTR’s portfolio was average age of 18 years. Prologis I
think pre was 23 years, so they are averaging down to 21 or something like that. As I mentioned in our remarks, after this most recent sale of our — the smaller, older industrial stuff, we are at about a 10-year average age.
Now having said that, age doesn’t always matter. It is location, and particularly in high barrier industrial markets older properties generally do very
well. I would say, if I’m looking at the KTR portfolio, we know that portfolio reasonably well because we compete with those guys and have known them for a long time. They have a pretty good older, I would say, properties in places like New
Jersey, some in Southern California, some in a couple submarkets in Chicago that are older properties but they are very good properties.
They had really
grown their portfolio over the last couple years with development projects, which they hadn’t really done very much of before that. One of their bigger customers was Amazon. They have done a lot of development for Amazon over the last couple of
years and, of course, we have done a lot of development with Amazon over the last few years too. So those were some of the newer, modern bulk facilities.
Guess what I would say is I think overall it was generally a good portfolio. It was quite a mixed portfolio. Ours really is today focused on the modern bulk,
newer projects, and as you can see, they are doing extremely well when you look at our occupancy.
As far as the cap rate goes, even I would say everybody
can see all the transactions that are out there. I would say that was a reasonably aggressive cap rate, but there’s a lot of pretty aggressive people chasing industrial product today so cap rates, I think, continue to compress. I am not one to
try to predict what the right cap rate is, but it certainly looked like it was a line generally with the transactions we have seen in the market here lately.
Ki Bin Kim
- SunTrust Robinson
Humphrey - Analyst
That was all really helpful color. Just one last thing, one last question for me.
You have really transformed the portfolio over the past three years in a pretty dramatic way. It looks like it’s largely done, the major pieces that had
to move, but if a deal of something similar of KTR’s size or quality came to the market, would you be highly interested in that? Or at the point where you are, do you think, you know what, you don’t need to do megadeal like that and maybe
just incremental one-off acquisitions and development is where you want to spend most of your time on?
So how do you balance maybe the two different
possible options you have?
Denny Oklak
- Duke Realty Corporation - Chairman & CEO
I would say, for us, the issue today I think on doing a major transaction a little bit is pricing. Pricing is pretty aggressive out there. So for a major
transaction for us, if there was one out there, I think it would have to have a lot of significant strategic advantages for us.
And what I would define
those as, generally speaking, is it would have to really expand our portfolio in some of the markets that we don’t have a big presence in today. Then I think we would consider it, but we don’t feel like we have to do anything. As I said,
we are in great shape now that we’ve completed this repositioning.
We have terrific development capabilities within this company. We have a great
reputation on the development side. We have a land bank that is in excellent position for us to do industrial development really in all the major markets. And, clearly, in today’s market I would say development yields on the industrial side
have gotten a bit compressed, too, but there’s still a significant gap between the development yields and what you can buy anything at today.
We are
very happy, at this point in the cycle, doing the development, funding it wisely, and keeping our balance sheet in great shape as we look forward to the next part of the cycle.
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APRIL 30, 2015 / 7:00PM, DRE - Q1 2015 Duke Realty Corp Earnings Call
Ki Bin Kim
-
SunTrust Robinson Humphrey - Analyst
All right, thank you.
Operator
Eric Frankel.
Eric Frankel
- Green Street
Advisors - Analyst
Thank you very much. I was hoping you can give a bit of a breakdown of some of the dispositions that you’ve executed during
the quarter and then the bigger industrial portfolio outside the quarter. If you could provide little bit more cap rate color just to get an understanding of where those traded. Thanks.
Denny Oklak
- Duke Realty Corporation - Chairman & CEO
Yes, let me get the list here, Eric. And, you know, just we try not to disclose specific transactions, we have been very cautious about that for competitive
reasons and for buyers’ reasons, but I would say just some color on this.
