Duke Realty Corporation

Thank you, Stacy. Good afternoon, everyone, and welcome to our quarterly earnings conference call.

Joining me today is Denny Oklak, Chairman and Chief Executive Officer; Matt Cohoat, Executive Vice President and Chief Financial Officer; Bob Chapman, Chief Operating Officer; and Randy Henry, Assistant Vice President of Investor Relations. 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.

Some of those risk factors include our continued qualification as a REIT, general business and economic conditions, competition, increases in real estate construction costs, interest rates, accessibility of the debt and equity capital markets, and also other risks inherent in the real estate business. For more information about those risk factors, we would refer you to our 10-K that we have on file with the SEC dated March 1, 2007.

And now for our prepared statement, I'll turn it over to Denny Oklak.

Thanks, Shona. Thanks everyone for joining us this afternoon.

Let me start out with what is on the top of everyone's mind. Yesterday, we reduced our guidance for 2008 FFO per share to $2.60 to $2.90 from $2.80 to $3 per share.

I know many of you were asking how we could reduce our guidance so significantly in six short weeks since our Investor Conference in New York? The answer is simply that our original 2008 guidance included $50 million to $60 million of FFO from after-tax gains on dispositions from our held-for-sale portfolio or $0.32 to $0.38 per share.

In the last 30 days, we have seen a significant increase in uncertainty in the real estate debt markets. On four of our dispositions which were under contract, lenders have retracted their loan commitments shortly before closing.

In light of this market activity we feel it will be prudent for us to take a more cautious view of our ability to complete these for-sale dispositions in the timeframe originally anticipated. I'd emphasize that the portfolio we originally assumed we would sell in 2008 consists only of projects that are completed or soon to be completed.

It totals 9.5 million square feet and it is 89% leased today and we have an 8.4% yield on our cost. So even if the properties are not sold as anticipated, there will be providing cash flow and operating FFO.

Our original guidance reflected cap rates where we believe they are today. So our reduced guidance simply reflects our cautiousness on the timing of closing those sales, not on the pricing of the assets or the fundamentals of our core operating business.

In addition, I'd like to note that we will not be providing quarterly guidance because of the timing of our closings is clearly subject to this market uncertainty. I would note, however, that our first quarter has historically been the lowest quarter for FFO per share and the highest for G&A expense.

Now looking back at 2007, the fourth quarter was again an outstanding quarter for us operationally. FFO per share was $0.80 for the quarter resulting in FFO per share of $2.74 for the year, $0.01 above the midpoint of our most recent guidance.

$2.74 represents a growth of 10.5% over 2006. The mix of sources of FFO for the quarter was as we predicted at our Investor Conference in December; with higher amounts from built for sale gains, land sales and lease buyouts than previous quarters.

Our built for sale closings through yearend occurred pretty much as anticipated. We closed on seven projects totaling $173 million within an average pre-tax profit margin of 16.4%.

We also closed on a number of land sales during the quarter, the most significant of which was a sale of land adjacent to the Nashville Airport to Federal Express in our existing Air Park East Industrial Park. We also recognized a lease termination fee on a project in South Florida at our (inaudible) office project.

This now represents 95% of the present value of the net rent due under the remaining term of the lease, and market rent today are $2 to $3 higher than the rent from the terminated tenant. This is a strong submarket with low vacancies and strong leasing activity.

We also continue to show strong improvement on our funds available for distribution. Our FAB payout ratio for the quarter was 70.6%.

For the year, we ended up at 85.9% our lowest since 2001. This improvement is a result of both occupancy increases over the past two years and our internal focus on reducing expenditures on releasing efforts by doing better deals.

Same property performance slowed somewhat during the fourth quarter coming in at 0.8%. The slowing is also a result of the occupancy increases over the past years, and in the office product type, an increase in expenses in the fourth quarter compared to fourth quarter 2006 primarily related to real estate taxes and snow removal.

For the year we came in at 3.3% compared to our guidance of 1% to 3%. We did experience solid growth in net effective rents on our lease renewals for the quarter at 9%.

For the year we were at 5.8% and over 9.8 million square feet of renewals. Our leasing activity was again solid during the quarter at 8.6 million square feet, our third highest quarter in the past two years.

Activity was solid across all product types. In-service occupancy decreased slightly from 93.5% to 92.7%.

We anticipated this decrease in light of fourth quarter speculative completions. Our leasing into 2008 still remains solid.

We also had a great quarter for new development starts. We started $304 million of projects, which were 75% pre-leased.

These starts were 39% industrial, 15% healthcare and 46% office. Highlights include two build to suit industrial buildings for Unilever, one in Dallas and one in Jacksonville.

Each project is about 800,000 square feet and it's leased for 10 years, 136,000 square foot industrial build to suit for Iron Mountain in Tampa leased for 17 years, and in Orlando, 101,000 square foot office build to suit for Disney on a 7 year lease. During the quarter we closed on one acquisition of distribution properties with buildings in Norfolk, Houston and Seattle.

