-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EZr9DMsrhsjq++ZRmTo3Vw36+WHPofjiO4wIsMkDZembfgVTIUWz1DUmLHY3D+6o KZ0BzTBBGUIxkwdpC9IgdA== 0000783280-96-000031.txt : 19961113 0000783280-96-000031.hdr.sgml : 19961113 ACCESSION NUMBER: 0000783280-96-000031 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961112 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: DUKE REALTY LIMITED PARTNERSHIP CENTRAL INDEX KEY: 0001003410 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 351898425 STATE OF INCORPORATION: IN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-20625 FILM NUMBER: 96659349 BUSINESS ADDRESS: STREET 1: 8888 KEYSTONE CROSSING STREET 2: SUITE 1200 CITY: INDIANAPOLIS STATE: IN ZIP: 46240 BUSINESS PHONE: 3175743631 MAIL ADDRESS: STREET 2: 8888 KEYSTONE CROSSING SUITE 1200 CITY: INDIANAPOLIS STATE: IN ZIP: 46240 10-Q 1 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1996 ------------------ OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to . ------ ------ ------------------------------------------------------------ Commission File Number: 0-20625 ------- DUKE REALTY LIMITED PARTNERSHIP State of Incorporation: IRS Employer ID Number: Indiana 35-1898425 - ---------------------- ----------------------- Address of principal executive offices: 8888 Keystone Crossing, Suite 1200 ----------------------------------- Indianapolis, Indiana 46240 ------------------------------ Telephone: (317) 846-4700 ---------------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ---- ---- The number of Limited Partnership Units outstanding as of November 11, 1996 was 3,710,288. DUKE REALTY LIMITED PARTNERSHIP INDEX PART I - FINANCIAL INFORMATION PAGE - ------------------------------- ----- ITEM 1. FINANCIAL STATEMENTS - ------------------------------ Condensed Consolidated Balance Sheets as of September 30, 1996 (Unaudited) and December 31, 1995 2 Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 1996 and 1995 (Unaudited) 3 Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 1996 and 1995 (Unaudited) 4 Condensed Consolidated Statement of Partners' Equity for the nine months ended September 30, 1996 (Unaudited) 5 Notes to Condensed Consolidated Financial Statements (Unaudited) 6-8 Independent Accountants' Review Report 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 10-17 PART II - OTHER INFORMATION - --------------------------- Item 1. Legal Proceedings 18 Item 2. Changes in Securities 18 Item 3. Defaults Upon Senior Securities 18 Item 4. Submission of Matters to a Vote of Security Holders 18 Item 5. Other Information 18 Item 6. Exhibits and Reports on Form 8-K 18 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS DUKE REALTY LIMITED PARTNERSHIP AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
ASSETS SEPTEMBER 30, December 31, - ------ 1996 1995 -------------- ----------- (UNAUDITED) Real estate investments: Land and improvements $ 131,048 $ 91,550 Buildings and tenant improvements 977,111 712,614 Construction in progress 43,041 96,698 Land held for development 66,018 62,637 --------- --------- 1,217,218 963,499 Accumulated depreciation (75,071) (56,335) --------- --------- Net real estate investments 1,142,147 907,164 Cash and cash equivalents 11,904 5,682 Accounts receivable from tenants, net of allowance of $603 and $624 4,414 5,184 Accrued straight-line rents, net of allowance of $841 10,022 8,101 Receivables on construction contracts 12,972 9,462 Investments in unconsolidated companies 73,242 67,771 Deferred financing costs, net of accumulated amortization of $3,136 and $2,072 7,710 8,141 Deferred leasing and other costs, net of accumulated amortization of $7,560 and $4,959 22,026 20,609 Escrow deposits and other assets 10,704 14,418 --------- --------- $1,295,141 $1,046,532 ========= ========= LIABILITIES AND PARTNERS' EQUITY ---------------------------------- Indebtedness: Secured debt $ 263,882 $ 259,820 Unsecured notes 190,000 150,000 Unsecured line of credit 12,000 45,000 --------- --------- 465,882 454,820 Construction payables and amounts due subcontractors 25,447 21,410 Accounts payable 2,202 1,132 Accrued real estate taxes 13,012 10,374 Accrued interest 1,100 3,461 Other accrued expenses 6,210 5,454 Other liabilities 7,814 5,490 Tenant security deposits and prepaid rents 6,705 3,872 --------- --------- Total liabilities 528,372 506,013 --------- --------- Minority interest 342 298 --------- --------- Partners' equity: General partner 754,082 535,783 Limited partners 12,345 4,438 --------- --------- Total partners' equity 766,427 540,221 --------- --------- $1,295,141 $1,046,532 ========= =========
See accompanying Notes to Condensed Consolidated Financial Statements - 2 - DUKE REALTY LIMITED PARTNERSHIP AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER UNIT AMOUNTS) (UNAUDITED)
Three months ended Nine months ended September 30, September 30, ------------------ ----------------- 1996 1995 1996 1995 ------ ------ ------ ------ RENTAL OPERATIONS: Revenues: Rental income $40,001 $ 28,923 $111,715 $ 80,698 Equity in earnings of unconsolidated companies 1,447 175 3,994 645 ------ ------ ------- ------ 41,448 29,098 115,709 81,343 ------ ------ ------- ------ Operating expenses: Rental expenses 7,328 5,437 21,209 14,981 Real estate taxes 3,451 2,515 9,958 6,805 Interest expense 7,858 4,907 22,475 14,960 Depreciation and amortization 7,075 6,297 23,232 17,400 ------ ------ ------- ------ 25,712 19,156 76,874 54,146 ------ ------ ------- ------ Earnings from rental operations 15,736 9,942 38,835 27,197 ------ ------ ------- ------ SERVICE OPERATIONS: Revenues: Property management, maintenance and leasing fees 3,027 3,023 8,689 8,279 Construction management and development fees 1,744 1,763 4,897 4,218 Other income 271 340 939 784 ------ ------ ------- ------ 5,042 5,126 14,525 13,281 ------ ------ ------- ------ Operating expenses: Payroll 2,179 2,074 6,796 5,718 Maintenance 417 386 1,134 932 Office and other 619 525 1,958 1,493 ------ ------ ------- ------ 3,215 2,985 9,888 8,143 ------ ------ ------- ------ Earnings from service operations 1,827 2,141 4,637 5,138 ------ ------ ------- ------ General and administrative expense (931) (893) (2,895) (2,536) ------ ------ ------- ------ Operating income 16,632 11,190 40,577 29,799 OTHER INCOME (EXPENSE): Interest income 314 288 920 1,138 Earnings (loss) from property sales (235) - 1,369 - Minority interest in earnings of subsidiaries (268) (306) (698) (736) ------ ------ ------ ------- Net income 16,443 11,172 42,168 30,201 Allocation to preferred units (872) - (872) - ------ ------ ------ ------ Net income available for common units $15,571 $11,172 $ 41,296 $30,201 ====== ====== ======= ====== Net income per common unit $ .47 $ .39 $ 1.31 $ 1.15 ====== ====== ======= ====== Weighted average number of common units outstanding 33,053 28,300 31,589 26,281 ====== ====== ======== ======
