-----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, JgdmZKi5XAPqHVWPYShi1z0LGYWTxwgQNcBqJ9zo0nAPaCLufFbpRRusxPqJzcGu e+sB/CLgfi7YKyJYszNQPA== 0000912057-96-009494.txt : 19960515 0000912057-96-009494.hdr.sgml : 19960515 ACCESSION NUMBER: 0000912057-96-009494 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960514 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: DUKE REALTY LIMITED PARTNERSHIP CENTRAL INDEX KEY: 0001003410 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] 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: 96563500 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 /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 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 May 10, 1996 was 3,696,738. DUKE REALTY LIMITED PARTNERSHIP INDEX PART I - FINANCIAL INFORMATION PAGE ---- ITEM 1. FINANCIAL STATEMENTS Condensed Consolidated Balance Sheets as of March 31, 1996 (Unaudited) and December 31, 1995 2 Condensed Consolidated Statements of Operations for the three months ended March 31, 1996 and 1995 (Unaudited) 3 Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 1996 and 1995 (Unaudited) 4 Condensed Consolidated Statement of Partners' Equity for the three months ended March 31, 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 10-16 PART II - OTHER INFORMATION Item 1. Legal Proceedings 17 Item 2. Changes in Securities 17 Item 3. Defaults Upon Senior Securities 17 Item 4. Submission of Matters to a Vote of Security Holders 17 Item 5. Other Information 17 Item 6. Exhibits and Reports of Form 8-K 17 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS DUKE REALTY LIMITED PARTNERSHIP AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
March 31, December 31, ` 1996 1995 -------------- -------------- (Unaudited) ASSETS Real estate investments: Land and improvements $ 104,287 $ 91,550 Buildings and tenant improvements 811,680 712,614 Construction in progress 101,055 96,698 Land held for development 63,939 62,637 ----------- ---------- 1,080,961 963,499 Accumulated depreciation (61,766) (56,335) ----------- ---------- Net real estate investments 1,019,195 907,164 Cash and cash equivalents 11,881 5,682 Accounts receivable from tenants, net of allowance of $593 and $624 5,292 5,184 Accrued straight-line rents, net of allowance of $841 8,878 8,101 Receivables on construction contracts 11,504 9,462 Investments in unconsolidated companies 68,157 67,771 Deferred financing costs, net of accumulated amortization of $2,438 and $2,072 8,057 8,141 Deferred leasing and other costs, net of accumulated amortization of $5,751 and $4,959 21,201 20,609 Escrow deposits and other assets 9,516 14,418 ----------- ---------- $ 1,163,681 $1,046,532 ----------- ---------- ----------- ---------- LIABILITIES AND PARTNERS' EQUITY Indebtedness: Mortgage debt $ 282,354 $ 259,820 Unsecured notes 150,000 150,000 Lines of credit 18,000 45,000 ----------- ---------- 450,354 454,820 Construction payables and amounts due subcontractors 21,828 21,410 Accounts payable 1,633 1,132 Accrued real estate taxes 11,268 10,374 Accrued interest 1,281 3,461 Other accrued expenses 3,630 5,454 Other liabilities 5,086 5,490 Tenant security deposits and prepaid rents 4,624 3,872 ----------- ---------- Total liabilities 499,704 506,013 ----------- ---------- Minority interest 292 298 ----------- ---------- Partners' equity: General partner 647,615 535,783 Limited partners 16,070 4,438 ----------- ---------- Total partners' equity 663,685 540,221 ----------- ---------- $1,163,681 $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 March 31, 1996 1995 ------------- ------------ RENTAL OPERATIONS: Revenues: Rental income $ 35,335 25,112 Equity in earnings of unconsolidated companies 1,202 439 -------- ------- 36,537 25,551 -------- ------- Operating expenses: Rental expenses 7,144 4,884 Real estate taxes 3,208 1,925 Interest expense 7,967 5,145 Depreciation and amortization 7,046 5,592 -------- ------- 25,365 17,546 -------- ------- Earnings from rental operations 11,172 8,005 -------- ------- SERVICE OPERATIONS: Revenues: Property management, maintenance and leasing fees 2,714 2,476 Construction management and development fees 1,317 1,155 Other income 315 204 -------- ------- 4,346 3,835 -------- ------- Operating expenses: Payroll 2,235 1,744 Maintenance 296 236 Office and other 632 436 -------- ------- 3,163 2,416 -------- ------- Earnings from service operations 1,183 1,419 -------- ------- General and administrative expense (921) (831) -------- ------- Operating income 11,434 8,593 OTHER INCOME (EXPENSE): Interest income 344 474 Loss from property sales (14) -- Minority interest in earnings of subsidiaries (187) (193) -------- ------- Net income $11,577 $ 8,874 -------- ------- -------- ------- Net income per unit $ .40 $ .36 -------- ------- -------- ------- Weighted average number of units outstanding 28,686 24,388 -------- ------- -------- -------