This portfolio consists of 750,000 square feet of 100% lease properties at key port locations. We are also pleased to announce that we have closed on a joint venture to redevelop another abandoned General Motors plant in Linden, New Jersey.

This project is similar to our redevelopment at the Port of Baltimore. The project will be a mixed use project with industrial and retail.

Our final site plan details will be worked out with the City of Linden over the next several months. We anticipate a demolition and cleanup will be complete and development will start in mid 2009.

We are a 50% partner, and we'll be responsible for the remediation in the development of this site. With that, we'll open it up for questions.

Stacy, we're ready to take questions now. Thanks.

Hi, guys. Hey, Denny: can you just give us an update on the prospects for the merchant building joint venture fund?

Yes. The industrial fund, I believe is what you are talking about Michael.

Yeah. That's right.

We, again, we discussed last quarter that we've had some offers and then we pulled it. We've re-comprised that portfolio and we are just beginning the remarketing of that right now, so it's a little early to tell.

So I don't really have any specifics updates, other than to tell you we're beginning the remarketing right now.

Okay. And then: can you give us an update on your, just your balance sheet strategy and capital recycling strategy?

I know you had talked about significant sales of Midwestern office to help fund the development pipeline and reduce leverage on the balance sheet. Can you just give us an update on all those things?

Sure. First of all, let me give you an update on Cleveland.

As you recall, we have a one office portfolio left in Cleveland that we have been marking. We have a buyer, we had a buyer for several months; this is one of the dispositions where several lenders have backed out during the process particularly from early December through mid-January.

Today, the buyer is still very committed. It's again working with some additional lenders, so again it's just the uncertainty that I mentioned today out there in the capital markets, Michael.

But that one we continue to hope to close. We've also marketed some suburban office and a couple of downtown assets that we own in Cincinnati and those projects we received initial offers shortly before yearend and we're not going back and then in process of talking about best and final offers on those which will come in, sort of mid -- early-to-mid next month.

And those are the portfolios that we have out in the market at this point in time.

So it sounds like the strategy of selling something along the line, that $600 million to $800 million over a one or two year period: is that still the strategy from a high level perspective or--?

Yes.

Okay.

Yeah. That's still our strategy, Michael.

Okay. Thanks.

Thanks.

Hi, thanks. Denny, you've kind of touched on little bit: could you give a little bit more color in terms of the four deals of that dropped out?

Just in terms of: what kind of properties? Where they office?

Industrial or fully leased built-to-suites, et cetera?

They're little bit all over the board, Lou, but one I mentioned was Cleveland. Cleveland, actually they had two different lenders that had made commitments and then backed out on that one and are on to their third right now.

There was -- a couple of them were built-to-suits single tenants and one of them we have lender back out, but then it did end up getting completed. After that another one was a newer industrial building where the lender backed out.

And so it has just been a little bit all over the board.

Okay. And second question a kind of along the lines in terms of: your debt on financing plans.

In terms of the debt that's due this year: can you give us a flavor in terms of is that secured or unsecured debt? And: what's your kind of early REIT in terms of how you're going to refinance that?

With either property sales secured debt etcetera? What's the early REIT on that on the '08 plan?

Hey Lou, it's Matt. We've $225 million come in due in unsecured debt.

It's in the first and second quarter and then about another $40 million or so in secured debt throughout the course of the year and a few different smaller loans. We anticipate using our line of credit for the initial fundings, but then to go back to the unsecured market and as it stabilizes that would be primary place, where we would go to term out really our line of credit as it grows.

Okay. And then just last question pertains to development leasing.

How does, the first half look in terms of: are you getting or are you leasing at the pace that you've budgeted?

Bob, you want to take that one?

Yeah. Well, Lou, this is still January but as Denny mentioned in the prepared remarks things are still active across the board, office and industrial coming of 8.6 million square feet we are leasing in the fourth quarter.

So, there is still good activity out there in both property types.

Okay, thank you.

Good afternoon, Denny. I guess I just want to make sure I understand your visions, as you described them.

So: is it still your intention to sell or to book $50 million in gains? It's just now a function of delayed timing or: is it a combination of delayed timing?

And: maybe perhaps instead of 50 maybe it's 30?

Chris, it's really delayed timing or I'd say very cautious timing on our part because again it's just very, very difficult to know when all these projects are going to close. And I know it might be kind of unusual for us to make this revision so early in the year, when we have the full year to possibly make up for it, but quite honestly I'd rather be ahead of the games than behind the game with you all.

And what we're seeing right now, we just don't know how long it's going to last. As I mentioned we believe on that $50 million to $60 million that we put in our range of estimates for the year that we've the correct cap rates in there for today's market that isn't to say that can't change again.

