-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VtAYYXuWEtK6/k3dmxqfDC0t4701raS9U5P22KlpZe99MTJXd1q2fUHTHRLRKjya m71s2RzgKs6hhA1kisSGyg== 0000912057-95-010021.txt : 19951130 0000912057-95-010021.hdr.sgml : 19951130 ACCESSION NUMBER: 0000912057-95-010021 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951114 DATE AS OF CHANGE: 19951114 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: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09044 FILM NUMBER: 95593336 BUSINESS ADDRESS: STREET 1: 8888 KEYSTONE CROSSING STE 1200 CITY: INDIANAPOLIS STATE: IN ZIP: 46240 BUSINESS PHONE: 3175743531 10-Q 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE - - - --- SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1995 ---------------------- or ___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to ___________. ________________________________________________________________________ Commission File Number: 1-9044 ------- DUKE REALTY INVESTMENTS, INC. State of Incorporation: IRS Employer ID Number: Indiana 35-1740409 - - - ----------------------- ----------------------- Address of principal executive offices: 8888 Keystone Crossing, Suite 1200 ---------------------------------- Indianapolis, Indiana 46240 ---------------------------- Telephone: (317) 846-4700 ------------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ------- ------- The number of shares outstanding as of November 14, 1995 was 24,151,729 Common Shares ($.01 par value). DUKE REALTY INVESTMENTS, INC. INDEX PART I - FINANCIAL INFORMATION PAGE ITEM 1. FINANCIAL STATEMENTS Consolidated Balance Sheets as of September 30, 1995 (Unaudited) and December 31, 1994 2 Consolidated Statements of Operations for the three and nine months ended September 30, 1995 and 1994 (Unaudited) 3 Consolidated Statements of Cash Flows for the nine months ended September 30, 1995 and 1994 (Unaudited) 4 Consolidated Statement of Shareholders' Equity for the nine months ended September 30, 1995 (Unaudited) 5 Notes to Consolidated Financial Statements (Unaudited) 6-7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 7-15 PART II - OTHER INFORMATION Item 1. Legal Proceedings 16 Item 2. Changes in Securities 16 Item 3. Defaults Upon Senior Securities 16 Item 4. Submission of Matters to a Vote of Security Holders 16 Item 5. Other Information 16 Item 6. Exhibits and Reports of Form 8-K 16 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS DUKE REALTY INVESTMENTS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
September 30, December 31, 1995 1994 ------------- ------------ (Unaudited) ASSETS Real estate investments: Land and improvements $ 87,778 $ 72,758 Buildings and tenant improvements 700,624 580,794 Construction in progress 76,974 22,967 Land held for development 61,558 47,194 --------- --------- 926,934 723,713 Accumulated depreciation (52,203) (38,058) --------- --------- Net real estate investments 874,731 685,655 Cash and cash equivalents 59,695 40,433 Accounts receivable, net of allowance of $419 and $450 4,990 4,257 Accrued straight-line rents, net of allowance of $841 6,838 5,030 Receivables on construction contracts 8,651 7,478 Investments in and advances to unconsolidated companies 17,158 8,418 Deferred financing costs, net of accumulated amortization of $1,714 and $1,755 8,074 6,390 Deferred leasing and other costs, net of accumulated amortization of $4,318 and $2,702 17,282 11,856 Escrow deposits and other assets 5,997 5,384 --------- --------- $ 1,003,416 $ 774,901 --------- --------- --------- --------- LIABILITIES AND SHAREHOLDERS' EQUITY Indebtedness: Mortgage debt $ 262,645 $ 298,640 Unsecured notes 150,000 - --------- --------- 412,645 298,640 Construction payables and amounts due subcontractors 24,191 9,464 Accounts payable 954 869 Accrued real estate taxes 10,404 8,983 Other accrued expenses 3,956 3,191 Other liabilities 5,164 3,564 Tenant security deposits and prepaid rents 4,147 3,472 --------- --------- Total liabilities 461,461 328,183 --------- --------- Minority interest 5,800 1,334 --------- --------- Common shares ($.01 par value); 45,000 authorized; 24,137 and 20,391 issued and outstanding 241 204 Additional paid-in capital 577,827 481,101 Distributions in excess of net income ( 41,913) (35,921) --------- --------- Total shareholders' equity 536,155 445,384 --------- --------- $1,003,416 $ 774,901 --------- --------- --------- ---------
