-----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, Ldnd50ARVuYICmosxQOc6ZsCI/3SUGVq8ZbXBDp2ZxKWwpQJj16kNz0JcI831suM LqMWdENlO0nddKYRdJsjtQ== 0000783280-98-000044.txt : 19980814 0000783280-98-000044.hdr.sgml : 19980814 ACCESSION NUMBER: 0000783280-98-000044 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980813 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: DUKE REALTY INVESTMENTS INC CENTRAL INDEX KEY: 0000783280 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 351740409 STATE OF INCORPORATION: IN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-09044 FILM NUMBER: 98686517 BUSINESS ADDRESS: STREET 1: 8888 KEYSTONE CROSSING STE 1200 CITY: INDIANAPOLIS STATE: IN ZIP: 46240 BUSINESS PHONE: 3175743531 10-Q 1 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 June 30, 1998 ------------- 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: 1-9044 ------ DUKE REALTY INVESTMENTS, INC. State of Incorporation: IRS Employer ID Number: Indiana 35-1740409 - ----------------------- ----------------------- 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 Common Shares outstanding as of August 7, 1998 was 81,010,289 ($.01 par value). DUKE REALTY INVESTMENTS, INC. INDEX PART I - FINANCIAL INFORMATION PAGE - ------------------------------ ---- ITEM 1. FINANCIAL STATEMENTS Condensed Consolidated Balance Sheets as of June 30, 1998 (Unaudited) and December 31, 1997 2 Condensed Consolidated Statements of Operations for the three and six months ended June 30, 1998 and 1997 (Unaudited) 3 Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 1998 and 1997 (Unaudited) 4 Condensed Consolidated Statement of Shareholders' Equity for the six months ended June 30, 1998 (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 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 18 Item 6. Exhibits and Reports on Form 8-K 18 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS DUKE REALTY INVESTMENTS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
JUNE 30, December 31, ASSETS 1998 1997 ------ ----------- ------------ (UNAUDITED) Real estate investments: Land and improvements $ 271,079 $ 231,614 Buildings and tenant improvements 1,890,930 1,591,604 Construction in progress 102,455 107,242 Investments in unconsolidated companies 125,771 106,450 Land held for development 145,905 139,817 ---------- ---------- 2,536,140 2,176,727 Accumulated depreciation (146,350) (116,264) ---------- ---------- Net real estate investments 2,389,790 2,060,463 Cash 22,379 10,353 Accounts receivable from tenants, net of allowance of $511 and $420 6,898 5,932 Straight-line rent receivable, net of allowance of $841 17,874 14,746 Receivables on construction contracts 17,161 22,700 Deferred financing costs, net of accumulated amortization of $10,720 and $9,101 11,847 12,386 Deferred leasing and other costs, net of accumulated amortization of $12,828 and $9,251 42,060 34,369 Escrow deposits and other assets 22,792 15,265 --------- --------- $2,530,801 $2,176,214 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY - ------------------------------------ Indebtedness: Secured debt $ 363,584 $ 367,119 Unsecured notes 590,000 340,000 Unsecured line of credit - 13,000 --------- --------- 953,584 720,119 Construction payables and amounts due subcontractors 33,062 40,786 Accounts payable 5,413 1,342 Accrued expenses: Real estate taxes 28,775 25,203 Interest 9,245 6,883 Other 15,038 13,848 Other liabilities 17,270 11,720 Tenant security deposits and prepaid rents 18,242 14,268 ---------- --------- Total liabilities 1,080,629 834,169 ---------- --------- Minority interest 109,224 107,364 ---------- --------- Shareholders' equity: Preferred shares and paid-in capital ($.01 par value); 5,000 shares authorized: 9.10% Series A, 300 shares issued and outstanding (liquidation preference of $75,000) 72,288 72,288 7.99% Series B, 300 shares issued and outstanding (liquidation preference of $150,000) 146,050 146,050 Common shares and paid-in capital ($.01 par value); 150,000 shares authorized; 80,970 and 76,065 shares issued and outstanding 1,181,230 1,071,990 Distributions in excess of net income (58,620) (55,647) --------- --------- Total shareholders' equity 1,340,948 1,234,681 --------- --------- $2,530,801 $2,176,214 ========= =========
See accompanying Notes to Condensed Consolidated Financial Statements - 2 - DUKE REALTY INVESTMENTS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
Three months ended Six months ended June 30, June 30, ------------------ ----------------- 1998 1997 1998 1997 ---- ---- ---- ---- RENTAL OPERATIONS: Revenues: Rental income $ 80,503 $ 49,802 $ 157,338 $ 98,860 Equity in earnings of unconsolidated companies 2,576 1,784 5,417 3,644 ------ ------ ------- ------- 83,079 51,586 162,755 102,504 ------ ------ ------- ------- Operating expenses: Rental expenses 13,839 8,793 27,684 18,022 Real estate taxes 8,053 4,673 15,887 9,115 Interest expense 14,346 9,695 27,225 18,641 Depreciation and amortization 16,525 10,052 30,785 19,551 ------ ------ ------- ------- 52,763 33,213 101,581 65,329 ------ ------ ------- ------- Earnings from rental operations 30,316 18,373 61,174 37,175 ------ ------ ------- ------ SERVICE OPERATIONS: Revenues: Property management, maintenance and leasing fees 3,597 3,214 6,634 5,855 Construction management and development fees 3,131 1,645 4,690 2,711 Other income 294 270 598 502 ------ ------- ------ ------ 7,022 5,129 11,922 9,068 ------ ------ ------- ------ Operating expenses: Payroll 3,804 2,545 6,687 4,885 Maintenance 594 528 1,198 916 Office and other 804 344 1,322 1,093 ------- ------- ------- ------- 5,202 3,417 9,207 6,894 ------- ------- ------- ------- Earnings from service operations 1,820 1,712 2,715 2,174 ------- ------- ------- ------- General and administrative expense (3,103) (1,574) (5,443) (2,890) ------- ------- ------- ------- Operating income 29,033 18,511 58,446 36,459 OTHER INCOME (EXPENSE): Interest income 400 177 589 427 Earnings from property sales 368 102 954 382 Other expense (30) (376) (61) (419) Minority interest in earnings of unitholders (2,956) (1,572) (6,148) (3,330) Other minority interest in earnings of subsidiaries (254) (440) (254) (425) -------- -------- ------- ------- Net income 26,561 16,402 53,526 33,094 Dividends on preferred shares (4,703) (1,706) (9,406) (3,412) ------- -------- ------- ------- Net income available for common shares $21,858 $14,696 $44,120 $29,682 ====== ====== ====== ====== Net income per common share: Basic $ .27 $ .23 $ .56 $ .48 ====== ====== ====== ====== Diluted $ .27 $ .23 $ .56 $ .48 ====== ====== ====== ====== Weighted average number of common shares outstanding 80,080 63,168 78,376 62,400 ====== ====== ====== ====== Weighted average number of common and dilutive potential common shares 91,830 70,576 90,222 70,081 ====== ====== ====== ======
See accompanying Notes to Condensed Consolidated Financial Statements - 3 - DUKE REALTY INVESTMENTS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, (IN THOUSANDS) (UNAUDITED)