But, I'd tell you that there is, I wouldn't anticipate anyway where that $50 million or $60 million will go down to $30 million it could be I suppose, if things change a couple of million dollars of changes in product sales price, but it's not going to be that kind of significant number that you mentioned, Chris.

Okay. And I guess just thinking through the G&A and the impact on the overhead cost: how much of the revision is attributable to perhaps G&A running through the P&L, higher level of G&A running through the P&L because of the delays?

Or am I not thinking about that right whereby: that would be basically recouped to when you eventually do sell the asset?

Yeah, it's the G&A is recouped if you will as we go into construction process not in the sales process. So, we're still building and completing all these buildings, as I mentioned they are 89% leased today.

So, they are basically pretty close to (inaudible).

So, the lease and overhead has already taken care…

The overhead it's already taking care of yes.

Okay. I guess, I noticed the other expense is pretty high and I understand there are some dead deal costs in there.

Can you just add some color as to the level of the dead deal cost? And: maybe talk about, if you can, about the project you are looking to pursue?

Matt, what is the overall level of our dead deal cost for…

India. Chris, this is Matt.

In the fourth quarter, we had net of tax about $2.5 million or so of dead deal cost and it was really related to three projects and there are a variety of projects that the nature and the type one retail and one land sale, and then one land acquisition. And so, we are just looking at that, at year end that these three different transactions, one, we are anticipating thrown away from and so, we wrote-off those costs.

Yeah the most significant one Chris was -- we were looking at a retail project in what called Western Florida with our partner Anderson as we've done a couple of lifestyle centers .We've been working on this thing for 12, 15 months and which just changes in the market down there, where we are not sure that we're going to move ahead with that. So, we don't think it was appropriate to continue to carry those costs.

Okay. And I guess, last question -- basically question I and I got from someone else today that was interesting.

With the continued land sale gains that you guys are putting up [quarter in] and quarter out. Can you help us understand who is buying the land?

I mean: who is the bidder? And: what type of venture is actually buying the land from you guys?

And: what are they actually building upon the dirt?

If you go back for the last several years and look at some of that historical data that I think we provided to you in the Investor Conference, you know that that's kind of an up and down business for us. But there is always some amount and we're never quite sure how much it's going to be.

'07 was a very significant year on that side. The two most significant ones that come to the top of my mind were early in the year we sold a piece of ground down in South Florida.

It was some industrial ground that we had bought just about a year before or so. And quite honestly, the construction costs down there were moving faster than the rents, and we didn't feel the numbers worked anymore.

And someone came in and made us an unsolicited offer, and in this case it happened to be another developer. So we sold it to another developer.

The second one is what I mentioned in the prepared remarks. This was some ground we've owned, and actually, some we had under option adjacent to the Nashville Airport.

We've got our Airport East Industrial Park there. And Federal Express came in and bought a significant potion of it.

And we've owned that for a few years and had a sizeable gain on that transaction. And they are building something there but they haven't really announced what they're going to build there.

So we're not aware of exactly what they're going to do. And then you have miscellaneous.

We've sold some out lots, some of our retail, retail locations, we sold some residential ground and also out lots up at Anson, some big box sites at Anson. It's all over the board and there is just a lot of buyers out there if you've got some land in good places.

Denny, it's Bob. The one final one I'd mention is the land we've sold in Westfield.

Yeah. Please go ahead Bob.

We mentioned and it was in the press release in the fourth quarter to user, and we're going to be building the building for them. But they want to own the land and the building.

Okay. Thanks a lot guys.

Hi, good afternoon. It's Brendan Maiorana with Chris.

Sorry, if I missed this. Did you guys offer the development start guidance for '08?

Has that number changed? I think it was $1.3 billion on your number guidance.

Yeah. I think we had a low end of 1.1 and the midpoint may have been 1.3.

As we sit here today, I would say that we still feel pretty comfortable with that number. Again, we had a very solid fourth quarter with $300 million.

The healthcare group has a lot of activity and anticipates a pretty significant increase this year over 2007. I'll say this again, and I got a lot of questions out that said NAREIT when I said it on the last quarter's call, but I'll say it again anyway as I think you will probably see us being more cautious on speculative development starts this year just as we monitor the economy and see where everything is going.

Our speculative projects that are out there, they are now leasing up well and pretty much on budget. And so, we may have some more speculative starts, but we will be more cautious than we were, maybe, 18 months ago.

But there are still some good built to suit opportunities out there that we're finding on both the industrial and office side.

Okay. Those comments, I guess, Denny, in terms of the buyers out there, it sound like you feel that there are still buyers out there, but the capital markets aren't allowing some of the held-for-sale properties to be taken down.

Given if there is a static level of demand out there and there is still good fundamentals from tenants on the held-for-rental portfolio: is there something that would cause you to pullback in terms of development start just from the capital markets perspective? Or: we'll continue to get the same level of activities?

I think the driver of our development starts will be demand more than capital markets. The capital markets today are having an effect on our dispositions because the folks that want to use leverage are clearly having a harder time obtaining leverage.

