-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, lEefGZKAfTENr76o1kp9XPHl52Rb1U8K4A7yJqkYrlKYnv791cRu5zBDjfTTlN7F jUQqB1yVazAyKpU6cUz2bA== 0000912057-94-003194.txt : 19940926 0000912057-94-003194.hdr.sgml : 19940926 ACCESSION NUMBER: 0000912057-94-003194 CONFORMED SUBMISSION TYPE: 424B2 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 19940923 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: DUKE REALTY INVESTMENTS INC CENTRAL INDEX KEY: 0000783280 STANDARD INDUSTRIAL CLASSIFICATION: 6798 IRS NUMBER: 351740409 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 424B2 SEC ACT: 1933 Act SEC FILE NUMBER: 033-54997 FILM NUMBER: 94550200 BUSINESS ADDRESS: STREET 1: 8888 KEYSTONE CROSSING STE 1200 CITY: INDIANAPOLIS STATE: IN ZIP: 46240 BUSINESS PHONE: 3178464700 424B2 1 PROSPECTUS SUPPLEMENT Filed Pursuant to Rule 424(b)(2) Registration No. 33-54997 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED AUGUST 29, 1994) 3,500,000 SHARES [LOGO] DUKE REALTY INVESTMENTS, INC. COMMON STOCK --------------------- Duke Realty Investments, Inc. (the "Company") is a self-administered and self-managed real estate investment trust that began operations through a predecessor in 1972. The Company owns a diversified portfolio of 120 income- producing industrial, office and retail properties, encompassing approximately 11.9 million square feet and located in eight states, and 10 buildings encompassing approximately 1.5 million square feet currently under development. The Company also owns approximately 1,000 acres of land for future development. The Company has the largest commercial real estate operations in Indianapolis and Cincinnati and is one of the largest real estate companies in the Midwest. The Company expects to continue to pay regular quarterly dividends to its shareholders. All of the shares of Common Stock offered hereby are being sold by the Company. The Common Stock is listed on the New York Stock Exchange under the symbol DRE. The last reported sale price for the Common Stock on September 21, 1994 was $25 1/4 per share. --------------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS TO WHICH IT RELATES. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
PRICE TO UNDERWRITING PROCEEDS TO PUBLIC DISCOUNT (1) COMPANY (2) Per Share.................................. $25.25 $1.39 $23.86 Total (3).................................. $88,375,000 $4,865,000 $83,510,000 (1) The Company has agreed to indemnify the several Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended. See "Underwriting." (2) Before deducting expenses payable by the Company estimated at $425,000. (3) The Company has granted the several Underwriters an option to purchase up to an additional 525,000 shares of Common Stock to cover over-allotments. If all such shares are purchased, the total Price to Public, Underwriting Discount and Proceeds to Company will be $101,631,250, $5,594,750 and $96,036,500, respectively. See "Underwriting."
--------------------- THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL. ------------------- The shares of Common Stock are offered by the several Underwriters, subject to prior sale, when, as and if delivered to and accepted by them, subject to approval of certain legal matters by counsel for the Underwriters. The Underwriters reserve the right to withdraw, cancel or modify such offer and to reject orders in whole or in part. It is expected that delivery of the shares of Common Stock offered hereby will be made in New York, New York on or about September 28, 1994. --------------------- MERRILL LYNCH & CO. ALEX. BROWN & SONS INCORPORATED DEAN WITTER REYNOLDS INC. A.G. EDWARDS & SONS, INC. LEGG MASON WOOD WALKER INCORPORATED --------------------- The date of this Prospectus Supplement is September 21, 1994. [ MAP ] IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON SHARES AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. S-2 PROSPECTUS SUPPLEMENT SUMMARY THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS OR INCORPORATED HEREIN AND THEREIN BY REFERENCE. UNLESS INDICATED OTHERWISE, (I) THE INFORMATION CONTAINED IN THIS PROSPECTUS SUPPLEMENT ASSUMES NO EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTIONS AND (II) INFORMATION IS PRESENTED AS OF JUNE 30, 1994. ALL REFERENCES TO THE "COMPANY" IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS INCLUDE THE COMPANY, THOSE ENTITIES OWNED OR CONTROLLED BY THE COMPANY AND PREDECESSORS OF THE COMPANY, UNLESS THE CONTEXT INDICATES OTHERWISE. THE COMPANY The Company is a self-administered and self-managed real estate investment trust (a "REIT") that began operations through a predecessor in 1972. The Company owns a diversified portfolio of 120 income-producing industrial, office and retail properties (the "Properties"), encompassing approximately 11.9 million square feet and located in eight states, and 10 buildings encompassing approximately 1.5 million square feet currently under development. The Company also owns approximately 1,000 acres of unencumbered land (the "Land") for future development, of which approximately 80% is zoned for industrial use and which is typically located adjacent to the Properties. The Company provides leasing, management, construction, development and other tenant-related services for the Properties and certain properties owned by third parties. The Company has the largest commercial real estate operations in Indianapolis and Cincinnati and is one of the largest real estate companies in the Midwest. The Company believes that the Midwest offers a relatively strong and stable economy compared to other regions of the United States and provides significant growth potential due to its central location, established manufacturing base, skilled work force and moderate labor costs. The Company has developed over 33 million square feet of commercial property since its founding. The Company is one of the most active developers of industrial properties in the United States, based on square footage under construction. During the last five years, the Company developed an average of approximately 2.0 million square feet per year. From the completion of its reorganization and Common Stock offering in October of 1993 through June 30, 1994, the Company completed development of 701,000 square feet and acquired 894,000 square feet of commercial properties which are 82% leased. Also, the Company has under development approximately 1.5 million square feet of commercial space that is 85% pre-leased and is expected to be completed by June, 1995. The Company manages approximately 24 million square feet of property, including 12 million square feet owned by third parties. The Company manages approximately 30% of all suburban office, warehousing and light manufacturing space in Indianapolis, and approximately 18% of all office, warehousing and light manufacturing space in Cincinnati. In addition to providing services to approximately 1,000 tenants in the Properties, the Company provides such services to over 1,200 tenants in approximately 150 properties owned by others. Based on published industry reports, the Company believes that it was responsible in 1993 for approximately 35% of the net absorption (gross space leased minus lease terminations and expirations) of warehousing and light manufacturing space in Indianapolis and approximately 36% of the net absorption of warehousing and light manufacturing space in Cincinnati. The Company believes its dominant position in its markets gives it a competitive advantage in its real estate activities. After completion of this offering (the "Offering"), the seven senior officers of the Company, who collectively have over 120 years of experience in the real estate industry and have been with the Company for an average of 17 years, will beneficially own Common Stock and partnership interests ("Units") exchangeable for Common Stock that represent approximately 17% of the Company's Common Stock on a fully diluted basis. S-3 The following table provides an overview of the Properties. SUMMARY OF PROPERTIES
PERCENT OF TOTAL PERCENT ANNUAL NET EFFECTIVE OCCUPANCY OF TOTAL NET EFFECTIVE ANNUAL AT TYPE OF PROPERTY SQUARE FEET SQUARE FEET RENT (1) RENT JUNE 30, 1994 - ------------------------------------------ ------------ --------------- ------------- --------------- --------------- Industrial................................ 6,997,968 59% $ 27,243,000 36% 96.10% Office.................................... 3,819,029 32% 39,540,000 52% 92.94% Retail.................................... 1,062,879 9% 9,045,000 12% 91.22% ------------ --- ------------- --- ----- Total..................................... 11,879,876 100% $ 75,828,000 100% 94.65% ------------ --- ------------- --- ----- ------------ --- ------------- --- ----- - ------------------------ (1) Represents annual net effective rent due from tenants in occupancy as of June 30, 1994. Annual net effective rent equals the average annual rental property revenue over the terms of the respective leases, excluding additional rent due as operating expense reimbursements, landlord allowances for operating expenses and percentage rents.
RECENT DEVELOPMENTS REORGANIZATION AND 1993 OFFERING. In October, 1993, the Company acquired substantially all of the properties and businesses of Duke Associates, a related full-service commercial real estate firm operating primarily in the Midwest (the "Reorganization"). As part of the Reorganization, the Company effected a 1 for 4.2 Reverse Stock Split relating to its existing shares and issued an additional 14,000,833 shares of Common Stock through an offering (the "1993 Offering"), raising gross proceeds of $332.5 million. In July, 1994, the Company increased its quarterly dividend from $.45 to $.47 per share. DEVELOPMENT AND ACQUISITION ACTIVITY. From the completion of the Reorganization and the 1993 Offering through June 30, 1994, the Company completed the development of and placed in service four properties with 701,000 square feet having a total cost of $12.2 million and acquired four properties with 894,000 square feet and the remaining 55% joint venture interest in a previously developed property at a total cost of $40.6 million. In addition, the Company has initiated the development of 10 buildings encompassing 1,479,000 square feet having a total cost of $69.7 million, which are expected to be completed and placed in service by June, 1995. These property additions (the "New Properties"), totalling 3,074,000 square feet, consist of 71% industrial, 7% office, 15% retail, and 7% medical office projects. The total cost (including allocation of land) of the New Properties is approximately $122.5 million. The New Properties have an average occupancy rate as of August 25, 1994 of 83% and provide an initial 10.8% weighted average annual unleveraged return on cost assuming no further lease-up. However, the Company expects the stabilized weighted average annual unleveraged return on cost (computed as property annual contractual net operating income ("NOI") divided by total project costs) to be in excess of 12% with anticipated leasing activity. The annual contractual NOI expected to be generated from the New Properties, once placed in service, is anticipated to be $13.0 million and increase to $15 million with anticipated leasing activity. Those New Properties expected to be placed in service by October, 1994, are anticipated to generate annualized contractual NOI of $7 million. By June, 1995, when all of the New Properties are expected to be in service, the New Properties are anticipated to produce an additional $8 million of annualized contractual NOI. The total cost of the New Properties of $122.5 million includes currently owned land basis of $8.2 million. The $8.2 million land investment represents non-cash allocations of the portion of unencumbered Land inventory obtained through the 1993 Reorganization and since used for new development. The anticipated weighted average unleveraged annual return on cost for the New Properties net of the Land basis is 13% compared to the 12% previously discussed. The total net cost of the New Properties will be approximately S-4 $114.3 million. These costs will be funded on a permanent basis by the net proceeds of this Offering which are expected to be approximately $83.1 million with the remainder of the costs to be funded by debt financings having a weighted average interest rate of 8.38% and a term of 6.6 years. The cost of the New Properties incurred to date has been financed with interim financing including the Company's $60 million revolving line of credit. Following the Offering, the revolving line of credit facility will be fully available for additional development and acquisition activities which the Company is currently pursuing. The Company is currently negotiating to substantially increase the amount of its revolving line of credit. The following table sets forth information regarding the New Properties. All of the New Properties are wholly-owned by the Company except for Xetron. RECENT ACTIVITY
COMPLETION OR PERCENT INITIAL ANTICIPATED PROPERTY SQUARE LEASED OR LEASE COMPLETION PROJECT/CLIENT LOCATION TYPE FEET PRE-LEASED(10) TERM - ----------------------- ------------------- ---------------- ---------- --------- --------- ----------- COMPLETED DEVELOPMENT: 1st Qtr. 94 Xetron(1) Cincinnati, OH Industrial 100,193 100% 10 years 2nd Qtr. 94 Daydream Publishing Indianapolis, IN Industrial 98,000 100% 10 years 1st Qtr. 94 Caterpillar Indianapolis, IN Industrial 336,000 100% 6 years 2nd Qtr. 94 Redken Hebron, KY Industrial 166,400 100% 5 years --------- 700,593 --------- COMPLETED ACQUISITIONS: 2nd Qtr. 94 Xerox(2) Columbus, OH Office (2) 100% Varies 2nd Qtr. 94 C.R. Services(3) Hebron, KY Industrial 214,840 100% 10 years Coldwater 2nd Qtr. 94 Crossing(4) Ft. Wayne, IN Retail 246,365 95% Varies Park 100 Bldg 2nd Qtr. 94 126(5) Indianapolis, IN Industrial 60,100 100% Varies 3rd Qtr. 94 Park 100 Bldg 98(6) Indianapolis, IN Industrial 373,000 27% N/A --------- 894,305 --------- UNDER CONSTRUCTION: 3rd Qtr. 94 Veteran's Admin. Columbus, OH Medical 118,000 100% 20 years 3rd Qtr. 94 Indiana Insurance Columbus, OH Office 49,600 94% 10 years 3rd Qtr. 94 Galyan's Columbus, OH Retail 74,636 100% 20 years 3rd Qtr. 94 Sports Unlimited(7) Cincinnati, OH Retail 67,148 100% 20 years 4th Qtr. 94 Kohl's Cincinnati, OH Retail 80,684 100% 25 years 4th Qtr. 94 Silver Burdett Indianapolis, IN Industrial 553,900 100% 7 years 4th Qtr. 94 Park 100 Bldg 97(8) Indianapolis, IN Industrial 280,800 44% 5 years 1st Qtr. 95 Sterling Software Columbus, OH Office 57,660 100% 15 years 2nd Qtr. 95 St. Francis(9) Greenwood, IN Medical 95,579 36%(11) Varies 2nd Qtr. 95 John Alden Columbus, OH Office 101,200 100% 15 years --------- 1,479,207 --------- 3,074,105 --------- --------- - ------------------------------ (1) Developed through a joint venture in which the Company's unaffiliated joint venture partner provided 100% of the financing. The Company has a 10% limited partner equity interest. (2) Originally developed prior to the Reorganization in a joint venture; the Company has acquired the 55% interest of its unaffiliated joint venture partner. (3) Originally developed in a joint venture; the Company has acquired the 57% interest of its unaffiliated joint venture partner. (4) A retail center anchored by Cub Foods, Walgreens, and Ben Franklin; Walmart and Service Merchandise also own stores in this center (114,000 and 50,000 square feet, respectively). (5) A warehouse facility at Park 100 Business Park where the Company currently owns or manages 1.7 million square feet of similar space having a 2.6% vacancy rate. (6) A bulk warehouse facility at Park 100 Business Park where the Company currently owns or manages 4.4 million square feet of similar space which is fully occupied. Land is available for 300,000 square feet of additional development.
S-5 (7) Anchor tenant of 51,000 square feet has a lease term of 20 years. (8) This bulk warehouse was originally committed to without any pre-leasing. A five year lease has been signed for 122,400 square feet of space. The building is located at Park 100 Business Park where the Company currently owns or manages 4.4 million square feet of similar space which is fully occupied. (9) Medical office building to be attached to the new $80 million ambulatory care center on the St. Francis Hospital south campus. The Company owns the building and has a leasehold interest in the land underlying the building. (10) Represents completed leasing activity through August 25, 1994. (11) This represents leases for which tenants have committed, but for which the actual leases have not been executed.
LAND ACTIVITY. Upon completion of the Reorganization and the 1993 Offering, the Company had approximately 1,128 acres of unencumbered Land to be used primarily for its development activities. Subsequent to the 1993 Offering, the Company has used 125 acres of Land in its development activities. Approximately 58 acres have been sold and 15 acres have been leased. Additionally, the Company acquired 63 acres during the second quarter of 1994 bringing the Company's total unencumbered Land inventory held for development to approximately 1,000 acres. THIRD PARTY DEVELOPMENT AND MANAGEMENT ACTIVITIES. Since the Reorganization and the 1993 Offering, the Company has increased the square footage of property managed for third parties from 11.8 million to 12.1 million square feet and has obtained the following third party construction and development contracts:
SQUARE FOOTAGE PROPERTY LOCATION UNDER DEVELOPMENT PRODUCT TYPE COMPLETION DATE - ---------------------- ------------------ ------------------ ------------ ------------------ Federated Cincinnati, OH 200,000 Office October 1994 Hendrickson-Turner Lebanon, IN 120,000 Industrial February 1995 ETS Indianapolis, IN 56,000 Industrial November 1994 American Trans Air Indianapolis, IN 45,000 Office August 1994 Honey Baked Ham Cincinnati, OH 28,000 Office December 1993 A-Copy Milford, CT 27,400 Office April 1994 Jewish Hospital Cincinnati, OH 18,000 Office January 1995 Goodwill Industries Indianapolis, IN 11,250 Retail September 1994
THE OFFERING Common Stock Offered........................................ 3,500,000 shares (1) Common Stock to be Outstanding After the Offering........... 23,995,630 shares (2) Use of Proceeds............................................. Principally to retire interim financing incurred to fund the Company's development and acquisition activities and to fund current development and acquisition projects. New York Stock Exchange Symbol.............................. DRE - ------------------------ (1) Assumes the Underwriters' over-allotment option to purchase up to 525,000 shares of Common Stock is not exercised. See "Underwriting." (2) Includes 833,333 unregistered shares of Common Stock and 4,449,486 Units issued by Duke Realty Limited Partnership (the "Operating Partnership") which are exchangeable by the holder for shares of Common Stock. Does not include Common Stock issuable upon exercise of outstanding employee stock options, which represented 681,500 shares at June 30, 1994.