See accompanying Notes to Condensed Consolidated Financial Statements - 3 - DUKE REALTY LIMITED PARTNERSHIP AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
THREE MONTHS ENDED MARCH 31, ------------------------------ 1996 1995 ----------- ---------- Cash flows from operating activities: Net income Adjustments to reconcile net income to net $11,577 $ 8,874 cash provided by operating activities: Depreciation of buildings and tenant improvements 5,936 4,641 Amortization of deferred financing costs 285 378 Amortization of deferred leasing and other costs 825 573 Minority interest in earnings of subsidiaries 187 193 Straight-line rent adjustment (831) (687) Loss from property sales 14 -- Construction contracts, net (1,624) 2,328 Other accrued revenues and expenses, net (1,879) (360) Equity in earnings of unconsolidated companies (185) (42) -------- ------- NET CASH PROVIDED BY OPERATING ACTIVITIES 14,305 15,898 -------- ------- Cash flows from investing activities: Proceeds from property sales, net 2,926 -- Rental property development costs (28,752) (15,690) Rental property recurring building improvements (32) (65) Acquisition of rental properties (55,038) (16,680) Acquisition of undeveloped land (408) (474) Recurring tenant improvements (1,762) (885) Recurring leasing costs (632) (285) Other deferred costs and other assets 4,048 (857) Net investment in and advances to unconsolidated companies (215) (40) -------- ------- NET CASH USED BY INVESTING ACTIVITIES (79,865) (34,976) -------- ------- Cash flows from financing activities: Contributions from general partner 113,835 -- Proceeds from indebtedness 74,000 52 Payments on indebtedness (101,532) (1,755) Distributions to partners (14,069) (11,461) Distributions to minority interest (193) (251) Deferred financing costs (282) (129) -------- ------- NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 71,759 (13,544) -------- ------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 6,199 (32,622) -------- ------- Cash and cash equivalents at beginning of period 5,682 40,427 -------- ------- Cash and cash equivalents at end of period $11,881 $ 7,805 -------- ------- -------- -------
See accompanying Notes to Condensed Consolidated Financial Statements - 4 - DUKE REALTY LIMITED PARTNERSHIP AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF PARTNERS' EQUITY FOR THE THREE MONTHS ENDED MARCH 31, 1996 (IN THOUSANDS) (UNAUDITED)
GENERAL LIMITED PARTNER PARTNERS TOTAL --------- --------- ------- Balance at December 31, 1995 $535,783 $ 4,438 $540,221 Net income 9,792 1,785 11,577 Capital contribution from Duke Realty Investments, Inc. 113,875 -- 113,875 Acquisition of property in exchange for limited partnership interest -- 12,081 12,081 Distributions to partners (11,835) (2,234) (14,069) -------- -------- -------- Balance at March 31, 1996 $647,615 $ 16,070 $663,685 -------- -------- -------- -------- -------- -------- Units outstanding at March 31, 1996 28,153 4,558 32,711 -------- -------- -------- -------- -------- --------
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. 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 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 units of limited partnership interest ("Limited Partner Units") (together with the units of general partner interests, the ("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. On September 29, 1994, the General Partner issued an additional 3,887,300 shares of Common Stock through an additional offering ("1994 Offering") and received net proceeds of $92.1 million. These proceeds were contributed to the Partnership in exchange for additional Units and were used by the Partnership to fund development and acquisition costs of additional rental properties. - 6 - On May 23, 1995, the General Partner issued an additional 3,727,500 shares of Common Stock through another offering ("1995 Offering") and received net proceeds of approximately $96.3 million. The proceeds of the 1995 Offering were contributed to the Partnership in exchange for additional Units and were used by the Partnership to fund development and acquisition of additional rental properties. On September 22, 1995, the Partnership issued $150 million of unsecured notes through a debt offering ("Debt Offering"). A portion of the proceeds of the Debt Offering was used to reduce amounts outstanding on its unsecured line of credit and other mortgage debt and to fund development and acquisition of additional rental properties. On March 29, 1996, the General Partner issued an additional 4,000,000 shares of Common Stock through an additional offering ("1996 Offering") and received net proceeds of approximately $113.8 million. The General Partner contributed these proceeds to the Partnership in exchange for additional Units. These proceeds were used by the Partnership to pay down its unsecured line of credit which had been used to fund current development and acquisition costs. 