See accompanying Notes to Condensed Consolidated Financial Statements - 3 - DUKE REALTY LIMITED PARTNERSHIP AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
Nine months ended September 30, ------------------------------- 1996 1995 ---------- ---------- Cash flows from operating activities: Net income $ 42,168 $ 30,201 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation of buildings and tenant improvements 19,632 14,626 Amortization of deferred financing costs 895 901 Amortization of deferred leasing and other costs 2,705 1,873 Minority interest in earnings 698 736 Straight-line rent adjustment (2,362) (1,808) Earnings from property sales (1,369) - Construction contracts, net 527 13,554 Other accrued revenues and expenses, net 6,710 2,047 Equity in earnings in excess of distributions received from unconsolidated companies (560) (123) -------- -------- NET CASH PROVIDED BY OPERATING ACTIVITIES 69,044 62,007 -------- -------- Cash flows from investing activities: Rental property development costs (95,384) (79,868) Rental property recurring building improvements (405) (490) Acquisition of rental properties (132,225) (42,058) Acquisition of businesses - (25,620) Acquisition of undeveloped land and infrastructure costs (11,187) (21,498) Recurring tenant improvements (4,333) (3,200) Recurring leasing costs (2,157) (1,902) Other deferred costs and other assets 79 (6,902) Proceeds from property sales, net 36,657 38 Distributions received from unconsolidated companies 6,935 - Net investment in and advances to unconsolidated companies (383) (7,744) ------- ------- NET CASH USED BY INVESTING ACTIVITIES (202,403) (189,244) ------- ------- Cash flows from financing activities: Contributions from general partner 201,447 96,452 Proceeds from indebtedness 40,000 150,051 Borrowings on secured line of credit, net 7,000 - Repayments on indebtedness including principal amortization (27,410) (59,610) Repayments on unsecured line of credit, net (33,000) - Distributions to partners (47,095) (36,938) Distributions to minority interest (654) (711) Deferred financing costs (707) (2,832) ------- ------- NET CASH PROVIDED BY FINANCING ACTIVITIES 139,581 146,412 ------- ------- NET INCREASE IN CASH AND CASH EQUIVALENTS 6,222 19,175 ------- ------- Cash and cash equivalents at beginning of period 5,682 40,427 ------- ------- Cash and cash equivalents at end of period $ 11,904 $ 59,602 ======= =======
See accompanying Notes to Condensed Consolidated Financial Statements - 4 - DUKE REALTY LIMITED PARTNERSHIP AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF PARTNERS' EQUITY FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 (IN THOUSANDS) (UNAUDITED)
General Limited Partner Partners Total --------- --------- -------- Balance at December 31, 1995 $535,783 $ 4,438 $540,221 Net income 36,737 5,431 42,168 Acquisition of additional limited partnership interest by Duke Realty Investments, Inc. 21,167 - 21,167 Capital contribution from Duke Realty Investments, Inc. 201,560 - 201,560 Acquisition of property in exchange for limited partnership interest - 8,406 8,406 Distributions to partners (41,165) (5,930) (47,095) ------- ------- ------- Balance at September 30, 1996 $754,082 $12,345 $766,427 ======= ====== ======= Common units outstanding at September 30, 1996 29,423 3,696 33,119 ======= ====== ======= Preferred units outstanding at September 30, 1996 300 - 300 ======= ====== =======
See accompanying Notes to Condensed Consolidated Financial Statements - 5 - DUKE REALTY LIMITED PARTNERSHIP NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. FINANCIAL STATEMENTS The interim condensed consolidated financial statements included herein have been prepared by Duke Realty Limited Partnership (the "Partnership") without audit. The statements have been prepared in accordance with generally accepted accounting principles for interim financial information and the instructions for Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. These financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Partnership's Annual Financial Statements. THE PARTNERSHIP Duke Realty Limited Partnership (the "Partnership") was formed on October 4, 1993, when Duke Realty Investments, Inc. (the "Predecessor Company" or the "General Partner") contributed all of its properties and related assets and liabilities along with the net proceeds of $309.2 million from the issuance of an additional 14,000,833 shares through an offering ("1993 Offering") to the Partnership. Simultaneously, the Partnership completed the acquisition of Duke Associates, a full- service commercial real estate firm operating in the Midwest. The General Partner was formed in 1985 and qualifies as a real estate investment trust under provisions of the Internal Revenue Code. In connection with the 1993 Offering, the formation of the Partnership and the acquisition of Duke Associates, the General Partner effected a 1 for 4.2 reverse stock split of its existing common shares. The General Partner is the sole general partner of the Partnership and received 16,046,144 common units of partnership