As I mentioned in prepared remarks, the industrial portfolio got split out
between two buyers, because we have one buyer that was very interested in the Minneapolis assets and the other buyer that we had didn’t really — wasn’t — they didn’t need to have those assets I guess. They were fine with not
— closing of the rest of the portfolio without those. So we did close in the first quarter on the Minneapolis portion of that industrial, which is about 100,000 square feet. Cap rate on that was kind of in the mid-6%s, so I think we did
obviously very well on that.
And then we also, as we said, sold the rest of the office buildings in Cleveland and we sold the shops at Montage. Those
were in — those were obviously higher cap rate assets and the occupancy was generally pretty low in those, so the in-place cap rate on those was in the high single digits. I would say between the 9% and 10% range.
And then overall, for the first quarter, we were at about 8.1%. We essentially disclose sort of the cap rate on a suburban office sale. You can see the NOI
that we had taken out and we put it in the back of the supplemental this time.
The NOI that we took out in both the fourth quarter and the first quarter
annualized there and that’s very similar to how we showed the economics of the transaction with the Blackstone sale three or four years ago now. So I think that one’s pretty self-explanatory.
And then I think we also did very well on the Midwest, the rest of the Midwest industrial sale that closed in early April. And that cap rate we will disclose.
You will see that in the second quarter, but I think for the type of portfolio that it was, as we said, it was an average of 23 years old and basically just over 100,000 square foot buildings. We were — I can’t remember exactly what it
was, because I’m still looking at the first-quarter stuff, but it was I think a very competitive pricing.
Mark Denien
- Duke Realty
Corporation - EVP & CFO
Eric, the only other thing I would add on those — especially on the projects in the first quarter, those were
all, if you just think about it, Cleveland office and the Montage retail were all very capital-intensive projects. So on a cash basis, the cap rate on those is a lot lower than the leasing OI cap rate.
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APRIL 30, 2015 / 7:00PM, DRE - Q1 2015 Duke Realty Corp Earnings Call
Denny Oklak
-
Duke Realty Corporation - Chairman & CEO
Yes, their occupancy was low and it would cost you a lot of money to get the occupancy in those up.
Eric Frankel
- Green Street Advisors - Analyst
Understood, great. Thanks for the color there. Just a final question on Jim’s departure from the MOB business. Maybe you could expand a little bit more on
the platform you have there and the team you have in place and just the confidence of keeping the business going as you have for the past 10 years or I should say about eight years since you formally bought the business from him.
Denny Oklak
- Duke Realty Corporation - Chairman & CEO
I will start, then I’ll let Jim chime in. That has been a very stable business. Jim has been, as we both said, a terrific leader of that and really built
a great business, but he really has built a great team. He had a great team that he brought with him when he came to Duke, as you said, about eight years ago now and a number of those folks are still with us and are planning on staying with us.
I would say even though the leader, Keith Konkoli, was with Duke pretty much right after the Bremner team came onboard, Keith moved over to work with them and
has been an integral part of that. And then three of the other key leaders of that group going forward are all folks that came to Duke with Jim. So we’ve got great people there and I think we’ve got great customer relationships that we
will continue to move forward. So we are not really worried about continuing the momentum in that business that we have built.
Jim Connor
- Duke Realty
Corporation - Senior EVP & COO
I think the only other thing, as we transition to Keith, that team is very deep, as Denny alluded to. Our
senior leadership there is going to stay the same in terms of the asset management, finance, construction, and development leadership. All those guys have been in place, so we think from that perspective it’s very stable and we don’t think
we will lose any ground on the development pipeline that we’ve got out there.
Eric Frankel
- Green Street
Advisors - Analyst
Okay. Thanks, guys.
Operator
Brendan Maiorana.
Brendan Maiorana
- Wells Fargo
Securities - Analyst
Thanks, so probably for Mark. Your guidance outlook — so your same-store is up 100 basis points. Your average occupancy is
up 50, AFFO is up $0.01 at the midpoint, and FFO is unchanged at the midpoint. Is it sort of the better NOI growth offset by earlier-than-expected dispositions or something on the capital plan?