And so, I think it has more of an effect on our disposition program than our development program. As long as the demand is there and we believe it's a good solid asset and we can develop it at the right yield, including if it's a held-for-sale on a yield that we think gives us the right spread over what we can ultimately exit at higher cap rates, let's say today, I think we'd still look at doing that.

Again, when you look at, Brendan, the yields on our held-for-sale portfolio, our yield on costs are still pretty darn good. So if it's a timing thing on when we dispose of it, we're not really too concerned about that, because I mentioned on 9.5 million square feet that we were thinking to sell this year were getting 8.5 yield something like that, 8.45.

Okay. And then in terms of -- it look like a couple of the development projects in the held-for-rental portfolio split a little bit, I think from expected delivery in Q1 '08 into Q2 or Q3, is that just some timing issue, or is it a little bit too early.

So I was just wondering what's going on there?

Brendan, this is Matt. It's really just the timing of getting the certificates of occupancies on those projects.

It's not a leasing. It's not a function of leasing.

And also there is winter conditions on a couple of projects that just pushed it back a month or so and moved to one quarter to the next. But overall, we're still right on track with our leasing.

Okay. And then last one, Matt.

Just in terms of the credit watch list: has there been any notable change in that over the past three months or so?

Fortunately, no. There hasn't.

We've had a good experience for the year with very few defaults, some of our all time lowest level of defaults. And our accounts receivable were in the best shape that they've been in two years as of the end of 2007, knock on wood.

Okay. Thank you.

Yes. Just a follow-up on your development activities: Your new developments are coming in preconstruction leasing of 74%, which was what you announced in the fourth quarter.

Should we expect similar levels of pre-leasing prior to construction given your more cautious stance?

Paul, I'm not, I would say you're going to definitely see higher than you've seen over the last 18 to 24 months, whether they come in at 75 every quarter that might be a little bit on the high side but I would think that you'd be seeing more of that, more at least over the 50% pre-lease on the starts on average.

Okay. And your guidance didn't change except for the delay in those assets sales.

I was wondering: if there are any other aspects of guidance assumptions that you think could be at risk given the changing economy or changing economic outlook at this point?

Well, at this point our answer is: “no”. When you look at our occupancy going in our core portfolio, if you will, it's really pretty far up there right now.

And we have a very low roll over this year. So we would anticipate holding a very stable occupancy there.

Expenses are running about the same, so I think it's really on the disposition side. And than, again, of course, just depending on what happens in the economy on those development starts, we're still very comfortable with our range right now.

But we'll have to see something in the economy causes us to revaluate that.

Okay. And finally, just on the Linden redevelopment, you said you'd be responsible for remediation.

What particular risks are you exposed to by taking on that responsibility?

Well, it's really not any significant risk. We have all the remediation, priced down, upfront and we also cover ourselves with insurance policies, both the cost cap and long-term liability insurance on that.

So, on the clean up, very similar to what we did in Baltimore. There is very little risk to us in either the short-term or long-term.

Again, it's -- I think that's a good outstanding project. Again, we have got a great relationship with General Motors and this is a site that's just a few miles from the Port of New Jersey.

It's going to have some, both industrial product and also some retail. Again, we are just -- we have some work to do with the city to finalize the site plan and to know how much of each will be.

We've got very, very high interest, particularly on the retail side for this infill location. So, we're very excited about it and we decided to do that project with a partner.

It's as you probably would guess its not a really cheap ground up in the middle of New Jersey there and its our first venture in the New Jersey. So we brought in a partner but we'll really be the development partner and we brought in more of a capital partner on this one.

Okay, thank you.

Denny, the only thing I would add to that is there is a demolition. We have to tear down the existing General Motors building, which is going to take about a year.

Yeah.

Hey, thanks.

Thanks, Paul.

Yes. Hi.

Denny: can you go back to these four deals that where the lenders walked away? Can you just give us a sense of the size of the loan commitments?

What sort of loan to values? What sort of rates they were at the -- when they had pull back?

And: why they can't get new financing?

Well, I don't know if I can get into that much detail, but I'll try to give you some idea. I think the Cleveland is probably the best example.

There was -- we really agreed on price and with the buyer probably in September, same buyer, something like that mid-September, and then they are working through their due diligence. Had loan commitment from a lender and the day before they were supposed to go hard on their earnest money they called and said they needed an extension because their lender needed an extension.

So, this was early December and at the time I guess it was probably 70% loan-to-value and then the lender came back at 60% loan-to-value and raise the rate by 80 basis points. And then the lender just pulled their commitment.

And then they had another lender that came in at probably around that same second number 60%, 65%. And they had got in a commitment and they went onto to sort of the middle to end of December and then that lender pulled the commitment.

So, that's the kind of thing that's going on out there right now.

And has the buyer never try to retrade the deal on [your end]?