interest in exchange for its original contribution which represented a 78.36% interest in the Partnership. As part of the acquisition, Duke Associates received 4,432,109 common units of limited partnership interest ("Limited Partner Units") (together with the units of general partner interests, the ("Common Units")) which represented a 21.64% interest in the Partnership. The Limited Partner Units are exchangeable for shares of the General Partner's common stock on a one-for-one basis subject generally to a one-year holding period. The service operations are conducted through Duke Realty Services Limited Partnership ("DRSLP") and Duke Construction Limited Partnership ("DCLP"), in which the Partnership has an 89% profits interest (after certain preferred returns on partners' capital accounts) and effective control of their operations. The consolidated financial statements include the accounts of the Partnership and its majority-owned or controlled subsidiaries. The equity interests in these majority-owned or controlled subsidiaries not owned by the Partnership are reflected as minority interests in the consolidated financial statements. In March 1996, the General Partner issued 4,400,000 shares (includes 400,000 shares issued on April 4, 1996 related to the exercise of the Underwriters' over-allotment option) of Common Stock through an additional offering ("1996 Offering") receiving net proceeds of approximately $125.3 million. During the second quarter 1996, the General Partner implemented a direct stock purchase and - 6 - dividend reinvestment plan and has received approximately $3.9 million of net proceeds from the sale of 129,140 shares of Common Stock. The General Partner contributed these combined proceeds to the Partnership in exchange for additional common units. These proceeds were used to pay down the Partnership's unsecured line of credit which had been used to fund the development and acquisition of additional rental properties. In August 1996, the General Partner issued 300,000 shares of 9.10% Series A Cumulative Redeemable Preferred Shares ("the 1996 Preferred Offering") receiving net proceeds of approximately $72.3 million. On or after August 31, 2001, the Series A Preferred Shares may be redeemed for cash at the option of the General Partner, in whole or in part at a redemption price of $250.00 per share plus accrued and unpaid distributions, if any, to the redemption date. The redemption price of the Series A Preferred Shares (other than any portion thereof consisting of accrued and unpaid distributions) may only be paid from the proceeds of other capital shares of the General Partner, which may include other classes or series of preferred shares. The Series A Preferred Shares have no stated maturity, will not be subject to sinking fund or mandatory redemption provisions and are not convertible into any other securities of the General Partner. Distributions on the Series A Preferred Shares will be cumulative from the date of original issue and will be payable quarterly on or about the last day of February, May, August and November of each year, commencing on December 2, 1996, at the rate of 9.10% of the liquidation preference per annum (equivalent to $22.75 per annum per share). The proceeds of the 1996 Preferred Offering were contributed to the Partnership in exchange for preferred units ("Preferred Units") and were used to retire existing secured debt as well as to fund the development and acquisition of additional rental properties. In April 1996, as a result of certain Limited Partners exchanging their Common Units for shares of Common Stock of the General Partner pursuant to the Partnership Agreement, the General Partner acquired a portion of the minority interest in the Partnership through the issuance of 725,291 shares of Common Stock for a like number of Common Units. The acquisition of the minority interest was accounted for under the purchase method with assets acquired recorded at the fair market value of the General Partner's Common Stock on the date of acquisition. The acquisition amount of $21.2 million was allocated to rental properties based on their estimated fair values. 2. LINES OF CREDIT The Partnership has a $150 million unsecured revolving credit facility which is available to fund the development and acquisition of additional rental properties and to provide working capital. The revolving line of credit matures in April 1998 and bears interest payable at the 30-day London Interbank Offered Rate ("LIBOR") plus 1.25%. The Partnership also has a demand $7 million secured revolving credit facility which is available to provide working capital. This facility bears interest payable monthly at the 30-day LIBOR rate plus .75%. 3. RELATED PARTY TRANSACTIONS The Partnership provides management, maintenance, leasing, construction, and other tenant related services to properties in which certain executive officers have continuing ownership interests. The Partnership was paid fees totaling $2.5 million and $2.1 million for such services for the nine months ended September 30, 1996 and 1995, respectively. Management believes the terms for such - 7 - services are equivalent to those available in the market. The Partnership has an option to purchase the executive officers' interest in each of these properties which expires October 2003. The option price of each property was established at the date the option was granted. 4. RECLASSIFICATIONS Certain 1995 balances have been reclassified to conform with the 1996 presentation. 