Mark Denien
- Duke Realty Corporation - EVP & CFO
That is actually the main thing, Brendan. Our guidance on dispositions for the year was $1.5 billion to $1.8 billion and we’ve already closed $1.5
billion, so we are already at the low end of the guidance. So I think it’s pretty safe to assume we’re trending much closer to the top end of the guidance and maybe even a little bit above that from a disposition side. And not only at the
top end or a little above, but then your next point was right on as well, the timing of it.
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APRIL 30, 2015 / 7:00PM, DRE - Q1 2015 Duke Realty Corp Earnings Call
As Denny mentioned, we are ready have several office assets on the market right now in
Cincinnati and at the beginning of the year when we gave guidance we were probably looking more towards the end of the year to get some of those deals closed. Now I think we are thinking more like maybe even the end of the second quarter. So
it’s more about extra dispositions and earlier timing of dispositions that offset some of the good operating results.
The other thing I would point
out, I think I mentioned this briefly, we are still sitting on some cash through these office dispositions because we want to fund our development pipeline here for the rest of the year without having to go back to the capital markets. So
there’s little bit of drag sitting on some cash for the next six months or so as well.
Brendan Maiorana
- Wells Fargo
Securities - Analyst
Okay. And just point of clarification. Average occupancy 95% to 96% for the year. Does that compare to average commenced
occupancy of 95.1% during Q1 or is that the ending lease-up occupancy of 96.0%?
Mark Denien
- Duke Realty
Corporation - EVP & CFO
No, it does not compare to the 96.0%. It compares to your first number.
Brendan Maiorana
- Wells Fargo Securities - Analyst
Okay, so average kind of moves up a little bit during the year.
Mark Denien
- Duke Realty
Corporation - EVP & CFO
It’s an average lease-up basis, Brendan, not an average commencement and not an ending lease-up. I know we throw
a lot of those numbers around. So it’s average lease signed that 95% to 96%, which compares to — I believe we were at 94.5% last year, as an example.
Brendan Maiorana
- Wells Fargo
Securities - Analyst
Okay. Then just last one. The development projects that came online were in line with your average yield last quarter, so it was
7.4 last quarter, 7.4 is what came online. The overall yield came down to 7.1 on the pipeline.
Is it more competitive out there in terms of projects,
either build-to-suit or spec, which is having yield compression hit had current projects that are coming online?
Jim Connor
- Duke Realty
Corporation - Senior EVP & COO
Yes, the competition is out there, but I would tell you that is a very, very small component. I would make a
couple of points. I would not read too much into the change in numbers from quarter to quarter, because there’s a handful of things that change, one of which is the number of build-to-suit’s versus the number of spec that we have. Clearly,
the yields on build-to-suit are going to be lower than those on spec. It’s a mix of industrial versus MOB, how many we’ve got at any given time.
The other big contributing factor is how much of the active projects are in Tier 1 markets versus Tier 2 markets.
And then the last two points I would make, if you go back and you are looking at some of the historical numbers from years gone by or even a few quarters ago,
we had some office development mixed in there that had generally some very high yields on it. Then the last point I would make is
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APRIL 30, 2015 / 7:00PM, DRE - Q1 2015 Duke Realty Corp Earnings Call
just you have to remember in some cases some of those yields are a little bit more compressed because we never impaired any of the land was held for development. So some of that land was land
that we bought back in the peak in maybe 2007 or 2008 and have carried it for a little while, but we are putting it in at our original basis, without any impairment an developing it. And those are the true adjusted yields.
Brendan Maiorana
- Wells Fargo Securities - Analyst
Okay, great. All right, thanks, guys.
Operator
Dave Rodgers.
Stephen Dye
- Robert W.
Baird & Company - Analyst
Yes, this is Stephen Dye here with Dave. I’m going to switch gears back to kind of some more macro commentary,
specifically with regards to the Midwest. You just disposed of maybe your non-core portfolio there.
But Indianapolis and Chicago are they seeing strength
really from demand from online vendors? And in general, can you just comment on the demand dynamics across the various Midwest markets? Thanks.
Jim Connor
- Duke Realty
Corporation - Senior EVP & COO
Sure, Steve. E-commerce continues to be a big driver in our business, so you will see not only the big-name
retailers continuing to demand space. And that’s not only existing space, spec space, but also build-to-suits. But it’s beyond that.
