<PAGE>
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: 33-61361
--------
DUKE REALTY LIMITED PARTNERSHIP
State of Incorporation: IRS Employer ID Number:
Indiana 35-1898425
- ----------------------- -----------------------
Address of principal executive offices:
8888 Keystone Crossing, Suite 1200
----------------------------------
Indianapolis, Indiana 46240
---------------------------
Telephone: (317) 846-4700
--------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------------- -------------
The number of partnership units outstanding as of November 14, 1995 was
28,303,175.
<PAGE>
DUKE REALTY LIMITED PARTNERSHIP
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 Partners' Equity for the nine
months ended September 30, 1995 (Unaudited) 5
Notes to Consolidated Financial Statements (Unaudited) 6-8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 8-15
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
<PAGE>
DUKE REALTY LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
------------- ------------
(Unaudited)
<S> <C> <C>
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 59,602 40,427
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 17,270 11,845
Escrow deposits and other assets 6,997 6,384
--------- ---------
$1,004,311 $ 775,884
--------- ---------
--------- ---------
LIABILITIES AND PARTNERS' 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 3,982 3,174
Other liabilities 5,164 3,564
Tenant security deposits and prepaid rents 4,147 3,472
--------- ---------
Total liabilities 461,487 328,166
--------- ---------
Minority interest 444 420
--------- ---------
Partners' equity 542,380 447,298
--------- ---------
$1,004,311 $ 775,884
--------- ---------
--------- ---------
</TABLE>
See accompanying Notes to Consolidated Financial Statements
- 2 -
<PAGE>
DUKE REALTY LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended September 30, Nine months ended September 30,
-------------------------------- -------------------------------
1995 1994 1995 1994
------- ------- ------- -------
<S> <C> <C> <C> <C>
RENTAL OPERATIONS
Revenues:
Rental income $28,812 $22,558 $80,322 $64,401
Interest and other income 398 300 1,514 705
------- ------- ------- -------
29,210 22,858 81,836 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 4,907 5,163 14,960 13,886
Depreciation and amortization 6,297 4,573 17,400 12,711
General and administrative 459 692 1,428 1,614
------- ------- ------- -------
19,757 16,936 55,958 47,499
------- ------- ------- -------
Earnings from rental operations 9,453 5,922 25,878 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 2,307 2,849 6,289 7,051
Maintenance 386 241 932 728
Office and other 584 609 1,646 1,818
------- ------- ------- -------
3,277 3,699 8,867 9,597
------- ------- ------- -------
Earnings from service operations 1,849 1,269 4,414 4,390
------- ------- ------- -------
Operating income 11,302 7,191 30,292 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 (305) (172) (736) (777)
------- ------- ------- -------
Net income $11,172 $ 9,497 $30,201 $24,426
------- ------- ------- -------
------- ------- ------- -------
Net income per unit $ .39 $ .46 $ 1.15 $ 1.19
------- ------- ------- -------
------- ------- ------- -------
Weighted average number of units outstanding 28,300 20,566 26,281 20,508
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
See accompanying Notes to Consolidated Financial Statements
- 3 -
<PAGE>
DUKE REALTY LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Nine months ended September 30,
-------------------------------
1995 1994
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 30,201 $ 24,426
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 736 777
Straight-line rent adjustment (1,808) (1,710)
Allowance for straight-line rent receivable - 748
Earnings from property sales, net - (2,198)
Construction contracts, net 13,554 (10,335)
Other accrued revenues and expenses, net 2,047 1,364
Equity in earnings of unconsolidated companies (123) (171)
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 62,007 25,612
-------- --------
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) (5,582)
Net investments in and advances to unconsolidated companies (7,744) 139
-------- --------
NET CASH USED BY INVESTING ACTIVITIES (189,244) (88,182)
-------- --------
Cash flows from financing activities:
Contributions from partners 96,452 83,085
Proceeds from indebtedness 196,051 112,563
Payments on indebtedness (105,610) (79,293)
Distributions to partners (36,938) (28,055)
Distributions to minority interest (711) (747)
Deferred financing costs (2,832) (1,845)
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 146,412 85,708
-------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS 19,175 23,138
-------- --------
Cash and cash equivalents at beginning of period 40,427 10,065
-------- --------
Cash and cash equivalents at end of period $ 59,602 $ 33,203
-------- --------
-------- --------
</TABLE>
See accompanying Notes to Consolidated Financial Statements
- 4 -
<PAGE>
DUKE REALTY LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF PARTNERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<S> <C>
Balance at December 31, 1994 $447,298
Net income 30,201
Capital contribution from Duke Realty Investments, Inc. 96,918
Acquisition of property in exchange for limited partnership
interest 4,901
Distributions to partners (36,938)
-------
Balance at September 30, 1995 $542,380
-------
-------
</TABLE>
See accompanying Notes to Consolidated Financial Statements
- 5 -
<PAGE>
DUKE REALTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. FINANCIAL STATEMENTS
The interim condensed consolidated financial statements included herein
have been prepared by Duke Realty Limited Partnership (the "Partnership")
without audit. The statements have been prepared in accordance with
generally accepted accounting principles for interim financial information.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of
normal recurring adjustments) considered necessary for a fair presentation
have been included. These financial statements should be read in
conjunction with the financial statements and notes thereto included in the
Partnership's Annual Financial Statements.