1998 1997 ------ ------ Cash flows from operating activities: Net income $53,526 $33,094 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation of buildings and tenant improvements 27,385 17,241 Amortization of deferred financing costs 656 690 Amortization of deferred leasing and other costs 3,400 2,310 Minority interest in earnings 6,402 3,755 Straight-line rental income (3,107) (1,642) Earnings from property sales (954) (382) Construction contracts, net (2,185) 13,918 Other accrued revenues and expenses, net 18,559 5,524 Equity in earnings in excess of distributions received from unconsolidated companies (3,371) (3,046) ------ ------ NET CASH PROVIDED BY OPERATING ACTIVITIES 100,311 71,462 ------- ------ Cash flows from investing activities: Rental property development costs (101,464) (79,808) Acquisition of real estate investments (194,703) (44,434) Acquisition of land held for development and infrastructure costs (19,377) (29,068) Recurring costs: Tenant improvements (5,216) (4,259) Leasing commissions (2,528) (2,431) Building improvements (894) (337) Other deferred leasing costs (8,049) (6,429) Other deferred costs and other assets (7,769) (985) Proceeds from property sales, net 3,980 23,025 Net investment in and advances to unconsolidated companies (15,468) (30,681) -------- -------- NET CASH USED BY INVESTING ACTIVITIES (351,488) (175,407) --------- -------- Cash flows from financing activities: Proceeds from issuance of common shares, net 102,912 63,684 Payments on indebtedness including principal amortization (5,730) (1,458) Proceeds from indebtedness 250,000 - Borrowings (repayments) on lines of credit, net (20,000) 79,000 Distributions to common shareholders (47,093) (31,911) Distributions to preferred shareholders (9,406) (3,412) Distributions to minority interest (6,741) (3,900) Deferred financing costs (739) (285) --------- ------- NET CASH PROVIDED BY FINANCING ACTIVITIES 263,203 101,718 --------- ------- NET INCREASE (DECREASE) IN CASH 12,026 (2,227) Cash and cash equivalents at beginning of period 10,353 5,334 -------- ------- Cash and cash equivalents at end of period $22,379 $3,107 ====== =====
See accompanying Notes to Condensed Consolidated Financial Statements - 4 - DUKE REALTY INVESTMENTS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY FOR THE SIX MONTHS ENDED JUNE 30, 1998 (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
Preferred Common Shares Shares Distributions and Paid-in and Paid-in in Excess of Capital Capital Net Income Total ------------ ----------- -------------- ----- BALANCE AT DECEMBER 31, 1997 $ 218,338 $1,071,990 $(55,647) $1,234,681 Net income - - 53,526 53,526 Issuance of common shares, net of underwriting discounts and offering costs of $4,924 - 103,536 - 103,536 Acquisition of minority interest - 5,704 - 5,704 Distributions to common shareholders ($.60 per common share) - - (47,093) (47,093) Distributions to preferred shareholders - - (9,406) (9,406) ------- --------- ------- -------- BALANCE AT JUNE 30, 1998 $218,338 $1,181,230 $(58,620) $1,340,948 ======= ========= ======= =========
See accompanying Notes to Condensed Consolidated Financial Statements - 5 - DUKE REALTY INVESTMENTS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. FINANCIAL STATEMENTS The interim condensed consolidated financial statements included herein have been prepared by Duke Realty Investments, Inc. (the "Company") 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 Company's Annual Report to Shareholders. THE COMPANY The Company's rental operations are conducted through Duke Realty Limited Partnership ("DRLP"), of which the Company owns 88.2% at June 30, 1998. The remaining interests in DRLP ("Limited Partner Units") are exchangeable for shares of the Company's common stock on a one-for-one basis. In addition, the Company conducts operations through Duke Realty Services Limited Partnership and Duke Construction Limited Partnership, in which the Company's wholly-owned subsidiary, Duke Services, Inc., is the sole general partner. The consolidated financial statements include the accounts of the Company and its majority-owned or controlled subsidiaries. The equity interests in these majority-owned or controlled subsidiaries not owned by the Company are reflected as minority interests in the consolidated financial statements. 2. LINES OF CREDIT The Company has a $250 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 2001 and bears interest at the 30-day London Interbank Offered Rate ("LIBOR") plus .80%. The Company also has a demand $7 million secured revolving credit facility which is available to provide working capital. This facility bears interest at the 30- day LIBOR rate plus .65%. 3. RELATED PARTY TRANSACTIONS The Company provides property management, maintenance, leasing, construction, and other tenant related services to properties in which certain executive officers have continuing ownership interests. The Company was paid fees totaling $1.1 million and $1.7 million for such services for the six months ended June 30, 1998 and 1997, respectively. Management believes the terms for such services are equivalent to those available in the market. The Company 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. -6- 4. NET INCOME PER COMMON SHARE Basic net income per common share is computed by dividing net income available for common shares by the weighted average number of common shares outstanding for the period. Diluted net income per share is computed by dividing the sum of net income available for common shares and minority interest in earnings of unitholders, by the sum of the weighted average number of common shares and dilutive potential common shares outstanding for the period. The following table reconciles the components of basic and diluted net income per common share for the three and six months ended June 30:
Three Months Ended Six Months Ended ------------------ ---------------- June 30, June 30, ------------------ ---------------- 1998 1997 1998 1997 ---- ----- ---- ---- Basic net income available for common shares $21,858 $14,696 $44,120 $29,682 Minority interest in earnings of unitholders 2,956 1,572 6,148 3,330 ------ ------ ------ ------- Diluted net income available for common shares and dilutive potential shares $24,814 $16,268 $50,268 $33,012 ====== ====== ====== ====== Weighted average number of common shares outstanding 80,080 63,168 78,376 62,400 Weighted average partnership units outstanding 10,850 6,686 10,923 6,908 Dilutive shares for long-term compensation plans 900 722 923 773 ------- ------ ------ ------ Weighted average number of common shares and dilutive potential common shares 91,830 70,576 90,222 70,081 ====== ====== ====== ======
5. SUBSEQUENT EVENTS On July 23, 1998, the Board of Directors declared a dividend of $.34 per share of common stock which is payable on August 31, 1998, to common shareholders of record on August 14, 1998. On July 23, 1998, the Board of Directors declared a dividend of $.56875 per depositary share on the Series A Cumulative Redeemable Preferred Shares which is payable on August 31, 1998 to preferred shareholders of record on August 17, 1998. Each depositary share represents one-tenth of a share of the Company's 9.10% Series A preferred shares. On July 23, 1998, the Board of Directors declared a dividend of $.99875 per depositary share on the Series B Cumulative Step-up Redeemable Preferred Shares. The dividend is payable on September 30, 1998 to preferred shareholders of record on September 16, 1998. Each depositary share represents one-tenth of a share of the Company's 7.99% Series B Preferred Shares. - 7 - INDEPENDENT ACCOUNTANTS' REVIEW REPORT -------------------------------------- The Board of Directors DUKE REALTY INVESTMENTS, INC.: We have reviewed the condensed consolidated balance sheet of Duke Realty Investments, Inc. and subsidiaries as of June 30, 1998, the related condensed consolidated statements of operations for the three and six months ended June 30, 1998 and 1997, the related condensed consolidated statements of cash flows for the six months ended June 30,1998 and 1997, and the related condensed consolidated statement of shareholders' equity for the six months ended June 30, 1998. These condensed consolidated financial statements are the responsibility of the Company'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 Investments, Inc. and subsidiaries as of December 31, 1997, and the related consolidated statements of operations and cash flows for the year then ended (not presented herein); and in our report dated January 28, 1998, 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, 1997 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, 1998 - 8 - ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW -------- The Company'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 Company's rental space in its primary markets. In addition, the Company's continued growth is dependent upon its ability to maintain occupancy rates and increase rental rates of its in-service portfolio and to continue development and acquisition of additional rental properties. The Company'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 Company's occupancy rate of its in-service portfolio has exceeded 94% the last two years. The Company 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 Company's results of operations from its in-service properties. The Company'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 Company's in-service portfolio of rental properties as of June 30, 1998 and 1997 (in thousands, except percentages):