S-6 SUMMARY CONSOLIDATED FINANCIAL DATA
PRO FORMA FOR REORGANIZATION (1) ----------------------------- SIX MONTHS SIX MONTHS YEAR ENDED ENDED ENDED DECEMBER 31, JUNE 30, JUNE 30, ---------------- 1994 1993 1993 1992 ---------- ---------- ------- ------- (IN THOUSANDS, EXCEPT PROPERTIES AND PER SHARE DATA) OPERATING DATA: Revenues: Rental properties....................................... $41,843 $39,065 $79,639 $74,439 Property management, maintenance and leasing fees....... 5,393 4,836 11,496 12,248 Construction and development fees....................... 2,963 1,328 4,875 4,370 Interest and other income............................... 1,068 1,095 1,893 1,105 ---------- ---------- ------- ------- Total operating revenue................................... $51,267 $46,324 $97,903 $92,162 ---------- ---------- ------- ------- ---------- ---------- ------- ------- Interest expense.......................................... $ 8,723 $ 8,450 $17,280 $16,900 Depreciation and amortization............................. 8,138 9,163 18,078 18,026 Equity in earnings of unconsolidated companies............ 593 147 598 223 Income before minority interest........................... 15,534 11,228 24,978 18,366 Net income................................................ $11,420 $ 8,922 $19,076 $14,346 ---------- ---------- ------- ------- ---------- ---------- ------- ------- Net income per share...................................... $ 0.71 $ 0.56 $ 1.19 $ 0.89 ---------- ---------- ------- ------- ---------- ---------- ------- ------- OTHER DATA: Funds from Operations (2)................................. $23,238 $20,502 $42,166 $36,624 Funds from Operations per share/Unit...................... $ 1.13 $ 1.00 $ 2.06 $ 1.79 Common Stock outstanding (3).............................. 20,478 20,478 20,478 20,478 Number of Properties at end of period..................... 120 114 114 111 Square feet available at end of period.................... 11,880 10,867 10,867 10,573
JUNE 30, 1994 -------- BALANCE SHEET DATA: Rental property, before accumulated depreciation.......... $589,317 Total assets.............................................. $692,487 Total debt................................................ $301,394 Shareholders' equity...................................... $343,493
- ------------------------ (1) Reflects October, 1993 Reorganization of the Company, including the Reverse Stock Split, the acquisition by the Company of substantially all of the assets of Duke Associates (a group of approximately 170 affiliated partnerships and corporations) and the issuance of an additional 14,001 shares of Common Stock. Presented as if the companies were combined as of January 1, 1992. (2) Funds from Operations, as defined by the National Association of Real Estate Investment Trusts ("NAREIT"), is net income adjusted for depreciation and amortization and gains or losses from property sales. Funds from Operations does not represent cash flows 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. (3) Includes 4,432 Units as of June 30, 1994 held by persons other than the Company which are exchangeable for Common Stock.
S-7 THE COMPANY The Company is a self-administered and self-managed REIT that began operations through a predecessor in 1972. The Company owns a diversified portfolio of 120 income-producing industrial, office and retail Properties, encompassing approximately 11.9 million square feet and located in eight states, and 10 buildings encompassing approximately 1.5 million square feet currently under development. The Company also owns approximately 1,000 acres of unencumbered Land for future development, of which approximately 80% is zoned for industrial use and which is typically located adjacent to the Properties. The Company provides leasing, management, construction, development and other tenant-related services for the Properties and certain properties owned by third parties. The Company has the largest commercial real estate operations in Indianapolis and Cincinnati and is one of the largest real estate companies in the Midwest. The Company believes that the Midwest offers a relatively strong and stable economy compared to other regions of the United States and provides significant growth potential due to its central location, established manufacturing base, skilled work force and moderate labor costs. The Company has developed over 33 million square feet of commercial property since its founding. The Company is one of the most active developers of industrial properties in the United States, based on square footage under construction. During the last five years, the Company developed an average of approximately 2.0 million square feet per year. From the completion of its Reorganization and 1993 Offering through June 30, 1994, the Company completed development of 701,000 square feet and acquired 894,000 square feet of commercial properties which are 82% leased. Also, the Company has under development approximately 1.5 million square feet of commercial space that is 85% pre-leased and is expected to be completed by June, 1995. The Company manages approximately 24 million square feet of property, including 12 million square feet owned by third parties. The Company manages approximately 30% of all suburban office, warehousing and light manufacturing space in Indianapolis, and approximately 18% of all office, warehousing and light manufacturing space in Cincinnati. In addition to providing services to approximately 1,000 tenants in the Properties, the Company provides such services to over 1,200 tenants in approximately 150 properties owned by others. Based on published industry reports, the Company believes that it was responsible in 1993 for approximately 35% of the net absorption (gross space leased minus lease terminations and expirations) of warehousing and light manufacturing space in Indianapolis and for approximately 36% of the net absorption of warehousing and light manufacturing space in Cincinnati. The Company believes its dominant position in its market gives it a competitive advantage in its real estate activities. After completion of the Offering, the seven senior officers of the Company, who collectively have over 120 years of experience in the real estate industry and have been with the Company for an average of 17 years, will beneficially own Common Stock and Units exchangeable for Common Stock that represent approximately 17% of the Company's Common Stock on a fully diluted basis. BUSINESS STRATEGY The Company's business objective is to increase its Funds from Operations per share by (i) maintaining and increasing property occupancy and rental rates through the aggressive management of its portfolio of existing properties; (ii) expanding existing properties; (iii) developing and acquiring new properties; and (iv) providing a full line of real estate services to the Company's tenants and to third parties. As a fully integrated commercial real estate firm, the Company believes that its in-house leasing, management, development and construction services and the Company's significant base of commercially zoned and unencumbered land in existing business parks should give the Company a competitive advantage in its future development activities. The Company believes that the analysis of real estate opportunities and risks can be done most effectively at regional or local levels. As a result, the Company intends to continue its emphasis on increasing its market share and effective rents in its existing markets primarily within the Midwest. The Company also S-8 expects to utilize its approximately 1,000 acres of Land and its many business relationships with more than 2,200 commercial tenants to expand its build-to-suit business (development projects substantially pre-leased to a single tenant) and to pursue other development and acquisition opportunities in its existing markets and elsewhere, primarily in the Midwest. The Company believes that this regional focus will allow it to assess market supply and demand for real estate more effectively as well as to capitalize on its strong relationships with its tenant base. The Company's policy is to develop and seek to acquire Class A commercial properties located in markets with high growth potential for Fortune 500 companies and other quality regional and local firms. The Company's industrial and suburban office development focuses on business parks and mixed-use developments suitable for development of multiple projects on a single site and where the Company can create and control the business environment. These business parks and mixed-use developments generally include restaurants and other amenities which the Company believes create an atmosphere that is particularly efficient and desirable. The Company's retail development focuses on community, power and neighborhood centers in its existing markets. As a fully integrated real estate company, the Company is able to arrange for or provide to its industrial, office and retail tenants not only well located and well maintained facilities, but also additional services such as build-to-suit construction, tenant finish construction, expansion flexibility and advertising and marketing services. THE MIDWEST REAL ESTATE MARKET The Company believes that the Midwest offers a relatively strong and stable economy compared to other regions of the United States and provides significant growth potential due to its central location, established manufacturing base, skilled work force and moderate labor costs. In addition, the interstate highway systems serving Indianapolis, Cincinnati and Columbus, principal markets in which the Properties are located, help make those cities prime warehouse and distribution locations. According to the Chicago Association of Commerce and Industry, these three cities rank first, third and fourth, respectively, in being centrally located to the top 100 markets in the United States. Employment statistics are generally a useful measure of the viability of a commercial real estate market because the demand for retail, office and industrial space in a geographic area is usually linked to the levels of business activity and disposable income. According to the applicable state labor statistics departments and the United States Department of Labor's Bureau of Labor Statistics, the unemployment rate for June, 1994 was 4.0%, 4.7% and 4.2% in the Indianapolis, Cincinnati and Columbus metropolitan areas, respectively, compared to 6.2% for the United States. Additionally, total employment has increased 10.1%, 9.7% and 10.6% since January 1, 1989 for the Indianapolis, Cincinnati and Columbus metropolitan areas, respectively, compared to 8.3% for the United States. INDIANAPOLIS, INDIANA. With over 1.4 million residents, Indianapolis is Indiana's largest metropolitan area. With a central location at the intersection of four interstate highways, Indianapolis continues to attract new growth by offering a skilled workforce and stable economic base. Indianapolis' economic base includes distribution, government, manufacturing, retail trade, service and tourism related industries. According to the Indianapolis Chamber of Commerce, United Airlines, Federal Express and Dow-Elanco are establishing major new facilities in Indianapolis which are expected to create 20,000 new jobs. The Indianapolis industrial market continues to improve as evidenced by a declining vacancy rate. According to CB Commercial Real Estate Group, Inc. ("CB Commercial"), the industrial vacancy rate has decreased 1.2% over the twelve months ended March 31, 1994 to 4.0%, which is strong as compared to the national industrial vacancy average of 7.9%, as reported by CB Commercial. According to LANDAUER REAL ESTATE COUNSELORS' 1994 REAL ESTATE MARKET FORECAST, Indianapolis is rated as the best warehouse and distribution market in the United States. CINCINNATI, OHIO. Cincinnati is the second largest metropolitan area in Ohio with a population of over 1.5 million. With an unemployment rate which is below the national average, Cincinnati's economic base is healthy and diverse. Balanced between major Fortune 500 employers (a total of 17 are headquartered in the S-9 region, including Proctor & Gamble, US Shoe, Chiquita Brands, Kroger Company and Federated Department Stores) and entrepreneurial enterprises, Cincinnati's economic base includes banking, distribution, manufacturing, retail trade and service related industries. Relatively low taxes, an expanding airport (a major North American hub for Delta Airlines) and aggressive state and local incentive packages designed to attract new business have contributed to major corporate relocations in Cincinnati. Additionally, PLACES RATED ALMANAC, in its most recent edition, ranked Cincinnati as North America's best city in which to live. Indicative of the economic strength in Cincinnati, the industrial vacancy rate as reported by CB Commercial declined by 1.6% to 4.8% over the twelve months ended March 31, 1994, which is below the national average of 7.9%. COLUMBUS, OHIO. The Columbus metropolitan area has a population of approximately 1.4 million and is the third largest metropolitan area in Ohio. The city's central location, well-trained workforce and high quality of life have established Columbus as a major transportation and distribution center. Major retail corporations such as Sears, Eddie Bauer, JC Penney, Consolidated Stores and The Limited have developed regional distribution centers in the area. Columbus' economic base includes distribution, government, manufacturing, retail trade and service related industries. The industrial vacancy rate of 3.2% as of March 31, 1994 was the third lowest of the 37 markets researched by CB Commercial in the United States. This vacancy rate represents a decrease of 1.6% over the previous twelve months and is well below the national average of 7.9% as reported by CB Commercial. RECENT DEVELOPMENTS REORGANIZATION AND 1993 OFFERING. As part of its 1993 Reorganization, the Company acquired substantially all of the properties and businesses of Duke Associates, a related full-service commercial real estate firm operating primarily in the Midwest. The Company also effected a 1 for 4.2 Reverse Stock Split relating to its existing shares and in the 1993 Offering issued an additional 14,000,833 shares of Common Stock, raising gross proceeds of $332.5 million. In July, 1994, the Company increased its quarterly dividend from $.45 to $.47 per share. DEVELOPMENT AND ACQUISITION ACTIVITY. From the completion of the Reorganization and the 1993 Offering through June 30, 1994, the Company completed the development of and placed in service four properties with 701,000 square feet having a total cost of $12.2 million and acquired four properties with 894,000 square feet and the remaining 55% joint venture interest in a previously developed property at a total cost of $40.6 million. In addition, the Company has initiated the development of 10 buildings encompassing 1,479,000 square feet having a total cost of $69.7 million, which are expected to be completed and placed in service by June, 1995. These New Properties, totalling 3,074,000 square feet, consist of 71% industrial, 7% office, 15% retail, and 7% medical office projects. The total cost (including allocation of land) of the New Properties is approximately $122.5 million. The New Properties have an average occupancy rate as of August 25, 1994 of 83% and provide an initial 10.8% weighted average annual unleveraged return on cost (computed as property annual contractual NOI divided by total costs) assuming no further lease-up. However, the Company expects the weighted average annual unleveraged return on cost to be in excess of 12% with anticipated leasing activity. The annual contractual NOI expected to be generated from the New Properties, once placed in service, is anticipated to be $13 million and increase to $15 million with anticipated leasing activity. Those New Properties expected to be placed in service by October, 1994, are anticipated to generate annualized contractual NOI of $7 million. By June, 1995, when all of the New Properties are expected to be in service, the New Properties are anticipated to produce an additional $8 million of annualized contractual NOI. The total cost of the New Properties of $122.5 million includes currently owned land basis of $8.2 million. The $8.2 million land investment represents non-cash allocations of the portion of unencumbered Land inventory obtained through the 1993 Reorganization and since used for new development. The anticipated weighted average unleveraged annual return cost for the New Properties net of the Land basis is 13% S-10 compared to the 12% previously discussed. The total net cost of the New Properties will be approximately $114.3 million. These costs will be funded on a permanent basis by the net proceeds of this Offering which are expected to be approximately $83.1 million with the remainder of the costs to be funded by debt financings having a weighted average interest rate of 8.38% and a term of 6.6 years. The cost of the New Properties incurred to date has been financed with interim financing including the Company's $60 million revolving line of credit. Following the Offering, the revolving line of credit facility will be fully available for additional development and acquisition activity which the Company is currently pursuing. The Company is currently negotiating to substantially increase the amount of its revolving line of credit. The following table sets forth information regarding the New Properties. All of the New Properties are wholly-owned by the Company except for Xetron. RECENT ACTIVITY
COMPLETION OR PERCENT INITIAL ANTICIPATED PROPERTY SQUARE LEASED OR LEASE COMPLETION PROJECT/CLIENT LOCATION TYPE FEET PRE-LEASED (10) TERM - --------------------- ---------------------- --------------- --------- --------- ------------------- --------- COMPLETED DEVELOPMENT: 1st Qtr. 94 Xetron(1) Cincinnati, OH Industrial 100,193 100% 10 years Indianapolis, 2nd Qtr. 94 Daydream Publishing IN Industrial 98,000 100% 10 years Indianapolis, 1st Qtr. 94 Caterpillar IN Industrial 336,000 100% 6 years 2nd Qtr. 94 Redken Hebron, KY Industrial 166,400 100% 5 years --------- 700,593 --------- COMPLETED ACQUISITIONS: 2nd Qtr. 94 Xerox(2) Columbus, OH Office (2) 100% Varies 2nd Qtr. 94 C.R. Services(3) Hebron, KY Industrial 214,840 100% 10 years 2nd Qtr. 94 Coldwater Crossing(4) Ft. Wayne, IN Retail 246,365 93% Varies Indianapolis, 2nd Qtr. 94 Park 100 Bldg 126(5) IN Industrial 60,100 100% Varies Indianapolis, 3rd Qtr. 94 Park 100 Bldg 98(6) IN Industrial 373,000 27% N/A --------- 894,305 --------- UNDER CONSTRUCTION: 3rd Qtr. 94 Veteran's Admin. Columbus, OH Medical 118,000 100% 20 years 3rd Qtr. 94 Indiana Insurance Columbus, OH Office 49,600 94% 10 years 3rd Qtr. 94 Galyan's Columbus, OH Retail 74,636 100% 20 years 3rd Qtr. 94 Sports Unlimited(7) Cincinnati, OH Retail 67,148 100% 20 years 4th Qtr. 94 Kohl's Cincinnati, OH Retail 80,684 100% 25 years Indianapolis, 4th Qtr. 94 Silver Burdett IN Industrial 553,900 100% 7 years Indianapolis, 4th Qtr. 94 Park 100 Bldg 97(8) IN Industrial 280,800 44% 5 years 1st Qtr. 95 Sterling Software Columbus, OH Office 57,660 100% 15 years 2nd Qtr. 95 St. Francis(9) Greenwood, IN Medical 95,579 36%(11) Varies 2nd Qtr. 95 John Alden Columbus, OH Office 101,200 100% 15 years --------- 1,479,207 --------- 3,074,105 --------- --------- - ------------------------------ (1) Developed through a joint venture in which the Company's unaffiliated joint venture partner provided 100% of the financing. The Company has a 10% limited partner equity interest. (2) Originally developed prior to the Reorganization in a joint venture; the Company has acquired the 55% interest of its unaffiliated joint venture partner. (3) Originally developed in a joint venture; the Company has acquired the 57% interest of its unaffiliated joint venture partner. (4) A retail center anchored by Cub Foods, Walgreens, and Ben Franklin; Walmart and Service Merchandise also own stores in this center (114,000 and 50,000 square feet, respectively). (5) A warehouse facility at Park 100 Business Park where the Company currently owns or manages 1.7 million square feet of similar space having a 2.6% vacancy rate. (6) A bulk warehouse facility at Park 100 Business Park where the Company currently owns or manages 4.4 million square feet of similar space which is fully occupied. Land is available for 300,000 square feet of additional development.