I would
tell you that retail in general is still very strong. Food, food and beverage, all the food-related services companies are up. The other contributing factor is just the 3PLs, which are doing more business with all of the different consumer products
companies across the country.
Stephen Dye
- Robert W. Baird & Company - Analyst
Great. And then with regards to the suburban office portfolio, moving into the single digits in terms of NOI by year-end; is there any opportunity there or
does that go to zero at some point in the future? And do you have any guidance on that timing?
Denny Oklak
- Duke Realty
Corporation - Chairman & CEO
Well, I would say we don’t know whether it’s going to zero yet. As I mentioned, we are basically
— I think you will see us exit the Cincinnati market here over time, probably over the next 12 to 18 months. The joint ventures will play out with our partners since they’re controlling.
So the only assets we will have are in Indianapolis, which is obviously our hometown. We’re actually sitting in one of our office buildings right now,
which I enjoy being my own landlord. But there are a few Indianapolis, a couple Indianapolis office projects that we will sell here.
Part of the issue
is, as Mark was saying, we don’t need the money right now because of the two major transactions we just closed this month. We’re trying to time the sales with our needs of funds.
Again, I think — and the only other thing I would point out there is we have just a bit of office land left around the system. As Jim said, we sold a lot
of it. We continue to sell a lot of it. We sold some that will come through in the second quarter as part of what we are calling the Starwood transaction.
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APRIL 30, 2015 / 7:00PM, DRE - Q1 2015 Duke Realty Corp Earnings Call
But we do have a speculative project going up in South Florida and I think we can do two
more buildings on that. And that market is still very, very hot, so we will likely develop those out and then decide what to do with them when that’s complete. As far as opportunity, yes, there is a little bit there, but we are really now just
focused on building the industrial and MOB’s.
Stephen Dye
- Robert W. Baird & Company - Analyst
Great. Good color, thank you.
Operator
Mike Salinsky.
Mike Salinsky
- RBC Capital
Markets - Analyst
So you got the balance sheet where you want right now. You are sitting on cash. Development pipeline is churning out good value
creation and acquisitions you are pretty aggressive just in light of the KTR transaction. Any thoughts of potentially ramping up development a bit? You are still delivering over 7% spread. I mean if you look where the KTR transaction is in place, I
think you’re talking almost 200 basis points of spread right there, yet you’ve got leverage now so you’ve taken risk — you’ve reduced the risk profile, so just curious as to any thoughts internally about that.
Jim Connor
- Duke Realty Corporation - Senior EVP & COO
It all depends on who you ask. I would tell you, yes, we could ramp up. We could do five or six spec projects and take that development pipeline up, but we
would just be taking on that much more risk. You’d see that prelease percentage of that development pipeline fall dramatically from where it is now at 55%.
Most of us, in this room anyway, remember what happened in the market in 2008 when we all had plenty of spec development out there.
We have been trying to be a little bit restrained and just manage that pipeline. We like it in that $500 million to $700 million range. We can continue to get
some more build-to-suits. I think you’ll see us tee up some more spec project.
Because we have been covering our bets; as we reported this quarter
and I think we talked a little bit about last quarter, the success we had in Houston and New Jersey with those four projects essentially being about 80% leased in total. The next round are — we’ve got a few under construction right now,
but we will evaluate the market this summer and see where else we want to make some bets.
Mike Salinsky
- RBC Capital
Markets - Analyst
Then just as my follow-up. In light of the KTR transaction and the pricing on that, is your expectation you will see more hit the
market in the back half of the year? Just talking with local guys right now is that kind of an eye-popping price? Do you think that’s going to motivate more product on the market than we are seeing currently?
Denny Oklak
- Duke Realty Corporation - Chairman & CEO
Well, I think — there’s always a fair amount of industrial product out in the market, but more in smaller one-off or smaller portfolios. You just
don’t see the big portfolios that often. There aren’t that many of them out there.