Total Percent of Square Feet Total Square Feet Percent Occupied -------------- ------------------- ---------------- Type 1998 1997 1998 1997 1998 1997 ---- ---- ---- ---- ---- ---- ---- INDUSTRIAL Service Centers 5,296 3,051 10.98% 9.71% 93.58% 94.93% Bulk 28,368 18,702 58.83 59.55 93.69% 95.64% OFFICE Suburban 11,819 7,244 24.51 23.07 96.21% 96.80% CBD 699 699 1.45 2.23 92.67% 91.09% RETAIL 2,041 1,710 4.23 5.44 95.67% 95.15% ------- ------ ------- ------- Total 48,223 31,406 100.00% 100.00% 94.37% 95.71% ====== ====== ====== ======
Management expects occupancy of the in-service property portfolio to remain stable because (i) only 5.3% and 11.8% of the Company's occupied square footage is subject to leases expiring in the remainder of 1998 and in 1999, respectively, and (ii) the Company's renewal percentage averaged 81%, 80% and 65% in 1997, 1996 and 1995, respectively. - 9 - The following table reflects the Company's in-service portfolio lease expiration schedule as of June 30, 1998 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 Portfolio ------------- --------------- ------------- ------------------ Yr. of Sq. Sq. Sq. Sq. Exp. Ft. Rent Ft. Rent Ft. Rent Ft. Rent - ------- ----- ---- ---- ---- ---- ---- ---- ----- 1998 1,737 $ 7,346 637 $ 7,095 19 $ 212 2,393 $ 14,653 1999 3,814 16,265 1,476 16,213 113 1,177 5,403 33,655 2000 2,976 12,655 1,166 14,638 128 1,555 4,270 28,848 2001 3,527 14,444 1,653 20,079 90 1,076 5,270 35,599 2002 4,110 17,080 1,562 17,996 153 1,684 5,825 36,760 2003 2,751 11,972 1,012 12,852 109 1,223 3,872 26,047 2004 1,364 5,646 357 4,501 17 178 1,738 10,325 2005 2,698 8,573 964 13,407 176 1,513 3,838 23,493 2006 2,122 7,793 711 10,344 8 108 2,841 18,245 2007 2,352 7,687 571 7,887 76 760 2,999 16,334 2008 and Thereafter 4,113 14,472 1,933 26,585 1,126 9,405 7,172 50,462 ------ ------- ------ ------- ----- ------ ------ ------- Total Leased 31,564 $123,933 12,042 $151,597 2,015 $18,891 45,621 $294,421 ====== ======= ====== ======= ===== ====== ====== ======= Total Portfolio Square Feet 33,664 12,518 2,041 48,223 ====== ====== ===== ====== Annualized net effective rent per square foot $ 3.93 $ 12.59 $ 9.38 $ 6.45 ======= ===== ====== =======
This stable occupancy, along with increasing rental rates in each of the Company's markets, will allow the in-service portfolio to continue to provide a comparable or increasing level of earnings from rental operations. The Company 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 4.2 million square feet of properties under development at June 30, 1998 over the next four quarters. The 4.2 million square feet of properties under development is expected to provide future earnings from rental operations growth for the Company 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 ------------- ---------- --------- --------- ----------- 3rd Quarter 1998 609 57% $ 47,467 11.6% 4th Quarter 1998 1, 621 33% 89,484 11.7% 1st Quarter 1999 1, 269 27% 70,589 11.1% Thereafter 650 75% 74,523 11.0% ----- ------- 4,149 41% $282,063 11.3% ===== =======
-10- RESULTS OF OPERATIONS --------------------- Following is a summary of the Company's operating results and property statistics for the three and six months ended June 30, 1998 and 1997 (in thousands, except number of properties and per share amounts):
Three months ended Six months ended June 30, June 30, --------------------- -------------------- 1998 1997 1998 1997 -------- -------- -------- -------- Rental Operations revenue $83,079 $51,586 $162,755 $102,504 Service Operations revenue 7,022 5,129 11,922 9,068 Earnings from Rental Operations 30,316 18,373 61,174 37,175 Earnings from Service Operations 1,820 1,712 2,715 2,174 Operating income 29,033 18,511 58,446 36,459 Net income available for common shares $21,858 $14,696 $44,120 $29,682 Weighted average common shares outstanding 80,080 63,168 78,376 62,400 Weighted average common and dilutive potential common shares 91,830 70,576 90,222 70,081 Basic income per common share $ 0.27 $ 0.23 $ 0.56 $ 0.48 Diluted income per common share $ 0.27 $ 0.23 $ 0.56 $ 0.48 Number of in-service properties at end of period 419 262 419 262 In-service square footage at end of period 48,223 31,406 48,223 31,406 Under development square footage at end of period 4,149 4,097 4,149 4,097
COMPARISON OF THREE MONTHS ENDED JUNE 30, 1998 TO THREE MONTHS ENDED --------------------------------------------------------------------- JUNE 30, 1997 -------------- Rental Operations ----------------- The Company increased its in-service portfolio of rental properties from 262 properties comprising 31.4 million square feet at June 30, 1997 to 419 properties comprising 48.2 million square feet at June 30, 1998 through the acquisition of 124 properties totaling 10.1 million square feet and the completion of 37 properties and 3 building expansions totaling 7.0 million square feet developed by the Company. The Company also disposed of 4 properties totaling approximately 300,000 square feet. These 157 net additional rental properties primarily account for the $31.5 million increase in revenues from Rental Operations from 1997 to 1998. The increase from 1997 to 1998 in rental expenses, real estate taxes and depreciation and amortization expense is also a result of the additional 157 in-service rental properties. Interest expense increased by approximately $4.6 million from $9.7 million for the three months ended June 30, 1997 to $14.3 million for the three months ended June 30, 1998 primarily due to additional unsecured debt issued in the third quarter of 1997 and the first two quarters of 1998 to fund the development and acquisition of additional rental properties. As a result of the above-mentioned items, earnings from rental operations increased $11.9 million from $18.4 million for the three months ended June 30, 1997 to $30.3 million for the three months ended June 30, 1998. Service Operations ------------------ Service Operations revenues increased to $7.0 million for the three months ended June 30, 1998 as compared to $5.1 million for the three months ended June 30, 1997 primarily as a result of increases in construction management fee revenue because of an increase in third-party construction volume. -11- Service Operations operating expenses increased from $3.4 million to $5.2 million for the three months ended June 30, 1998 as compared to the three months ended June 30, 1997 primarily as a result of an increase in construction activity and the overall growth of the Company. As a result of the above-mentioned items, earnings from Service Operations increased from $1.7 million