THE PARTNERSHIP
Duke Realty Limited Partnership (the "Partnership") was formed on
October 4, 1993, when Duke Realty Investments, Inc. (the "Predecessor
Company") completed the acquisition of substantially all of the
properties and businesses of Duke Associates, a full-service
commercial real estate firm. In connection with the acquisition, the
Predecessor Company issued an additional 14,000,833 shares of common
stock through an offering (the "Offering"). The Predecessor Company
then contributed all of its properties and related assets and
liabilities along with the net proceeds from the Offering to the
Partnership in exchange for a 78.36% general partnership interest
represented by 16,046,144 partnership units. Duke Associates
contributed its properties to the Partnership subject to their
existing liabilities in exchange for a 21.64% limited partnership
interest represented by 4,432,109 partnership units ("Units"). The
limited partnership units are exchangeable for shares of the
Predecessor Company's common stock on a one-for-one basis.
The acquisition was accounted for under the purchase method. The value of
$466.0 million assigned to the acquired properties and businesses was equal
to the property debt and other net liabilities assumed, of which $302.0
million was repaid from the proceeds of the Predecessor Company's
contribution. The related service businesses are conducted through Duke
Realty Services Limited Partnership (DRSLP) and Duke Construction Limited
Partnership (DCLP), in which the Partnership has an 89% profits interest
and effective control of their operations.
In 1994, the Predecessor Company issued an additional 3,887,300 shares of
Common Stock through an additional offering (the "1994 Offering") and
received net proceeds of $92.1 million. These proceeds were contributed to
the Partnership in exchange for additional partnership units and were used
by the Partnership to fund current development and acquisition costs.
- 6 -
<PAGE>
In 1994, the Predecessor Company acquired an additional interest in the
Partnership through the issuance of 456,375 shares of Common Stock for a
like number of partnership units. The acquired additional interest in the
Partnership was recorded at the fair market value of the Predecessor
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.
On May 23, 1995, the Predecessor 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 Predecessor
Company contributed these proceeds to the Partnership in exchange for
additional partnership units. These proceeds are being used by the
Partnership to fund current development commitments and acquisition costs.
The Predecessor Company owns an 85.3% interest in the Partnership as of
September 30, 1995.
On September 22, 1995, the Partnership 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 Partnership 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 Partnership provides management, leasing, construction, and other
tenant related services to properties in which certain executive officers
have continuing ownership interests. The Partnership was paid fees
totaling $1.5 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 Partnership has an option to purchase the executive
officers' interest in each of the properties.
- 7 -
<PAGE>
4. UNSECURED DEBT OFFERING AND FORWARD TREASURY LOCK AGREEMENT
On September 22, 1995, the Partnership issued $150 million of Unsecured
Notes and settled its $100 million Forward Treasury Lock Agreement
("Agreement") which was entered into in June 1995 to hedge its exposure to
interest rate fluctuations. The Partnership 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:
<TABLE>
<CAPTION>
Coupon Effective
Principal Rate Rate Maturity Date
------------- ------- --------- ------------------
<S> <C> <C> <C> <C>
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
-------------
-------------
</TABLE>
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.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THE PARTNERSHIP
The Partnership was formed on October 4, 1993. The Partnership owns and
operates a portfolio of commercial properties primarily in the Midwest. The
related service operations are conducted through Duke Realty Services
Limited Partnership and Duke Construction Limited Partnership, in which the
Partnership has an 89% profits interest and effective control of their
operations. The consolidated financial statements include the accounts of
the Partnership and its majority-owned or controlled subsidiaries. The
equity interests in these majority-owned or controlled subsidiaries not
owned by the Partnership are reflected as minority interests in the
consolidated financial statements.
In 1994, the Predecessor Company issued an additional 3,887,300 shares
of Common Stock through an additional offering and received net
proceeds of $92.1 million. These proceeds were contributed to the
Partnership in exchange for additional partnership units and were
used by the Partnership to fund current development and acquisition
costs.
In 1994, the Predecessor Company acquired an additional interest in
the Partnership through the issuance of 456,375 shares of Common Stock
for a like number of partnership units. The acquired additional
interest in the Partnership was recorded at the fair market value of
the Predecessor 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 -
<PAGE>
On May 23, 1995, the Predecessor Company issued an additional
3,727,500 shares of Common Stock through an additional offering and
received net proceeds of approximately $96.3 million. The Predecessor
Company contributed these proceeds to the Partnership in exchange for
additional partnership units. These proceeds are being used by the
Partnership to fund current development commitments and acquisition
costs. The Predecessor Company owns an 85.3% interest in the
Partnership as of September 30, 1995.
