-----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, LU5Uf9XKvLrj5pT2c7qiZm7k2cB2vfKwdL3k29w6/chGlDNELsQey7jGcvW63Jgf 3U511sYyXIhaQfSI6DmXwQ== 0001003410-96-000007.txt : 19960813 0001003410-96-000007.hdr.sgml : 19960813 ACCESSION NUMBER: 0001003410-96-000007 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960812 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: 96608571 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 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 June 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 August 9, 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 June 30, 1996 (Unaudited) and December 31, 1995 2 Condensed Consolidated Statements of Operations for the three and six months ended June 30, 1996 and 1995 (Unaudited) 3 Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 1996 and 1995 (Unaudited) 4 Condensed Consolidated Statement of Partners' Equity for the six months ended June 30, 1996 (Unaudited) 5 Notes to Condensed Consolidated Financial Statements (Unaudited) 6-7 Independent Accountants' Review Report 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 9-17 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 of Form 8-K 18 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS DUKE REALTY LIMITED PARTNERSHIP AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
June 30, December 31, 1996 1995 ----------- ------------ (Unaudited) ASSETS - ------- Real estate investments: Land and improvements $ 109,618 $ 91,550 Buildings and tenant improvements 848,128 712,614 Construction in progress 86,618 96,698 Land held for development 65,744 62,637 --------- --------- 1,110,108 963,499 Accumulated depreciation (69,250) (56,335) --------- --------- Net real estate investments 1,040,858 907,164 Cash and cash equivalents 274 5,682 Accounts receivable from tenants, net of allowance of $554 and $624 4,163 5,184 Accrued straight-line rents, net of allowance of $841 9,204 8,101 Receivables on construction contracts 12,367 9,462 Investments in unconsolidated companies 73,164 67,771 Deferred financing costs, net of accumulated amortization of $2,838 and $2,072 7,919 8,141 Deferred leasing and other costs, net of accumulated amortization of $6,614 and $4,959 20,438 20,609 Escrow deposits and other assets 10,382 14,418 --------- --------- $1,178,769 $1,046,532 ========= ========= LIABILITIES AND PARTNERS' EQUITY - -------------------------------- Indebtedness: Mortgage debt $ 281,856 $ 259,820 Unsecured notes 150,000 150,000 Lines of credit - 45,000 ---------- --------- 431,856 454,820 Construction payables and amounts due subcontractors 21,054 21,410 Accounts payable 3,783 1,132 Accrued real estate taxes 10,949 10,374 Accrued interest 3,422 3,461 Other accrued expenses 3,767 5,454 Other liabilities 7,663 5,490 Tenant security deposits and prepaid rents 4,362 3,872 ---------- --------- Total liabilities 486,856 506,013 ---------- --------- Minority interest 495 298 ---------- --------- Partners' equity: General partner 679,134 535,783 Limited partners 12,284 4,438 ---------- --------- Total partners' equity 691,418 540,221 ---------- --------- $1,178,769 $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 Six months ended June 30, June 30, ------------------- ---------------- 1996 1995 1996 1995 ------ ------ ------ ------- RENTAL OPERATIONS: Revenues: Rental income $36,379 $26,663 $71,714 $51,775 Equity in earnings of unconsolidated companies 1,345 31 2,547 470 ------ ------ ------ ------ 37,724 26,694 74,261 52,245 ------ ------ ------ ------ Operating expenses: Rental expenses 6,737 4,660 13,881 9,544 Real estate taxes 3,299 2,365 6,507 4,290 Interest expense 6,650 4,908 14,617 10,053 Depreciation and amortization 9,111 5,511 16,157 11,103 ------ ------ ------ ------ 25,797 17,444 51,162 34,990 ------ ------ ------ ------ Earnings from rental operations 11,927 9,250 23,099 17,255 ------ ------ ------ ------ SERVICE OPERATIONS: Revenues: Property management, maintenance and leasing fees 2,948 2,780 5,662 5,256 Construction management and development fees 1,836 1,300 3,153 2,455 Other income 353 240 668 444 ------ ------ ------ ------ 5,137 4,320 9,483 8,155 ------ ------ ------ ------ Operating expenses: Payroll 2,382 1,900 4,617 3,644 Maintenance 421 310 717 546 Office and other 707 532 1,339 968 ------ ------ ------ ------ 3,510 2,742 6,673 5,158 ------ ------ ------ ------ Earnings from service operations 1,627 1,578 2,810 2,997 ------ ------ ------ ------ General and administrative expense (1,043) (812) (1,964) (1,643) ------- ------ ------- ------- Operating income 12,511 10,016 23,945 18,609 OTHER INCOME (EXPENSE): Interest income 264 376 608 850 Earnings from property sales 1,618 - 1,604 - Minority interest in earnings of subsidiaries (243) (237) (430) (430) ------ ------ ------ ------ Net income $14,150 $10,155 $25,727 $19,029 ====== ====== ====== ====== Net income per unit $ .43 $ .39 $ .83 $ .75 ====== ====== ====== ====== Weighted average number of units outstanding 33,011 26,113 30,848 25,255 ====== ====== ====== ======