See accompanying Notes to Consolidated Financial Statements - 2 - DUKE REALTY INVESTMENTS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
Three months ended September 30, Nine months ended September 30, -------------------------------- ------------------------------- 1995 1994 1995 1994 -------- -------- -------- -------- RENTAL OPERATIONS Revenues: Rental income $ 28,812 $22,558 $ 80,322 $64,401 Interest and other income 532 300 1,698 705 ------ ------ ------ ------ 29,344 22,858 82,020 65,106 ------ ------ ------ ------ Operating expenses: Rental expenses 5,579 4,427 15,365 13,006 Real estate taxes 2,515 2,081 6,805 6,282 Interest expense 4,870 5,163 14,923 13,886 Depreciation and amortization 6,297 4,573 17,400 12,711 General and administrative 461 692 1,430 1,614 ------ ------ ------ ------ 19,722 16,936 55,923 47,499 ------ ------ ------ ------ Earnings from rental operations 9,622 5,922 26,097 17,607 ------ ------ ------ ------ SERVICE OPERATIONS Revenues: Property management, maintenance and leasing fees 3,023 2,887 8,279 8,280 Construction management and development fees 1,763 1,776 4,218 4,739 Interest and other income 340 305 784 968 ------ ------ ------ ------ 5,126 4,968 13,281 13,987 ------ ------ ------ ------ Operating expenses: Payroll 2,302 2,849 6,284 7,051 Maintenance 386 241 932 728 Office and other 584 609 1,646 1,818 ------ ------ ------ ------ 3,272 3,699 8,862 9,597 ------ ------ ------ ------ Earnings from service operations 1,854 1,269 4,419 4,390 ------ ------ ------ ------ Operating income 11,476 7,191 30,516 21,997 ------ ------ ------ ------ Earnings from property sales - 2,063 - 2,198 Equity in earnings of unconsolidated companies 175 415 645 1,008 Minority interest in earnings of subsidiaries ( 2,345) (1,984) ( 6,149) (6,098) ------ ------ ------ ------ Net income $ 9,306 $ 7,685 $25,012 $19,105 ------ ------ ------ ------ ------ ------ ------ ------ Net income per share $ .39 $ .48 $ 1.13 $ 1.19 ------ ------ ------ ------ ------ ------ ------ ------ Weighted average number of shares outstanding 24,136 16,122 22,183 16,072 ------ ------ ------ ------ ------ ------ ------ ------
See accompanying Notes to Consolidated Financial Statements - 3 - DUKE REALTY INVESTMENTS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
Nine months ended September 30, ------------------------------ 1995 1994 ------------ ------------ Cash flows from operating activities: Net income $25,012 19,105 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation of buildings and tenant improvements 14,626 10,956 Amortization of deferred financing fees 901 605 Amortization of deferred leasing and other costs 1,873 1,150 Minority interest in earnings of subsidiaries 6,149 6,098 Straight-line rent adjustment (1,808) (1,710) Allowance for straight-line rents receivable - 748 Earnings from property sales, net - (2,198) Construction contracts, net 13,554 (10,335) Other accrued revenues and expenses, net 2,004 1,724 Equity in earnings of unconsolidated companies (123) (171) ------ ------ NET CASH PROVIDED BY OPERATING ACTIVITIES 62,188 25,972 ------ ------ Cash flows from investing activities: Proceeds from property sales 38 3,454 Building, development and acquisition costs (165,584) (80,577) Tenant improvements (8,075) (5,616) Deferred costs and other assets (7,879) (5,593) Net investments in and advances to unconsolidated companies (7,744) 139 ------ ------ NET CASH USED BY INVESTING ACTIVITIES (189,244) (88,193) ------- ------ Cash flows from financing activities: Proceeds from issuance of common shares, net 96,297 83,085 Proceeds from indebtedness 196,051 112,563 Payments on indebtedness (105,610) (79,293) Distributions to shareholders and unitholders (36,877) (28,055) Distributions to minority interest (711) (747) Deferred financing costs (2,832) (1,845) ------ ------ NET CASH PROVIDED BY FINANCING ACTIVITIES 146,318 85,708 ------ ------ NET INCREASE IN CASH AND CASH EQUIVALENTS 19,262 23,487 ------ ------ Cash and cash equivalents at beginning of period 40,433 10,065 ------ ------ Cash and cash equivalents at end of period $ 59,695 $ 33,552 ------ ------ ------ ------
See accompanying Notes to Consolidated Financial Statements - 4 - DUKE REALTY INVESTMENTS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