for the three months ended June 30, 1997 to $1.8 million for the three months ended June 30, 1998. General and Administrative Expense ----------------------------------- General and administrative expense increased from $1.6 million for the three months ended June 30, 1997 to $3.1 million for the three months ended June 30, 1998 primarily as a result of internal acquisition costs which are no longer permitted to be capitalized being charged to general and administrative expense as well as an increase in state and local income taxes resulting from the overall growth of the Company. Other Income (Expense) ---------------------- Interest income increased from $177,000 for the three months ended June 30, 1997 to $400,000 for the three months ended June 30, 1998 primarily as a result of interest income which was earned on short-term investments during the three months ended June 30, 1998. Other expense consists of costs incurred during the pursuit of various build-to-suit development projects or the acquisition of real estate assets. During the three months ended June 30, 1997, approximately $312,000 of costs were expensed in connection with the decision to abandon the acquisition of a large real estate portfolio. Net Income Available for Common Shares --------------------------------------- Net income available for common shares for the three months ended June 30, 1998 was $21.9 million compared to net income available for common shares of $14.7 million for the three months ended June 30, 1997. This increase results primarily from the operating result fluctuations in rental and service operations explained above. COMPARISON OF SIX MONTHS ENDED JUNE 30, 1998 TO SIX MONTHS ENDED --------------------------------------------------------------------- JUNE 30, 1997 -------------- Rental Operations ------------------ The Company increased its in-service portfolio of rental properties from 262 properties comprising 31.4 million square feet at June 30, 1997 to 419 properties comprising 48.2 million square feet at June 30, 1998 through the acquisition of 124 properties totaling 10.1 million square feet and the completion of 37 properties and 3 building expansions totaling 7.0 million square feet developed by the Company. The Company also disposed of 4 properties totaling approximately 300,000 square feet. These 157 net additional rental properties primarily account for the $60.3 million increase in revenues from Rental Operations from 1997 to 1998. The Company received approximately $4.0 million of lease termination payments which are included in rental income for the six months ended June 30, 1998. Included in rental income for the six months ended June 30, 1997 are approximately $1.7 of million lease termination payments. The increase from 1997 to 1998 in rental expenses, real estate taxes and depreciation and amortization expense is also a result of the additional 157 in-service rental properties. -12- Interest expense increased by approximately $8.6 million from $18.6 million for the six months ended June 30, 1997 to $27.2 million for the six months ended June 30, 1998 primarily due to additional unsecured debt issued in the third quarter of 1997 and the first two quarters of 1998 to fund the development and acquisition of additional rental properties. As a result of the above-mentioned items, earnings from rental operations increased $24.0 million from $37.2 million for the six months ended June 30, 1997 to $61.2 million for the six months ended June 30, 1998. Service Operations ------------------- Service Operations revenues increased to $11.9 million for the six months ended June 30, 1998 as compared to $9.1 million for the six months ended June 30, 1997 primarily as a result of increases in construction management fee revenue because of an increase in third-party construction volume. Service Operations operating expenses increased from $6.9 million to $9.2 million for the six months ended June 30, 1998 as compared to the six months ended June 30, 1997 primarily as a result of an increase in construction activity and the overall growth of the Company. As a result of the above-mentioned items, earnings from Service Operations increased from $2.2 million for the six months ended June 30, 1997 to $2.7 million for the six months ended June 30, 1998. General and Administrative Expense ---------------------------------- General and administrative expense increased from $2.9 million for the six months ended June 30, 1997 to $5.4 million for the six months ended June 30, 1998 primarily as a result of internal acquisition costs which are no longer permitted to be capitalized being charged to general and administrative expense as well as an increase in state and local income taxes resulting from the overall growth of the Company. Other Income (Expense) ---------------------- Interest income increased from $427,000 for the six months ended June 30, 1997 to $589,000 for the six months ended June 30, 1998 primarily as a result of interest income which was earned on short-term investments during the six months ended June 30, 1998. Other expense consists of costs incurred in pursuit of unsuccessful development or acquisition opportunities. During the six months ended June 30, 1997, approximately $312,000 of costs were written off in connection with the decision to terminate the pursuit of the acquisition of a large real estate portfolio. Net Income Available for Common Shares -------------------------------------- Net income available for common shares for the six months ended June 30, 1998 was $44.1 million compared to net income available for common shares of $29.7 million for the six months ended June 30, 1997. This increase results primarily from the operating result fluctuations in rental and service operations explained above. -13- LIQUIDITY AND CAPITAL RESOURCES Net cash provided by operating activities totaling $100.3 million and $71.5 million for the six months ended June 30, 1998 and 1997, respectively, represents the primary source of liquidity to fund distributions to shareholders, unitholders and the other minority interests and to fund recurring costs associated with the renovation and re-letting of the Company's properties. 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 $351.5 million and $175.4 million for the six months ended June 30, 1998 and 1997, respectively, represents the investment of funds by the Company to expand its portfolio of rental properties through the development and acquisition of additional rental properties. In 1998, $315.5 million was invested in the development and acquisition of additional rental properties and the acquisition of land held for development. In 1997, the investment in the development and acquisition of additional rental properties and land held for development was $153.3 million. Included in the $315.5 million of net cash used by investing activities for the development and acquisition of rental properties for the six months ended June 30, 1998 are acquisitions of five portfolios consisting of twenty-one industrial buildings and fifteen office buildings. Net cash provided by financing activities totaling $263.2 million and $101.7 million for the six months ended June 30, 1998 and 1997, respectively, represents funds from equity and debt offerings and borrowings under the lines of credit to fund the Company's investing activities. Also included in financing activities is the distribution of funds to shareholders and minority interests. In January 1997, the Company received $56.7 million of net proceeds from a common equity offering which was used to pay down amounts outstanding on the unsecured line of credit and to fund current development activity. In 1998, the Company received $86.8 million of net proceeds from common equity offerings which was used to pay down amounts outstanding on the unsecured line of credit and to fund current development and acquisition activity. During the six months ended June 30, 1998, the Company received $13.8 million of net proceeds from the issuance of common stock under its Direct Stock Purchase and Dividend Reinvestment Plan compared to $7.0 million of net proceeds received under the Direct Stock Purchase and Dividend Reinvestment Plan during the first six months of 1997. In the first quarter of 1998, the Company received $100.0 million of net proceeds from the offering of 7.05% Puttable Reset Securities due March 1, 2006. In the second quarter of 1998, the Company received $100.0 million of proceeds from the offering of 6.75% Senior Notes due May 30, 2008. The Company also received $50.0 million in proceeds from the issuance of 7.25% notes under the Company's medium-term note program. The Company has a $250 million unsecured line of credit which matures in April 2001 and bears interest at the 30-day LIBOR rate plus .80%. The Company also has a demand $7 million secured revolving credit facility which is available to provide working capital. This facility bears interest at the 30-day LIBOR rate plus .65%. The Company currently has on file Form S-3 Registration Statements with the Securities and Exchange Commission ("Shelf Registrations") which had remaining availability as of July 30, 1998 -14- of approximately $1.2 billion to issue common stock, preferred stock or unsecured debt securities. The Company intends to issue additional equity or debt 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, 1998 consists of notes totaling $953.6 million with a weighted average interest rate of 7.40% maturing at various dates through 2028. The Company has $590.0 million of unsecured debt and $363.6 million of secured debt outstanding at June 30, 1998. Scheduled principal amortization of such debt totaled $3.4 million for the six months ended June 30, 1998. Following is a summary of the scheduled future amortization and maturities of the Company's indebtedness at June 30, 1998 (in thousands):
Repayments ---------------------------------------- Weighted Average Scheduled Interest Rate of Year Amortization Maturities Total Future Repayments ---- ------------- ---------- ------ ------------------ 1998 $ 3,524 $ 40,603 $ 44,127 7.13% 1999 5,905 30,450 36,355 6.69% 2000 6,288 64,850 71,138 7.14% 2001 5,954 74,560 80,514 8.31% 2002 6,462 50,000 56,462 7.39% 2003 4,519 66,141 70,660 8.46% 2004 3,509 177,035 180,544 7.41% 2005 3,800 100,000 103,800 7.49% 2006 4,117 100,000 104,117 7.07% 2007 3,653 14,939 18,592 7.75% Thereafter 37,275 150,000 187,275 6.89% ------ ------- ------- Total $85,006 $868,578 $953,584 7.40% ====== ======= =======
The Company intends to pay regular quarterly dividends from net cash provided by operating activities. A quarterly dividend of $.34 per Common Share was declared on July 23, 1998 payable on August 31, 1998 to shareholders of record on August 14, 1998, which represents an annualized dividend of $1.36 per share. A quarterly dividend of $.56875 per depositary share of Series A Preferred Shares was declared on July 23, 1998 which is payable on August 31, 1998 to preferred shareholders of record on August 17, 1998. A quarterly dividend of $.99875 per depositary share on the Series B Cumulative Step-Up Redeemable Preferred Shares was declared on July 23, 1998 which is payable on September 30, 1998 to preferred shareholders of record on September 16, 1998. 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. -15- The following table reflects the calculation of the Company'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, ------------------ ------------------ 1998 1997 1998 1997 -------- -------- -------- -------- Net income available for common shares $ 21,858 $ 14,696 $ 44,120 $ 29,682 Add back: Depreciation and amortization 16,525 10,052 30,785 19,551 Share of joint venture adjustments 968 791 1,550 1,314 Earnings from property sales (368) (102) (954) (382) Minority interest share of add-backs (2,050) (1,031) (3,838) (2,042) -------- -------- -------- -------- FUNDS FROM OPERATIONS $ 36,933 $ 24,406 $ 71,663 $ 48,123 ======== ======== ======== ======== CASH FLOW PROVIDED BY (USED BY): Operating activities $ 61,260 $ 42,489 $ 100,311 $ 71,462 Investing activities (242,439) (134,244) (351,488) (175,407) Financing activities 174,389 81,865 263,203 101,718
The increase in FFO for the six months ended June 30, 1998 compared to the six months ended June 30, 1997 results primarily from the increased in-service rental property portfolio as discussed above under "Results of Operations." While management believes that FFO is the most relevant and widely used measure of the Company'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 Company's operating performance, and is not indicative of cash available to fund all cash flow needs. RECENTLY ENACTED ACCOUNTING PRONOUNCEMENTS In March 1998, the Emerging Issues Task Force of the Financial Accounting Standards Board reached a consensus on Issue No. 97-11 "Accounting for Internal Costs Relating to Real Estate Property Acquisitions" which requires the internal cost of pre-acquisition activities incurred in connection with the acquisition of an operating property be expensed as incurred. During the first three months of 1998, prior to adopting Issue No. 97-11, the Company capitalized approximately $275,000 of internal costs of pre-acquisition activities which under Issue 97-11 would have been expensed. YEAR 2000 The Company recognizes that the Year 2000 problem could effect its operations as well as the proper functioning of the embedded systems included in the Company's properties. In any particular property, the problem could effect the functioning of elevators, heating and air conditioning systems, security systems and other automated building systems. The Company has begun to evaluate the Year 2000 readiness of its operations and those of its properties, through identifying and contacting suppliers of building systems and other critical business partners to determine if the building systems are affected and whether these entities have an effective plan in place to address the Year 2000 issue. The Company is also in the process of evaluating its own systems to determine the impact of the Year 2000. The Company expects to complete this process of inventorying and evaluating its and its properties systems by September 1, 1998, and the process is currently approximately 80% completed. Thereafter the Company will develop a work plan detailing the tasks and resources required to ready its and its properties' operations and systems for the Year 2000. This work plan will likely include a timetable - 16 - for remediation and testing of systems, as well as contingency plans if readiness cannot be achieved. In addition, in many cases the Company will be relying on statements from outside vendors as to the Year 2000 readiness of their systems, and will not, in most circumstances, attempt any independent verification. Because the Company is still in the preliminary stages of its work to address the Year 2000 problem, it currently does not have complete estimates as to the cost of achieving Year 2000 readiness and has not yet developed any contingency plans. Based on the preliminary information received to date, however, the Company currently expects that these costs will not be material. The Company expects to pass on most of the costs to achieve Year 2000 readiness in any particular property to the tenants, and will otherwise expense the costs as incurred. There can be no assurance that the Company will be able to identify and correct all aspects of the Year 2000 problem that effect it in sufficient time, that it will develop adequate contingency plans or that the costs of achieving Year 2000 readiness will not be material. The Company, however, does not currently expect the Year 2000 problem will have a material impact on the Company's business, operations, or financial condition. 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 ------------------------------------------------------------ At the annual meeting of the shareholders of the Company held on April 23, 1998, the following matters received the following votes: -17-