5. SUBSEQUENT EVENTS On October 24, 1996, a quarterly distribution of $.51 per Common Unit was declared payable on November 29, 1996, to Common Unitholders of record on November 15, 1996. On October 24, 1996, a quarterly distribution was declared of $6.6354 per Preferred Unit for the period August 16, 1996 through November 30, 1996 which is payable on December 2, 1996 to the Preferred Unitholders of record on November 18, 1996. In November 1996, the Partnership issued $50 million of unsecured debt at an interest rate of 7.14%. This debt matures in November 2004 and the proceeds were used to retire amounts outstanding on the Partnership's lines of credit. - 8 - INDEPENDENT ACCOUNTANTS' REVIEW REPORT - --------------------------------------- The Partners DUKE REALTY LIMITED PARTNERSHIP: We have reviewed the condensed consolidated balance sheet of Duke Realty Limited Partnership and subsidiaries as of September 30, 1996, the related condensed consolidated statements of operations for the three and nine months ended September 30, 1996 and 1995, the related condensed consolidated statements of cash flows for the nine months ended September 30, 1996 and 1995, and the related condensed consolidated statement of partners' equity for the nine months ended September 30, 1996. These condensed consolidated financial statements are the responsibility of the Partnership's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to above for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of Duke Realty Limited Partnership and subsidiaries as of December 31, 1995, and the related consolidated statements of operations, partners' equity and cash flows for the year then ended (not presented herein); and in our report dated January 31, 1996, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 1995 is fairly presented, in all material respects, in relation to the consolidated balance sheet from which it has been derived. KPMG Peat Marwick LLP Indianapolis, Indiana October 31, 1996 - 9 - ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW - -------- The Partnership's operating results depend primarily upon income from the rental operations of its industrial, office and retail properties located in its primary markets. This income from rental operations is substantially influenced by the supply and demand for the Partnership's rental space in its primary markets. In addition, the Partnership's continued growth is dependent upon its ability to maintain occupancy rates and increase rental rates on its in-service portfolio and to continue development and acquisition of additional rental properties. The Partnership's primary markets in the Midwest have continued to offer strong and stable local economies and have provided attractive new development opportunities because of their central location, established manufacturing base, skilled work force and moderate labor costs. Consequently, the Partnership's occupancy rate of its in-service portfolio has exceeded 92% the last two years and was at 94.2% at September 30, 1996. The Partnership expects to continue to maintain its overall occupancy levels at comparable levels and also expects to be able to increase rental rates as leases are renewed or new leases are executed. This stable occupancy as well as increasing rental rates should improve the Partnership's results of operations from its in-service properties. The Partnership's strategy for continued growth also includes developing and acquiring additional rental properties in its primary markets and expanding into other attractive Midwestern markets. The following table sets forth information regarding the Partnership's in-service portfolio of rental properties as of September 30, 1996 and 1995 (in thousands, except percentages):
Total Percent of Square Feet Total Square Feet Percent Occupied ----------------- ----------------- ------------------ Type 1996 1995 1996 1995 1996 1995 ------ ------ ------ ------ ------ ------ ------ INDUSTRIAL Service Centers 3,047 2,328 11.74% 13.63% 93.94% 95.98% Bulk 14,296 8,750 55.08% 51.23% 94.03% 96.18% OFFICE Suburban 5,815 3,617 22.41% 21.18% 95.84% 92.58% CBD 699 699 2.69% 4.09% 85.20% 93.07% Medical 333 294 1.28% 1.72% 91.59% 89.20% RETAIL 1,766 1,392 6.80% 8.15% 95.05% 93.49% ------ ------ ------- ------- Total 25,956 17,080 100.00% 100.00% 94.23% 94.92% ====== ====== ======= =======
Management expects occupancy of the in-service property portfolio to remain stable because (i) only 3.0% and 9.6% of the Partnership's occupied square footage is subject to leases expiring in the remainder of 1996 and in 1997, respectively, and (ii) the Partnership's renewal percentage averaged 82%, 65% and 73% in the nine months ended September 30, 1996 and the years ended December 31, 1995 and 1994, respectively. - 10 - The following table reflects the Partnership's in-service portfolio lease expiration schedule as of September 30, 1996 by product type indicating square footage and annualized net effective rents under expiring leases (in thousands, except per square foot amounts):
Industrial Office Retail Total ---------------- ---------------- ---------------- ---------------- Year of Square Contract Square Contract Square Contract Square Contract Expir. Feet Rent Feet Rent Feet Rent Feet Rent - ------ ------ -------- ------ -------- ------ -------- ------ -------- 1996 615 $ 2,711 104 $ 960 17 $ 133 736 $ 3,804 1997 1,547 6,512 733 7,877 67 719 2,347 15,108 1998 2,373 9,075 691 7,200 115 1,208 3,179 17,483 1999 2,063 8,922 821 8,900 119 1,203 3,003 19,025 2000 2,000 7,814 725 8,965 124 1,421 2,849 18,200 2001 2,130 8,667 707 7,724 106 1,188 2,943 17,579 2002 327 1,438 694 7,347 106 994 1,127 9,779 2003 73 645 154 1,927 36 328 263 2,900 2004 865 3,397 92 1,079 13 126 970 4,602 2005 1,440 4,552 496 6,357 173 1,479 2,109 12,388 There- after 2,873 8,699 1,257 15,750 802 6,233 4,932 30,682 ------ ------- ----- ------ ----- ------ ------ ------- Total Leased 16,306 $62,432 6,474 $74,086 1,678 $15,032 24,458 $151,550 ====== ====== ===== ====== ===== ====== ====== ======= Total Port- folio 17,343 6,847 1,766 25,956 ====== ===== ===== ====== Annualized net effective rent per square foot $ 3.83 $ 11.44 $ 8.96 $ 6.20 ====== ====== ====== =======