S-11 (7) Anchor tenant of 51,000 square feet has a lease term of 20 years. (8) This bulk warehouse was originally committed to without any pre-leasing. A five year lease has been signed for 122,400 square feet of space. The building is located at Park 100 Business Park where the Company currently owns or manages 4.4 million square feet of similar space which is fully occupied. (9) Medical office building to be attached to the new $80 million ambulatory care center on the St. Francis Hospital south campus. The Company owns the building and has a leasehold interest in the land underlying the building. (10) Represents completed leasing activity through August 25, 1994. (11) This represents leases for which tenants have committed, but for which the actual leases have not been executed.
LAND ACTIVITY. Upon completion of the Reorganization and the 1993 Offering, the Company had approximately 1,128 acres of unencumbered Land to be used primarily for its development activities. Through June 30, 1994, the Company has used 125 acres of such Land in its development activities. Approximately 58 acres have been sold and 15 acres have been leased. Additionally, the Company acquired 63 acres during the second quarter of 1994 bringing the Company's total unencumbered Land inventory held for development to approximately 1,000 acres. THIRD PARTY DEVELOPMENT AND MANAGEMENT ACTIVITIES. Since the Reorganization and the 1993 Offering, the Company has increased the square footage of property managed for third parties from 11.8 million to 12.1 million square feet has obtained the following third party construction and development contracts:
SQUARE FOOTAGE PRODUCT COMPLETION PROPERTY LOCATION UNDER DEVELOPMENT TYPE DATE - ---------------------- ------------------ ------------------ ----------- ------------------ Federated Cincinnati, OH 200,000 Office October 1994 Hendrickson-Turner Lebanon, IN 120,000 Industrial February 1995 ETS Indianapolis, IN 56,000 Industrial November 1994 American Trans Air Indianapolis, IN 45,000 Office August 1994 Honey Baked Ham Cincinnati, OH 28,000 Office December 1993 A-Copy Milford, CT 27,400 Office April 1994 Jewish Hospital Cincinnati, OH 18,000 Office January 1994 Goodwill Industries Indianapolis, IN 11,250 Retail September 1994
USE OF PROCEEDS The net proceeds to the Company from the sale of the Common Stock offered hereby are expected to be approximately $83.1 million (approximately 95.6 million if the Underwriters' over-allotment option is exercised in full). The Company intends to use approximately $60 million of the proceeds of the Offering to retire interim financing which has been incurred to fund the Company's development and acquisition activities and the remainder of the proceeds to fund current development and acquisition projects. Pending such uses, the net proceeds may be invested in short-term income producing investments such as commercial paper, government securities or money market funds that invest in government securities. S-12 PRICE RANGE OF COMMON STOCK AND DIVIDEND HISTORY The Common Stock is listed on the New York Stock Exchange under the symbol DRE. The following table sets forth the high and low sale prices of the Common Stock of the periods indicated and the dividend paid per share for each such period.
CLOSING PRICES PER SHARE (1) -------------------- DIVIDENDS QUARTERLY PERIOD HIGH LOW PER SHARE (1) - -------------------------------------------------------------------------------- --------- --------- --------------- 1992 First Quarter................................................................. $ 16.80 $ 13.65 $ 0.42 Second Quarter................................................................ 18.38 15.23 0.42 Third Quarter................................................................. 17.33 15.75 0.42 Fourth Quarter................................................................ 16.80 14.70 0.42 1993 First Quarter................................................................. 22.05 15.75 0.42 Second Quarter................................................................ 21.53 18.38 0.42 Third Quarter................................................................. 24.68 19.42 0.42 Fourth Quarter (2)............................................................ 26.00 22.13 0.45 1994 First Quarter................................................................. 26.00 21.00 0.45 Second Quarter................................................................ 27.25 23.50 0.47 Third Quarter (through September 21, 1994).................................... 27.13 25.00 -- - ------------------------ (1) All information for periods prior to the Fourth Quarter of 1993 has been adjusted for the 1 for 4.2 Reverse Stock Split effected in October, 1993 as part of the Reorganization. (2) In October, 1993 the Company acquired substantially all of the properties and businesses of Duke Associates, a related full-service commercial real estate firm operating primarily in the Midwest. As part of this Reorganization, the Company effected a 1 for 4.2 Reverse Stock Split of its existing shares and issued an additional 14,000,833 shares of Common Stock in the 1993 Offering.
The last reported sale price of the Common Stock on the New York Stock Exchange on September 21, 1994 was $25.25 per share. As of September 21, 1994, there were 1,705 registered holders of Common Stock. Since its organization in 1986, the Company has paid regular and uninterrupted dividends. The Company intends to continue to declare quarterly dividends on its Common Stock. However, no assurances can be given as to the amounts of future dividends as such dividends are subject to the Company's cash flow from operations, earnings, financial condition, capital requirements and such other factors as the board of directors deems relevant. If the shares being issued in this Offering are outstanding on the applicable record date, the holders thereof on such record date will be entitled to receive any dividend which may be declared by and at the discretion of the Board of Directors for the Third Quarter. DIVIDEND REINVESTMENT PLAN The Company has an Automatic Dividend Reinvestment Plan (the "Plan") which allows stockholders to acquire additional shares of Common Stock by automatically reinvesting cash dividends. Common Stock is acquired pursuant to the Plan at a price equal to the prevailing market price of such Common Stock, without payment of any brokerage commission or service charge. The Plan also allows participating stockholders to purchase Common Stock pursuant to the same terms and in the same manner as cash dividends are invested in amounts of not less than $100 and more than $3,000 per calendar quarter, without payment of any brokerage commission or service charge. Stockholders who do not participate in the Plan continue to receive cash dividends, as declared. As of September 21, 1994, approximately 19% of the Company's registered stockholders participated in the Plan. S-13 CAPITALIZATION The following table sets forth the capitalization of the Company as of June 30, 1994 and as adjusted to give effect to the Offering and the anticipated use of the proceeds thereof as described under "Use of Proceeds."
AT JUNE 30, 1994 ------------------------ HISTORICAL AS ADJUSTED ---------- ----------- (IN THOUSANDS) Mortgage and Construction Debt.................................................. $ 301,394 $301,394(2) ---------- ----------- Shareholders' Equity: Preferred Stock ($.01 par value), 5,000 shares authorized, none issued Common Stock ($.01 par value), 45,000 shares authorized; 16,046 outstanding; 19,546 outstanding as adjusted (1).......................................................................... 160 195 Additional paid-in-capital.................................................... 377,450 460,500 Distributions in excess of net income......................................... (34,117) (34,117) ---------- ----------- Total Shareholders' Equity.................................................... 343,493 426,578 ---------- ----------- Total Capitalization............................................................ $ 644,887 $727,972 ---------- ----------- ---------- ----------- - ------------------------ (1) Does not include 4,449 shares reserved for issuance upon exchange of issued and outstanding Units. (2) Includes the effect of the $60 million mortgage loan closed subsequent to June 30, 1994 and assumes that the proceeds from the Offering and the mortgage loan are used to fully retire the Company's line of credit facility and fund new development and acquisition costs.
S-14 SELECTED CONSOLIDATED FINANCIAL DATA The following sets forth selected financial and operating information on a pro forma basis for the Company for the years ended December 31, 1993 and 1992 and for the six months ended June 30, 1993. The pro forma information is presented as if the 1993 Offering and the Reorganization had occurred as of January 1, 1992. Also set forth are selected historical financial data for the Company as of and for the six months ended June 30, 1994, which were derived from the Company's financial statements, which are incorporated by reference in the accompanying Prospectus. The following selected financial information should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" for the Company and the financial statements incorporated by reference in the accompanying Prospectus.
PRO FORMA FOR REORGANIZATION (1) ----------------------------- YEAR ENDED SIX MONTHS SIX MONTHS DECEMBER 31, ENDED JUNE ENDED JUNE ---------------- 30, 1994 30, 1993 1993 1992 ---------- ---------- ------- ------- (IN THOUSANDS, EXCEPT PROPERTIES AND PER SHARE DATA) OPERATING DATA: Revenues: Rental properties....................................... $ 41,843 $39,065 $79,639 $74,439 Property management, maintenance and leasing fees....... 5,393 4,836 11,496 12,248 Construction and development fees....................... 2,963 1,328 4,875 4,370 Interest and other income............................... 1,068 1,095 1,893 1,105 ---------- ---------- ------- ------- Total operating revenue................................... $ 51,267 $46,324 $97,903 $92,162 ---------- ---------- ------- ------- ---------- ---------- ------- ------- Interest expense.......................................... $ 8,723 $ 8,450 $17,280 $16,900 Depreciation and amortization............................. 8,138 9,163 18,078 18,026 Equity in earnings of unconsolidated companies............ 593 147 598 223 Income before minority interest........................... 15,534 11,228 24,978 18,366 Net income................................................ $ 11,420 $ 8,922 $19,076 $14,346 ---------- ---------- ------- ------- ---------- ---------- ------- ------- Net income per share...................................... $ 0.71 $ 0.56 $ 1.19 $ 0.89 ---------- ---------- ------- ------- ---------- ---------- ------- ------- OTHER DATA: Funds from Operations (2)................................. $ 23,238 $20,502 $42,166 $36,624 Funds from Operations per share/Unit...................... $ 1.13 $ 1.00 $ 2.06 $ 1.79 Common Stock outstanding (3).............................. 20,478 20,478 20,478 20,478 Number of Properties at end of period..................... 120 114 114 111 Square feet available at end of period.................... 11,880 10,867 10,867 10,573
JUNE 30, 1994 --------- BALANCE SHEET DATA: Rental property, before accumulated depreciation.......... $589,317 Total assets.............................................. $692,487 Total debt................................................ $301,394 Shareholders' equity...................................... $343,493 - -------------------------- (1) Reflects October, 1993 Reorganization of the Company, including the Reverse Stock Split, the acquisition by the Company of substantially all of the assets of Duke Associates (a group of approximately 170 affiliated partnerships and corporations) and the issuance of an additional 14,001 shares of Common Stock. Presented as if the companies were combined as of January 1, 1992. (2) Funds from Operations, as defined by NAREIT, is net income adjusted for depreciation and amortization and gains or losses from property sales. Funds from Operations does not represent cash flows 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. (3) Includes 4,432 Units as of June 30, 1994 held by persons other than the Company which are exchangeable for Common Stock.