See accompanying Notes to Condensed Consolidated Financial Statements - 3 - DUKE REALTY LIMITED PARTNERSHIP AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
Six months ended June 30, ----------------------- 1996 1995 ------- ------ Cash flows from operating activities: Net income $25,727 $19,029 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation of buildings and tenant improvements 13,839 9,337 Amortization of deferred financing costs 603 584 Amortization of deferred leasing and other costs 1,715 1,182 Minority interest in earnings of subsidiaries 430 430 Straight-line rent adjustment (1,544) (1,264) Earnings from property sales (1,618) - Construction contracts, net (3,261) 11,443 Other accrued revenues and expenses, net 3,713 (114) Equity in earnings in excess of distri- butions received from unconsolidated companies (468) (73) ------ ------- NET CASH PROVIDED BY OPERATING ACTIVITIES 39,136 40,554 ------ ------- Cash flows from investing activities: Proceeds from property sales, net 35,482 38 Rental property development costs (60,452) (56,238) Rental property recurring building improvements (219) (186) Acquisition of rental properties (65,426) (42,058) Acquisition of undeveloped land and infrastructure costs (6,832) (7,150) Recurring tenant improvements (3,092) (2,089) Recurring leasing costs (1,385) (925) Other deferred costs and other assets 1,814 (3,274) Distributions received from unconsolidated companies 6,935 - Net investment in and advances to uncon- solidated companies (409) (2,539) ------- ------- NET CASH USED BY INVESTING ACTIVITIES (93,584) (114,421) ------- ------- Cash flows from financing activities: Contributions from general partner 126,083 82,273 Proceeds from indebtedness - 51 Payments on indebtedness (46,030) (2,699) Distributions to partners (30,237) (23,071) Distributions to minority interest (233) (458) Deferred financing costs (543) (1,555) ------- ------- NET CASH PROVIDED BY FINANCING ACTIVITIES 49,040 54,541 ------- ------- NET DECREASE IN CASH AND CASH EQUIVALENTS (5,408) (19,326) ------- ------- Cash and cash equivalents at beginning of period 5,682 40,427 ------- ------ Cash and cash equivalents at end of period $ 274 $21,101 ======= ======
See accompanying Notes to Condensed Consolidated Financial Statements - 4 - DUKE REALTY LIMITED PARTNERSHIP AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF PARTNERS' EQUITY FOR THE SIX MONTHS ENDED JUNE 30, 1996 (IN THOUSANDS) (UNAUDITED)
General Limited Partner Partners Total ------- -------- --------- Balance at December 31, 1995 $535,783 $ 4,438 $540,221 Net income 22,241 3,486 25,727 Acquisition of additional limited partnership interest by Duke Realty Investments, Inc. 21,141 - 21,141 Capital contribution from Duke Realty Investments, Inc. 126,160 - 126,160 Acquisition of property in exchange for limited partnership interest - 8,406 8,406 Distributions to partners (26,191) (4,046) (30,237) ------- ------ ------- Balance at June 30, 1996 $679,134 $12,284 $691,418 ======= ====== ======= Units outstanding at June 30, 1996 29,320 3,697 33,017 ======= ====== =======
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 March 29, 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") and received net proceeds of approximately $125.3 million. During the second quarter 1996, the General Partner implemented a direct stock purchase and dividend reinvestment plan and - 6 - received $829,000 of net proceeds from the sale of 28,315 additional shares of Common Stock. The General Partner contributed these combined 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. In April 1996, as a result of Unitholders exchanging their 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 724,453 shares of Common Stock for a like number of 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 $21.1 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 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 1.50%. 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%. There were no outstanding borrowings under these facilities as of June 30, 1996. 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 $1.6 million and $1.3 million for such services for the six months ended June 30, 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. 