This stable occupancy, along with stable rental rates in each of the Partnership's markets, will allow the in-service portfolio to continue to provide a comparable or increasing level of earnings from rental operations. The Partnership also expects to realize growth in earnings from rental operations through (i) the development and acquisition of additional rental properties in its primary markets; (ii) the expansion into other attractive Midwestern markets; and (iii) the completion of the three million square feet of properties under development at September 30, 1996 over the next six quarters. The three million square feet of properties under development should provide future earnings from rental operations growth for the Partnership as they are placed in service as follows (in thousands, except percent leased and stabilized returns):
Anticipated In-Service Square Percent Project Stabilized Date Feet Leased Costs Return ---------------- ------- ------- -------- ----------- 4th Quarter 1996 778 66% $ 38,922 11.8% 1st Quarter 1997 541 34% 15,160 10.9% 2nd Quarter 1997 631 64% 31,591 12.2% 3rd Quarter 1997 930 84% 23,387 11.4% Thereafter 100 80% 8,923 12.6% ----- ------- 2,980 66% $117,983 11.8% ===== =======
RESULTS OF OPERATIONS - --------------------- Following is a summary of the Partnership's operating results and property statistics for the three and nine months ended September 30, 1996 and 1995 (in thousands, except number of properties and per unit amounts): - 11 -
Three months ended Nine months ended September 30, September 30, ------------------ ----------------- 1996 1995 1996 1995 ------ ------ ------ ------ Rental Operations revenue $41,448 $29,098 $115,709 $81,343 Service Operations revenue 5,042 5,126 14,525 13,281 Earnings from Rental Operations 15,736 9,942 38,835 27,197 Earnings from Service Operations 1,827 2,141 4,637 5,138 Operating income 16,632 11,190 40,577 29,799 Net income available for common units $15,571 $11,172 $41,296 $30,201 Weighted average common units outstanding 33,053 28,300 31,589 26,281 Net income per common unit $ .47 $ .39 $ 1.31 $ 1.15 Number of in-service properties at end of period 233 167 233 167 In-service square footage at end of period 25,956 17,080 25,956 17,080 Under development square footage at end of period 2,980 2,807 2,980 2,807
COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 1996 TO THREE MONTHS ENDED SEPTEMBER 30, 1995 - ------------------------------------------------------------------- Rental Operations - ------------------ The Partnership increased its in-service portfolio of rental properties from 167 properties comprising 17.1 million square feet at September 30, 1995 to 233 properties comprising 26.0 million square feet at September 30, 1996 through the acquisition of 50 properties totaling 5.0 million square feet and the completion of 18 properties and three building expansions totaling 4.1 million square feet developed by the Partnership. The Partnership also disposed of two properties totaling 226,000 square feet. These 66 net additional rental properties primarily account for the $12.3 million increase in revenues from Rental Operations from 1995 to 1996. The increase from 1995 to 1996 in rental expenses, real estate taxes and depreciation and amortization expense is also a result of the additional 66 in-service rental properties. The increase in equity in earnings of unconsolidated companies is due to the formation of a joint venture on December 28, 1995. The Partnership formed this joint venture (Dugan Realty L.L.C.) with an institutional real estate investor and purchased 25 industrial buildings totaling approximately 2.3 million square feet. Upon formation of the venture, the Partnership contributed approximately 1.4 million square feet of recently developed and acquired industrial properties, 113 acres of recently acquired land held for future development and approximately $16.7 million of cash for a 50.1% interest in the joint venture with a total initial recorded investment of approximately $59.4 million. In May 1996, the Partnership contributed a 600,000 square foot industrial building to the joint venture at an agreed value of $13.9 million and received a distribution of $6.935 million. The Partnership accounts for its investment in this joint venture on the equity method because the joint venture partner's approval is required for all major decisions and the joint venture partner has equal control regarding the primary day-to-day operations of the venture. Interest expense increased by approximately $3.0 million. This increase was primarily because of interest expense on the $150 million of unsecured notes which the Partnership issued in September 1995. These notes bear interest at an effective rate of 7.46%. The proceeds from these notes were used to (i) retire the outstanding balance of $35.0 million on the Partnership's line of credit; (ii) retire $39.5 million of mortgage debt which had a weighted average interest rate of 6.08% and was scheduled to reset at a market interest rate in the fourth quarter of 1995, ; and (iii) and to fund development and acquisition of additional rental properties during the fourth quarter of 1995. - 12 - As a result of the above-mentioned items, earnings from rental operations increased $5.8 million from $9.9 million for the three months ended September 30, 1995 to $15.7 million for the three months ended September 30, 1996. Service Operations - ------------------- Service Operation revenues remained stable at $5.0 million for the three months ended September 30, 1996 as compared to $5.1 million for the three months ended September 30, 1995. Service Operation operating expenses increased from $3.0 million to $3.2 million for the three months ended September 30, 1996 as compared to the three months ended September 30, 1995 primarily as a result of an increase in operating expenses resulting from the overall growth of the Partnership and the additional regional offices opened in 1995 and 1996. As a result of the above-mentioned items, earnings from Service Operations decreased from $2.1 million for the three months ended September 30, 1995 to $1.8 million for the three months ended September 30, 