S-15 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS REORGANIZATION AND 1993 OFFERING In the Reorganization, the Company acquired substantially all of the properties and businesses of Duke Associates, a related full-service commercial real estate firm operating primarily in the Midwest, effected a 1 for 4.2 Reverse Stock Split of its existing shares and issued an additional 14,000,833 shares of Common Stock in the 1993 Offering. Substantially all of the $309.3 million of net proceeds of the 1993 Offering were used to repay indebtedness of the reorganized Company. As a result of the Reorganization, the Company's Properties are owned through the Operating Partnership, of which the Company is the sole general partner and owner of approximately 78% of the Units. Following the Offering, the Company will own approximately 81% of the Units. RESULTS OF OPERATIONS -- SIX MONTHS ENDED JUNE 30, 1994 COMPARED TO PRO FORMA FOR THE SIX MONTHS ENDED JUNE 30, 1993 The revenues from rental properties increased from $39.1 million on a pro forma basis for the six months ended June 30, 1993 to $41.8 million for the six months ended June 30, 1994. This $2.7 million increase is primarily attributed to an expansion of the property portfolio, an increase in the occupancy of the Properties and increasing net effective rents, offset by the establishment of a reserve for accrued straight-line rents receivable of $750,000. Service operations and other revenue increased from $7.3 million on a pro forma basis for the six months ended June 30, 1993 to $9.4 million for the six months ended June 30, 1994. This $2.1 million increase results primarily from increased leasing fees of the managed properties portfolio and increased construction management and development fees resulting from increased construction and development activity. Primarily as a result of the revenue increases above, net income increased from $8.9 million on a pro forma basis for the six months ended June 30, 1993 to $11.4 million for the six months ended June 30, 1994. The occupancy at June 30, 1994 for all of the Properties in which the Company owns a whole or partial interest was 96.1% for the industrial properties (91.2% at June 30, 1993), 92.9% for the office and medical office properties (88.3% at June 30, 1993), and 91.2% for the retail properties (91.3% at June 30, 1993), for an overall occupancy rate of 94.6% (90.8% at June 30, 1993). Management expects occupancy to remain stable because only 6% and 12% of the Company's portfolio is subject to leases expiring in the rest of 1994 and 1995, respectively. FUNDS FROM OPERATIONS Management believes that Funds from Operations is the industry standard for reporting the operations of real estate investment trusts. Funds from Operations were $23.2 million or $1.13 per fully diluted share for the six months ended June 30, 1994 compared to $20.5 million or $1.00 per fully diluted share on a pro forma basis for the six months ended June 30, 1993. This growth is due primarily to portfolio expansion, increased average occupancy of the portfolio and increased earnings from the service operations. At June 30, 1994, the Company had approximately 1.5 million square feet of property under development which was approximately 85% pre-leased. This development is expected to contribute significantly to the Company's future growth of Funds from Operations. See "Recent Developments." While management believes that Funds from Operations is the most relevant and widely used measure of the Company's operating performance, such amounts do 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 are not indicative of cash available to fund all cash flow needs. S-16 LIQUIDITY AND CAPITAL RESOURCES The Company pays regular quarterly dividends with a general policy of distributing no more than 90% of Funds from Operations. The dividend paid in May, 1994 and the dividend payable August 31, 1994 represent 81% of the first and second quarter Funds from Operations, respectively. The Company has in place a $60.0 million revolving credit facility which is being used to fund existing and new development costs, property acquisitions and to provide working capital when needed. The Company is currently in negotiations with the line of credit lenders to substantially increase the size of the credit facility. The Company closed in August, a seven year, $60.0 million mortgage loan commitment from an institutional lender which bears interest at a fixed rate of 8.72%. Approximately $41 million of this commitment was funded in August, 1994 with the remaining $19 million expected to be funded in September and December of 1994. The proceeds were used to fund land purchases, retire existing debt, replenish working capital and to fund development in process. Additional development costs for new projects and acquisitions will be funded through the proceeds of this Offering, the existing revolving line of credit, the remaining mortgage loan commitment and other construction and acquisition financing. The Company intends to limit its debt to no more than 50% of its total market capitalization. The Company's debt to total market capitalization at June 30, 1994 was 36.7%. Following the Offering, the Company's debt to total market capitalization will be 33.2%, based on a stock price of $25.25 per share. After the Offering, the Company could incur up to 304.5 million of additional debt and remain within its 50% debt to total market capitalization guideline, based on a stock price of $25.25 per share. At June 30, 1994, the Company had mortgage debt outstanding of $243.9 million, a construction loan outstanding of $944,000 and $56.5 million outstanding on its revolving line of credit, for total debt outstanding of $301.4 million. The mortgage debt bears a weighted average interest rate of 6.93% and matures at varying dates through 2018. Scheduled principal amortization on the mortgage debt was $784,000 for the six months ended June 30,1994 and will be $761,000 for the remainder of 1994. The construction loan bears interest at prime plus 1% and matures in October of 1994. The revolving line of credit bears interest at LIBOR plus 2% (effective rate of 6.133% at June 30, 1994) and matures in March 1996. Upon closing of the $60.0 million permanent loan, the pro forma total debt outstanding would bear a weighted average interest rate of 7.29%, of which only 2.6% is currently floating rate debt. A portion of the proceeds of the Offering will be utilized to temporarily payoff the revolving line of credit, making it fully available for future acquisitions and development. The total debt in unconsolidated subsidiaries at June 30, 1994 is $49.2 million, of which the Company's percentage share is $11.0 million. The unconsolidated subsidiary debt has a weighted average interest rate of 6.6% of which only 16.2% is currently floating rate debt. Rental and Service Operation revenue have been the principal sources of capital used to fund the Company's operating expenses, debt service and recurring capital expenditures. Recurring capital expenditures for the first six months of 1994 were $2.2 million. Funds Available for Distribution (Funds from Operations adjusted for straight-line rent and recurring capital expenditures) for the six months ended June 30, 1994 were $20.3 million, resulting in a payout ratio for the dividends for such period of 92.7% of Funds Available for Distribution. At June 30, 1994, scheduled maturities of the mortgage debt were as follows:
MATURITIES -------------- YEAR (IN THOUSANDS) --------------------------------------------------- Through December 31, 1994.......................... $ 761 1995............................................... 6,032 1996............................................... 61,647 1997............................................... 4,124 1998............................................... 88,079 1999............................................... 1,936 2000............................................... 2,350 2001............................................... 2,291 2002............................................... 2,494 2003............................................... 67,643 Thereafter......................................... 6,593 -------------- Total.......................................... $243,950 -------------- --------------
S-17 PROPERTIES GENERAL The Company owns whole or partial interests in (i) the Properties, consisting of 120 industrial, office and retail income-producing properties located in Indiana, Ohio, Illinois, Michigan, Tennessee, Kentucky, Wisconsin and Missouri; (ii) 10 buildings currently under development and (iii) the Land, consisting of approximately 1,000 acres of unencumbered land for future development in Indiana, Ohio, Illinois, Kentucky, and Tennessee. The Properties are comprised of a broad range of product types which include bulk and medium bulk warehouse and distribution facilities, light manufacturing facilities, multi-tenant flex space buildings, suburban office buildings, downtown office buildings, and neighborhood, power and community shopping centers. Substantially all of the Properties were originally developed by the Company. The total square footage in the Properties is approximately 11.9 million, consisting of approximately 7.0 million square feet of industrial space, approximately 3.8 million square feet of office space and approximately 1.1 million square feet of retail space. The average annual net effective rental per leased square foot at June 30, 1994 was $6.66. The total annual net effective rental income of the Properties based upon tenants in occupancy as of June 30, 1994 is approximately $75.8 million, with $27.2 million relating to the industrial Properties, $39.6 million relating to the office Properties and $9.0 million relating to the retail Properties. At June 30, 1994, the Properties were approximately 95% leased. The following table gives a summary of the location and type of Properties by square footage. SQUARE FOOTAGE OF PROPERTIES BY STATE AND TYPE OF PROPERTY
STATE INDUSTRIAL OFFICE RETAIL TOTAL - ----------------------------------------- ---------- ---------- ---------- ------------ Indiana.................................. 3,919,381 1,084,610 440,335 5,444,326 Ohio..................................... 1,806,047 2,489,200 418,827 4,714,074 Illinois................................. 126,000 -- 170,963 296,963 Tennessee................................ 323,700 -- -- 323,700 Kentucky................................. 669,240 -- -- 669,240 Missouri................................. -- -- 32,754 32,754 Michigan................................. -- 245,219 -- 245,219 Wisconsin................................ 153,600 -- -- 153,600 ---------- ---------- ---------- ------------ Total................................ 6,997,968 3,819,029 1,062,879 11,879,876 ---------- ---------- ---------- ------------ ---------- ---------- ---------- ------------ Percent of total..................... 59% 32% 9% 100% ---------- ---------- ---------- ------------ ---------- ---------- ---------- ------------
The following table sets forth the aggregate average percent leased for all of the Properties during the last three years. AVERAGE OCCUPANCY (ALL PROPERTIES)
SQUARE FEET AVERAGE YEAR AVAILABLE OCCUPANCY - -------------------------------------------------------------------- ------------ ------------- Through June 30, 1994............................................... 11,879,876 93.9% 1993................................................................ 10,864,245 92.1% 1992................................................................ 10,572,874 89.3% 1991................................................................ 10,062,903 84.1%
The following table shows lease expirations for leases in place as of June 30, 1994 for each of the ten years beginning with the remainder of 1994 for the Properties, assuming none of the tenants exercises early termination or renewal options. S-18 LEASE EXPIRATIONS (ALL PROPERTIES)
ANNUAL NET PERCENT OF EFFECTIVE ANNUAL NET PERCENT OF NET RENTABLE ANNUAL NET RENT PER EFFECTIVE TOTAL LEASED AREA (IN SQ. EFFECTIVE SQ. FT. RENT SQ. FT. YEAR OF NUMBER OF FT.) SUBJECT RENT UNDER UNDER REPRESENTED REPRESENTED LEASE LEASES TO EXPIRING EXPIRING EXPIRING BY EXPIRING BY EXPIRING EXPIRATION EXPIRING LEASES LEASES (1) LEASES (1) LEASES LEASES - ----------- ----------- ------------ ------------- ----------- ------------- ------------- 1994 114 646,616 $ 3,882,820 $ 6.00 5.12% 5.75% 1995 191 1,323,616 8,411,276 $ 6.35 11.09% 11.77% 1996 206 1,711,087 9,782,094 $ 5.72 12.90% 15.22% 1997 143 1,080,216 7,248,617 $ 6.71 9.56% 9.61% 1998 136 1,562,538 9,046,254 $ 5.79 11.93% 13.90% 1999 88 1,379,023 8,978,952 $ 6.51 11.84% 12.27% 2000 28 883,312 5,889,516 $ 6.67 7.77% 7.86% 2001 20 408,274 3,047,436 $ 7.46 4.02% 3.63% 2002 11 267,898 2,903,379 $ 10.90 3.85% 2.38% 2003 9 154,192 1,809,197 $ 11.73 2.39% 1.37% 2004 and 30 1,827,387 14,828,563 $ 8.14 19.53% 16.24% thereafter --- ------------ ------------- TOTAL 976 11,244,159 $ 75,828,104 $ 6.74 --- ------------ ------------- --- ------------ ------------- - ------------------------ (1) Represents annual net effective rent due from tenants in occupancy as of June 30, 1994. Annual net effective rent equals the average annual rental property revenue over the terms of the respective leases, excluding additional rent due as operating expense reimbursements, landlord allowances for operating expenses and percentage rents.
INDUSTRIAL PROPERTIES The industrial Properties are primarily in industrial or business parks that have been developed by the Company and include all types of warehouse and light manufacturing buildings from multi-tenant flex space facilities providing leased space as small as 1,200 square feet to bulk distribution facilities providing leased space of more than 500,000 square feet. Approximately 73% of the square footage of the industrial properties is contained in bulk distribution facilities. The diversity of industrial buildings allows the Company to cater to many segments of the industrial market and renders the Company less dependent upon any specific market segment. The following table sets forth the aggregate average percent leased and annual net effective rental per leased square foot of available square footage for all of the industrial Properties during the last three years. S-19 AVERAGE OCCUPANCY AND AVERAGE RENTALS (INDUSTRIAL PROPERTIES)
ANNUAL NET EFFECTIVE RENTAL SQUARE FEET AVERAGE PER LEASED SQUARE YEAR AVAILABLE OCCUPANCY FOOT (1) - ------------------------------------------------------------ ----------- -------------- ----------------- Through June 30, 1994....................................... 6,997,968 95.3% $3.97(2)(3) 1993........................................................ 6,235,835 93.2% $4.06(3) 1992........................................................ 5,962,235 89.7% $3.91 1991........................................................ 5,962,235 84.8% $3.92 - ------------------------ (1) Calculated as the average annual rental property revenue over the terms of the respective leases, excluding tenant reimbursements for operating expenses and excluding landlord allowances for operating expenses, divided by the average total square feet under lease during the year. (2) The average annual net effective rental per square foot decreased in the first six months of 1994 because the increase in square footage available relates primarily to bulk warehouse space which provides a lower average annual net effective rent per square foot. (3) During 1993 and the first six months of 1994, 822,128 and 895,194 square feet, respectively, were leased or renewed at an average annual net effective rental per leased square foot of $4.83.
The following table shows lease expirations for leases in place as of June 30, 1994, for each of the ten years beginning with the remainder of 1994, for the industrial Properties, assuming none of the tenants exercises early termination or renewal options. LEASE EXPIRATIONS (INDUSTRIAL PROPERTIES)
ANNUAL NET NET PERCENT OF PERCENT OF RENTABLE EFFECTIVE ANNUAL NET TOTAL AREA (IN ANNUAL NET RENT PER EFFECTIVE LEASED SQ. NUMBER SQ. FT.) EFFECTIVE SQ. FT. RENT FT. YEAR OF OF SUBJECT TO RENT UNDER UNDER REPRESENTED REPRESENTED LEASE LEASES EXPIRING EXPIRING EXPIRING BY EXPIRING BY EXPIRING EXPIRATION EXPIRING LEASES LEASES(1) LEASES(1) LEASES LEASES - ---------- -------- ---------- ----------- --------- ----------- ----------- 1994 41 482,663 $ 2,197,220 $ 4.55 8.07% 7.18% 1995 62 754,801 2,689,445 $ 3.56 9.87% 11.22% 1996 73 1,119,598 3,978,869 $ 3.55 14.61% 16.65% 1997 38 596,879 2,288,973 $ 3.83 8.40% 8.88% 1998 45 1,085,355 4,249,120 $ 3.91 15.60% 16.14% 1999 30 901,996 3,623,537 $ 4.02 13.30% 13.41% 2000 13 634,889 2,682,186 $ 4.22 9.85% 9.44% 2001 7 271,576 1,519,722 $ 5.60 5.58% 4.04% 2002 1 600 4,660 $ 7.77 .02% .01% 2003 -- -- -- -- -- -- 2004 and 10 876,938 4,009,043 $ 4.57 14.70% 13.03% thereafter --- ---------- ----------- TOTAL 320 6,725,295 $27,242,775 $ 4.05 --- ---------- ----------- --- ---------- ----------- - ------------------------ (1) Represents annual net effective rent due from tenants in occupancy as of June 30, 1994. Annual net effective rent equals the average annual rental property revenue over the terms of the respective leases, excluding additional rent due as operating expense reimbursements, landlord allowances for operating expenses and percentage rents.
S-20 OFFICE PROPERTIES The Company's portfolio of office Properties includes three downtown buildings as well as 39 suburban office buildings located in developed business parks and mixed-use developments with excellent interstate access and visibility. The Company believes that all of its office Properties are among the highest in quality available to tenants in its markets. This diverse mix of office buildings is occupied by tenants spanning all segments of the office market. The following table sets forth the aggregate average percent leased and annual net effective rental per leased square foot of available square footage for all of the office Properties during the last three years. AVERAGE OCCUPANCY AND AVERAGE RENTALS (OFFICE PROPERTIES)
ANNUAL NET EFFECTIVE RENTAL SQUARE FEET AVERAGE PER LEASED SQUARE YEAR AVAILABLE OCCUPANCY FOOT (1) - ------------------------------------------------------------ ----------- -------------- ----------------- Through June 30, 1994....................................... 3,819,029 92.1% $10.92(2) 1993........................................................ 3,811,904 90.5% $10.91(2) 1992........................................................ 3,811,904 88.9% $10.89 1991........................................................ 3,305,162 83.7% $10.75 - ------------------------ (1) Calculated as the average annual rental property revenue over the terms of the respective leases, excluding tenant reimbursements for operating expenses and excluding landlord allowances for operating expenses, divided by the average total square feet under lease during the year. (2) During 1993 and the first six months of 1994, 670,686 and 196,791 square feet, respectively, were leased or renewed at an average annual net effective rental per leased square foot of $10.28.
The following table shows lease expirations for leases in place as of June 30, 1994, for each of the ten years beginning with the remainder of 1994, for the office Properties, assuming none of the tenants exercises early termination or renewal options. S-21 LEASE EXPIRATIONS (OFFICE PROPERTIES)
NET RENTABLE ANNUAL NET PERCENT OF PERCENT OF AREA (IN EFFECTIVE ANNUAL NET TOTAL SQ. FT.) ANNUAL NET RENT PER EFFECTIVE LEASED SQ. NUMBER SUBJECT EFFECTIVE SQ. FT. RENT FT. YEAR OF OF TO RENT UNDER UNDER REPRESENTED REPRESENTED LEASE LEASES EXPIRING EXPIRING EXPIRING BY EXPIRING BY EXPIRING EXPIRATION EXPIRING LEASES LEASES (1) LEASES (1) LEASES LEASES - ---------- -------- --------- ----------- ---------- ----------- ----------- 1994 52 122,042 $ 1,255,969 $10.29 3.18% 3.44% 1995 104 499,305 5,024,927 $10.06 12.71% 14.07% 1996 89 437,194 4,395,010 $10.05 11.12% 12.32% 1997 71 384,878 3,887,406 $10.10 9.83% 10.84% 1998 64 396,145 3,927,893 $ 9.92 9.93% 11.16% 1999 42 431,209 4,796,290 $11.12 12.13% 12.15% 2000 9 199,693 2,767,454 $13.86 7.00% 5.63% 2001 10 107,798 1,261,727 $11.70 3.19% 3.04% 2002 4 174,853 2,055,108 $11.75 5.20% 4.93% 2003 5 117,696 1,479,320 $12.57 3.74% 3.32% 2004 and 9 678,544 8,689,089 $12.81 21.97% 19.10% thereafter --- --------- ----------- TOTAL 459 3,549,357 $39,540,193 $11.14 --- --------- ----------- --- --------- ----------- - ------------------------ (1) Represents annual net effective rent due from tenants in occupancy as of June 30, 1994. Annual net effective rent equals the average annual rental property revenue over the terms of the respective leases, excluding additional rent due as operating expense reimbursements, landlord allowances for operating expenses and percentage rents.
RETAIL PROPERTIES The retail Properties, which also cater to a variety of retail markets, include one regional shopping center, 10 neighborhood shopping centers, three shopping centers designed primarily to serve the business parks in which they are located and three free-standing single tenant buildings. The retail Properties are generally located in upscale suburban and high growth areas. The following table sets forth the aggregate average percent leased and annual net effective rental per leased square foot for all of the retail Properties during the last three years. AVERAGE OCCUPANCY AND AVERAGE RENTALS (RETAIL PROPERTIES)
ANNUAL NET EFFECTIVE RENTAL SQUARE FEET AVERAGE PER LEASED SQUARE YEAR AVAILABLE OCCUPANCY FOOT (1) - ------------------------------------------------------------ ----------- -------------- ----------------- Through June 30, 1994....................................... 1,062,879 90.8% $8.92(2) 1993........................................................ 816,506 91.2% $9.04(2) 1992........................................................ 795,506 87.2% $8.85 1991........................................................ 795,506 81.0% $8.70 - ------------------------ (1) Calculated as the average annual rental property revenue over the terms of the respective leases, excluding tenant reimbursements for operating expenses and excluding landlord allowances for operating expenses, divided by the average total square feet under lease during the year. (2) During 1993 and the first six months of 1994, 73,668 and 60,008 square feet, respectively, were leased or renewed at an average annual net effective rental per leased square foot of $11.28.