5. SUBSEQUENT EVENTS On July 25, 1996, a quarterly distribution of $.51 per Unit was declared payable on August 30, 1996, to Unitholders of record on August 16, 1996. In July 1996, the Partnership issued $40 million of unsecured debt at an interest rate of 7.28%. This debt matures in July 2000 and the proceeds were used to retire amounts outstanding on the Partnership's lines of credit. - 7 - 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 June 30, 1996, the related condensed consolidated statements of operations for the three and six months ended June 30, 1996 and 1995, the related condensed consolidated statements of cash flows for the six months ended June 30, 1996 and 1995, and the related condensed consolidated statement of partners' equity for the six months ended June 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 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 August 5, 1996 - 8 - 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 92% at June 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 June 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 2,971 2,167 12.80% 14.28% 93.62% 94.02% Bulk 12,926 7,151 55.67% 47.14% 90.50% 96.82% OFFICE Suburban 4,684 3,588 20.17% 23.65% 97.12% 93.92% CBD 699 699 3.01% 4.61% 81.29% 90.49% Medical 333 198 1.43% 1.31% 90.26% 98.71% RETAIL 1,606 1,366 6.92% 9.01% 92.98% 95.14% ------ ------ ------- ------- ------ ------ Total 23,219 15,169 100.00% 100.00% 92.13% 95.32% ====== ====== ======= ======= ====== ======
The decrease in occupancy from 1995 to 1996 can be attributed to the scheduled lease expiration of a 90,000 square foot tenant in a downtown Cincinnati office building and a recently acquired 358,000 square foot industrial facility that was unoccupied at June 30, 1996. In July 1996, the Partnership re-leased approximately 204,000 square feet of such industrial facility. - 9 - Management expects occupancy of the in-service property portfolio to remain stable because (i) only 5.1% and 8.5% 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 June 30, 1996, including properties under development, 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 Sq. Sq. Sq. Sq. Exp. Feet Dollars Feet Dollars Feet Dollars Feet Dollars ---- ------ ------- ------ ------- ------ ------- ------ -------- 1996 1,005 $ 4,279 196 $ 1,836 26 $ 250 1,227 $ 6,365 1997 1,311 5,889 638 6,877 77 843 2,026 13,609 1998 2,270 8,544 651 6,894 111 1,162 3,032 16,600 1999 1,953 8,213 737 7,998 115 1,159 2,805 17,370 2000 1,871 7,320 654 8,193 119 1,359 2,644 16,872 2001 2,335 8,961 556 5,869 92 1,026 2,983 15,856 2002 321 1,379 651 6,896 88 784 1,060 9,059 2003 105 814 150 1,815 36 328 291 2,957 2004 865 3,322 89 1,043 13 126 967 4,491 2005 703 2,557 496 6,313 173 1,479 1,372 10,349 There- after 3,247 10,398 1,211 15,808 1,036 7,708 5,494 33,914 ------ ------ ----- ------- ----- ------ ------ ------- Total Leased 15,986 $61,676 6,029 $69,542 1,886 $16,224 23,901 $147,442 ====== ====== ===== ====== ===== ====== ====== ======= Total Port- folio 18,069 6,498 2,051 26,618 ====== ===== ===== ====== Annualized net effective rent per square foot $ 3.86 $ 11.53 $ 8.60 $ 6.17 ====== ====== ====== =======
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 completion of the 3.4 million square feet of properties under development at June 30, 1996 over the next five quarters; (ii) the development and acquisition of additional rental properties in its primary markets; and (iii) the expansion into other attractive Midwestern markets. RESULTS OF OPERATIONS --------------------- Following is a summary of the Partnership's operating results and property statistics for the three and six months ended June 30, 1996 and 1995 (in thousands, except number of properties and per unit amounts):
Three months ended Six months ended June 30, June 30, -------------------- ----------------- 1996 1995 1996 1995 ------ -------- -------- ------- Rental Operations revenue $37,724 $26,694 $74,261 $52,245 Service Operations revenue 5,137 4,320 9,483 8,155 Earnings from Rental Operations 11,927 9,250 23,099 17,255 Earnings from Service Operations 1,627 1,578 2,810 2,997 Operating income 12,511 10,016 23,945 18,609 Net income $14,150 $10,155 $25,727 $19,029 Weighted average units outstanding 33,011 26,113 30,848 25,255 Net income per unit $ 0.43 $ 0.39 $ 0.83 $ 0.75 Number of in-service properties at end of period 220 144 220 144 In-service square footage at end of period 23,219 15,169 23,219 15,169 Under development square footage at end of period 3,400 3,382 3,400 3,382
- 10 - COMPARISON OF THREE MONTHS ENDED JUNE 30, 1996 TO THREE MONTHS -------------------------------------------------------------- ENDED JUNE 30, 1995 ------------------- Rental Operations ----------------- The Partnership increased its in-service portfolio of rental properties from 144 properties comprising 15.2 million square feet at June 30, 1995 to 220 properties comprising 23.2 million square feet at June 30, 1996 through the acquisition of 60 properties totaling 4.9 million square feet and the completion of 18 properties and two building expansions totaling 3.4 million square feet developed by the Partnership. The Partnership also disposed of two properties totaling 226,000 square feet. These 76 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 76 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 $1.8 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)and to fund development and acquisition of additional rental properties during the fourth quarter of 1995. As a result of the above-mentioned items, earnings from rental operations increased $2.7 million from $9.2 million for the three months ended June 