2. LINES OF CREDIT The Partnership has a $150 million unsecured revolving credit facility which is available to fund current development costs and 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 1.625%. 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%. Outstanding borrowings as of March 31, 1996 under the $150 million and $7 million credit facilities were $11 million and $7 million, respectively. 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 $681,000 and $656,000 for such services for the three months ended March 31, 1996 and 1995, respectively. Management believes the terms for such 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. - 7 - 5. SUBSEQUENT EVENTS On April 4, 1996, the General Partner issued an additional 400,000 shares of Common Stock in connection with the 1996 Offering related to the exercise of the Underwriters' over-allotment option. The net proceeds of $11.4 million were contributed to the Partnership and were used to pay down the balance on the Partnership's unsecured revolving line of credit. On April 25, 1996, a quarterly distribution of $.49 per Unit was declared payable on May 31, 1996, to Unitholders of record on May 17, 1996. - 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 March 31, 1996, the related condensed consolidated statements of operations and cash flows for the three months ended March 31, 1996 and 1995, and the related statement of partners' equity for the three months ended March 31, 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 review 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 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 April 19, 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 portfolios 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 compared to other regions of the United States 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 overall occupancy rate of its in-service portfolio has exceeded 93% the last two years and was at 93.6% at March 31, 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 March 31, 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 2,970 2,051 13.32% 14.20% 94.60% 96.04% Bulk 12,154 7,039 54.51% 48.74% 92.33% 94.08% OFFICE Suburban 4,685 3,090 21.01% 21.40% 96.26% 90.68% CBD 699 698 3.14% 4.83% 93.62% 87.29% Medical 333 198 1.49% 1.37% 89.64% 98.71% RETAIL 1,456 1,366 6.53% 9.46% 93.73% 96.78% ------ ------ ------ ------ ----- ----- Total 22,297 14,442 100.00% 100.00% 93.55% 93.62% ------ ------ ------ ------ ----- ----- ------ ------ ------ ------ ----- -----
- 10 - RESULTS OF OPERATIONS Following is a summary of the Partnership's operating results and property statistics for the three months ended March 31, 1996 and 1995 (in thousands, except number of properties and per Unit amounts):
1996 1995 ---- ---- Rental Operations revenue $36,537 $25,551 Service Operations revenue 4,346 3,835 Earnings from Rental Operations 11,172 8,005 Earnings from Service Operations 1,183 1,419 Operating income 11,434 8,593 Net income $11,577 $ 8,874 Weighted average units outstanding 28,686 24,388 Net income per unit $ 0.40 $ 0.36 Number of in-service properties at end of period 215 136 In-service square footage at end of period 22,297 14,442 Under development square footage at end of period 2,891 2,991
COMPARISON OF THREE MONTHS ENDED MARCH 31, 1996 TO THREE MONTHS ENDED MARCH 31, 1995 RENTAL OPERATIONS The Partnership increased its in-service portfolio of rental properties from 136 properties comprising 14.4 million square feet at March 31, 1995 to 215 properties comprising 22.3 million square feet at March 31, 1996 through the acquisition of 65 properties totaling 5.1 million square feet and the placement in service of 18 properties and three building expansions totaling 3.3 million square feet developed by the Partnership. The Partnership also disposed of four properties totaling 603,000 square feet. These 79 net additional rental properties primarily account for the $11.0 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 79 in-service rental properties. The increase in equity in earnings of unconsolidated companies is due to the formation of a large 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. 