Well, they always try to re-trade, sure, yeah of course. And then, but we just have to use our own judgment as to whether we'll take the re-trade or not take the re-trade.

All right. I guess I'm trying to think about if this, it doesn't sound like a one-off thing that had occurred that happened in four different deals.

It sounds like the life and insurance companies, who are up to a $50 million, $100 million. Why you don't think that this somehow will affect ultimately the price some must be going to be willing to pay for assets?

Well, I think if you compare this to nine months ago, Michael, I think it has affected the price. But today, as I said, I think, we've adjusted our pricing and we have adjusted this later in the year to reflect where we think those are including the leverage ratios and the loan rates that are out there today.

What sort of spread are you making in terms of I think you've your held for sales of about $400 million to $500 million? What sort of margins and cap rates spread are you looking at?

Well, our margins for the fourth quarter were in the 16% range. We've always said that we anticipate the margins on those to be in the 10% to 15% range over the long-term.

We've obviously done quite a bit better than that. Last couple of years, we were back into that area and our range of estimates for '08 is in that 10% to 15% margin range.

And: what does that assume in terms of where you are developing to? To where you anticipate the sale?

It's probably a 100 basis point.

Okay. In terms of the land gains in the fourth quarter: what was your basis in the land to generate a $15 million gain?

The $15 million was a couple of different sales, right.

Michael it was a number of -- there was probably a 15 different sales in there overall.

Well maybe just an aggregate: how much land did you sell? Was it….

I'd say tell you that for the year our margins were in the 25% range on our land sales

And we sold a $160 million in that range. We sold a $160 million of land.

Generated about $33 million of gain?

Yes.

Okay. Looking towards just -- thinking going back to the financing of the business you've targeted for sale this year about $700 to $900 million of just core sales and then you've the $400 million to $500 million that you held for sale, the merchant development sales, so call it $1 billion to $1.5 billion around numbers.

You've some acquisitions that you are forecasting and you still have some leftover sales that weren't completed in the fourth quarter like the Cleveland office sale. I guess: how do you feel in terms of the funding of the business?

Knowing that you've $1.3 billion of development starts this year that book assets is running mid 50s. How are you sort of thinking about maybe slowing down?

Or: trying to get other equity to not push your leverage ratios up to the 60% covenant?

Well, Michael, yeah, we are monitoring that very closely of course and monitoring that we've got the capacity on our line to complete essentially and then our debt covenants complete everything that we've got going. We'll monitor the new starts versus all of those covenants and our ability to dispose properties.

We're looking as things are in today's capital markets we're looking at alternatives. We did the joint venture on this land in Linden, New Jersey because we thought it was a wise decision and also a good way to bring in some outside capital.

We continue to look at and are marketing again this industrial joint venture to bring in some additional capital. So we're looking at a lot of different place.

And the four deals that fell apart due to the lenders pulling back: what was the totality of value of those in terms of asset value?

Well, the biggest one was Cleveland. That's in the $150 million, $160 million range.

The other ones were more one-off sales that I would say probably totaled $70 million.

And the Cleveland is just a held-for-rental, the others were all held-for-sale?

That's correct.

Okay. In terms of the renewal percentage in the quarter, it dipped down to below 70 historically.

You'd been north of 80% renewal. Was it mix oriented in the fourth quarter?

Or: did you actually see that there was a slowdown in terms of the tenants willing to renew space?

Well, it was Michael's math. Primarily, the fourth quarter actually had just a very small volume of renewals because we were way out of ahead.

We still only have 9% of our leases expiring next year. And in the fourth quarter we only had about a third of the volume of renewals that we had in the first, second and third quarter on average.

And so, it was primarily that there was just a lot smaller volume, and then, there was two bulk industrial tenants in some older buildings that were couple hundred thousand feet that decided to move for a couple of different reasons, just move out spaces. And that's what brought it down a little bit.

But on a proportionate basis, we still stayed in the level where for the year we're up at that 80% level.

Right. And your rent growth was strong in the fourth quarter, I just didn't know if there was something else going on.

There wasn't anything endemic. It was really just a couple of deals on a smaller base.

Okay. And then, last question just on G&A, going back to the analyst presentation in December, you sort of put out an all-in overhead number about $205 million for the year, you sort of came in at $208.5 million.

It looks a little bit tied to service and your normal G&A and on leasing cost. Was there anything particular that sort of surprised you when everything happened?

And: how do you look towards '08?

No, I wouldn't say there was anything that surprised us. Our overhead came in actually below, now this is looking internally, right on our original budget, maybe a little bit less.

So we were very pleased with the results. And then in '08, I can tell you we're being cautious on adding new overhead just as we look at what's going on in the economy, where we've got a lot of capacity in place in our existing overhead.

When you look at starts and volume, our starts were about 1.2 billion and our total construction development volume that took place during the year was at about 1.1 billion range. So we're poised to do that.