Additional Distributions Common Paid-in in Excess of Shares Capital Net Income ------ ---------- ------------- Balance at December 31, 1994 $ 204 $481,101 $(35,921) Proceeds from issuance of common shares, net of underwriting discounts and offering costs of $5,767 37 96,354 - Acquisition of minority interest - 372 - Net income - - 25,012 Distributions to shareholders ($1.43 per share) - - (31,004) ------- ------- ------- Balance at September 30, 1995 $ 241 $577,827 $(41,913) ------- ------- ------- ------- ------- -------
See accompanying Notes to Consolidated Financial Statements - 5 - DUKE REALTY INVESTMENTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. FINANCIAL STATEMENTS The interim condensed consolidated financial statements included herein have been prepared by Duke Realty Investments, Inc. (the "Company") without audit. The statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions for Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. These financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's Annual Report to Shareholders. THE COMPANY The Company's rental operations are conducted through Duke Realty Limited Partnership ("DRLP"), of which the Company is the sole general partner and owner of 85.3% of the partnership interests ("Units") as of September 30, 1995. The 14.7% of remaining limited partnership interests are also convertible on a one-for-one basis for shares of Common Stock. The related service operations are conducted through Duke Realty Services Limited Partnership and Duke Construction Limited Partnership, in which the Company's wholly-owned subsidiary, Duke Services, Inc., is the sole general partner. The consolidated financial statements include the accounts of the Company and its majority-owned or controlled subsidiaries. The equity interests in these majority-owned or controlled subsidiaries not owned by the Company are reflected as minority interests in the consolidated financial statements. On September 29, 1994, the Company issued an additional 3,887,300 shares of Common Stock through an additional offering (the "1994 Offering") and received net proceeds of approximately $92.1 million. The proceeds of the 1994 Offering were used to pay down the Company's revolving line of credit and to fund current development and acquisition costs. On May 23, 1995, the Company issued an additional 3,727,500 shares of Common Stock through an additional offering (the "1995 Offering") and received net proceeds of approximately $96.3 million. The proceeds of the 1995 Offering were used to fund current development and acquisition costs. - 6 - On September 22, 1995, the Company issued $150 million of Unsecured Notes through a debt offering (the "1995 Debt Offering"). A portion of the proceeds of the 1995 Debt Offering were used to reduce amounts outstanding on its unsecured revolving credit facility and other mortgage debt and to fund current development and acquisition costs with the remainder of the proceeds to be used for development and acquisition costs expected to be incurred during the remainder of 1995. 2. PROPERTY INDEBTEDNESS The Company has a $100 million unsecured revolving credit facility which is available to fund current development costs and provide working capital. The revolving line of credit matures in April 1998 and bears interest payable monthly at the 30-day London Interbank Offered Rate ("LIBOR") plus 2%. There were no borrowings under the credit facility at September 30, 1995. 3. RELATED PARTY TRANSACTIONS The Company provides management, leasing, construction, and other tenant related services to properties in which certain executive officers have continuing ownership interests. The Company was paid fees totaling $1.5 million and $1.8 million for such services for the nine months ended September 30, 1995 and 1994, respectively. Management believes the terms for such services are equivalent to those available in the market. The Company has an option to purchase the executive officers' interest in each of the properties. 4. UNSECURED DEBT OFFERING AND FORWARD TREASURY LOCK AGREEMENT On September 22, 1995, the Company issued $150 million of Unsecured Notes and settled its $100 million Forward Treasury Lock Agreement (the "Agreement") which was entered into in June 1995 to hedge its exposure to interest rate fluctuations. The Company incurred a loss of $228,000 upon settlement of the Agreement which will be amortized to interest expense over the term of the $100 million Notes. Following is a summary of the terms of the Unsecured Notes:
Coupon Effective Principal Rate Rate Maturity Date --------- ------ --------- ------------------ 2002 Notes $ 50,000,000 7.25% 7.328% September 22, 2002 2005 Notes 100,000,000 7.375% 7.519% September 22, 2005 ----------- $150,000,000 ----------- -----------
The Notes were issued at a discount totaling $1,059,000. This discount is included in deferred leasing and other costs and will be amortized to interest expense over the life of the related Notes. - 7 - 5. SUBSEQUENT EVENTS On October 26, 1995, the Board of Directors declared a dividend of $.49 per share of Common Stock payable on November 30, 1995, to shareholders of record on November 16, 1995. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THE COMPANY The Company was formed in 1985 and qualifies as a real estate investment trust ("REIT") under the provisions of the Internal Revenue Code. The Company is an open-ended, perpetual-life REIT which owns and operates a portfolio of commercial properties primarily in the Midwest. The Company's rental operations are conducted through Duke Realty Limited Partnership, of which the Company is the sole general partner and owner of 85.3% of the partnership interests as of September 30, 1995. The 14.7% of remaining limited partnership interests are also convertible on a one-for- one basis for shares of Common Stock. The related service operations are conducted through Duke Realty Services Limited Partnership and Duke Construction Limited Partnership, in which the Company's wholly-owned subsidiary, Duke Services, Inc., is the sole general partner. The consolidated financial statements include the accounts of the Company and its majority-owned or controlled subsidiaries. The equity interests in these majority-owned or controlled subsidiaries not owned by the Company are reflected as minority interests in the consolidated financial statements. In September 1994, the Company completed the 1994 Offering and received net proceeds of approximately $92.1 million. The proceeds of the 1994 Offering were contributed to DRLP in exchange for additional Units and were used by DRLP to fund current development and acquisition costs. In 1994, as a result of Unitholders exchanging their Units for shares of Common Stock of the Company pursuant to the DRLP Partnership Agreement, the Company also acquired an additional interest in DRLP through the issuance of 456,375 shares of Common Stock for a like number of Units. The acquired additional interest in DRLP was recorded at the fair market value of the Company's common stock on the date of acquisition. The acquisition amount of $11.5 million was allocated to rental property, undeveloped land and investments in unconsolidated companies based on their estimated fair values. - 8 - On May 23, 1995, the Company issued an additional 3,727,500 shares of Common Stock through the 1995 Offering and received net proceeds of approximately $96.3 million. The proceeds of the 1995 Offering were used to fund development commitments and acquisition costs. On September 22, 1995, the Company issued $150 million of Unsecured Notes through the 1995 Debt Offering. A portion of the proceeds of the 1995 Debt Offering were used to reduce amounts outstanding on its unsecured revolving credit facility and other mortgage debt and to fund current development and acquisition costs with the remainder of the proceeds to be used for development and acquisition costs expected to be incurred during the remainder of 1995. RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30, 1995 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 1994 Revenues from rental operations increased from $22.9 million for the three months ended September 30, 1994 to $29.3 million for the three months ended September 30, 1995. This $6.4 million increase is attributable to the expansion of the in-service rental property portfolio through the acquisition and development of 47 properties totaling approximately 5.1 million square feet since September 30, 1994. Operating expenses related to rental operations increased from $16.9 million for the three months ended September 30, 1994 to $19.7 million for the three months ended September 30, 1995. The main components of this increase include $1.6 of additional rental expenses related to the 47 additional in-service properties and $1.7 million of additional depreciation and amortization related to