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 $2.8 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) fund development and acquisition of additional rental properties during the fourth quarter of 1995. - 11 - As a result of the above-mentioned items, earnings from rental operations increased $3.2 million from $8.0 million for the three months ended March 31, 1995 to $11.2 million for the three months ended March 31, 1996. Management expects occupancy of the in-service property portfolio to remain stable because (i) only 8.7% and 8.4% 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 65%, 73% and 65% in 1995, 1994 and 1993, respectively. The following table reflects the Partnership's lease expiration schedule as of March 31, 1996, including properties under development, by product type indicating square footage and annualized net effective rents under expiring leases (in thousands):
INDUSTRIAL OFFICE RETAIL TOTAL --------------- -------------- -------------- --------------- YEAR OF SQUARE SQUARE SQUARE SQUARE EXPIRATION FEET DOLLARS FEET DOLLARS FEET DOLLARS FEET DOLLARS - ---------- ------ ------- ------ -------- ------ ------- ------ --------- 1996 1,656 $ 5,598 344 $ 3,356 54 $ 548 2,054 $ 9,502 1997 1,275 5,852 619 6,729 74 822 1,968 13,403 1998 2,356 8,957 652 6,934 113 1,187 3,121 17,078 1999 1,938 8,147 709 7,643 111 1,115 2,758 16,905 2000 1,865 8,289 644 8,024 123 1,383 2,632 17,696 2001 1,910 7,325 484 5,160 86 953 2,480 13,438 2002 217 963 640 6,647 88 784 945 8,394 2003 55 555 146 1,819 37 328 238 2,702 2004 857 3,260 89 1,042 13 126 959 4,428 2005 703 2,557 491 6,290 173 1,479 1,367 10,326 Thereafter 2,613 7,890 1,421 19,026 967 6,970 5,001 33,886 ------ ------- ----- ------- ----- ------- ------ -------- Total Leased 15,445 $59,393 6,239 $72,670 1,839 $15,695 23,523 $147,758 ------ ------- ----- ------- ----- ------- ------ -------- ------ ------- ----- ------- ----- ------- ------ -------- Total Portfolio 16,653 6,559 1,975 25,188 ------ ----- ----- ------ ------ ----- ----- ------ Annualized net effective rent per square foot $ 3.84 $ 11.65 $ 8.53 $ 6.28 ------- ------- ------- ------- ------- ------- ------- -------
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 placement in-service of the 2.9 million square feet of properties under development at March 31, 1996 over the next six quarters; (ii) the development and acquisition of additional rental properties in its primary markets; and (iii) the expansion into other attractive Midwestern markets. SERVICE OPERATIONS Service Operation revenues increased from $3.8 million to $4.3 million for the three months ended March 31, 1996 as compared to the three months ended March 31, 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 operating expenses increased from $2.4 million to $3.2 million for the three months ended March 31, 1996 as compared to the three months ended March 31, 1995 primarily as a result of (i) an increase in operating expenses resulting from the overall growth of the Partnership and (ii) a decrease in costs allocated to the Rental Operations segment because of a reduction in development and leasing activity in the Partnership's owned properties for the quarter. - 12 - As a result of the above-mentioned items, earnings from Service Operations decreased by approximately $236,000 for the three months ended March 31, 1996 as compared to the three months ended March 31, 1995. OTHER INCOME (EXPENSE) Interest income decreased from $474,000 for the three months ended March 31, 1995 to $344,000 for the three months ended March 31, 1996 primarily as a result of the temporary short-term investment of excess proceeds from the 1994 Offering which resulted in approximately $40 million of cash on hand at December 31, 1994. NET INCOME Net income for the three months ended March 31, 1996 was $11.6 million compared to net income of $8.9 million for the three months ended March 31, 1995. This increase results primarily from the operating result fluctuations in rental and service operations explained above. LIQUIDITY AND CAPITAL RESOURCES Net cash provided by operating activities totaling $14.3 million and $15.9 million for the three months ended March 31, 1996 and 1995, respectively, represents the primary source of liquidity to fund distributions to Unitholders and the other minority interests and to fund recurring costs associated with the renovation and re-letting