MATTER DESCRIPTION VOTES FOR VOTES AGAINST ABSTAINING ------------------ ------------- ------------- ---------- 1. Election of Directors: Geoffrey Button 64,800,462 - 545,771 John D. Peterson 64,813,928 - 532,305 Ngaire E. Cuneo 64,811,460 - 534,773 Darell E. Zink, Jr. 64,815,528 - 530,705 2. Proposal to approve amendment to Articles of Incorporation 63,971,813 1,205,897 168,523 3. Proposal to approve amendment to the 1995 Stock Option Plan 63,944,439 1,117,027 284,767 4. Proposal to approve amendment to the 1995 Dividend Increase Unit Plan 64,177,635 867,152 301,446
Item 5. Other Information -------------------------- When used in this Form 10-Q, the words "believes," "expects," "estimates" and similar expressions are intended to identify forward looking-statements. Such statements are subject to certain risks and uncertainties which could cause actual results to differ materially. In particular, among the factors that could cause actual results to differ materially are continued qualification as a real estate investment trust, general business and economic conditions, competition, increases in real estate construction costs, interest rates, accessibility of debt and equity capital markets and other risks inherent in the real estate business including tenant defaults, potential liability relating to environmental matters and illiquidity of real estate investments. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company undertakes no obligation to publicly release the results of any revisions to these forward-looking statements which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. Readers are also advised to refer to the Company's Form 8-K Report as filed with the U.S. Securities and Exchange Commission on March 29, 1996 for additional information concerning these risks. Item 6. Exhibits and Reports on Form 8-K ----------------------------------------- Exhibits The following exhibits are filed or incorporated by reference as a part of this report: Exhibit 10. Amendment to Articles of Incorporation of the Company for authorization of Duke Realty Investments, Inc. Shareholder Rights Plan. Exhibit 15. Letter regarding unaudited interim financial information Exhibit 27. Financial Data Schedule (EDGAR Filing Only) -18- Reports on Form 8-K The Company filed Form 8-K on April 21, 1998, to report the issuance of shares of common stock. The Company filed Form 8-K on April 23, 1998, to report the issuance of shares of common stock. The Company filed Form 8-K on July 31, 1998, to report the authorization of the Duke Realty Investments, Inc. Shareholders Rights Agreement, dated as of July 23, 1998, by and between Duke Realty Investments, Inc. and American Stock Transfer and Trust Company. -19- 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 INVESTMENTS, INC. ----------------------------- Registrant Date: August 13, 1998 /s/ Thomas L. Hefner --------------------- ------------------------------- Thomas L. Hefner President and Chief Executive Officer /s/ Darell E. Zink, Jr. ------------------------------- Darell E. Zink, Jr. Executive Vice President and Chief Financial Officer /s/ Dennis D. Oklak ------------------------------- Dennis D. Oklak Executive Vice President and Chief Administrative Officer - 20- EX-10 2 AMENDMENT TO ARTICLES OF INCORPORATION Exhibit 10 - ----------- ARTICLES OF AMENDMENT OF THE ARTICLES OF INCORPORATION OF DUKE REALTY INVESTMENTS, INC. The undersigned officer of DUKE REALTY INVESTMENTS, INC. (the "Corporation"), existing pursuant to the provisions of INDIANA BUSINESS CORPORATION LAW (IND. CODE SECTION 23-1 ET SEQ.), AS AMENDED (the "Act") and desiring to give notice of corporate action effectuating amendment of certain provisions of its Amended and Restated Articles of Incorporation certifies the following facts: ARTICLE I - AMENDMENT SECTION 1: The date of incorporation of the Corporation is: MARCH 12, 1992 SECTION 2: The name of the Corporation following this amendment of its Amended and Restated Articles of Incorporation is: DUKE REALTY INVESTMENTS, INC. SECTION 3: Article VI of the Amended and Restated Articles of Incorporation, as heretofore amended, is amended to add a new Section 6.07, the exact text of which is as set forth on Exhibit A attached hereto and incorporated by reference herein ARTICLE II - MANNER OF ADOPTION AND VOTE SECTION 1: Action by Directors: The Board of Directors of the Corporation duly adopted resolutions amending Article VI of the Amended and Restated Articles of Incorporation. These resolutions were adopted at a meeting duly held on July 23, 1998 at which a quorum was present. SECTION 2: Action by Shareholders: Pursuant to I.C. 23-1-25-2(d), the Shareholders of the Corporation were not required to vote with respect to this amendment to the Amended and Restated Articles of Incorporation. SECTION 3: Compliance with legal requirements: The manner of the adoption of the Articles of Amendment and the vote by which they were adopted constitute full legal compliance with the provisions of the Act, the Amended and Restated Articles of Incorporation, and the By-Laws of the Corporation. This Amendment is to be effective at 12:01 a.m. on August 3, 1998. I hereby verify, subject to penalties for perjury, that the facts contained herein are true this 31st day of July, 1998. /s/ John R. Gaskin ----------------------------------- John R. Gaskin, Vice President and Secretary EXHIBIT A SECTION 6.07. Series C Preferred Stock. ------------------------ Pursuant to authority granted under Section 6.01 of the Corporation's Amended and Restated Articles of Incorporation (the "Articles of Incorporation"), the Board of Directors of the Corporation hereby establishes a series of preferred shares designated the Series C Junior Preferred Stock ($0.001 par value per share) (the "Series C Preferred Stock") on the following terms: (a) Number. ------ The number of shares constituting the Series C Preferred Stock shall initially be 500,000, subject to increase or decrease by the Board of Directors effectuated by further Articles of Amendment; provided, however, that no decrease shall reduce the number of shares of Series C Preferred Stock to a number less than that of the shares then outstanding plus the number of shares of Series C Preferred Stock issuable upon exercise of outstanding rights, options or warrants or upon conversion of outstanding securities issued by the Corporation. (b) Dividends and Distributions. -------------------------- (1) Subject to the prior and superior rights of the holders of any shares of any series of Preferred Stock ranking prior and superior to the shares of Series C Preferred Stock with respect to dividends, each holder of one one-thousandth (1/1,000) of a share (a "Unit") of Series C Preferred Stock shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for that purpose, quarterly dividends payable in cash to holders of record on the last business day of March, June, September and December in each year (each such date being referred to herein as a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date after the first issuance of a