the additional in-service properties. These increases were offset by a $300,000 decrease in interest expense due primarily to lower borrowing levels on the Company's line of credit. Revenues from Service Operations increased from $5.0 million for the three months ended September 30, 1994 to $5.1 million for the three months ended September 30, 1995. This increase was mainly due to increased third party leasing fees. Operating expenses related to Service Operations decreased from $3.7 million for the three months ended September 30, 1994 to $3.3 million for the three months ended September 30, 1995. This decrease was due to the significant increase in Company-owned properties which resulted in increased allocation of operating expenses to such properties, thereby reducing the proportionate amount of such costs attributable to third party fee services. In September 1994, the Company exercised a favorable option to purchase an asset of an affiliated company. The asset purchased was a mortgage loan to a consolidated subsidiary of the Company. As a result of the exercise of this favorable option, the Company recognized an approximate $2 million gain which is included in earning from property sales. - 9 - Excluding the impact of earnings from property sales, net income and net income per weighted average share increased from $5.6 million and $.35 per share, respectively, for the three months ended September 30, 1994 to $9.3 million and $.39 per share for the three months ended September 30, 1995, respectively. RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 1995 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 1994 Revenues from rental operations increased from $65.1 million for the nine months ended September 30, 1994 to $82.0 million for the nine months ended September 30, 1995. This $16.9 million increase is attributable to the expansion of the in-service rental property portfolio through the acquisition and development of 47 properties totaling approximately 5.1 million square feet since September 30, 1994. Operating expenses related to rental operations increased from $47.5 million for the nine months ended September 30, 1994 to $55.9 million for the nine months ended September 30, 1995. The main components of this increase include (i) $2.9 million of additional rental expenses related to the 47 additional in-service properties; (ii) $1.0 million increase in interest expense on borrowings used to fund the acquisition and development costs of the additional in-service properties; and (iii) $4.7 million of additional depreciation and amortization related to the additional in- service properties. Revenues from Service Operations decreased from $14.0 million for the nine months ended September 30, 1994 to $13.3 million for the nine months ended September 30, 1995. This decrease was mainly due to decreased construction management and development fees resulting from decreased third-party construction and development activity. Operating expenses related to Service Operations decreased from $9.6 million for nine months ended September 30, 1994 to $8.9 million for nine months ended September 30, 1995 due to significant growth and development of Company-owned properties which resulted in increased allocation of operating expenses to such properties, thereby reducing the proportionate amount of such costs attributable to third party fee services. In September 1994, the Company exercised a favorable option to purchase an asset of an affiliated company. The asset purchased was mortgage loan to a consolidated subsidiary of the Company. As a result of the exercise of this favorable option, the Company recognized an approximate $2 million gain which is included in earnings from property sales. Excluding the impact of earnings from property sales, net income and net income per weighted average share increased from $16.9 million and $1.05 per share, respectively, for the nine months ended September 30, 1994 to $25.0 million and $1.13 per share for the nine months ended September 30, 1995, respectively. - 10 - The following table sets forth information regarding the Company's portfolio of rental properties as of September 30, 1995 and 1994 (in thousands, except percentages):