30, 1995 to $11.9 million for the three months ended June 30, 1996. Service Operations ------------------ Service Operation revenues increased from $4.3 million to $5.1 million for the three months ended June 30, 1996 as compared to the three months ended June 30, 1995 primarily as a result of increases in leasing fee revenue and construction management fee revenue because of an increase in construction volume. - 11 - Service Operation operating expenses increased from $2.7 million to $3.5 million for the three months ended June 30, 1996 as compared to the three months ended June 30, 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. As a result of the above-mentioned items, earnings from Service Operations remained stable at approximately $1.6 million for the three months ended June 30, 1996 and 1995. Other Income (Expense) ---------------------- Interest income decreased from $376,000 for the three months ended June 30, 1995 to $264,000 for the three months ended June 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 which resulted in approximately $35 million of excess cash being invested through June 30, 1995. During the three months ended June 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 $1.6 million on the sale. Proceeds from this sale are being reinvested in new developments and acquisitions in the Partnership's core markets. Net Income ---------- Net income for the three months ended June 30, 1996 was $14.2 million compared to net income of $10.2 million for the three months ended June 30, 1995. This increase results primarily from the operating result fluctuations in rental and service operations and earnings from property sales explained above. COMPARISON OF SIX MONTHS ENDED JUNE 30, 1996 TO SIX MONTHS ENDED ---------------------------------------------------------------- JUNE 30, 1995 ------------- Rental Operations ----------------- The expansion of the in-service rental property portfolio by 76 additional rental properties from June 30, 1995 to June 30, 1996 primarily accounts for the $22.1 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 76 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. - 12 - Interest expense increased by approximately $4.5 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 $5.8 million from $17.3 million for the six months ended June 30, 1995 to $23.1 million for the six months ended June 30, 1996. Service Operations ------------------ Service Operation revenues increased from $8.2 million to $9.5 million for the six months ended June 30, 1996 as compared to the six months ended June 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 $5.2 million to $6.7 million for the six months ended June 30, 1996 as compared to the six months ended June 30, 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 six months ended June 30, 1996. As a result of the above-mentioned items, earnings from Service Operations decreased slightly from $3.0 million to $2.8 million for the six months ended June 30, 1995 and 1996, respectively. Other Income (Expense) --------------------- Interest income decreased from $850,000 for the six months ended June 30, 1995 to $608,000 for the six months ended June 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 which resulted in approximately $35 million of excess cash being invested through June 30, 1995. During the six months ended June 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 $1.6 million on the sale. Net Income ---------- Net income for the six months ended June 30, 1996 was $25.7 million compared to net income of $19.0 million for the six months ended June 30, 1995. This increase results primarily from the operating result fluctuations in rental and service operations and earnings from property sales explained above. - 13 - LIQUIDITY AND CAPITAL RESOURCES Net cash provided by operating activities totaling $39.1 million and $40.6 million for the six months ended June 30, 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 $29.2 million for six months ended June 30, 1995 to $42.4 million for the six months ended June 30, 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 $93.6 million and $114.4 million for the six months ended June 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 earnings from property sales. During the six months ended June 30, 1996, the Partnership sold two properties and a small parcel of land for net proceeds of $35.5 million. The sale of the John Alden Miami building accounted for $32.9 million of these proceeds. In 1995, $98.2 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 $125.9 million. Included in the $125.9 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 partnership 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 six months ended June 30, 1996 is the receipt of approximately $4.9 million of escrow deposits related to one of the Partnership's mortgage loans classified as net cash provided from other deferred costs and other assets. Net cash provided by financing activities totaling $68.6 million for the six months ended June 30, 1995 is comprised mainly of the contribution of proceeds from the General Partner's equity offering in May 1995 net of distributions to Unitholders. In 1996, the Partnership received the contribution of $126.1 million from the General Partner's 1996 Offering and the dividend reinvestment plan which was 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%. In July 1996, the borrowing rate was further reduced to LIBOR plus 1.50% as a result of an increase in the Partnership's investment grade debt rating from Moody's Rating Agency. 