S-22 The following table shows lease expirations for leases in place as of June 30, 1994, for each of the ten years beginning with the remainder of 1994, for the retail Properties, assuming none of the tenants exercises early termination or renewal options. LEASE EXPIRATIONS (RETAIL PROPERTIES)
NET ANNUAL RENTABLE NET PERCENT OF PERCENT OF AREA (IN EFFECTIVE ANNUAL NET TOTAL SQ. FT.) ANNUAL NET RENT PER EFFECTIVE LEASED SQ. NUMBER SUBJECT EFFECTIVE SQ. FT. RENT FT. YEAR OF OF TO RENT UNDER UNDER REPRESENTED REPRESENTED LEASE LEASES EXPIRING EXPIRING EXPIRING BY EXPIRING BY EXPIRING EXPIRATION EXPIRING LEASES LEASES(1) LEASES(1) LEASES LEASES - ---------- -------- -------- ---------- --------- ----------- ----------- 1994 21 41,911 $ 429,631 $10.25 4.75% 4.32% 1995 26 69,510 696,904 $10.03 7.71% 7.17% 1996 43 154,295 1,408,215 $ 9.13 15.57% 15.91% 1997 34 98,459 1,072,238 $10.89 11.85% 10.16% 1998 27 81,038 869,241 $10.73 9.61% 8.36% 1999 16 45,818 559,125 $12.20 6.18% 4.73% 2000 6 48,730 439,876 $ 9.03 4.86% 5.03% 2001 3 28,900 265,987 $ 9.20 2.94% 2.98% 2002 6 92,445 843,611 $ 9.13 9.33% 9.54% 2003 4 36,496 329,877 $ 9.04 3.65% 3.76% 2004 and 11 271,905 2,130,431 $ 7.84 23.55% 28.04% thereafter --- -------- ---------- TOTAL 197 969,507 $9,045,136 $ 9.33 --- -------- ---------- --- -------- ---------- - ------------------------ (1) Represents annual net effective rent due from tenants in occupancy as of June 30, 1994. Annual net effective rent equals the average annual rental property revenue over the terms of the respective leases, excluding additional rent due as operating expense reimbursements, landlord allowances for operating expenses and percentage rents.
LAND Substantially all the Land is located adjacent to the Properties in industrial or business parks that have been developed by the Company. Approximately 80% of the Land is zoned for industrial use, with the remainder zoned for either office or retail use. All of the Land is unencumbered, has available to it appropriate utilities and is ready for immediate development. The Company believes that approximately 125 buildings containing approximately 13.3 million square feet of commercial development can be constructed on the Land. The Company believes that the Land gives it a competitive advantage over other real estate companies operating in its markets. The following table describes the acreage and zoning of the Land as of June 30, 1994. S-23 LAND HELD FOR DEVELOPMENT
YEAR COMPANY'S DESCRIPTION/LOCATION ZONED USE ACQUIRED ACREAGE OWNERSHIP - -------------------------------------- ----------- ----------- ----------- -------------- Park 100 Business Park Industrial 1972-1993 353.1 100% Indianapolis, IN South Park Business Center Industrial 1989 36.1 100% Greenwood, IN Park 50 TechneCenter Industrial 1977/1989 60.9 100% Cincinnati, OH World Park Industrial 1987/1991 126.5 100% Cincinnati, OH Southpark Business Center Industrial 1989 16.8 100% Hebron, KY Governor's Pointe Industrial 1986 51.1 100%(1) Cincinnati, OH Haywood Oaks TechneCenter Industrial 1988 26.7 100% Nashville, TN Park 101 Industrial 1986 60.1 100% Decatur, IL Southpointe Industrial 1994 53.7 100% Columbus, OH Parkwood Crossing Office 1989 45.0 50%(2) Indianapolis, IN Hamilton Crossing Office 1988 94.9 50%(2) Carmel, IN Merchant Street Office 1990 5.6 100% Cincinnati, OH Tri-County Office Park Office 1986 3.2 100% Cincinnati, OH American Center Office 1990 2.6 100% Nashville, TN Corporate Park at Tuttle Crossing Office 1989/1994 16.5 100% Columbus, OH Fidelity Drive Office 1984 10.0 100% Cincinnati, OH South Park Business Center Retail 1989 20.1 100% Greenwood, IN Governor's Plaza Retail 1988 1.1 100% Cincinnati, OH Greenwood Corner Retail 1986 0.4 100% Indianapolis, IN
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YEAR COMPANY'S DESCRIPTION/LOCATION ZONED USE ACQUIRED ACREAGE OWNERSHIP - -------------------------------------- ----------- ----------- ----------- -------------- Coldwater Crossing Retail 1994 8.4 100% Ft. Wayne, IN Sawmill Road Retail 1994 1.5 100% Columbus, OH - ------------------------ (1) Pursuant to a land contract whereby the Company is the purchaser. (2) This Land is owned by a partnership in which the Company is a 50% partner.
TENANTS The Company's Properties have a diverse and stable base of approximately 1,000 tenants. Many of the tenants are Fortune 500 companies and engage in a wide variety of businesses, including manufacturing, retailing, wholesale trade, distribution, and professional services. Approximately 50% of the square footage of the Properties is occupied by tenants with a net worth based on book value of $100 million or greater. More than 80% of the gross leasable area of the Properties is occupied by tenants who have been in business for more than 10 years. The Company renewed 70% of the tenants available to be renewed over the 18 months ended June 30, 1994, on approximately 2 million square feet up for renewal. No single tenant accounts for more than 5% of the Company's total revenues. The following table sets forth information regarding the 10 largest tenants of the Properties based upon 1993 base contractual rental revenue.
LEASE PERCENTAGE 1993 BASE PERCENTAGE OF EXPIRATION SQUARE OF TOTAL RENTAL BASE RENTAL TENANT LOCATION DATE FOOTAGE SQUARE FEET REVENUES (4) RENTAL REVENUES - ------------------------- ------------ ----------- --------- ----------- --------------- --------------- (IN THOUSANDS) General Electric......... Cincinnati Varies(1) 269,011 2.3% $ 3,896 4.7% SDRC..................... Cincinnati 4/30/11 240,513 2.0% 2,286 2.7% Lenscrafters, Inc........ Cincinnati 12/31/99 156,779 1.3% 2,250 2.7% LCI Communications....... Cincinnati 11/30/05 164,639 1.4% 2,195 2.6% Associated Group......... Indianapolis Varies(2) 188,988 1.6% 1,845 2.2% Federated Dept. Stores... Cincinnati 4/30/99(3) 157,584 1.3% 1,820 2.2% Cincinnati Enquirer...... Cincinnati 6/30/12 117,301 1.0% 1,689 2.0% Cincinnati Bell Telephone............... Cincinnati 4/14/96 92,551 .8% 1,629 2.0% Ordernet Services, Inc..................... Cincinnati 9/30/00 106,300 .9% 1.613 2.0% Champion Spark Plugs..... Indianapolis 10/14/98 512,777 4.3% 1,327 1.6% --------- --- ------- --- TOTAL.................... 2,006,443 16.9% $20,550 24.7% --------- --- ------- --- --------- --- ------- --- - ------------------------ (1) General Electric represents a total of 10 leases, with maturities ranging from 1994 to 1997. (2) Associated Group (Blue Cross/Blue Shield) represents a total of seven leases under various tenant names, with maturities ranging from 1996 to 1998. (3) Tenant has exercised an option to terminate 114,434 square feet of the indicated space to relocate in October, 1994 into a new facility being developed on a third party fee basis by the Company. The Company has obtained management of the new facility and is negotiating with prospects to re-lease the space to be vacated. (4) Base rental revenues represent the annualized gross contractual rent as of December 31, 1993 including landlord operating expense allowances and excluding tenant operating expense reimbursements.
S-25 TABLE OF PROPERTIES The following table sets forth information concerning the Company's properties as of June 30, 1994.
COMPANY'S SQUARE PERCENT NAME/LOCATION OWNERSHIP YEAR BUILT FEET LEASED (1) SIGNIFICANT TENANTS (2) - -------------------------- ---------- -------------- ------- ---------- ----------------------------------- INDUSTRIAL Indianapolis, Indiana PARK 100 BUSINESS PARK Building 38 100% 1978 6,000 100% Langford's Collision (100%) Building 43 100% 1971 26,871 100% Integrated Clinical (100%) Building 74 10%-50%(3) 1988 257,400 100% South Carolina Tees (35%), Ternes Packaging - Indiana (65%) Building 76 10%-50%(3) 1988 81,695 100% Telamon Corp. (26%), Howard W. Sams (19%), Pro-Vet Cos., Inc. (25%), Ingersoll-Rand (20%) Building 77 100% 1988 193,400 100% Service Graphics (65%), Federal Mogul Corp. (35%) Building 78 10%-50%(3) 1988 512,777 100% Champion Spark Plug (100%) Building 79 100% 1988 66,000 80% Encor Technologies, Inc. (53%), Braun Media Services, Inc. (13%) Building 80 100% 1988 66,000 88% Data Chem., Inc. (26%), Arcane Leasing Resources (13%), SSI Medical Services (10%), Hercules Hydraulics (12%), Coast to Coast Analytical (20%)
S-26
COMPANY'S SQUARE PERCENT NAME/LOCATION OWNERSHIP YEAR BUILT FEET LEASED (1) SIGNIFICANT TENANTS (2) - -------------------------- ---------- -------------- ------- ---------- ----------------------------------- Building 83 100% 1989 96,000 100% Midwest Roll Forming (30%), Tank Construction (10%), Telamon Corp. (25%), State Lottery Commission (22%), Bel Hybrids & Magnetics (13%) Building 84 100% 1989 96,000 100% Magnetech Corp. (27%), Datagraphic, Inc. (18%), Courterco, Inc. (30%), Nina International, Inc. (25%) Building 85 10%-50%(3) 1989 180,100 100% Pepsico, Inc. (100%) Building 87 10%-50%(3) 1989 350,000 100% Epson America, Inc. (100%) Building 89 10%-50%(3) 1990 311,600 100% Becton Dickinson & Co. (100%) Building 91 10%-50%(3) 1990 144,000 100% Pepsico, Inc. (60%), Cabot Safety Corp. (40%) Building 92 10%-50%(3) 1991 45,917 100% Keebler Company (100%) Building 95 100% 1993 336,000 100% Caterpillar Logistics (100%) Building 109 100% 1985 46,000 82% Createc Corp. (16%), First Data Resources (12%), NBG Ent. (11%), Quick Change (12%), Wabash Valley Power Assoc. (12%) Building 117 10%-50%(3) 1988 135,600 99% Accordia School Benefits (29%) Building 120 10%-50%(3) 1989 54,982 100% Nat'l Retail Hardware (38%), Peoples Bank & Trust (40%)
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COMPANY'S SQUARE PERCENT NAME/LOCATION OWNERSHIP YEAR BUILT FEET LEASED (1) SIGNIFICANT TENANTS (2) - -------------------------- ---------- -------------- ------- ---------- ----------------------------------- Building 122 100% 1990 73,274 96% Haynes & Pittenger (38%), RJE Interiors, Inc. (14%), Acordia Health Industry (28%) Building 125 100% 1994 98,000 100% Day Dream Publishing, Inc. (100%) Building 126 100% 1984 60,100 64% Harlan Bakeries, Inc. (26%), Ackerman Chacco Co., Inc. (14%), Amarr Cos., Inc. (13%), Commercial Movers, Inc. (11%) SHADELAND STATION Buildings 204 & 205 100% 1984 48,600 87% Southwestern Bell (80%) HUNTER CREEK BUSINESS PARK Building 1 10%-50%(3) 1989 86,500 100% Trilithic (41%), Nissin Int'l Transport (22%), Exhaust Prod. Warehouse (15%), Lazarus Real Estate, Inc. (22%) Building 2 10%-50%(3) 1989 202,560 100% Wal-Mart Stores (100%) HILLSDALE TECHNECENTER Building 4 100% 1987 73,874 88% Dugdale Communications (13%), Community Hospitals (31%), Net Midwest, Inc. (12%) Building 5 100% 1987 67,500 92% Wiltrout Sales (17%), Advanced Automation Tech. (12%) Building 6 100% 1987 64,000 100% Adminastar (100%)
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COMPANY'S SQUARE PERCENT NAME/LOCATION OWNERSHIP YEAR BUILT FEET LEASED (1) SIGNIFICANT TENANTS (2) - -------------------------- ---------- -------------- ------- ---------- ----------------------------------- Carmel, Indiana HAMILTON CROSSING Building 1 100% 1989 51,825 86% Charles Schwab & Co. (30%), Bacompt Systems, Inc. (28%) Greenwood, Indiana SOUTH PARK BUSINESS CENTER Building 2 100% 1990 86,806 99% Acordia Construction Benefits (12%), American Electronics, Inc. (10%), Pro Industries (11%) Cincinnati, Ohio (4) PARK 50 TECHNECENTER Building 20 100% 1987 96,000 60% Computer Technology (31%) Building 25 100% 1989 78,328 100% Zonic Corp. (45%), SDRC (25%), Hyper Shoppes, Inc. (30%) GOVERNOR'S POINTE 4700 Building 100% 1987 76,400 89% Allen Bradley Co. (19%), Konica Business Machines (12%) 4800 Building 100% 1989 80,000 92% General Electric (50%), Community Mutual Ins. Co. (27%) 4900 Building 100% 1987 76,400 90% Federated Dept. Stores (57%), Intergraph Corporation (13%) WORLD PARK Building 5 100% 1987 59,700 75% Amerimed Equip. (17%), Pak/ Teem, Inc. (11%)
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COMPANY'S SQUARE PERCENT NAME/LOCATION OWNERSHIP YEAR BUILT FEET LEASED (1) SIGNIFICANT TENANTS (2) - -------------------------- ---------- -------------- ------- ---------- ----------------------------------- Building 6 100% 1987 92,400 100% Caterpillar Logistics (56%), Omnicare, Inc. (26%), Copy Duplicating Products (11%) Building 7 100% 1987 96,000 100% CTL-Aerospace (100%) Building 8 100% 1989 192,000 100% Container Corp. (38%), Duplex Products, Inc. (31%), Dobson Moving & Storage (13%), Perkins Restaurant Co. (18%) Building 9 100% 1989 58,800 89% Lenscrafters (20%), Philips Medical Systems (20%) Building 11 100% 1989 96,000 90% Cincinnati Screen Supply (20%), The U.S. Shoe Corp. (70%) Building 14 100% 1989 166,400 100% Kenco/Microage (62%), Suntory Water Group (12%) Building 15 100% 1990 93,600 100% Stolle Research & Develop (100%) Building 16 100% 1989 93,600 100% Valvoline, Inc. (100%) ENTERPRISE BUSINESS PARK Building A 100% 1990 87,400 95% The Future Now, Inc. (38%), Advanced Office Systems (14%) Building B 100% 1990 84,940 87% General Electric Supply (11%), Payless Cashways, Inc. (18%) Cincinnati, Ohio (4) TRI-COUNTY BUSINESS PARK Xetron 10%(5) 1994 100,193 100% Xetron (100%)
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COMPANY'S SQUARE PERCENT NAME/LOCATION OWNERSHIP YEAR BUILT FEET LEASED (1) SIGNIFICANT TENANTS (2) - -------------------------- ---------- -------------- ------- ---------- ----------------------------------- OTHER INDUSTRIAL -- CINCINNATI U.S. Post Office 40%(6) 1992 57,886 100% U.S. Postal Service (100%) Building Columbus, Ohio PET FOODS Pet Foods Distribution 100% 1993 120,000 100% Pet Foods (100%) Building Hebron, Kentucky (7) SOUTHPARK BUSINESS CENTER Building 1 100% 1990 96,000 100% James & Loretta England (44%), Surgical Laser Technology (33%), Quality Food & Vending (13%), Drysdale Direct Express (10%) Building 3 100% 1991 192,000 73% Cincinnati Terminal Warehouse (73%) CR Services 100% 1994 214,840 100% SKF USA, Inc. (100%) Redken Laboratories 100% 1994 166,400 100% Redken Laboratories, Inc. (100%) Decatur, Illinois PARK 101 BUSINESS CENTER Building 3 100% 1979 75,600 74% Illinois Power Company (12%) Building 8 100% 1980 50,400 84% Federal Express (14%), Decatur Office Systems (14%), Hinckley- Schmitt, Inc. (13%)
S-31
COMPANY'S SQUARE PERCENT NAME/LOCATION OWNERSHIP YEAR BUILT FEET LEASED (1) SIGNIFICANT TENANTS (2) - -------------------------- ---------- -------------- ------- ---------- ----------------------------------- Nashville, Tennessee HAYWOOD OAKS TECHNECENTER Building 2 100% 1988 50,400 100% Beacon Int'l, U.S.A. (19%), Major Video Concepts (31%), Synermed, Inc. (17%) Building 3 100% 1988 52,800 100% Copper & Brass Sales (23%), ATEC Associates, Inc. (30%), Tennessee Scale Works (14%), Virogroup, Inc. (25%) Building 4 100% 1988 46,800 100% US Telecom Inc/ Sprint (62%), Product Assembly (17%) Building 5 100% 1988 60,300 96% Allen-Bradley Co., Inc. (28%) Building 6 100% 1989 113,400 100% Primus Automotive (48%) Milwaukee, Wisconsin Music Box Building 33%(8) 1993 153,600 100% San Francisco Music Box Company, a subsidiary of The Woolworth Companies (100%) OFFICE Indianapolis, Indiana PARK 100 BUSINESS PARK Building 34 100% 1979 22,272 82% James H. Drew Corp. (20%), Indiana Properties, Inc. (12%), Million & Co., P.C. (12%)