SEPTEMBER 30, 1995 IN-SERVICE PROPERTIES UNDER DEVELOPMENT ---------------------------------------------------- ------------------------------------- 1994 1995 Total Percent Total Percent Percent Percent Square of Percent Square of Type Leased Leased Feet Total Leased Feet Total ---- ------- ------- ------ ------- ------- ------ ------- Industrial 94.2% 96.1% 11,078 65% 76.2% 1,518 54% Office 93.4% 92.4% 4,610 27% 79.4% 1,043 37% Retail 93.7% 93.5% 1,392 8% 96.0% 246 9% ----- ----- ------ ----- ----- ----- ----- Total 94.0% 94.9% 17,080 100% 79.1% 2,807 100% ----- ----- ------ ----- ----- ----- ----- ----- ----- ------ ----- ----- ----- -----
Management expects occupancy to remain stable because (i) only 2.6% and 10.4% of the Company's total leased square footage is subject to leases expiring in the remainder of 1995 and 1996, respectively, and (ii) the Company's renewal percentage has averaged 62% during the past 24 months. This stable occupancy, along with increasing rental rates in the Company's markets, should allow the in-service portfolio to continue to provide a comparable level of earnings from rental operations in the future. The following table reflects the Company's scheduled lease expirations, including properties under development, based on square footage as of September 30, 1995 (in thousands except percentages):
Total Percent of Year of Expiration Industrial Office Retail Portfolio Total - - - ------------------ ---------- ------ ------ --------- ---------- 1995 356 105 16 477 2.59% 1996 1,429 410 88 1,927 10.45% 1997 589 587 95 1,271 6.90% 1998 1,688 622 105 2,415 13.10% 1999 1,614 444 125 2,183 11.84% 2000 1,534 394 117 2,045 11.09% 2001 1,442 258 44 1,744 9.46% 2002 205 397 88 690 3.74% 2003 40 117 36 193 1.05% 2004 703 76 13 792 4.30% 2005 and Thereafter 2,206 1,679 811 4,696 25.48% ----- ----- ----- ----- ------ Total Occupied 11,806 5,089 1,538 18,433 100.00% ------ ----- ----- ------ ------- ------ ----- ----- ------ ------- Total Portfolio 12,597 5,652 1,683 19,887 ------ ----- ----- ------ ------- ------ ----- ----- ------ -------
The Company expects to also realize growth in earnings from rental operations as the 2.8 million square feet of properties under development at September 30, 1995 are placed in service. All of this development will be placed in service over the next four quarters as follows: 837,000 square feet in the fourth quarter of 1995; 1,289,000 square feet in the first quarter of 1996; 469,000 square feet in the second quarter of 1996; and 212,000 square feet in the third quarter of 1996. FUNDS FROM OPERATIONS Management believes that Funds From Operations ("FFO"), which is defined by the National Association of Real Estate Investment Trusts as net income or loss excluding gains or losses from debt restructuring and sales of property plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures - 11 - (adjustments for unconsolidated partnerships and joint ventures are calculated to reflect FFO on the same basis), is the industry standard for reporting the operations of real estate investment trusts. In March 1995, NAREIT issued a clarification of its definition of FFO. The clarification provides that amortization of deferred financing costs and depreciation of non-rental real estate assets are no longer to be added back to net income in arriving at FFO. Although the Company has not yet adopted the new method, the following table presents the Company's FFO under both methods of calculation for illustrative purposes:
CURRENT METHOD NEW METHOD ---------------------- ---------------------- THREE MONTHS ENDED THREE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ---------------------- ---------------------- 1995 1994 1995 1994 ---- ---- ---- ---- (in thousands, except per share amounts and percentages) Net Income $ 9,306 $ 7,685 $ 9,306 $ 7,685 Add back: Depreciation and amortization 5,981 4,231 5,981 4,231 Amortization of deferred financing costs and depreciation of non-rental real estate assets 405 394 - - Depreciation and amortization of joint ventures 92 69 92 69 (Gain) loss on property sales - (2,063) - (2,063) Minority interest of unitholders 2,039 1,813 2,039 1,813 ------ ------ ------ ------ FUNDS FROM OPERATIONS $17,823 $12,129 $17,418 $11,735 ------ ------ ------ ------ ------ ------ ------ ------ Weighted average shares/units 28,300 20,566 28,300 20,566 ------ ------ ------ ------ ------ ------ ------ ------ FFO per weighted average share/unit $ .63 $ . 59 $ .62 $ .57 ------ ------ ------ ------ ------ ------ ------ ------ Dividends declared per share/unit $ . 