1996. General and Administrative Expense - ----------------------------------- General and administrative expense remained stable at approximately $900,000 for the three months ended September 30, 1996 and 1995. Other Income (Expense) - ----------------------- During the three months ended September 30, 1996, the Partnership recognized a loss of $235,000 on property sales. The majority of the loss related to additional closing costs paid related to a sale of a property in the second quarter of 1996. The year-to-date gain on the sale of this building is $1.4 million. Net Income Available for Common Units - -------------------------------------- Net income available for common units for the three months ended September 30, 1996 was $15.6 million compared to net income available for common units of $11.2 million for the three months ended September 30, 1995. This increase results primarily from the operating result fluctuations in rental and service operations explained above. COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1996 TO NINE MONTHS ENDED SEPTEMBER 30, 1995 - ----------------------------------------------------------------- Rental Operations - ----------------- The expansion of the in-service rental property portfolio by 66 additional rental properties from September 30, 1995 to September 30, 1996 primarily accounts for the $34.4 million increase in revenues from Rental Operations from 1995 to 1996. The increase from 1995 to 1996 in rental expenses, real estate taxes and depreciation and amortization expense is also a result of the additional 66 in-service rental properties. The increase in equity in earnings of unconsolidated companies is due to the effect of the formation of Dugan Realty L.L.C. on December 28, 1995, as discussed previously. - 13 - Interest expense increased by approximately $7.5 million. This increase was primarily because of the interest expense on the $150 million of unsecured notes which the Partnership issued in September 1995. These notes bear interest at an effective rate of 7.46%. As a result of the above-mentioned items, earnings from rental operations increased $11.6 million from $27.2 million for the nine months ended September 30, 1995 to $38.8 million for the nine months ended September 30, 1996. Service Operations - ------------------- Service Operation revenues increased from $13.3 million to $14.5 million for the nine months ended September 30, 1996 as compared to the nine months ended September 30, 1995 primarily as a result of increases in maintenance fee revenue because of winter weather conditions and construction management fee revenue because of an increase in construction volume. Service Operation expenses increased from $8.1 million to $9.9 million for the nine months ended September 30, 1996 as compared to the nine months ended September 30, 1995 primarily as a result of an increase in operating expenses resulting from the overall growth of the Partnership and the additional regional offices opened in 1995 and 1996. As a result of the above-mentioned items, earnings from Service Operations decreased from $5.1 million to $4.6 million for the nine months ended September 30, 1995 and 1996, respectively. Other Income (Expense) - --------------------- Interest income decreased from $1.1 million for the nine months ended September 30, 1995 to $920,000 for the nine months ended September 30, 1996 primarily as a result of the temporary short- term investment of excess proceeds from the General Partner's equity offering in May 1995 and a debt offering in September 1995 which resulted in excess cash balances being invested through September 30, 1995. During the nine months ended September 30, 1996, the Partnership sold a 251,000 square foot corporate headquarters facility that it recently completed for John Alden Life Insurance Company in Miami, Florida. The project was sold for approximately $32.9 million pursuant to the purchase option contained in John Alden's lease agreement. The Partnership recognized a gain of approximately $1.4 million on the sale. General and Administrative Expense - ---------------------------------- General and administrative expense increased from $2.5 million for the nine months ended September 30, 1995 to $2.9 million for the nine months ended September 30, 1996 primarily as a result of increased state and local taxes due to the growth in revenues of the Partnership. Property advertising expense also increased due to the rapidly expanding size of the Partnership. Net Income Available for Common Units - ------------------------------------- Net income available for common units for the nine months ended September 30, 1996 was $41.3 million compared to net income available for common units of $30.2 million for the nine months - 14 - ended September 30, 1995. This increase results primarily from the operating result fluctuations in rental and service operations and earnings from property sales explained above. LIQUIDITY AND CAPITAL RESOURCES Net cash provided by operating activities totaling $69.0 million and $62.0 million for the nine months ended September 30, 1996 and 1995, respectively, represents the primary source of liquidity to fund distributions to Common Unitholders and the other minority interests and to fund recurring costs associated with the renovation and re-letting of the Partnership's properties. Excluding the impact of the timing of cash receipts and payments related to the Partnership's third-party construction contracts, net cash provided by operating activities increased from $48.4 million for nine months ended September 30, 1995 to $68.5 million for the nine months ended September 30, 1996. This increase is primarily a result of, as discussed above under "Results of Operations," the increase in net income resulting from the expansion of the in-service portfolio through development and acquisitions of additional rental properties. Net cash used by investing activities totaling $202.4 million and $189.2 