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%. - 14 - 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 have remaining availability as of June 30, 1996 of approximately $635 million to issue additional 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 debt outstanding at June 30, 1996 consists of notes totaling $431.9 million with a weighted average interest rate of 7.55% maturing at various dates through 2018. The Partnership has $150 million of unsecured debt and $281.9 million of secured debt outstanding at June 30, 1996. Scheduled principal amortization of such debt totaled $1.0 million for the six months ended June 30, 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 $ 1,116 $ 59,619 60,735 5.28% 1997 2,282 22,841 25,123 9.14% 1998 2,478 45,216 47,694 7.13% 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% There- after 4,072 - 4,072 5.20% ------ ------- ------- Total $21,156 $410,700 $431,856 ====== ======= =======
The 1996 maturities consist of $59.6 million of secured notes which mature in October through December. The Partnership currently intends to repay this mortgage debt through the issuance of unsecured debt securities available under its Shelf Registrations. 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 2.0%. The Partnership intends to pay regular quarterly distributions from net cash provided by operating activities. A quarterly distribution of $.51 per Unit was declared on July 25, 1996 payable on August 30, 1996 to Unitholders of record on August 16, 1996, which represents an annualized distribution of $2.04 per Unit. - 15 - 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 six months ended June 30 as follows (in thousands):
Three months ended Six months ended June 30, June 30, ------------------- ------------------ 1996 1995 1996 1995 ------ ------ ------ ------ Net income $14,150 $10,155 $25,727 $19,029 Add back: Depreciation and amortization 8,793 5,305 15,554 10,518 Share of joint venture depreciation and amortization 443 71 883 144 Earnings from property sales (1,618) - (1,604) - ------ ------ ------ ------ Funds From Operations $21,768 $15,531 $40,560 $29,691 ====== ====== ====== ====== Cash flow provided by (used by): Operating activities $24,633 $24,905 $39,102 $ 40,797 Investing activities (13,719) (79,456) (93,584) (114,421) Financing activities (22,718) 82,158 49,041 68,603
The increase in FFO for the three and six months ended June 30, 1996 compared to the three and six months ended June 30, 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 and six months ended June 30 as follows (in thousands):
Three months ended Six months ended June 30, June 30, -------------------- ---------------- 1996 1995 1996 1995 ------ ------ ------ ------ Rental operations: Original portfolio $15,497 $14,787 $30,547 $29,816 Development 4,290 2,371 8,539 4,128 Acquisitions 6,857 2,576 12,653 4,144 Investments in unconsolidated companies 1,788 102 3,430 613 Interest expense (6,650) (4,908) (14,617) (10,053) Amortization of deferred financing fees (318) (206) (603) (585) ------ ------ ------ ------ Net rental operations 21,464 14,722 39,949 28,063 Service operations, net of minority interest 1,365 1,326 2,349 2,537 Other, net (1,061) (517) (1,738) (909) ------ ------ ------ ------ FUNDS FROM OPERATIONS $21,768 $15,531 $40,560 $29,691 ====== ====== ====== ======
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 six months ended June 30, 1995 has been revised accordingly. - 16 - The calculations of FFO for the three and six months ended June 30, 1995 have also been revised to conform with the presentation of FFO for the three and six months ended June 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 which 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 Realty Investments, Inc., General Partner Registrant Date: August 9, 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 August 5, 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 August 5, 1996 EX-27 3 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM DUKE REALTY LIMITED PARTNERSHIP AND SUBSIDIARIES' JUNE 30, 1996 CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS DEC-31-1995 JAN-01-1996 JUN-30-1996 274 0 27,129 (1,395) 0 27,186 1,110,108 (69,250) 1,178,769 55,495 431,856 0 0 0 691,418 1,178,769 0 85,956 45,182 0 430 0 14,617 25,727 0 25,727 0 0 0 25,727 $0.83 0
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