of the Partnership's properties. The primary reason for the decrease in net cash provided by operating activities is the timing of cash receipts and payments related to the Partnership's third-party construction contracts. Excluding the impact of these construction contracts, net cash provided by operating activities increased from $13.6 million for three months ended March 31, 1995 to $15.9 million for the three months ended March 31, 1996. This increase is primarily due to, 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 $79.9 million and $35.0 million for the three months ended March 31, 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. In 1995, $32.4 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 $83.8 million. Included in the $83.8 million of net cash used by investing activities for the development and acquisition of rental properties is $53.3 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. The buildings were 99% leased in the aggregate and are primarily located in a prime submarket on Cleveland's southside which has a vacancy rate of less than 5%. The acquisition included the purchase of the operations of an established Cleveland property management and development company that allowed the Partnership to immediately have a presence in the market. This acquisition positions the Partnership to immediately pursue additional industrial and suburban office development and acquisition opportunities in Cleveland. Also included in net cash provided by investing activities for the three months ended March 31, 1996 is the receipt of approximately $4.9 million of escrow deposits related to one of the Partnership's mortgage loans. - 13 - Net cash used by financing activities totaling $13.5 million for the three months ended March 31, 1995, is comprised mainly of distributions to Unitholders. In 1996, the General Partner received $113.8 million from the 1996 Offering. These proceeds were contributed to the Partnership in exchange for additional Units and were used to pay down amounts outstanding on the unsecured line of credit. In March 1994, the Partnership obtained a $60 million secured credit facility which was available to fund development and acquisition of additional rental properties and to provide working capital as needed. In April 1995, the Partnership replaced the secured line of credit with a $100 million unsecured line of credit 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%. There were $11 million of borrowings outstanding under this line of credit as of March 31, 1996. 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 current 30-day LIBOR rate as of April 22, 1996 was 5.4375%. The General Partner and the Partnership currently have on file a Form S-3 Registration Statement with the Securities and Exchange Commission ("Shelf Registration") which has remaining availability as of March 31, 1996 of approximately $210 million to issue additional common stock, preferred stock or unsecured debt securities. The General Partner and the Partnership intend to issue additional securities under such Shelf Registration as capital needs arise to fund the development and acquisition of additional rental properties. The total debt outstanding at March 31, 1996 consists of notes totaling $450.4 million with a weighted average interest rate of 7.51% maturing at various dates through 2018. Scheduled principal amortization of such debt totaled $532,000 for the three months ended March 31, 1996. Following is a summary of the scheduled future amortization and maturities of the Partnership's indebtedness (in thousands):
REPAYMENTS ----------------------------------- WEIGHTED AVERAGE SCHEDULED INTEREST RATE OF YEAR AMORTIZATION MATURITIES TOTAL FUTURE REPAYMENTS - ---- ------------ ---------- ----- ----------------- 1996 $ 1,614 $ 66,619 $ 68,233 5.39% 1997 2,282 22,841 25,123 9.14% 1998 2,478 56,216 58,694 7.10% 1999 2,698 -- 2,698 8.26% 2000 2,717 4,854 7,571 7.87% 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 5.20% 2005 300 100,000 100,300 7.51% Thereafter 4,072 -- 4,072 5.20% ------- -------- -------- Total $21,654 $428,700 $450,354 ------- -------- -------- ------- -------- --------