49 $ . 47 $ .49 $ .47 ------ ------ ------ ------ ------ ------ ------ ------ FFO payout ratio (1) 77.8% 79.7% 79.0% 82.5% ------ ------ ------ ------ ------ ------ ------ ------ CURRENT METHOD NEW METHOD ---------------------- ---------------------- NINE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ---------------------- ---------------------- 1995 1994 1995 1994 ---- ---- ---- ---- (in thousands, except per share amounts and percentages) Net Income $25,012 $19,105 $25,012 $19,105 Add back: Depreciation and amortization 16,499 12,106 16,499 12,106 Amortization of deferred financing costs and depreciation of non-rental real estate assets 1,131 742 - - Depreciation and amortization of joint ventures 236 290 236 290 (Gain) loss on property sales - (2,198) - (2,198) Minority interest of unitholders 5,413 5,322 5,413 5,322 ------ ------ ------ ------ FUNDS FROM OPERATIONS $48,291 $35,367 $47,160 $34,625 ------ ------ ------ ------ ------ ------ ------ ------ Weighted average shares/units 26,281 20,508 26,281 20,508 ------ ------ ------ ------ ------ ------ ------ ------ FFO per weighted average share/unit $ 1.84 $ 1.72 $ 1.79 $ 1.69 ------ ------ ------ ------ ------ ------ ------ ------ Dividends declared per share/unit $ 1.45 $ 1.39 $ 1.45 $ 1.39 ------ ------ ------ ------ ------ ------ ------ ------ FFO payout ratio (1) 78.8% 80.8% 81.0% 82.2% ------ ------ ------ ------ ------ ------ ------ ------ - - - ------------------------------------------------------------------------------------------------------------------------
(1) Calculated as the dividends declared per share/unit divided by FFO per weighted average share/unit. - 12 - Management anticipates continued growth in FFO through (i) maintaining and increasing property occupancy and rental rates through aggressive management of the Company's existing portfolio of 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. The following table indicates the components of the Company's FFO:
NINE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ---------------------- ---------------------- 1995 1994 1995 1994 ---- ---- ---- ---- (in thousands, except per share amounts) Rental operations: Original portfolio (1) $14,840 $14,939 $44,414 $43,345 Development (2) 2,768 524 6,896 1,014 Acquisitions (3) 3,402 944 7,546 1,260 Investments in unconsolidated companies 268 485 881 1,298 Interest expense (4,870) (5,163) (14,923) (13,886) ------ ------ ------ ------ Net rental operations 16,408 11,729 44,814 33,031 Service operations, net of minority interest 1,397 1,086 3,504 3,724 Other, net 18 (686) (27) (1,388) ------ ------ ------ ------ FUNDS FROM OPERATIONS-CURRENT METHOD $17,823 $12,129 $48,291 $35,367 ------ ------ ------ ------ ------ ------ ------ ------ - - - ------------------------------------------------------------------------------------------------------------------------
(1) Consists of the component of FFO from the portfolio of properties in- service at October 1993. (2) Consists of the component of FFO from all properties developed and placed in-service subsequent to October 1993. (3) Consists of the component of FFO from all properties acquired subsequent to October 1993. While management believes that FFO is the most relevant and widely used measure of the Company's operating performance, such amount does not represent cash flow from operations as defined by generally accepted accounting principles, should not be considered as an alternative to net income as an indicator of the Company's operating performance, and is not indicative of cash available to fund all cash flow needs. LIQUIDITY AND CAPITAL RESOURCES The Company pays regular quarterly dividends with a policy of distributing no more than 90% of FFO. The dividend declared on October 26, 1995 represented 77.8% of third quarter FFO. Rental and Service Operation revenue are the principal sources of capital available to fund the Company's operating expenses, debt service and recurring capital expenditures. Net cash provided by operating activities, totaling $62.2 million for the nine months ended September 30, 1995, represents the primary source of liquidity to fund distributions to shareholders, unitholders and the minority interests and to fund recurring costs associated with the renovation and re-letting of the Company's properties. Recurring capital expenditures for the nine months ended September 30, 1995 