million for the nine months ended September 30, 1996 and 1995, respectively, represents the investment of funds by the Partnership to expand its portfolio of rental properties through the development and acquisition of additional rental properties net of proceeds received from property sales. During the nine months ended September 30, 1996, the Partnership sold two properties and three parcels of land for net proceeds of $36.7 million. The sale of the John Alden Miami building pursuant to a purchase option accounted for $32.9 million of these proceeds. In 1995, $147.5 million was invested in the development and acquisition of additional rental properties. In 1996, the investment in the development and acquisition of additional rental properties increased to $227.6 million. Included in the $227.6 million of net cash used by investing activities for the development and acquisition of rental properties for the nine months ended September 30, 1996 is $44.9 million related to the acquisition of eight suburban office buildings totaling 782,000 gross square feet in Cleveland, Ohio. The purchase price of these eight buildings was approximately $76 million which included the assumption of $23.1 million of mortgage debt and the issuance of $8.4 million of Limited Partner Units. Net cash provided by financing activities totaling $146.4 million for the nine months ended September 30, 1995 is comprised mainly of the contribution of proceeds from the General Partner's $96.3 million equity offering in May 1995 and a $150 million unsecured debt offering in September 1995 net of distributions to Common Unitholders. In March 1996, the Partnership received a contribution of $125.3 million from the General Partner's 1996 Offering which was used to pay down amounts outstanding on the unsecured line of credit. During the nine months ended September 30, 1996, the Partnership also received a contribution of $3.9 million from the General Partner related to the issuance of common stock under the General Partner's dividend reinvestment and optional stock purchase program. In August 1996, the Partnership received a contribution of $72.3 million from the General Partner's 1996 Preferred Offering. The Partnership used $25.8 million of these proceeds to pay off existing secured debt which was scheduled to mature in the fourth quarter of 1996 and the remainder to fund the development and acquisition of additional rental properties. In July 1996, the Partnership issued $40 million of unsecured debt under its medium- term note program. These notes mature in July 2000 and bear interest at 7.28%. These proceeds were used to fund third quarter development and acquisition activity. - 15 - In April 1995, the Partnership obtained a $100 million unsecured line of credit with a borrowing rate of LIBOR plus 2.00% which matures in April 1998. In January 1996, the Partnership increased the unsecured line of credit to $150 million and reduced the borrowing rate to LIBOR plus 1.625%. In September 1996, the borrowing rate was further reduced to LIBOR plus 1.25%. The Partnership also has a demand $7 million secured revolving credit facility which is available to provide working capital. This facility bears interest payable at the 30-day LIBOR rate plus .75%. The General Partner and the Partnership currently have on file two Form S-3 Registration Statements with the Securities and Exchange Commission ("Shelf Registrations") which had remaining availability as of November 11, 1996 of approximately $470 million to issue common stock, preferred stock or unsecured debt securities. The General Partner and the Partnership intend to issue additional securities under these Shelf Registrations as capital needs arise to fund the development and acquisition of additional rental properties. The total mortgage debt outstanding at September 30, 1996 consists of notes totaling $465.9 million with a weighted average interest rate of 7.70% maturing at various dates through 2014. The Partnership has $202.0 million of unsecured debt and $263.9 million of secured debt outstanding at September 30, 1996. Scheduled principal amortization of such mortgage debt totaled $1.6 million for the nine months ended September 30, 1996. Following is a summary of the scheduled future amortization and maturities of the Partnership's indebtedness at September 30, 1996 (in thousands):
Repayments ------------------------------------------- Weighted Average Scheduled Interest Rate of Year Amortization Maturities Total Future Repayments ---- ------------ ------------- --------- ----------------- 1996 $ 507 $ 40,853 $ 41,360 6.29% 1997 2,303 24,216 26,519 9.15% 1998 2,478 57,216 59,694 7.09% 1999 2,698 - 2,698 8.28% 2000 2,717 44,854 47,571 7.38% 2001 2,378 59,954 62,332 8.72% 2002 2,590 50,000 52,590 7.37% 2003 252 68,216 68,468 8.48% 2004 273 - 273 5.61% 2005 300 100,000 100,300 7.51% Thereafter 4,077 - 4,077 5.61% ------ ------- ------- Total $20,573 $445,309 $465,882 7.70% ====== ======= =======
The 1996 maturities consist of a $33.9 million secured loan which was scheduled to mature in October 1996, as well as the outstanding balance on the Partnership's $7 million demand secured line of credit. The Partnership has extended the $33.9 million loan until April 1997 and intends to refinance the loan prior to April 1997. The Partnership intends to pay regular quarterly distributions from net cash provided by operating activities. A quarterly distribution of $.51 per Common Unit was declared on October 24, 1996 payable on November 29, 1996 to Common Unitholders of record on November 15, 1996, which represents an annualized distribution of $2.04 per Common Unit. A quarterly distribution of $6.6354 per Preferred Unit was declared on October 24, 1996 for the period August 16, 1996 through November 30, 1996 which is payable on December 2, 1996 to Preferred Unitholders of record on November 18, 1996. - 16 - FUNDS FROM OPERATIONS Management believes that Funds From Operations ("FFO"), which is defined by the National Association of Real Estate Investment Trusts as net income or loss excluding gains or losses from debt restructuring and sales of property plus depreciation and amortization, and after adjustments for minority interest, unconsolidated partnerships and joint ventures (adjustments for minority interest, unconsolidated partnerships and joint ventures are calculated to reflect FFO on the same basis), is the industry standard for reporting the operations of real estate investment trusts. The following table reflects the calculation of the Partnership's FFO for the three and nine months ended September 30 as follows (in thousands):