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COMPANY'S SQUARE PERCENT NAME/LOCATION OWNERSHIP YEAR BUILT FEET LEASED (1) SIGNIFICANT TENANTS (2) - -------------------------- ---------- -------------- ------- ---------- ----------------------------------- Building 116 100% 1988 35,700 100% Technalysis, Inc. (37%), Woolpert Consultants (37%) Building 118 100% 1988 35,700 100% Benicorp Ins. (33%), Kosene & Kosene Dev. (12%), Construction Magazine Grp. (15%), Acordia Senior Benefits (20%), Policy Management Systems (20%) Building 119 100% 1989 53,300 97% Anthem Health Sys. (91%) CopyRite Building 50%(9) 1992 48,000 100% Alco Standard Corporation (100%) WOODFIELD AT THE CROSSING Two Woodfield Crossing 100% 1987 117,818 90% General Accident Ins. Co. (19%) Three Woodfield Crossing 100% 1989 259,777 90% E.F.S., Inc. (20%), Medi-Span, Inc. (10%) PARKWOOD CROSSING Parkwood I 50%(10) 1990 108,281 98% Tandem Computer (12%), VanGuard Services (11%) SHADELAND STATION 7240 Shadeland Station 67%(11) 1985 45,585 98% Den-Mat Corp. (14%), James River Paper Co., Inc. (44%) 7330 Shadeland Station 100% 1988 42,619 100% American Family Ins. (78%), Medcor Data (12%) 7340 Shadeland Station 100% 1989 32,235 100% Truevision, Inc. (75%), Analysts International (25%)
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COMPANY'S SQUARE PERCENT NAME/LOCATION OWNERSHIP YEAR BUILT FEET LEASED (1) SIGNIFICANT TENANTS (2) - -------------------------- ---------- -------------- ------- ---------- ----------------------------------- 7351 Shadeland Station 100% 1983 27,740 76% Mgmt. Computer (23%), Northside Counseling (11%), Garrison & Kiefer (14%), Action Systems Associates (10%) 7369 Shadeland Station 100% 1989 15,551 100% Truevision, Inc. (70%), Fairbanks Hospital, Inc. (14%), Techsoft Systems, Inc. (16%) 7400 Shadeland Station 100% 1990 49,544 100% Edward B. Morris Assoc. (27%), Ryland Mortgage Company (12%) KEYSTONE AT THE CROSSING F.C. Tucker Building 100% 1978 4,840 100% F. C. Tucker (100%) (12) 3520 Commerce Crossing 100% 1976 30,000 100% Indiana Wesleyan University (100%) (13) Carmel, Indiana CARMEL MEDICAL CENTER Building I (14) 100% 1985 40,060 100% Indiana Institute for Low Back Care (17%), Carmel OB/ GYN (12%) Building II (14) 100% 1989 39,973 100% St. Vincent Sports Med. (35%), St. Vincent Hosp. & Health (31%) Greenwood, Indiana SOUTH PARK BUSINESS CENTER Building 1 100% 1989 39,715 96% Alverno Admin (11%), Brylane L.P. (29%), Cummins Engine Co., Inc. (12%)
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COMPANY'S SQUARE PERCENT NAME/LOCATION OWNERSHIP YEAR BUILT FEET LEASED (1) SIGNIFICANT TENANTS (2) - -------------------------- ---------- -------------- ------- ---------- ----------------------------------- Building 3 100% 1990 35,900 100% United Home Life Ins. (50%), Personnel Management, Inc. (24%), Philip Morris U.S.A. (12%) Cincinnati, Ohio(4) GOVERNOR'S HILL 8600 Governor's Hill 100% 1986 200,584 88% Lenscrafters (72%) 8700 Governor's Hill 100% 1985 58,617 100% General Electric Corp. (100%) 8790 Governor's Hill 100% 1985 58,177 99% General Electric Corp. (28%), Tandem Computers, Inc. (14%) 8800 Governor's Hill 100% 1985 28,700 100% Southern Ohio Telephone (85%) GOVERNOR'S POINTE 4605 Governor's Pointe 100% 1990 175,485 100% GE Capital (72%), Cincom Systems, Inc. (16%) 4705 Governor's Pointe 100% 1988 140,984 100% Federated Dept. Stores (81%), Ford Motor Company (19%) 4770 Governor's Pointe 100% 1986 76,037 66% Siemens Energy (7%) PARK 50 TECHNECENTER SDRC Building 100% 1991 221,215 100% SDRC (100%) 400 TechneCenter Drive 100% 1985 70,644 83% Philip Morris U.S.A. (11%), Clermont Savings Bank (11%) DOWNTOWN CINCINNATI 311 Elm Street (15) 100% 1902/1986(16) 90,127 100% Star Bank (75%), Space Design Interior, Inc. (25%) 312 Plum Street 100% 1987 230,000 90% Cincinnati Bell (29%), Savings & Loan Data Corp. (26%)
S-35
COMPANY'S SQUARE PERCENT NAME/LOCATION OWNERSHIP YEAR BUILT FEET LEASED (1) SIGNIFICANT TENANTS (2) - -------------------------- ---------- -------------- ------- ---------- ----------------------------------- 312 Elm Street (17) 100% 1992 378,000 87% Cincinnati Enquirer (28%), Prudential Insurance Co. (24%), GSA (20%) KENWOOD COMMONS Building I 50%(18) 1986 46,470 100% Digital Communications (100%) Building II 50%(18) 1986 46,434 88% Bethesda Health Care (16%), Cross & Associates (18%) OTHER OFFICE -- CINCINNATI Triangle Office Park 100% 1965/1985(19) 172,650 84% Accufax (10%) Fidelity Drive Building 100% 1972 38,000 100% Reuben H. Donnelley Corp. (100%) Tri-County Office Park 100% 1971, 1973(&20) 102,166 59% Pope & Assoc. (13%) 1982 Columbus, Ohio THE CORPORATE PARK AT TUTTLE CROSSING 4600 Lakehurst 100% 1990 106,300 100% Ordernet Services (100%) 4650 Lakehurst 100% 1990 164,639 100% LCI Communications (Litel) (100%) 5555 Parkcenter 100% 1992 83,971 100% Xerox (33%), Metal Forge (30%), VOCA (28%) Livonia, Michigan SEVEN MILE CROSSING 38705 Seven Mile (21) 100% 1988 113,066 95% Amoco Oil Co. (12%) 38701 Seven Mile (21) 100% 1989 132,153 99% U.S. Sprint Communications (21%)
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COMPANY'S SQUARE PERCENT NAME/LOCATION OWNERSHIP YEAR BUILT FEET LEASED (1) SIGNIFICANT TENANTS (2) - -------------------------- ---------- -------------- ------- ---------- ----------------------------------- RETAIL Indianapolis, Indiana PARK 100 BUSINESS PARK Woodland Shoppes 100% 1989 19,716 70% McTee, Inc. (18%), D.K. Brunchies, Building 121 Inc. (18%), Dr. Jeffrey Golder (11%) Park 100 Retail Center 100% 1978 14,504 80% Little Bit of Italy (20%), The Cleaning Shop (10%), Shoe Hospital Corp. (10%), Park 100 Liquors (21%) CASTLETON CORNER Michael's Plaza 100% 1984 46,374 92% Michael's Arts & Crafts (40%), Hoosier Cash & Carry (28%) Cub Plaza 100% 1986 60,136 93% Pet Food Supermarket (38%), Outback Steakhouse, Inc. (12%) Fort Wayne, Indiana Coldwater Crossing 100% 1990 246,365 93% Cub Foods (26%), Regal Cinemas, Inc. (13%) Greenwood, Indiana GREENWOOD CORNER First Indiana Bank 100% 1988 2,400 100% First Indiana Bank (100%) Branch Greenwood Corner Shoppes 100% 1986 50,840 97% Fraziers Distributing (11%), Drug Emporium (45%) Dayton, Ohio Sugarcreek Plaza 100% 1988 77,940 98% Drug Emporium (31%)
S-37
COMPANY'S SQUARE PERCENT NAME/LOCATION OWNERSHIP YEAR BUILT FEET LEASED (1) SIGNIFICANT TENANTS (2) - -------------------------- ---------- -------------- ------- ---------- ----------------------------------- Cincinnati, Ohio (4) Governor's Plaza 100% 1990 181,493 100% Wal-Mart (63%) King's Mall Shopping 100% 1990 52,661 83% Body Dynamics (26%), Evenson Cards Center I Shop (11%), Grand Oriental (12%) King's Mall Shopping 100% 1988 67,725 100% Pet Food Supermarket (37%), Center II Discovery Zone (15%) Steinberg's 85%(22) 1993 21,008 100% Steinberg's Inc. (100%) Park 50 Plaza 100% 1989 18,000 28% Park 50 Copy (13%) Ellisville, Missouri Ellisville Plaza 100% 1987 32,754 84% Pier I Imports (22%), Fitzpatrick Pharmacy (12%), Outback Steakhouse (20%) Bloomington, Illinois Lakewood Plaza Shopping 100% 1987 84,410 94% Shoe Carnival (21%), Whitlock Center Automotive (14%) Champaign, Illinois Market View 100% 1985 86,553 72% T.J. Maxx (29%), Silo #425 (14%) Livonia, Michigan Cooker Restaurant 100%(23) N/A N/A 100% Cooker Restaurant INDUSTRIAL -- UNDER CONSTRUCTION Indianapolis, Indiana PARK 100 BUSINESS PARK Building 96 100% 1994 553,900 100% Silver Burdett Ginn, Inc. (100%) Building 97 100% 1994 280,800 44% Butler-MacDonald, Inc. (44%)
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COMPANY'S SQUARE PERCENT NAME/LOCATION OWNERSHIP YEAR BUILT FEET LEASED (1) SIGNIFICANT TENANTS (2) - -------------------------- ---------- -------------- ------- ---------- ----------------------------------- OFFICE -- UNDER CONSTRUCTION Columbus, Ohio TUTTLE CROSSING Building 3 100% 1994 49,600 94% Indiana Insurance (50%), Geraghty & Miller, Inc. (39%) Building 4 100% 1994 57,660 100% Sterling Software, Inc. (100%) Building 5 100% 1994 101,200 60% John Alden Life Insurance (60%) MEDICAL OFFICE -- UNDER CONSTRUCTION Columbus, Ohio Veterans Administration 100% 1994 118,000 100% VA Hospital (100%) Clinic Greenwood, Indiana St. Francis Medical 100%(24) 1994 95,579 21%(25) -- Building RETAIL -- UNDER CONSTRUCTION Columbus, Ohio Galyan's Trading Company 100% 1994 74,636 100% Galyan's Trading Co. (100%) Cincinnati, Ohio (4) Kohl's 100% 1994 80,684 100% Kohl's (100%) Sports Unlimited 85% 1994 67,148 100% Cincinnati Sports (76%), Fore Seasons Golf, Inc. (10%), Brown Group Retail, Inc. (14%) - ------------------------ (1) Includes space leased, even if not occupied, as of June 30, 1994. (2) Includes tenants leasing 10% or more of square footage in any one Property (with the percentage of square footage in parentheses) or the largest tenant if no tenant is over 10%. (3) These buildings are owned by a partnership in which the Company is a joint venture partner. The Company owns a 10% capital interest in the partnership and will receive a 50% interest in the residual cash flow after payment of a preferred return to the other partner on its capital interest.
S-39 (4) Properties designated to be in Cincinnati, Ohio may be in the greater Cincinnati area. (5) The Company owns a 10% interest in this building as a limited partner and shares in the cash flow from the building in accordance with such ownership interest. (6) This building is owned by a limited partnership in which the Company has a 1% general partnership interest and a 39% limited partnership interest. The Company shares in the cash flow from such building in accordance with the Company's ownership interest. (7) Although located in Hebron, Kentucky, this is considered part of the greater Cincinnati, Ohio, or Covington, Kentucky area. (8) The Company owns a 33-1/3% interest in this building as a limited partner and shares in the cash flow from the building in accordance with such ownership interest. (9) The Company owns a 50% general partnership interest in this building with the other 50% being owned by the tenant in the building. The Company shares in the cash flow from the building in accordance with such partnership interest. (10) This building is owned by Parkwood Crossing Joint Venture, a partnership in which the Company is a joint venture partner. The Company has a 50% general partnership interest and shares in the cash flow from such building in accordance with such ownership interest after payment of a cumulative preferred return to the other partner. (11) The Company owns a 66.67% general partnership interest in the partnership owning this building. The remaining interest is owned by a former tenant in the building. The Company shares in the cash flow of this building in accordance with the Company's partnership interest. (12) The Company has a leasehold interest in the land underlying this building with a lease term expiring October 31, 2067. (13) The Company has a leasehold interest in the building and the underlying land with a lease term expiring May 9, 2006. (14) The Company owns these buildings and has a leasehold interest in the land underlying these buildings, with the lease term expiring November 16, 2043. (15) The Company has a leasehold interest in the building and the underlying land with a lease term expiring December 31, 2020. The Company has an option to purchase the fee interest in the property at any time. (16) This building was renovated in 1986. (17) A portion of the land underlying this building is held by the Company as a leasehold interest, with the lease term expiring March 31, 2021. (18) These buildings are owned by Kenwood Office Associates, a partnership in which the Company has a 50% general partnership interest. The Company shares in the cash flow from such buildings in accordance with the Company's ownership interest. (19) This building was renovated in 1985. (20) Tri-County Office Park has four buildings. One was built in 1971, two were built in 1973, and one was built in 1982. (21) The Company has a leasehold interest in the land underlying these buildings, with a lease term expiring May 31, 2057, and the Company owns the buildings. (22) The Company has a contractual obligation to acquire a 100% ownership interest in this building, which should occur prior to November 1, 1994.
S-40 (23) The Company holds the land under this building under a long-term lease with the lease term expiring May 31, 2057 and subleases the land to the tenant with the sublease term expiring on August 31, 2009. In the event of a default by the tenant under the sublease, the Company would acquire title to the building upon termination of the sublease. (24) The Company will hold a leasehold interest in the land underlying this owned building upon completion for a term of 50 years commencing when the building is completed, with two 20-year options. (25) This represents leases for which tenants have committed, but for which the actual leases have not been executed.
S-41 MANAGEMENT The directors and executive officers of the Company are as follows:
NAME AGE PRINCIPAL OCCUPATIONS AND OTHER DIRECTORSHIPS - ------------------------- --- --------------------------------------------------------------------------------- John W. Wynne (1) 61 Director and Chairman of the Board; Director of First Indiana Corporation; retired from Bose McKinney & Evans, attorneys. Mr. Wynne is one of the original founders of the Company. Thomas L. Hefner (1) 47 Director; President and Chief Executive Officer. Mr. Hefner joined the Company in 1981 and became Chief Operating Officer in 1986. Before joining the Company he served as a Vice President of Indiana National Bank and Senior Vice President of INB Mortgage Corporation. He has also served as the General Manager of the Company's Indiana operations. Daniel C. Staton (1) 41 Director; Executive Vice President and Chief Operating Officer. Mr. Staton joined the Company in 1981 and has been responsible for the Company's Ohio operations since 1983. Darell E. Zink, Jr. (1) 47 Director; Executive Vice President, Chief Financial Officer and Assistant Secretary; Director of Inland Mortgage Corporation. Mr. Zink, Jr. joined the Company in 1982. He is a former partner of the Indianapolis law firm of Bose McKinney & Evans. Geoffrey Button 45 Director; Executive Director of Wyndham Investments Limited, a property holding company of Allied Lyons Pension Funds which has been an investor in a substantial number of properties developed by the Company; Director of Major Realty, a Florida-based development company. Howard L. Feinsand 46 Director; Senior Vice President of Capital Markets, Pricing and Investor Programs of G E Capital Aviation Services, Inc., a wholly-owned subsidiary of G E Capital Services; formerly managing partner of Golenbock and Barrell, attorneys, from 1987 to 1989. John D. Peterson 60 Director; Chairman and Chief Executive Officer of City Securities Corporation, a securities brokerage firm headquartered in Indianapolis, Indiana which he has served in a variety of positions since 1955; Director of Capital Industries, Inc., a distributor of truck parts and related services, and Lilly Industries, Inc., a manufacturer of industrial coatings. Dr. Sydney C. Reagan 78 Director; Professor Emeritus of Real Estate at Southern Methodist University; Owner of Dr. Syd Reagan Real Estate, a commercial real estate investment and brokerage firm. From 1982 to 1984, Dr. Reagan was Senior Vice President of Robert Laam Company, a commercial real estate brokerage firm. Dr. Reagan was Chairman of the Real Estate Department from 1955 to 1976 and Professor at the Cox School of Business at Southern Methodist University from 1955 to 1981. Dr. Reagan is also a Director of First American Savings Banc. James E. Rogers 46 Director; Chairman, President and Chief Executive Officer of PSI Energy, Inc. since 1988. Mr. Rogers also serves as Chairman and Chief Executive Officer of PSI Resources, Inc. (holding company of PSI Energy, Inc.). Upon the completion of the merger of PSI Resources, Inc. and Cincinnati Gas and Electric, Mr. Rogers will become the Vice Chairman of the merged company (CIN Energy) which will be the thirteenth largest electric generating system in the United States. Mr. Rogers is a Director of NBD Indiana, Inc. and Bankers Life Holding Corporation.