The 1996 maturities consist of $59.6 million of borrowings which mature in October through December as well as $7.0 million drawn on the Partnership's demand secured revolving credit facility. The Partnership currently intends to repay this mortgage debt through the issuance of either common or preferred equity by the General Partner or unsecured debt securities by the Partnership available under its Shelf Registration. The Partnership estimates that if unsecured debt securities are issued, based on current market interest rates, the rate on such debt would increase by approximately 2.6%. Of the 1998 maturities, $11 million represents the outstanding balance as of March 31, 1996 on the Partnership's unsecured line of credit. - 14 - The Partnership intends to pay regular quarterly distributions from net cash provided by operating activities. A quarterly distribution of $.49 per Unit was declared on April 25, 1996 payable on May 31, 1996 to Unitholders of record on May 17, 1996, which represents an annualized distribution of $1.96 per Unit. 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 months ended March 31, as follows (in thousands):
1996 1995 ------- ------- Net income $11,577 $ 8,874 Add back: Depreciation and amortization 6,761 5,213 Share of joint venture depreciation and amortization 440 73 Loss on property sales 14 -- ------- ------- FUNDS FROM OPERATIONS $18,792 $14,160 ------- ------- ------- ------- CASH FLOW PROVIDED BY (USED BY): Operating activities $14,305 $15,898 Investing activities (79,865) (34,976) Financing activities 71,759 (13,544)
The increase in FFO for the three months ended March 31, 1996 compared to the three months ended March 31, 1995 results primarily from the increased in- service rental property portfolio as discussed above under "Results of Operations." The following table indicates components of such growth for each of the three months ended March 31, as follows (in thousands):
1996 1995 ------- ------- Rental operations: Original portfolio $15,050 $15,029 Development 4,249 1,757 Acquisitions 5,796 1,568 Investments in unconsolidated companies 1,642 511 Interest expense (7,967) (5,145) Amortization of deferred financing fees (285) (379) ------- ------- Net rental operations 18,485 13,341 Service operations, net of minority interest 984 1,212 Other, net (677) (393) ------- ------- FUNDS FROM OPERATIONS $18,792 $14,160 ------- ------- ------- -------
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 calculation of FFO for the three months ended March 31, 1995 has been revised accordingly. - 15 - The calculation of FFO for the three months ended March 31, 1995 has also been revised to conform with the presentation of FFO for the three months ended March 31, 1996 which excludes 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. - 16 - PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS None TEM 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, strategic plans and other factors which, by their nature, involve risk and uncertainties. In particular, among the factors that could cause actual results to differ materially are the following: business conditions and general economy; competitive factors; political decisions affecting land use permits, interest rates and other risks inherent in the real estate business. For further information on factors which could impact the Partnership and the statements, 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 A report on Form 8-K dated January 12, 1996, as amended on March 22, 1996 on Form 8-K/A, was filed with the Commission to report under Item 5 the formation of a joint venture on December 28, 1995 with an institutional real estate investor. A report on Form 8-K dated March 5, 1996, as amended on March 22, 1996 on Form 8-K/A, was filed with the Commission to report under Item 5 the acquisition of eight suburban office buildings and the operations of an established property management and development company in Cleveland, Ohio. Exhibit 15. Letter regarding unaudited interim financial information Exhibit 27. Financial Data Schedule (EDGAR Filing Only) - 17 - 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 Realty Investments, Inc., General Partner Registrant Date: May 14, 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) - 18 - EX-15 2 EXHIBIT 15 Exhibit 15 The Partners Duke Realty Limited Partnership: Gentlemen: RE: Registration Statement No. 33-61361 With respect to the subject registration statement, we acknowledge our awareness of the use therein of our report dated April 19, 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 April 19, 1996 EX-27 3 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM DUKE REALTY LIMITED PARTNERSHIP AND SUBSIDIARIES' MARCH 31, 1996 CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-1995 JAN-01-1996 MAR-31-1996 11,881 0 27,108 (1,434) 0 38,193 1,080,961 (61,766) 1,163,681 49,350 450,354 0 0 0 663,685 1,163,681 0 41,213 21,482 0 187 0 7,967 11,577 0 11,577 0 0 0 11,577 .40 0
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