Fitch Downgrades Duke Realty's Sr. Unsecured Debt to 'BBB'; Outlook Stable

NEW YORK--(Business Wire)--Fitch Ratings has downgraded Duke Realty Corporation (NYSE:DRE)
(Duke) and its operating partnership, Duke Realty Limited Partnership,
as follows:

Duke Realty Corporation

--Issuer Default Rating (IDR) to 'BBB' from 'BBB+';

--Preferred shares to 'BBB-' from 'BBB';

Duke Realty Limited Partnership

--IDR to 'BBB' from 'BBB+'

--Senior unsecured notes to 'BBB' from 'BBB+'

--Unsecured lines of credit to 'BBB' from 'BBB+'

--Exchangeable senior unsecured notes to 'BBB' from 'BBB+'.

The Rating Outlook is revised to Stable.

The downgrades center on the sustained increase in the company's
leverage ratios, and particularly the deterioration of Duke's ratio of
undepreciated unencumbered assets to unsecured debt in recent periods.
Although Duke's unencumbered asset ratio (using calculations in Duke's
bond covenants) was a strong 253.0% and 232.0% as of December 31, 2004
and December 31, 2005 respectively, this ratio declined to 189.6% and
189.0% as of Dec. 31, 2006 and September 30, 2007 respectively. Fitch
considers these 189.6% and 189.0% levels consistent with a 'BBB'
rating. The company's increase in leverage from previous levels may
place constraints on the company's liquidity position going forward.

The downgrades further reflect concerns about the increase in
Duke's leverage ratios from a debt-to-EBITDA perspective, as this
metric has increased from 5.9x as of December 31, 2005 to 7.5x and
7.4x as of December 31, 2006 and September 30, 2007, respectively.
Additionally, Fitch notes the weakening of Duke's risk-adjusted
capitalization due to the simultaneous increase in Duke's leverage and
increase in Duke's development pipeline, which includes higher-risk
speculative development projects and land investments. Although
construction-in-progress and land-held-for-development assets
represented 10.3% of total gross assets as of Dec. 31, 2005, this
percentage increased to 13.5% and 14.9% as of Dec. 31, 2006 and Sept.
30, 2007, respectively. This, combined with the company's increase in
leverage, has placed pressure on Duke's risk-adjusted capitalization.

Broadly, Fitch continues to monitor pressures experienced across
the credit markets and believes that such pressures may prevent many
Real Estate Investment Trusts (REITs) from raising capital on
favorable terms in the near term. In addition, Fitch will examine
whether REITs face more difficulty in selling assets on favorable
terms in 2008.

Fitch's Stable Rating Outlook reflects the recent stability in
Duke's same-store portfolio performance. As a result of positive
same-property net operating income growth of 7.00% in 2006, and 8.18%,
3.72%, 3.23%, 2.78% in each of the four quarters ending Sept. 30, 2007
in Duke's portfolio, earnings from Duke's rental operations have
increased. This fact has contributed to fixed-charge coverage ratios
of 1.8x (times) in 2006 and 1.7x for the twelve months ending
September 30, 2007, levels that are somewhat lower than ratios prior
to 2006 but consistent with the 'BBB' rating level. (Fitch defines
fixed-charge coverage as recurring EBITDA less recurring capital
expenditures less straight-line rent adjustments divided by interest
expense, capitalized interest and dividends on preferred shares.)

Moreover, in revising its Rating Outlook on Duke to Stable, Fitch
acknowledges the effects of Duke's earnings from gains on sale of
service operations, earnings from sales of land, and gains on sale of
depreciable properties. However, Fitch views these earnings streams as
exhibiting higher risk characteristics than earnings from Duke's core
rental operations.

The Stable Outlook also reflects Duke's broad tenant roster with
staggered lease expiration schedules, providing multiple sources of
earnings and the ability to renegotiate rental terms on an ongoing
basis. Additionally, Fitch notes Duke's same-store occupancy level of
94.94% as of September 30, 2007 and positive same-store occupancy
growth in each quarter of 2007.

Fitch also considers the large pool of unencumbered assets in
Duke's portfolio to be a credit strength. Specifically, 94% of Duke's
properties on a gross book value basis were unencumbered as of Sept.
30, 2007, providing support to Duke's unsecured bondholders.

Finally, the financial flexibility enabled by Duke's unsecured
debt capital allows Duke to reposition assets if needed, while the
company's funding profile as a whole exhibits limited refinance risk
in the next 2-to-3 years.

Fitch will monitor several factors over the next 12-to-24 months
in connection with Duke's ratings. First, regarding real estate
fundamentals, Fitch will review trends such as absorption and rental
growth in Duke's markets, particularly lower growth markets such as
Cincinnati, Atlanta, Columbus and Raleigh. Fitch will particularly
monitor same-property net operating income across Duke's portfolio and
its effects on Duke's fixed-charge coverage ratios. Secondly, with
respect to leverage, Fitch believes that Duke's unencumbered asset
coverage ratio may decline in 2008, but such a decline would remain
consistent with the 'BBB' rating level. Thirdly, from a liquidity
standpoint, Fitch will closely monitor growth in Duke's
internally-generated cash flows from operations.

The following factors would contribute favorably towards Duke's
ratings: lower leverage, a pullback on speculative development, and
improvements in recurring fixed charge coverage.

Duke is an equity REIT based in Indianapolis, IN. As of Sept. 30,
2007, Duke owned interests in 351 bulk distribution industrial
properties, 305 suburban office buildings, and 67 service center/other
properties. As of Sept. 30, 2007, Duke had $8.3 billion in
undepreciated book assets and $2.7 billion in undepreciated book
equity.

Fitch's rating definitions and the terms of use of such ratings
are available on the agency's public site, www.fitchratings.com.
Published ratings, criteria and methodologies are available from this
site, at all times. Fitch's code of conduct, confidentiality,
conflicts of interest, affiliate firewall, compliance and other
relevant policies and procedures are also available from the 'Code of
Conduct' section of this site.

Fitch Ratings, New York
Sean Pattap, +1-212-908-0642 (REITs)
Jan Svec, +1-212-908-0304 (REITs)
Sandro Scenga, +1-212-908-0278 (Media Relations)

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