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NAME AGE PRINCIPAL OCCUPATIONS AND OTHER DIRECTORSHIPS - ------------------------- --- --------------------------------------------------------------------------------- Lee Stanfield 87 Director; Currently an independent real estate developer, investor and consultant. Formerly President of Eastern Shopping Centers, Inc., which converted to Mortgage Growth Investors, a publicly traded REIT. Prior to that time, Mr. Stanfield was Senior Vice President and Chief Financial Officer of Winston-Muss Corp., a housing and shopping center developer. Jay J. Strauss 58 Director; Chairman and Chief Executive Officer of Regent Realty Group, Inc., a general real estate and mortgage banking firm. Mr. Strauss served from 1984 to 1988 as Chairman and Chief Executive Officer of Focus Financial Group, a mortgage banking firm. From 1978 to 1984, Mr. Strauss served as President and Chief Executive Officer of the Abacus Group, another mortgage banking firm, and was Chairman of the real estate division of Walter E. Heller & Company (presently known as Heller Financial, Inc.), a commercial finance company. David R. Mennel (1) 40 General Manager of Services Operations. Mr. Mennel was with the accounting firm of Peat Marwick Mitchell and Company and the property development firm of Melvin Simon & Associates before joining the Company in 1978. He was previously the Treasurer of the Company. Gary A. Burk (1) 42 President of Construction Services. Mr. Burk joined the Company in 1979, and has been responsible for the Company's construction management operations since 1986. Michael Coletta (1) 43 Vice President of Asset and Property Management. Mr. Coletta joined the Company in 1981 and was awarded the Certified Property Manager designation by the Institute of Real Estate Management in 1989. Dayle M. Eby 42 Vice President, General Counsel and Secretary. Ms. Eby joined the Company in 1989. Prior to that time, Ms. Eby was with the law firm of Bose McKinney & Evans. Dennis D. Oklak 40 Vice President and Treasurer. Mr. Oklak joined the Company in 1986 and has served as the Tax Manager and Controller of Development. Prior to joining the Company, Mr. Oklak was a Senior Manager with the public accounting firm of Deloitte Haskins + Sells. Steven R. Kennedy 37 Vice President of Construction Services. Mr. Kennedy joined the Company in 1986. Prior to that time, Mr. Kennedy was a Project Manager for Charles Pankow Builders, Inc. Richard Horn 36 Vice President of Acquisitions. Mr. Horn joined the Company in 1984. He has served in leasing and development for the Company and has overseen the Nashville and Michigan operations of the Company since 1988 and 1990, respectively. - ------------------------ (1) One of the seven senior officers of the Company
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NAME AGE PRINCIPAL OCCUPATIONS AND OTHER DIRECTORSHIPS - ------------------------- --- --------------------------------------------------------------------------------- Robert Fessler 36 Vice President, Ohio Industrial Group. Mr. Fessler joined the Company in 1987. He has been in his current position since 1989 and has overseen the development of approximately 3,000,000 square feet of industrial property. Prior to joining the Company, Mr. Fessler was a leasing representative with Trammel Crow. Donald Hunter 35 Vice President, Columbus Group. Mr. Hunter joined the Company in 1989 and is responsible for the Columbus development and management activities of the Company. Prior to joining the Company, Mr. Hunter was with Cushman and Wakefield, a national real estate firm. Wayne Lingafelter 36 Vice President, Indiana Office Group. Mr. Lingafelter joined the Company in 1987 and assumed his current duties in 1992. Prior to that time, Mr. Lingafelter was with the management consulting firm of DRI, Inc. William E. Linville 39 Vice President, Indiana Industrial Group. Mr. Linville joined the Company in 1987. Prior to that time, Mr. Linville was Vice President and Regional Manager of the CB Commercial Brokerage Office in Indianapolis. Francis B. Quinn 40 Vice President, Retail Group. Mr. Quinn joined the Company in 1982. Prior to that time, Mr. Quinn was with F.C. Tucker, an Indiana real estate firm.
FEDERAL INCOME TAX CONSIDERATIONS GENERAL The following discussion summarizes certain Federal income tax consequences to an investor in shares of Common Stock. Such discussion is based upon current law. The discussion is focused on the classification of the Company as a REIT and does not address all tax considerations applicable to prospective investors, nor does the discussion give a detailed description of any state, local, or foreign tax considerations. This discussion does not describe all of the aspects of Federal income taxation that may be relevant to a prospective shareholder in light of his or her particular circumstances or to certain types of shareholders (including insurance companies, tax-exempt entities, financial institutions or broker-dealers, foreign corporations and persons who are not citizens or residents of the United States) subject to special treatment under the Federal income tax laws. As used in this section, the term "Company" refers solely to Duke Realty Investments, Inc. EACH PROSPECTIVE PURCHASER IS ADVISED TO CONSULT WITH HIS OR HER OWN TAX ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER OF THE PURCHASE, OWNERSHIP AND SALE OF COMMON STOCK IN AN ENTITY ELECTING TO BE TAXED AS A REAL ESTATE INVESTMENT TRUST, INCLUDING THE FEDERAL, STATE AND LOCAL TAX CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP, SALE AND ELECTION AND OF POTENTIAL CHANGES IN APPLICABLE TAX LAWS. TAXATION OF THE COMPANY GENERAL. The Company expects to continue to be taxed as a REIT for Federal income tax purposes. Management believes that the Company was organized and has operated in such a manner as to meet the requirements for qualification and taxation as a REIT under the Internal Revenue Code of 1986, as amended (the "Code"), and that the Company intends to continue to operate in such a manner. No assurance, however, can be given that the Company will continue to operate in a manner so as to remain qualified as a REIT. In the opinion of Rogers & Wells, which has acted as special tax counsel to the Company ("Special Counsel"), assuming the Company was organized in conformity with and has satisfied the requirements for qualification and taxation as a REIT under the Code for each of its taxable years from and including the first S-44 year for which the Company made the election to be taxed as a REIT, and the assumptions and representations referred to below are true, the proposed methods of operation of the Company, the Operating Partnership and Duke Realty Services Limited Partnership (the "Services Partnership") will permit the Company to continue to qualify to be taxed as a REIT for its current and subsequent taxable years. This opinion is based upon certain assumptions relating to the organization and operation of Duke Services, Inc. ("DSI"), the Operating Partnership and the Services Partnership and is conditioned upon certain representations made by Company personnel and affiliates as to certain factual matters relating to the Company's past operations and the intended manner of future operation of the Company, the Operating Partnership, and the Services Partnership. The opinion is further conditioned upon either the Company's receipt of a favorable ruling from the IRS as to the Operating Partnership's and DSI's shares of gross income of the Services Partnership or the Operating Partnership and DSI not otherwise being allocated more non-qualifying income than is consistent with the 95% income test. See "Taxation of the Company -- Income Tests." Special Counsel is not aware of any facts or circumstances which are inconsistent with these assumptions and representations other than as stated in "Taxation of the Company -- Income Tests." Unlike a tax ruling, an opinion of counsel is not binding upon the IRS, and no assurance can be given that the IRS will not challenge the status of the Company as a REIT for Federal income tax purposes. The Company's qualification and taxation as a REIT has depended and will depend upon, among other things, the Company's ability to meet on a continuing basis, through ownership of assets, actual annual operating results, receipt of qualifying real estate income, distribution levels and diversity of stock ownership, the various qualification tests imposed under the Code discussed below. Special Counsel has not reviewed past compliance with these tests and will not review compliance with these tests on a periodic or continuing basis. Accordingly, no assurance can be given respecting the satisfaction of such tests. See "Taxation of the Company -- Failure to Qualify." The following is a general summary of the Code sections which govern the Federal income tax treatment of a REIT and its shareholders. These sections of the Code are highly technical and complex. This summary is qualified in its entirety by the applicable Code provisions, Treasury Regulations, and administrative and judicial interpretations thereof as currently in effect. If the Company qualifies for taxation as a REIT and distributes to its shareholders at least 95% of its REIT taxable income, it generally is not subject to Federal corporate income taxes on net income that it currently distributes to shareholders. This treatment substantially eliminates the "double taxation" (at the corporate and shareholder levels) that generally results from investment in a corporation. However, the Company will be subject to Federal income tax as follows: (i) the Company will be taxed at regular corporate rates on any undistributed REIT taxable income, including undistributed net capital gains; (ii) under certain circumstances, the Company may be subject to the "alternative minimum tax" on its items of tax preference, if any; (iii) if the Company has net income from prohibited transactions (which are, in general, certain sales or other dispositions of property other than foreclosure property held primarily for sale to customers in the ordinary course of business), such income will be subject to a 100% tax; (iv) if the Company should fail to satisfy the 75% gross income test or the 95% gross income test (as discussed below), and has nonetheless maintained its qualification as a REIT because certain other requirements have been met, it will be subject to a 100% tax on the gross income attributable to the greater of the amount by which the Company fails the 75% or 95% test, multiplied by a fraction intended to reflect the Company's profitability; (v) if the Company should fail to distribute during each calendar year at least the sum of (1) 85% of its REIT ordinary income for such year; (2) 95% of its REIT capital gain net income for such year; and (3) any undistributed taxable income from prior years, it would be subject to a 4% excise tax on the excess of such required distribution over the amounts actually distributed; (vi) if the Company has (1) net income from the sale or other disposition of "foreclosure property" (which is, in general, property acquired by the Company by foreclosure or otherwise on default on a loan secured by the property) which is held primarily for sale to customers in the ordinary course of business; or (2) other non-qualifying income from foreclosure property, it will be subject to tax on such income at the highest corporate level; and (vii) if the Company acquires any asset from a C corporation (I.E., generally a corporation subject to tax at the corporate level) in a transaction in which the S-45 basis of the asset in the Company's hands is determined by reference to the basis of the asset (or any other property) in the hands of the C corporation, and the Company recognizes gain on the disposition of such asset during the 10-year period (the "Restriction Period") beginning on the date on which such asset was acquired by the Company, then, pursuant to guidelines issued by the IRS, the excess of the fair market value of such property at the beginning of the applicable Restriction Period over the Company's adjusted basis in such asset as of the beginning of such Restriction Period will be subject to a tax at the highest regular corporate rate. The results described above with respect to the recognition of built-in gain assume that the Company will make an election pursuant to IRS Notice 88-19 or applicable future administrative rules or Treasury Regulations. REQUIREMENTS FOR QUALIFICATION. The Code defines a REIT as a corporation, trust or association: (1) which is managed by one or more trustees or directors; (2) the beneficial ownership of which is evidenced by transferable shares or by transferable certificates of beneficial interest; (3) which would be taxable as a domestic corporation but for Sections 856 through 859 of the Code; (4) which is neither a financial institution nor an insurance company subject to certain provisions of the Code; (5) which has the calendar year as its taxable year; (6) the beneficial ownership of which is held by 100 or more persons; (7) during the last half of each taxable year not more than 50% in value of the outstanding stock of which is owned, directly or indirectly, by five or fewer individuals (as defined in the Code to include certain entities); and (8) which meets certain income and assets tests, described below. The Company believes it currently satisfies requirements (1) through (7). INCOME TESTS. In order to qualify as a REIT, there are three gross income tests that must be satisfied annually. First, at least 75% of the Company's gross income (excluding gross income from prohibited transactions) for each taxable year must be derived directly or indirectly from investments relating to real property (including "rents from real property", gain from the sale of real property and, in certain circumstances, interest) or from qualified types of temporary investments. Second, at least 95% of the Company's gross income (excluding gross income from prohibited transactions) for each taxable year must be derived from the same items which qualify under the 75% income test or from dividends, interest and gain from the sale or disposition of stock or securities, or from any combination of the foregoing. Third, less than 30% of the Company's gross income (including gross income from prohibited transactions) must be derived from gain in connection with the sale or other disposition of stock or securities held for less than one year, property in a prohibited transaction, and real property held for less than four years (other than involuntary conversions and foreclosure property). Rents received by the Company will qualify as "rents from real property" in satisfying the gross income tests for a REIT described above only if several conditions (related to the relationship of the tenant to the Company, the method of determining the rent payable and nature of the property leased) are met. The Company does not anticipate receiving rents in excess of a de minimis amount that fail to meet these conditions. Finally, for rents received to qualify as "rents from real property," the Company generally must not operate or manage the property or furnish or render services to tenants, other than through an "independent contractor" that is adequately compensated and from whom the Company derives no income; provided, however, that the Company may perform services "usually or customarily rendered" in connection with the rental of space for occupancy only and not otherwise considered "rendered to the occupant." The Company provides certain management, development, construction and other tenant-related services (collectively, "Real Estate Services") with respect to the Properties through the Operating Partnership, which is not an independent contractor. However, with the possible exception of certain services to one or more relatively minor tenants, the services provided to tenants by the Operating Partnership are believed to constitute services usually or customarily furnished or rendered in the geographic market of the Properties in connection with rental of space for occupancy. To the extent services to tenants do not constitute services which are usually or customarily furnished, such services are performed by an independent contractor. S-46 The Company derives a portion of its income from the Operating Partnership's interest as a limited partner in the Services Partnership and its ownership of DSI which is a general partner of the Services Partnership. The Services Partnership receives fees for Real Estate Services with respect to properties that are not owned directly by the Operating Partnership, which fees will not qualify as rents from real property. In addition, the Services Partnership receives fees in consideration for the performance of management and administrative services with respect to Properties not entirely owned by the Operating Partnership. All or a portion of such management and administrative fees will also not qualify as "rents from real property" for purposes of the 75% or 95% gross income tests. Although certain of the Real Estate Services fees allocated from the Services Partnership do not qualify under the 75% or 95% gross income tests as "rents from real property," the Company believes that, at least presently and in the near term, the aggregate amount of such fees (and any other non-qualifying income) allocated to the Company in any taxable year will not cause the Company to exceed the limits on non-qualifying income under the 75% or 95% gross income tests described above. Pursuant to Treasury Regulations, a partner's capital interest in a partnership determines its proportionate interest in the partnership's gross income from partnership assets for purposes of the 75% and 95% gross income tests. The Operating Partnership's capital interest in the Services Partnership is 9% and DSI's capital interest in the Services Partnership is 1%. The partnership agreement of the Services Partnership provides, however, for varying allocations of gross income which differ from capital interests, subject to certain limitations on the aggregate amount of gross income which may be allocated to the Operating Partnership and DSI. The Company has requested a ruling from the IRS that allocations according to capital interests are proper for applying the 75% and 95% gross income tests. Although the Company anticipates a favorable ruling from the IRS, if the Company's ruling request is denied, the Company may be required to return a portion of income and cash distributions received from the Services Partnership to DMI Partnership. Should the potential amount of non-qualifying income in the future create a risk as to the qualification of the Company as a REIT, the Company intends to take action to avoid non-qualification as a REIT. In lieu of the Services Partnership, the Company may elect to have certain Real Estate Services performed through a services corporation in which the Company holds nonvoting stock interests. If this should occur, the Company would be entitled to receive dividends as a shareholder of the services corporation which should be qualifying income for the purposes of the 95% gross income test. However, the Company would not have voting control of this services corporation and the amount of dividends available for distribution to the Company would be reduced below comparable distributions from the Services Partnership because such a services corporation would be subject to a corporate level tax on its taxable income, thereby reducing the amount of cash available for distribution. Furthermore, the Company would need to monitor the value of its stock in a services corporation to ensure that the various asset tests described below are not violated. If the Company fails to satisfy one or both of the 75% or 95% gross income tests for any taxable year, it may nevertheless qualify as a REIT for such year if it is entitled to relief under certain provisions of the Code. It is not possible, however, to state whether in all circumstances the Company would be entitled to the benefit of these relief provisions. Even if these relief provisions apply, a tax would be imposed on certain excess net income. ASSET TESTS. In order for the Company to maintain its qualification as a REIT, at the close of each quarter of its taxable year, it must also satisfy three tests relating to the nature of its assets. First, at least 75% of the value of the Company's total assets must be