We're not looking to really ramp up that overhead. Some of them will probably move around.

Obviously, we're going to continue increase on the healthcare side, and that will just be more movement probably from some other places since development maybe a little bit slower right now.

Okay. Thank you.

Hi. Good afternoon.

I am here with Sloan as well. Just had a question I know mentioned leasing was strong I think you said third best quarter on record, but: are you seeing any tenants get back space at all in your markets?

And then also, just: are tenants taking longer to….? Obviously they are waiting on the sideline more today.

Bob, do you want to take that one?

Well, yeah I would say Jay, it's probably a little bit more of the later. People are taking longer, but we're not getting any space back to seems like people are sitting on their hand and maybe fearful about the economy.

But we're still seeing strong activity, but that deal timeline is probably stretched out a little bit.

Okay. Now, it looks like rents dropped a little bit.

Clearly, it could be mix, but I am looking page 28 of the supplement: is your mark-to-market changing at all? You've done that sort of delay in terms of getting lease assigned.

Well, I'll start with that one and then Bob and Danny could jump in. Jay, the reason it looks like it comes down 28, if you look at it on a composite on average it is, would you look at the components of them it really were slightly up, very, very slightly up on the bulk distribution, and up on suburban office and up on the service center in the other property types.

So it's just really more of a mix in the average calculation. The individual products types are actually up a little bit.

Okay. And then just a question in terms of supply: are you seeing your competitors cutback?

I mean: you're seeing it more on the private side, maybe, where there may have been a more dependence on leverage.

Yes. I would say clearly, Bob wouldn't you?

Absolutely.

Okay. One other question in terms of land: are you seeing any changes in pricing?

No. I don't think so.

Nothing that I would say rises even to the level that got our notice. Bob, do you?

Well, you're talking about in terms of land acquisitions we're not -- I think you can, the frenzy with home buyers buying land that was potential industrial or office land is gone, and I think some of the pricing on that land has come down. You can certainly get terms.

That bodes well for buying new land, but other than that really no change.

So the land you had for sale for the coming year, you expect to achieve the pricing that you've previously forecasted?

Yeah. We would.

Okay. Thank you.

Good afternoon, guys. Just to understand the delta on the gains that you're talking about.

Are you saying that a $50 million and $60 million and half of that you expect to slip? Just so I understand that right.

That's correct.

Okay. And: how much of that is inability to finance and/or lower margin expectations?

Well, not much of it is lower margin expectations. I think we still are comfortable with the cap rates that we had in there because we had adjusted them.

We saw the movement starting in the third quarter, so we made some adjustments on those. It's more related to the timing of the closings.

Okay. And: how much of that, again, just to follow-up on Michael's question is coming on to the development bulk versus the sale bulk: is there any difference?

Or: you’re just kind of assuming a similar percentage of both?

Well, the only that hits our FFO is the stuffs that's coming out of the -- not the held to rental, but the held for sale, year development. And that's the adjustment made.

Okay. And just on the financing question as well.

Obviously, the CMBS market is what it is, but certainly whether it's insurance companies or the banks are still not seeing cracks, knock on wood, yet in the C&I and CRE portfolios and it seem to be pretty aggressive in what they are willing to do in the lending side. Are you guys seeing in particular regions of the country or particular lenders in terms of types of lenders or--?

Well, we are seeing, I would say, the banks more than anybody. Although, I think we're going to start seeing some insurance company lending here.

It's just the banks; their business is so volatile right now, their terms are sort of changing everyday and what they can get approved internally is changing everyday because there is so much commotion in their business. And that's what's making it really difficult for buyers and then, of course, in turn to sellers today.

Got you. And: how much are you willing to on the pricing question?

How do you guys philosophically think about what margin you are willing to take or not take? And like you said, a good bit of those assets are cash flowing, nice enough that you can hang on to them.

I am sure to project-by-project basis, but: how do you think about that in terms of what expansion your balance sheet is capable of taking on?

Yeah. It is project-by-project basis as you say.

And we think about that we had our original target number for cap rates and for profit margin when we perform at the deal. So we evaluated in relation to that.

For many years, we always exceeded those profit target numbers. Today, I will tell you we're right at them and so as long as we're right at what we originally targeted, we are okay, if we're getting a much more than a couple of percent or 5% below that.

We'll probably just wait.

But in the case of the Cleveland asset, for example, is that something that even though strategically it's an area you guys have been moving away from: is there a price at which are yield, at which? -- it just doesn't make sense.

Yeah. I would say Cleveland is a little different, but I was referring to more is the build for sale of product.

Cleveland, this is our third portfolio that we sold over the last two years basically. And one industrial portfolio, we did very well on in mid-'06.

In early '07, we did very well on one office portfolio and we have the last one left. We'll evaluate that and if we think it's the right offer, the reasonable offer that's probably one that we'll take.