were $5.1 million. Funds Available for Distribution (Funds From Operations - 13 - adjusted for straight-line rent and recurring capital expenditures) for the nine months ended September 30, 1995 were $40.9 million, resulting in a payout ratio for the dividends for such period of 92.9% of Funds Available for Distribution. The investing activities of the Company for the nine months ended September 30, 1995 of $189.2 million were primarily the result of costs incurred for the development and acquisition of 42 properties placed in service during the nine months and 16 properties under development as of September 30, 1995. The estimated remaining development costs for these properties as of September 30, 1995 is $75 million. These investing activities for new property development and acquisitions have been funded through a combination of debt and equity proceeds. In May 1995, the Company issued 3.7 million shares of Common Stock through an additional offering and received net proceeds of approximately $96.3 million. In September 1995, the Company issued $150 million of Unsecured Notes through the 1995 Debt Offering. The proceeds of the equity and debt offerings were used to reduce amounts outstanding on the unsecured revolving credit facility and other mortgage debt and to fund current development and acquisition costs. The Company intends to maintain a conservative capital structure. The Company's debt to total market capitalization (defined as the total market value of all shares and units outstanding plus the outstanding property indebtedness) ratio at September 30, 1995 was 31.9% compared to 30.2% at December 31, 1994 The debt outstanding at September 30, 1995 consists of notes totaling $412.6 million ($150 million or 36% of which is unsecured) with a weighted average interest rate of 7.48% maturing at various dates through 2018 of which only 1.1% is currently floating rate debt. Scheduled principal amortization of debt totaled $1.1 million for the nine months ended September 30, 1995. Following is a summary of the scheduled future amortization and maturities of the Company's debt (in thousands):
FUTURE SCHEDULED FUTURE YEAR AMORTIZATION MATURITIES TOTAL ---- ------------ ---------- ----- 1995 $ 476 $ - $ 476 1996 1,846 62,325 64,171 1997 2,146 - 2,146 1998 2,399 45,216 47,615 1999 2,612 - 2,612 2000 2,706 2,423 5,129 2001 2,365 59,954 62,319 2002 2,574 50,000 52,574 2003 337 68,814 69,151 2004 365 - 365 2005 300 101,779 102,079 Thereafter 4,008 - 4,008 ------ ------- ------- Total $22,134 $390,511 $412,645 ------ ------- ------- ------ ------- -------
- 14 - The Company currently has on file two Form S-3 Registration Statements with the Securities and Exchange Commission which have remaining availability as of September 30, 1995, of approximately $329.8 million to issue additional common stock, preferred stock or senior unsecured debt to fund future investing activities. - 15 - PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS None ITEM 2. CHANGES IN SECURITIES None ITEM 3. DEFAULTS UPON SENIOR SECURITIES None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None ITEM 5. OTHER INFORMATION None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K A report on Form 8-K dated July 27, 1995 was filed with the Commission and includes the unaudited financial statements of Duke Realty Limited Partnership as of March 31, 1995 and 1994. A report on Form 8-K dated September 5, 1995 was filed with the Commission and includes the unaudited financial statements of Duke Realty Limited Partnership as of June 30, 1995 and 1994. Exhibit 27. Financial Data Schedule (EDGAR Filing Only) - 16 - SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. DUKE REALTY INVESTMENTS, INC. Registrant Date: November 14, 1995 /s/ Thomas L. Hefner --------------------------- ----------------------------------- President and Chief Executive Officer /s/ Darell E. Zink, Jr. ----------------------------------- Executive Vice President and Chief Financial Officer /s/ Dennis D. Oklak ----------------------------------- Vice President and Treasurer (Chief Accounting Officer) - 17 - EX-27 2 EXHIBIT 27
5 1,000 9-MOS DEC-31-1994 JAN-01-1995 SEP-30-1995 59,695 0 21,739 (1,260) 0 79,333 926,934 (52,203) 1,003,416 48,816 412,645 241 0 0 535,914 1,003,416 0 95,946 49,862 0 6,149 0 14,923 25,012 0 25,012 0 0 0 25,012 1.13 0
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