represented by "real estate assets," cash, cash items, and government securities. Second, not more than 25% of the Company's total assets may be represented by securities other than those in the 75% assets class. Third, of the assets held in securities other than those in the 75% assets class, the value of any one issuer's securities owned by the Company may not exceed 5% of the value of the Company's total assets, and the Company may not own more than 10% of any one issuer's outstanding voting securities (excluding securities of a qualified REIT subsidiary [as defined in the Code] or another REIT). S-47 The Company is deemed to directly hold its proportionate share of all real estate and other assets of the Operating Partnership and should be considered to hold its proportionate share of all assets deemed owned by the Operating Partnership and DSI through their ownership of partnership interests in the Services Partnership and other partnerships. As a result, management believes that more than 75% of the Company's assets are real estate assets. In addition, management does not expect the Company to hold (1) any securities representing more than 10% of any one issuer's voting securities other than DSI, which is a qualified REIT subsidiary, nor (2) securities of any one issuer exceeding 5% of the value of the Company's gross assets (determined in accordance with generally accepted accounting principles). In the event that the Company decides, for the reasons noted above, to conduct Real Estate Services through a services corporation, the Company would expect to create a structure whereby the value of its stock holdings in such services corporation (through the stock held by the Operating Partnership and DSI) would represent less than 5% of the value of the Company's total assets and would represent less than 10% of the services corporation's outstanding voting securities. ANNUAL DISTRIBUTION REQUIREMENTS. The Company, in order to qualify as a REIT, generally must distribute dividends (other than capital gain dividends) to its shareholders in an amount at least equal to (A) the sum of (i) 95% of the Company's "REITs taxable income" (computed without regard to the dividends paid deduction and the REIT's net capital gain), and (ii) 95% of the net income (after tax), if any, from foreclosure property, minus (B) the sum of certain items of non-cash income. In addition, if the Company disposes of any asset during its Restriction Period, the Company will be required to distribute at least 95% of the built-in gain (after tax), if any, recognized on the disposition of such asset. Such distributions must be paid in the taxable year to which they relate, or in the following taxable year if declared before the Company timely files its tax return for such year and if paid on or before the first regular dividend payment after such declaration. To the extent that the Company does not distribute all of its net capital gain or distributes at least 95%, but less than 100%, of its "REIT taxable income," as adjusted, it will be subject to tax on the undistributed amount at regular capital gains and ordinary corporate tax rates. Furthermore, if the Company should fail to distribute during each calendar year at least the sum of (i) 85% of its REIT ordinary income for such year, (ii) 95% of its REIT net capital gain income for such year, and (iii) any undistributed taxable income from prior periods, the Company will be subject to regular capital gains and ordinary corporate tax rates on undistributed income and also may be subject to a 4% excise tax on undistributed income in certain events. The Company believes that it has made and intends to continue to make timely distributions sufficient to satisfy the annual distribution requirements. In this regard, the partnership agreement of the Operating Partnership authorizes the Company, as general partner, to take such steps as may be necessary to cause the Operating Partnership to distribute to its partners an amount sufficient to permit the Company to meet these distribution requirements. It is possible, however, that the Company, from time to time, may not have sufficient cash or other liquid assets to meet the 95% distribution requirement due primarily to the expenditure of cash for nondeductible expenses such as principal amortization or capital expenditures. In such event, the Company may borrow or may cause the Operating Partnership to arrange for short-term or other borrowing to permit the payment of required dividends or pay dividends in the form of taxable stock dividends. If the amount of nondeductible expenses exceeds non-cash deductions, the Operating Partnership may refinance its indebtedness to reduce principal payments and borrow funds for capital expenditures. FAILURE TO QUALIFY. If the Company fails to qualify for taxation as a REIT in any taxable year, the Company will be subject to tax (including any applicable corporate alternative minimum tax) on its taxable income at regular corporate rates. Unless entitled to relief under specific statutory provisions, the Company also will be disqualified from taxation as a REIT for the four taxable years following the year during which qualification was lost. It is not possible to state whether in all circumstances the Company would be entitled to such statutory relief. S-48 OTHER TAX CONSIDERATIONS EFFECT OF TAX STATUS OF OPERATING PARTNERSHIP AND SERVICES PARTNERSHIP AND OTHER PARTNERSHIPS ON REIT QUALIFICATION. All of the Company's investments are through DSI and the Operating Partnership, which in turn hold interests in other partnerships, including the Services Partnership. The Company believes that the Operating Partnership, and each other partnership in which it holds an interest, is properly treated as a partnership for tax purposes (and not as an association taxable as a corporation). If, however, the Operating Partnership were treated as an association taxable as a corporation, the Company would cease to qualify as a REIT. If the Services Partnership or any of the other partnerships were treated as an association taxable as a corporation and the Operating Partnership's interest in such partnership exceeded 10% of the partnership's voting interests or the value of such interest exceeded 5% of the value of the Company's assets, the Company would cease to qualify as a REIT. Furthermore, in such a situation, any partnerships treated as a corporation would be subject to corporate income taxes, and distributions from any such partnership to the Company would be treated as dividends, which are not taken into account in satisfying the 75% gross income test described above and which therefore could make it more difficult for the Company to meet the 75% asset test described above. TAX ALLOCATIONS WITH RESPECT TO THE PROPERTIES. The Operating Partnership was formed by way of contributions of appreciated property (including certain of the Properties) to the Operating Partnership. When property is contributed to a partnership in exchange for an interest in the partnership, the partnership generally takes a carryover basis in that property for tax purposes equal to the adjusted basis of the contributing partner in the property, rather than a basis equal to the fair market value of the property at the time of contribution (this difference is referred to as "Book-Tax Difference"). The partnership agreement of the Operating Partnership requires allocations of income, gain, loss and deduction with respect to a contributed Property be made in a manner consistent with the special rules of Section 704(c) of the Code and the regulations thereunder, which will tend to eliminate the Book-Tax Differences with respect to the contributed Properties over the life of the Operating Partnership. However, because of certain technical limitations, the special allocation rules of Section 704(c) may not always entirely eliminate the Book-Tax Differences on an annual basis or with respect to a specific taxable transaction such as a sale. Thus, the carryover basis of the contributed Properties in the hands of the Operating Partnership could cause the Company (i) to be allocated lower amounts of depreciation and other deductions for tax purposes than would be allocated to the Company if all Properties were to have a tax basis equal to their fair market value at the time of contribution, and (ii) possibly to be allocated taxable gain in the event of a sale of such contributed Properties in excess of the economic or book income allocated to the Company as a result of such sale. The foregoing principles also apply in determining the earnings and profits of the Company for purposes of determining the portion of distributions taxable as dividend income. The application of these rules over time may result in a higher portion of distributions being taxed as dividends than would have occurred had the Company purchased its interests in the Properties at their agreed values. STATE AND LOCAL TAXES. The Company or its shareholders or both may be subject to state, local or other taxation in various state, local or other jurisdictions, including those in which they transact business or reside. The tax treatment in such jurisdictions may differ from the Federal income tax consequences discussed above. S-49 UNDERWRITING Subject to the terms and conditions contained in the underwriting agreement (the "Underwriting Agreement"), the Company has agreed to sell to each of the Underwriters named below, and each of the Underwriters for whom Merrill Lynch, Pierce, Fenner & Smith Incorporated, Alex. Brown & Sons Incorporated, Dean Witter Reynolds Inc., A.G. Edwards & Sons, Inc. and Legg Mason Wood Walker, Incorporated are acting as representatives (the "Representatives") has severally agreed to purchase, the respective number of shares of Common Stock set forth below opposite their respective names. The Underwriting Agreement provides that the obligations of the Underwriters are subject to certain conditions precedent and that the Underwriters will be obligated to purchase all of the shares of Common Stock if any are purchased.
NUMBER OF SHARES UNDERWRITER OF COMMON STOCK - --------------------------------------------------------------------------- ----------------- Merrill Lynch, Pierce, Fenner & Smith Incorporated..................................................... 418,000 Alex. Brown & Sons Incorporated............................................ 418,000 Dean Witter Reynolds Inc................................................... 418,000 A.G. Edwards & Sons, Inc................................................... 418,000 Legg Mason Wood Walker, Incorporated....................................... 418,000 Bear, Stearns & Co. Inc.................................................... 60,000 Dillon, Read & Co. Inc..................................................... 60,000 Kidder, Peabody & Co. Incorporated......................................... 60,000 Lehman Brothers Inc........................................................ 60,000 Oppenheimer & Co., Inc..................................................... 60,000 PaineWebber Incorporated................................................... 60,000 Smith Barney Inc........................................................... 60,000 Wertheim Schroder & Co. Incorporated....................................... 60,000 Advest, Inc................................................................ 30,000 Robert W. Baird & Co. Incorporated......................................... 30,000 J.C. Bradford & Co......................................................... 30,000 City Securities Corporation................................................ 30,000 Cowen & Company............................................................ 30,000 Dain Bosworth Incorporated................................................. 30,000 Doft & Co., Inc............................................................ 30,000 Fahnestock & Co. Inc....................................................... 30,000 First Albany Corporation................................................... 30,000 First of Michigan Corporation.............................................. 30,000 Gruntal & Co., Incorporated................................................ 30,000 Interstate/Johnson Lane Corporation........................................ 30,000 Janney Montgomery Scott Inc................................................ 30,000 Edward D. Jones & Co....................................................... 30,000 Kemper Securities, Inc..................................................... 30,000 McDonald & Company Securities, Inc......................................... 30,000 Morgan Keegan & Company, Inc............................................... 30,000 The Ohio Company........................................................... 30,000
S-50
NUMBER OF SHARES UNDERWRITER OF COMMON STOCK - --------------------------------------------------------------------------- ----------------- Piper Jaffray Inc.......................................................... 30,000 Principal Financial Securities, Inc........................................ 30,000 Raffensperger, Hughes & Co., Inc........................................... 30,000 Ragen MacKenzie Incorporated............................................... 30,000 Rauscher Pierce Refsnes, Inc............................................... 30,000 The Robinson-Humphrey Company, Inc......................................... 30,000 Roney & Co................................................................. 30,000 Stephens Inc............................................................... 30,000 Sutro & Co. Incorporated................................................... 30,000 Traub and Company, Inc..................................................... 30,000 Tucker Anthony Incorporated................................................ 30,000 Utendahl Capital Partners, L.P............................................. 30,000 Wheat, First Securities, Inc............................................... 30,000 ----------------- Total.......................................................... 3,500,000 ----------------- -----------------
John D. Peterson, a Director of the Company, is Chairman of the Board and Chief Executive Officer of City Securities Corporation, which is acting as one of the Underwriters in the Offering. The Representatives have advised the Company that the Underwriters propose initially to offer the Common Stock to the public at the public offering price set forth on the cover page of this Prospectus Supplement, and to certain dealers at such price less a concession not in excess of $.80 per share. The Underwriters may allow, and such dealers may reallow, a discount not in excess of $.10 per share on sales to certain other dealers. After the Offering, the public offering price, concession and discounts may be changed. The Company has granted an option to the Underwriters, exercisable during the 30-day period after the date of this Prospectus Supplement, to purchase up to an aggregate of 525,000 additional shares of Common Stock at the price to the public set forth on the cover page to this Prospectus Supplement, less the underwriting discount. The Underwriters may exercise this option only to cover over-allotments, if any. To the extent that the Underwriters exercise this option, each Underwriter will be obligated, subject to certain conditions, to purchase the number of additional shares of Common Stock proportionate to such Underwriter's initial amount reflected in the foregoing table. The Company and the executive officers of the Company and the Directors have agreed that for a period of 90 days from the date of this Prospectus Supplement they will not, without prior and written consent of the Representatives, offer, sell or otherwise dispose of any shares of Common Stock or any security convertible into or exercisable for shares of Common Stock (except for issuances by the Company pursuant to the Stock Option or Dividend Reinvestment Plans and certain other agreements). The Company has agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended, or to contribute to payments the Underwriters may be required to make in respect thereof. LEGAL MATTERS In addition to the legal opinions referred to under "Legal Opinions" in the accompanying Prospectus, the description of Federal income tax matters contained in this Prospectus Supplement entitled "Federal Income Tax Considerations" is based upon the opinion of Rogers & Wells. S-51 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- NO DEALER, SALESMAN OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS IN CONNECTION WITH THE OFFERING MADE BY THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS NOR ANY SALE MADE HEREUNDER AND THEREUNDER SHALL, UNDER ANY CIRCUMSTANCE, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS SUPPLEMENT OR IN THE PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY STATE IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. ------------------- TABLE OF CONTENTS PROSPECTUS SUPPLEMENT
PAGE --------- Prospectus Supplement Summary..................... S-3 The Company....................................... S-8 Recent Developments............................... S-10 Use of Proceeds................................... S-12 Price Range of Common Stock and Dividend History.......................................... S-13 Capitalization.................................... S-14 Selected Consolidated Financial Data.............. S-15 Management's Discussion and Analysis of Financial Condition and Results of Operations.............. S-16 Properties........................................ S-18 Management........................................ S-42 Federal Income Tax Considerations................. S-44 Underwriting...................................... S-50 Legal Matters..................................... S-51 PROSPECTUS Available Information............................. 2 Incorporation of Certain Documents by Reference... 2 The Company....................................... 3 Use of Proceeds................................... 3 Ratios of Earnings to Fixed Charges............... 3 Description of Debt Securities.................... 4 Description of Preferred Stock.................... 14 Description of Common Stock....................... 20 Plan of Distribution.............................. 21 Legal Opinions.................................... 22 Experts........................................... 22
3,500,000 SHARES [LOGO] COMMON STOCK ------------------- PROSPECTUS SUPPLEMENT ------------------- MERRILL LYNCH & CO. ALEX. BROWN & SONS INCORPORATED DEAN WITTER REYNOLDS INC. A.G. EDWARDS & SONS, INC. LEGG MASON WOOD WALKER INCORPORATED SEPTEMBER 21, 1994 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- APPENDIX Inside front cover page of Prospectus Supplement: On the inside front cover page of the Prospectus Supplement is graphic material entitled "Duke Realty Investments Portfolio Location Map" consisting of (1) a map of the continental United States on which the states of Missouri, Wisconsin, Illinois, Michigan, Indiana, Kentucky, Tennessee and Ohio are shaded and (2) a larger map of such states on which the city of Indianapolis, Indiana is shown as the Corporate Headquarters; the cities of Decatur, Illinois, Detroit, Michigan, Columbus, Ohio, Cincinnati, Ohio and Nashville, Tennessee are shown as Regional Office locations; and the cities of Milwaukee, Wisconsin, St. Louis, Missouri, Bloomington, Illinois, Champaign, Illinois, Decatur, Illinois, Indianapolis, Indiana, Nashville, Tennessee, Detroit, Michigan, Fort Wayne, Indiana, Columbus, Ohio, Dayton, Ohio, Cincinnati, Ohio and Covington, Kentucky are shown as Duke Markets. Inside back cover page of Prospectus Supplement: On the inside back cover page of the Prospectus Supplement are five photographs, as follows: (1) An aerial photograph of a business park, captioned "Park 100 Business Park - Indianapolis IN." (2) A photograph of a building captioned "The Corporate Park at Tuttle Crossing, Xerox (5555 Parkcenter) (Acquired April 1994) - Columbus, OH." (3) A photograph of a building captioned "Park 100 Business Park, Caterpillar Logistics (Building 95) (Completed January 1994) - Indianapolis, IN." (4) A photograph of a building captioned "Southpark Business Center, Redken Laboratories (Completed May 1994) - Covington, KY (Greater Cincinnati Airport Area)." (5) A photograph of a building captioned "Sports Unlimited (Partially Completed July 1994) - Cincinnati, OH." -----END PRIVACY-ENHANCED MESSAGE-----