And because I said we had a reasonable offer out there, as I mentioned on the financial things, yeah, there has been a little bit of re-trade on that. But we still it's a pretty reasonable offer and if this next round of financing can get done, we'll get that one closed.

Okay. Thanks a lot.

Thank you

Hi, good afternoon. Matt, good afternoon.

Just maybe you can talk about suburban office a little bit, I mean: the same-store declining, but the all the other operating metric seem to be very strong whether it’s been new leases or the renewal leases and the TIs. Can you just talk about that discrepancy?

It seems -- why was not same-store higher given the strength it seems to have had?

David, I'll take a crack at that. It's Matt.

It's really the fundamentals have held up pretty decent with the suburban office, but the fourth quarter had on a comparative basis, just the three months of '07 versus three months of '06, had much higher operating expense, primarily on snow removal and some real estate tax adjustments that we had as we get some reassessments in few of our markets. They are all expenses that are a dollar per dollar pass-throughs and don't have an effect to the bottomline.

But on a comparative basis, quarter-over-quarter, they have a little bit of a drag on the same-store. So it's very tough to look at the suburban office on just three months versus three months.

We tend to put all focus on an annual basis, 12 months where it kind of stabilizes those operating expense fluctuations. And on that we had a more reasonable numbers and are comfortable positive same-store on that metric in 2008.

Okay. And then on just a capitalized SG&A, I know you guys discussed this a lot in December, but can you -- lot of capitalized SG&A in third quarter was due to the leasing that you did for the development pipeline.

It sounds like this was also a strong quarter. So: can you just talk about why there was so much less capitalized SG&A this quarter versus last quarter?

And: maybe you can compare the leasing you did in the development portfolios?

It was a very, very quarter for leasing but the last quarter was still 20% more. So that's why it was -- I mean that is the main effect of art of leasing and the third quarter was just substantially higher.

And then we have a little bit less in construction volume, which is more cyclical as we get into winter months.

Okay. So why this 20% less leasing doesn't sound like a $6 million where G&A kind of goes up three times.

So, what is the delta that I am missing here?

Well, if you look at page 27, you can see that capital is [leasing past] sort of a net proportion 13 million versus 10 million. And then, I think the difference that you are probably I'm not sure, how much you're calculating but it's probably just a year end accruals and compensation accruals that are in there that in general made the fourth quarter total expenses a little bit higher than the third quarter.

Yeah.

All right, thank you.

Thank you very much. I wish something you can provide a little bit more color in terms of your comment earlier about leasing decisions taking longer.

Can you just maybe clarify which markets? Which property types?

And: which types of tenant are bracing a little bit more for a slowdown than others?

Well, Jamie, this is Bob. We're, it's across the board and it's just taking a little bit longer.

It's tough because this is January 31 and you're coming of the holiday period. But it's just across the board in all the markets.

We're seeing it on the industrial side probably a little more than on the office. It's just taken a little bit longer for people, who make decisions.

But offsetting that is we're seeing really strong activity. And I was talking to our Dallas group today, very strong activity on all the buildings we've there both office and industrial, same thing in Chicago, there is still strong activity out there.

But it's just I think people when it comes time to actually making the decision they're just a little bit cautious

And I guess, the other thing I'd add Bob, that I always pay attention to in this area is how many deals that we think we've got really close to being signed and then end up not getting signed. The people back out at the last minute, and we've seen very few of those.

And I'm not saying we haven't seen any, we've seen one or two across the system. But we've seen a significant rash of deals we've been working on for two to three months are falling out.

So, to me that's always a good sign.

Okay. And you are saying there is no particular regions worth any better or worse just about across the board?

Yeah I don't think there is anything really affecting that region right now.

Okay. And then are you seeing and not that you are really aggressively looking at acquisition right now, but, if you were would, you be looking a little bit closer maybe doing some acquisitions here?

Given that it seems like pricing is probably getting more attractive.

Well it's not terribly high priority for us still because even though pricing on the acquisitions is getting more attractive, pricing on developments is getting more attractive. We can push the yields a little bit in certain markets and then certain product types.

And so, we always, we still generally say that our development yields are always going to higher than the acquisition yields. Now having said that we did that one acquisition, which it wasn't a big acquisition, but it was another off market deal that we did and we are able to get us a little presence in Norfolk and had a building in Houston and over by the Port and one is Seattle.

So, we'd like that acquisition. We've got some pending acquisitions coming up in Savannah from our local partner has completed some buildings and we'll be closing on those here over the next few months, and but we're not looking much at others right now.

And then: do you expect to see any distressed volume in your market?

I'd say not, not in the short-term here. I think if you look back at the lending markets that we're really pretty good up until say mid last year.

I think most people have good low rate debt on their properties that goes out for a while further. So, I think, it's going to take a little while for that debt to mature.

And then, if there was any other project or any other problems with renewing or refinancing that debt then you might see. But I don't think it's going to happen here short-term.

Great, thank you.

Hi, good afternoon gentlemen. Thanks for taking my call.