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APRIL 30, 2015 / 7:00PM, DRE - Q1 2015 Duke Realty Corp Earnings Call
So I don’t know that — I don’t think that transaction, Mike, is really
going to trigger a big flurry of some other kind of activity here. Because everybody now kind of knows who the major industrial players are out there. There has been a fair amount of consolidation when you look at it over the last few years in the
US industrial market.
A lot of it is still in institutional ownership hands; it won’t trade much. So I don’t think just that transaction itself
would trigger a big flurry of other people saying. I think you will see continued assets out in the market, maybe a larger portfolio or two here, but I don’t think a whole lot is going to change.
Mike Salinsky
- RBC Capital Markets - Analyst
Fair enough, thank you much.
Operator
Michael Bilerman.
Michael Bilerman
- Citigroup -
Analyst
It’s me and I’m here with Manny as well. Denny, I’m just curious as you think about the KTR deal and one of the big things that
drove their pricing obviously was the ability to bring in Norges for 45% and have the asset management platform and create the fee off of that.
I’m
curious, as you look at the transaction, the ability to effectively get 60 million more square feet, well over a 40% increase to your platform, which is already the second-largest industrial platform in the US, was there any appetite for you to
find a capital partner and be able to bring that in-house?
Denny Oklak
- Duke Realty Corporation - Chairman & CEO
Mike, the answer to that is, no, not really. I would just say this. I think our business model as to where we are in our lifecycle here, whatever you want to
call it, is probably fairly significantly different than where Prologis is and their business. Obviously a big part of their business is aggregating assets and generating fees, doing development to sell into the funds, as well as operating the
portfolio.
We are not looking to be a fee-generating company. We want to have the best real estate and give people — give our investors return on
the real estate assets and create value for our own — for our shareholders by owning great assets long term that we develop. And, for us, I guess what I would say is — one thing I would say that we probably don’t really agree with is
that we need to be significantly bigger to chase deals with the big major customers out there.
We have relationships with all the major customers.
We’ve done deals with them all. They know us. I don’t feel like I need 60 million more square feet to do that.
Now if I can find
60 million square feet that I really like and would like to own for the next 10, 15 years that I think is going to perform very well in the right markets, then that is a transaction I would be interested in. But to use somebody else’s
money to generate fees, that’s just not the business model we are running right now.
Michael Bilerman
- Citigroup -
Analyst
That’s helpful color. You talked a little bit about how the Amazon exposure that you have; obviously your largest tenant was KTR’s
largest tenant.
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APRIL 30, 2015 / 7:00PM, DRE - Q1 2015 Duke Realty Corp Earnings Call
If you think about the developments, the build-to-suits that you pursued with Amazon
versus what they did, was there any difference in the lease structure or differences in assets? Because I assume you had probably a look at those build-to-suits as well. I’m just curious as you think about your Amazon efforts versus those or
others that are in the marketplace.
Denny Oklak
- Duke Realty Corporation - Chairman & CEO
Well, we don’t specifically know probably the terms of their deals. We probably have some pretty good ideas on most of them, but I guess what I would tell
you is a couple things on that kind of business, and then Jim can chime in too.
It’s driven by a couple things. One is land positions. If you have
the land position where these customers want to be, then you are going to get the business. All these major customers — and I’m not just referring to Amazon here, but I think all these big players in the e-commerce business now want to
have major — have good relationships with several major developers.
They are not putting all their eggs in one basket, so they are spreading these
deals around and you have seen other REITs do them. We did them. KTR does them. Other folks do them, and I think that is — from their point of view it’s a good business philosophy.
And then from our point of view, too, we have been very select on where we build those and only really doing them in the major distribution markets, because a
number of those big e-commerce build-to-suits have been done in what I would call tertiary markets. And we are not really interested in that.
Then I
guess the last thing I would add is I think the terms — the industry has evolved is the terms on these big e-commerce distribution centers from a lease structure standpoint have evolved to be relatively standard. They differ from market to
market based on pricing and cost of development, but the structures are all fairly similar.