Unit of Series C Preferred Stock, in an amount per Unit (rounded to the nearest cent) equal to the greater of (a) $.001 or (b) subject to the provision for adjustment hereinafter set forth, the aggregate per share amount of all cash dividends declared on shares of the common stock, par value $.01 per share, of the Company (the "Common Stock") since the immediately preceding Quarterly Dividend Payment Date, or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of a Unit of Series C Preferred Stock, and (ii) subject to the provision for adjustment hereinafter set forth, quarterly distributions (payable in kind) on each Quarterly Dividend Payment Date in an amount per Unit equal to the aggregate per share amount of all non-cash dividends or other distributions declared on shares of Common Stock since the immediately preceding Quarterly Dividend Payment Date, or with respect to the first Quarterly Dividend Payment Date, since the first issuance of a Unit. In the event the Corporation shall at any time following August 3, 1998 (the "Rights Declaration Date") (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the amount to which holders of Units of Series C Preferred Stock were entitled immediately prior to such event under clause (b) of the preceding sentence shall be adjusted by multiplying each such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (2) The Corporation shall declare a dividend or distribution on Units of the Series C Preferred Stock as provided in paragraph (A) above at the time it declares a dividend or distribution on the Common Stock; provided, however, that in the event no dividend or distribution shall have been declared on the Common Stock during the period between any Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a dividend of $.001 per Unit on the Series C Preferred Stock shall nevertheless be payable on such subsequent Quarterly Dividend Payment Date. (3) No dividend or distribution shall be paid or payable to the holders of shares of Common Stock unless, prior thereto, all accrued but unpaid dividends to the date of such dividend or distribution shall have been paid to the holders of Units of Series C Preferred Stock. (4) Dividends shall begin to accrue and be cumulative on each outstanding Unit from the Quarterly Dividend Payment Date next preceding the date of issue of such Unit, unless the date of issue of such Unit is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such Unit shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of Units of Series C Preferred Stock entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on Units in an amount less than the total amount of such dividends at the time accrued and payable on such Units shall be allocated pro rata on a Unit-by-Unit basis among all such Units at the time outstanding. The Board of Directors may fix a record date for the determination of holders of Units entitled to receive payment of a dividend or distribution declared thereon, which record date shall be no more than 60 days prior to the date fixed for the payment thereof. (c) Voting Rights. The holders of Units shall have the following ------------- voting rights: (1) Subject to the provision for adjustment hereinafter set forth, each Unit shall entitle the holder thereof to one vote on all matters submitted to a vote of the stockholders of the Corporation. In the event the Corporation shall at any time following the Rights Dividend Declaration Date (i) declare or pay any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding shares of Common Stock or (iii) combine or consolidate the outstanding shares of Common Stock into a smaller number of shares, then in each such case the number of votes per share to which holders of Units were entitled immediately prior to such event shall be adjusted by multiplying such number by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (2) Except as otherwise provided herein or by law, the holders of Units and the holders of shares of Common Stock and any other capital stock of the Corporation having general voting rights shall vote together as one class on all matters submitted to a vote of stockholders of the Corporation. (3) (i) Whenever, at any time or times, dividends payable on any Unit or Units shall be in arrears in an amount equal to at least two full quarterly dividends (whether or not declared and whether or not consecutive), the number of Directors then constituting the entire Board of Directors of the Corporation shall automatically be increased by 2 and the holders of record of the outstanding Units and holders of any other shares of Preferred Stock of the Corporation ranking on a parity with the Series C Preferred Stock shall have the exclusive right, voting together as a single class, to elect two directors of the Corporation at a special meeting of stockholders of the Corporation to fill such newly-created directorships. At elections for such directors, the holders of Units shall be entitled to cast one vote for each Unit held. (ii) So long as any Units are outstanding, the number of Directors of the Corporation shall at all times be such that the exercise, by the holders of shares of Series C Preferred Stock and the holders of shares of Preferred Stock on a parity therewith, of the right to elect Directors under the circumstances provided in paragraph (iii) of this subclause (C) will not contravene any provision of the Indiana Business Corporation Law or the Articles of Incorporation of the Corporation. Any director elected by holders of Units pursuant to this Section may be removed at any annual or special meeting, by vote of a majority of the stockholders who elected such director voting as a class, with or without cause. In case any vacancy shall occur among the directors elected by the holders of Units pursuant to this Section, such vacancy may be filled by the remaining director so elected, or his successor then in office, and the director so elected to fill such vacancy shall serve until the next meeting of stockholders for the election of directors. After the holders of Units shall have exercised their right to elect directors in any default period and during the continuance of such period, the number of directors shall not be further increased or decreased except by vote of the holders of Units as herein provided or pursuant to the rights of any equity securities ranking senior to or pari passu with the Series C Preferred Stock. (iii) The right of the holders of Units, voting separately as a class, to elect two members of the Board of Directors of the Corporation as aforesaid shall continue until, and only until, such time as all arrears in dividends (whether or not declared) on the Units shall have been paid or declared and set apart for payment, at which time such right shall terminate, except as herein or by law expressly provided, subject to reinvesting in the event of each and every subsequent default of the character above-mentioned. Upon any termination of the right of the holders of the Units as a class to vote for directors as herein provided, the term of office of all directors then in office elected by the holders of Units pursuant to this Section shall terminate immediately. Whenever the term of office of the directors elected by the holders of Units pursuant to this Section shall terminate and the special voting powers vested in the holders of the Preferred Stock pursuant to this Section shall have expired, the maximum number of members of the Board of Directors of the Corporation shall be such number as may be provided for in the By-laws of the Corporation, irrespective of any increase made pursuant to the provisions of this Section. (4) Except as set forth herein, holders of Units shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Stock as set forth herein) for taking any corporate action. (d) Certain Restrictions. ------------------- (1) Whenever quarterly dividends or other dividends or distributions payable on the Units as provided in herein are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on outstanding Units outstanding shall have been paid in full, the Corporation shall not: (i) declare or pay dividends on, make any other distributions on, or redeem or purchase or otherwise acquire for consideration any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series C Preferred Stock; (ii) declare or pay dividends on or make any other distributions on any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series C Preferred Stock, except dividends paid ratably on the Units and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such Units and all such shares are then entitled; (iii) redeem or purchase or otherwise acquire for consideration shares of any stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series C Preferred Stock; provided, however, that the Corporation may at any time redeem, purchase or otherwise acquire shares of any such parity stock in exchange for shares of any stock of the Corporation ranking junior (either as to dividends or upon dissolution, liquidation or winding up) to the Series C Preferred Stock; or (iv) purchase or otherwise acquire for consideration any Units, except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such Units, upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes. (2) The Corporation shall not permit any subsidiary of the Corporation to purchase or otherwise acquire for consideration any Units or shares of stock of the Corporation unless the Corporation could, under paragraph (A) of this Section, purchase or otherwise acquire such Units or shares at such time and in such manner. (e) Reacquired Units. ---------------- Any Units purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and cancelled promptly after the acquisition thereof. All such Units shall, upon their cancellation, become authorized but unissued fractional shares of Preferred Stock and may be reissued as part of a new series of Preferred Stock to be created by resolution or resolutions of the Board of Directors, subject to the conditions and restrictions on issuance set forth herein. (f) Liquidation, Dissolution or Winding Up. -------------------------------------- (1) Upon any voluntary liquidation, dissolution or winding up of the Company, no distribution shall be made (i) to the holders of shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series C Preferred Stock unless, prior thereto, the holders of Units shall have received $1.00 per Unit, plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment (the "Series C Liquidation Preference"), or (ii) to the holders of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series C Preferred Stock, except distributions made ratably on the Series C Preferred Stock and all other such parity stock in proportion to the total amounts to which the holders of all such shares are entitled upon such liquidation, dissolution or winding up. Thereafter, the holders of Units shall be entitled to receive an aggregate amount per Unit, subject to the provision for adjustment hereinafter set forth, equal to the aggregate amount to be distributed per share to the holders of Common Stock. In the event the Company shall at any time after the date hereof declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation or the outstanding shares of Common Stock (by reclassification or otherwise) into a greater or lesser number of shares of Common Stock, then in each such case the aggregate amount to which holders of Units were entitled immediately prior to such event under the preceding sentence shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (2) In the event, however, that there are not sufficient assets available to permit payment in full of the Series C Liquidation Preference and the liquidation preferences of all other series of Preferred Stock, if any, which rank on a parity with the Series C Preferred Stock, then such remaining assets shall be distributed ratably to the holders of such parity shares in proportion to their respective liquidation preferences. (g) Consolidation, Merger, Etc. -------------------------- In case the Company shall enter into any consolidation, merger, combination or other transaction in which the shares of Common Stock are exchanged for or converted into other stock or securities, cash and/or any other property, then in any such case the Units shall at the same time be similarly exchanged for or converted into an amount per Unit (subject to the provision for adjustment hereinafter set forth) equal to the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Common Stock is converted or exchanged. In the event the Company shall at any time (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the amount set forth in the preceding sentence with respect to the exchange or conversion of Units shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (h) Redemption. ----------- The Units shall not be redeemable by the Company; provided, however, that the foregoing shall not limit the ability of the Company to purchase or otherwise deal in such Units to the extent otherwise permitted hereby and by law. (i) Ranking. ------- The Series C Preferred Stock shall rank junior to all other series of the Company's Preferred Stock (whether with or without par value) as to the payment of dividends and the distribution of assets, unless the terms of any such series shall provide otherwise. (j) Amendment. -------- Neither these Articles of Amendment nor the Articles of Incorporation of the Company may be amended in any manner which would materially alter or change the powers, preferences or special rights of the Series C Preferred Stock so as to affect them adversely without the affirmative vote of the holders of a majority or more of the outstanding Units, voting separately as a class. (k) Fractional Shares. ----------------- Series C Preferred Stock may be issued in Units or other fractions of a share, which Units or fractions shall entitle the holder, in proportion to such holder's Units or fractional shares, to exercise voting rights, receive dividends, participate in distributions and to have the benefit of all other rights of holders of Series C Preferred Stock. EX-15 3 AUDITORS' LETTER Exhibit 15 - ---------- The Board of Directors Duke Realty Investments, Inc. Gentlemen: RE: Registration Statements Nos. 33-64567, 33-64659, 33-55727, 333-04695, 333-24289, 333-26833, 333-49911, 333-39965, 333-50081 and 333-26845 With respect to the subject registration statements, we acknowledge our awareness of the use therein of our report dated August 5, 1998 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 11, 1998 EX-27 4 1997 AMENDED FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM DUKE REALTY INVESTMENTS, INC. AND SUBSIDIARIES' JUNE 30, 1997 CONSOLIDATED FINANCIAL STATEMENTS. 1,000 6-MOS DEC-31-1997 JUN-30-1997 3,107 0 27,597 (1,374) 0 24,328 1,459,765 (96,491) 1,550,879 81,934 614,857 0 72,288 762,993 0 1,550,879 0 112,381 57,581 0 7,167 0 17,951 29,682 0 29,682 0 0 0 29,682 $.48 $.48
EX-27 5 1998 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM DUKE REALTY INVESTMENTS, INC. AND SUBSIDIARIES' JUNE 30, 1998 CONSOLIDATED FINANCIAL STATEMENTS. 1,000 6-MOS DEC-31-1998 JUN-30-1998 22,379 0 43,285 (1,352) 0 69,230 2,536,140 (146,350) 2,530,801 236,269 953,584 0 218,338 1,122,610 0 2,530,801 0 176,220 89,067 0 15,808 0 27,225 44,120 0 44,120 0 0 0 44,120 $.56 $.56
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