You had mentioned a few times your port strategy and the pre-acquisition that you've made was with obviously port focus. And I just wanted a gaze on: what you are thinking as far demand at the port?

And: whether, there have been any changes in demand with the weak dollar?

It's very interesting. I was talking to some of our folks, who are down visiting our Savannah properties here just in the last few weeks.

And they met with one of our major tenant in there, who is a shipper. And his statement was it's really more towards exports than imports now.

He is seeing much more export property in his distribution facilities down there than he was say 12 or 18 months ago. And I think that is a result of the dollar.

So, I think it is changing somewhat, but the port seems to do fine either way.

And as a rule of thumb or these rules of thumb as far as the demand for space for imports versus exports, I would think that importing, you would need more warehouse space: how do you feel about that?

Bob, I don't have an answer on that one. Do you have any thoughts?

Sorry.

Yeah, I don't think we would -- I think we would tell you, we don't see much difference between the demand on either of the import or the export side. I think they are relatively the same, it's just who is using more.

Great! And just a quick housekeeping: You had mentioned acquisitions: do you see any change in your land sales for the year it was $15 million to $30 million?

In our guidance?

Yeah, please.

No. No, I think we're still comfortable with that.

And: how about your FAD payout ratio? It was 85 to 90: Any changes there?

No, I don't think. Obviously, if -- since we reduced our guidance in FFO a little bit, it might push that up just slightly, but it's not going to be a big effect.

Okay. Great!

Thanks for taking my call.

Thank you. Your land development, land held for sale for development, I'm sorry, right now just over $900 million, and that's up pretty substantially as you know.

Can you just talk about where that's headed? How much of that you will absorb into your development pipeline this year?

How much you might add to it? And: what you expect that balance to be at yearend?

As well as: how much is entailed in the land cost at the New Jersey GM site?

Sure, David. That land cost just a couple of things that I'd say is, it's probably at -- it's pretty much at it's highest level right now it was up at year end, because actually we closed on that New Jersey land ourselves because GM wanted to close before year end, and then in January we closed on the joint venture.

So, that land balance, go down because it will go into the joint venture. When you look at the overall balance, we believe we're very well landed everywhere if you will.

We are in good shape with good products. I think the new acquisitions of land will be really fairly minimal this year, if you look at what we use through development and sales in '07, it's probably in the $300 million range, something like that.

So, roughly a third of the total, I can't say for sure if we'd have that same amount that's my guess between land sales and development this year, it's in the $250 million to $300 million range with fewer acquisitions. So, I think you're going to see that balance trending down.

Okay. I guess this for Matt, your same stores numbers were up 25 million, 3.25%.

How does that breakout occupancy versus rental rate improvement?

The occupancy affect is about half of it, and then there is a burn off of free rent and rental rate growth that make up the other half of the 3.3%.

Okay, great. Thanks a lot.

Hi guys, just a question on your releasing spreads next year, you guys have around 12 million square feet [expanding]. Could you estimate what your mark-to-market on that is possibly or will be in a range?

Well, if you look at where we were in the past year, it varies a little bit by product type. But we've some pretty good mark-to-market up in the 8% to 10% range for the last quarter maybe a little bit less than that for the year.

So, it's difficult to tell because it's all spread out, and there is a lot of different places and product types. But my guess is in 5% to 7% range up.

Okay. And: do you consider the '08 expense portfolio similar to your fourth quarter?

Where you get less renewal than expected. Or: do you expect it to be more in the 80% range?

I'd expect it to be more in the 80% range.

Okay. And one last line item question, Matt.

Your interest and other income: does that the line item that includes that dead deal cost $2.5 million you mentioned?

Yes.

Great, thank you very much.

Michael?

Hello.

Yes, Michael, are you there?

I wanted to just ask quickly about the land sale in Northern Virginia: wasn't that at about $45 a foot? And then I'm curious: how that compares to your bases?

And: how the accounting for that works? I don't think it approximated your bases from what you've left after the Winkler deal.

We had a gain on that land sale, but we bought that at retail just a year or so ago. So, we won a terribly significant gain percentage for the sales price.

Bob, I don't remember on it, per square foot basis, but I know it was pretty expensive land.

Yeah, that's 45 is about right Michael.

Okay.

And the key part of that deal and the sale was we've a development agreement with the buyer and we're going to build, it's right next to the NRO and we're going to build their new campus there, very expensive campus starting in '08 and '09.

Okay. And so: the basis there approximates what you sold it for maybe the basis was a little lower?

Yeah, I'm guessing, we had maybe a 3% to 5% gain on that.

That's not in the fourth quarter numbers, right?

It was in the fourth quarter numbers, yeah.

It was okay.

Thank you.

We want to thank you for joining our conference call today. Our first quarter call is tentatively scheduled for May 1st at the same time, 3 p.m.

Eastern. Thanks everyone.

Have a nice day.