Three months ended Nine months ended September 30, September 30, -------------------- ------------------- 1996 1995 1996 1995 ------ ------ ------ ------ Net income available for common units $15,571 $11,172 $41,296 $30,201 Add back: Depreciation and amortization 6,783 5,981 22,337 16,499 Share of joint venture depreciation and amortization 484 92 1,367 236 (Earnings) loss from property sales 235 - (1,369) - ------ ------ ------ ------- FUNDS FROM OPERATIONS $23,073 $17,245 $63,631 $ 46,936 ====== ====== ====== ======= CASH FLOW PROVIDED BY (USED BY): Operating activities $29,942 $21,210 $ 69,044 $ 62,007 Investing activities (108,819) (74,823) (202,403) (189,244) Financing activities 90,540 77,809 139,581 146,412
The increase in FFO for the three and nine months ended September 30, 1996 compared to the three and nine months ended September 30, 1995 results primarily from the increased in-service rental property portfolio as discussed above under "Results of Operations." In March 1995, NAREIT issued a clarification of its definition of FFO effective for years beginning after December 31, 1995. The clarification provides that amortization of deferred financing costs and depreciation of non-rental real estate assets are no longer to be added back to net income in arriving at FFO. The Partnership adopted these changes effective January 1, 1996, and the calculations of FFO for the three and nine months ended September 30, 1995 have been revised accordingly. The calculations of FFO for the three and nine months ended September 30, 1995 have also been revised to conform with the presentation of FFO for the three and nine months ended September 30, 1996 which exclude amounts attributable to minority interests. While management believes that FFO is the most relevant and widely used measure of the Partnership's operating performance, such amount does not represent cash flow from operations as defined by generally accepted accounting principles, should not be considered as an alternative to net income as an indicator of the Partnership's operating performance, and is not indicative of cash available to fund all cash flow needs. - 17 - PART II - OTHER INFORMATION Item 1. Legal Proceedings - -------------------------- None Item 2. Changes in Securities - ------------------------------ None Item 3. Defaults upon Senior Securities - ------------------------------------------- None Item 4. Submission of Matters to a Vote of Security Holders - -------------------------------------------------------------- None Item 5. Other Information - -------------------------- The statements contained herein which are not historical facts are forward-looking statements based on economic forecasts, budgets and other factors which, by their nature, involve known risks, uncertainties and other factors which may cause the actual results, performance or achievements of Duke Realty Limited Partnership to be materially different from any future results implied by such statements. In particular, among the factors that could cause actual results to differ materially are the following: business conditions and general economy; competitive factors; interest rates and other risks inherent in the real estate business. For further information on factors that could impact the Partnership and the statements contained herein, reference is made to the Partnership's and the General Partner's other filings with the Securities and Exchange Commission. Item 6. Exhibits and Reports on Form 8-K - ----------------------------------------- Exhibit 15. Letter regarding unaudited interim financial information Exhibit 27. Financial Data Schedule (EDGAR Filing Only) - 18 - SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. DUKE REALTY LIMITED PARTNERSHIP - ------------------------------- By: Duke Realth Investments, Inc., General Partner Registrant Date: November 11, 1996 /s/ Thomas L. Hefner ----------------- ---------------------------------- President and Chief Executive Officer /s/ Darell E. Zink, Jr. ---------------------------------- Executive Vice President and Chief Financial Officer /s/ Dennis D. Oklak ---------------------------------- Vice President and Treasurer (Chief Accounting Officer) - 19 - EX-15 2 EXHIBIT 15 Exhibit 15 - ---------- The Partners Duke Realty Limited Partnership: Gentlemen: RE: Registration Statement No. 33-61361 and 333-4695-01 With respect to the subject registration statement, we acknowledge our awareness of the use therein of our report dated October 31, 1996 related to our review of interim financial information. Pursuant to Rule 436(c) under the Securities Act of 1933, such report is not considered a part of a registration statement prepared or certified by an accountant, or a report prepared or certified by an accountant within the meaning of sections 7 and 11 of the Act. KPMG Peat Marwick LLP Indianapolis, Indiana October 31, 1996 EX-27 3 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM DUKE REALTY LIMITED PARTNERSHIP AND SUBSIDIARIES' SEPTEMBER 30, 1996 CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-1995 JAN-01-1996 SEP-30-1996 11,904 0 28,852 (1,444) 0 39,994 1,217,218 (75,071) 1,295,141 62,832 465,882 0 0 0 766,427 1,295,141 0 132,523 67,182 0 1,570 0 22,475 41,296 0 41,296 0 0 0 41,296 $1.31 0
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