Michael Bilerman
- Citigroup -
Analyst
Right. Can I sneak one other quick one in? Just on the operating expenses, and I apologize if I missed this on the call, was there anything
that drove that down 2.2 in the quarter? I know last year was — had some obviously weather issues on the East Coast. I just didn’t know if there was anything particular this quarter versus last year that would have caused a 2% decline in
OpEx.
Mark Denien
- Duke Realty Corporation - EVP & CFO
Yes, Michael. It’s all weather-related. While I know places like Boston had a very bad 2015, we really didn’t have it in our markets compared to
2014. We had a ton of snow and actually colder weather driving up heating and things like that in 2014, so it’s all weather related.
I would tell
you that if you back about that out, that negative 2% change in operating expenses would’ve probably been more like a 2% increase in operating expenses. But what I did say in my opening remarks, all of those operating expenses are really offset
by a decrease in reimbursement revenue as well.
It doesn’t look like it in our supplemental because the revenue number is so much bigger. So if you
have a dollar of operating expenses and you recover that same dollar, it has much less of a percentage impact on the revenues than it does the expense side. So the expenses look a little bit out of whack, but from a net operating income basis, that
whole story is really negligible.
Michael Bilerman
- Citigroup - Analyst
Great, thank you.
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16
APRIL 30, 2015 / 7:00PM, DRE - Q1 2015 Duke Realty Corp Earnings Call
Operator
John Guinee.
John Guinee
- Stifel Nicolaus - Analyst
Quick question, Denny. On the dividend and special dividends, etc., back of the envelope it looks like you guys are going to make a lot of money in 2015 and
REIT rules usually require that to be taxed. Can you kind of walk through what that’s looking like?
Denny Oklak
- Duke Realty
Corporation - Chairman & CEO
Well, I will start and then Mark can chime in and correct me here, John. One of the things we did when we
structured the Starwood transaction that you all saw was we structured it as an installment sale basically for tax purposes. That’s really what that $200 million of seller financing did for us.
And that won’t be paid until sometime in 2016. They can pay it off anytime during 2016. And so that will defer some of the gain on that transaction,
fairly significant portion, into 2016.
Then we have some possible 1031 transactions. We put some money in escrow from that sale, as Mark said, to fund. I
think acquisitions probably won’t be very significant this year, but even a few acquisitions can move that taxable number pretty far. We can do some 1031s with that.
Then, third, there are some ways to use 1031 when you’re doing some development, if you are buying land or something like that. So we think we can use
some.
Truth is, John, we’re not really going to know exactly where we are on that until later in the year, when all these other transactions occur.
The sale occurred and we know what the gain is. We just don’t know how much we’re going to be able to push back into that to the deferral piece between now and year-end.
Mark Denien
- Duke Realty Corporation - EVP & CFO
John, the only other thing I would add to that is we have traditionally had a very conservative methodology on how we treat certain things from a tax
perspective, mainly depreciation expense. And, quite frankly, it’s because we didn’t need any — we didn’t need to accelerate depreciation expense or anything like that because we have never really bumped up against a special
dividend issue before.
So we’re in the process of just getting started to take a look to see if there are some alternative methodologies we can
implement from a tax perspective that may accelerate some depreciation and lower our taxable income and also reduce any special dividend requirement that way. So with all that moving around and going on and what I will call the 1031 clock having
just started a week ago, Denny’s right; we are not going to have a lot more clarity around with that number may be for probably at least another three to five months.
John Guinee
- Stifel Nicolaus -
Analyst
Call us when you know the answer.
Mark Denien
- Duke Realty
Corporation - EVP & CFO
Will do.
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17
APRIL 30, 2015 / 7:00PM, DRE - Q1 2015 Duke Realty Corp Earnings Call
Operator
(Operator Instructions) Speakers, there are no
further questions in queue at this time.
Ron Hubbard
- Duke Realty Corporation - VP-IR
I would like to thank everyone for joining the call today. We look forward to seeing many of you at the NAREIT conference in June in a little over a month. Or
if not, we will reconvene during our second-quarter call and it will be scheduled for July 30. Thank you very much.
Operator
Thank you. Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation and for using AT&T executive
teleconference. You may now disconnect.
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