On September 22, 1995, the Partnership issued $150 million of
Unsecured Notes through a 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 $29.2 million for the three months ended
September 30, 1995. This $6.3 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 $19.8 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 Partnership'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 Partnership-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.
- 9 -
<PAGE>
In September 1994, the Partnership 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 Partnership. As a result of the
exercise of this favorable option, the Partnership recognized an
approximate $2 million gain which is included in earnings from property
sales.
Excluding the impact of earnings from property sales, net income increased
from $7.4 million for the three months ended September 30, 1994 to $11.2
million for the three months ended September 30, 1995.
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 $81.8 million for the nine
months ended September 30, 1995. This $16.7 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 $56.0 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 Partnership-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 Partnership exercised a favorable option to
purchase an asset of an affiliated company. The asset purchased was
mortgage loan to a consolidated subsidiary of the Partnership. As a
result of the exercise of this favorable option, the Partnership
recognized an approximate $2 million gain which is included in
earnings from property sales.
- 10 -
<PAGE>
Excluding the impact of earnings from property sales, net income increased
from $22.2 million for the nine months ended September 30, 1994 to $30.2
million for the nine months ended September 30, 1995.
The following table sets forth information regarding the Partnership's
portfolio of rental properties as of September 30, 1995 and 1994 (in
thousands, except percentages):
<TABLE>
<CAPTION>
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
---- ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
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%
----- ----- ------ ---- ----- ----- ----
----- ----- ------ ---- ----- ----- ----
</TABLE>
Management expects occupancy to remain stable because (i) only 2.6% and
10.4% of the Partnership's total leased square footage is subject to leases
expiring in the remainder of 1995 and 1996, respectively, and (ii) the
Partnership's renewal percentage has averaged 62% during the past 24
months. This stable occupancy, along with increasing rental rates in the
Partnership'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 Partnership's scheduled lease expirations,
including properties under development, based on square footage as of
September 30, 1995 (in thousands except percentages):
<TABLE>
<CAPTION>
Total Percent of
Year of Expiration Industrial Office Retail Portfolio Total
------------------ ---------- -------- ------- --------- ----------
<S> <C> <C> <C> <C> <C>
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
------ ----- ----- ------
------ ----- ----- ------
</TABLE>
The Partnership 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.
- 11 -
<PAGE>
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 (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 Partnership has not yet adopted the new method, the
following table presents the Partnership's FFO under both methods of
calculation for illustrative purposes:
<TABLE>
<CAPTION>
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)
<S> <C> <C> <C> <C>
Net Income $11,172 $ 9,497 $11,172 $ 9,497
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)
------- -------- ------- -------
FUNDS FROM OPERATIONS $17,650 $12,128 $17,245 $11,734
------- -------- ------- -------
------- -------- ------- -------
Weighted average units 28,300 20,566 28,300 20,566
------- -------- ------- -------
------- -------- ------- -------
FFO per weighted average unit $ .62 $ .59 $ .61 $ .57
------- -------- ------- -------
------- -------- ------- -------
Dividends declared per unit $ .49 $ .47 $ .49 $ .47
------- -------- ------- -------
------- -------- ------- -------
FFO payout ratio (1) 79.0% 79.7% 80.3% 82.5%
------- -------- ------- -------
------- -------- ------- -------
</TABLE>
- 12 -
<PAGE>
<TABLE>
<CAPTION>
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)
<S> <C> <C> <C> <C>
Net Income $30,201 $24,426 $30,201 $24,426
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)
------- ------- ------- -------
FUNDS FROM OPERATIONS $48,067 $35,366 $46,936 $34.624
------- ------- ------- -------
------- ------- ------- -------
Weighted average units 26,281 20,508 26,281 20,508
------- ------- ------- -------
------- ------- ------- -------
FFO per weighted average unit $ 1.83 $ 1.72 $ 1.79 $ 1.69
------- ------- ------- -------
------- ------- ------- -------
Dividends declared per unit $ 1.45 $ 1.39 $ 1.45 $ 1.39
------- ------- ------- -------
------- ------- ------- -------
FFO payout ratio (1) 79.2% 80.8% 81.0% 82.2%
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
(1) Calculated as the dividends declared per unit divided by FFO per
weighted average unit.
Management anticipates continued growth in FFO through (i) maintaining and
increasing property occupancy and rental rates through aggressive
management of the Partnership'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
Partnership's tenants and to third parties.
The following table indicates the components of the Partnership's FFO:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
(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 (4,907) (5,163) (14,960) (13,886)
------- ------- ------- -------
Net rental operations 16,371 11,729 44,777 33,031
Service operations, net of minority interest 1,397 1,086 3,504 3,724
Other, net (118) (687) (214) (1,389)
------- ------- ------- -------
FUNDS FROM OPERATIONS-CURRENT METHOD $17,650 $12,128 $48,067 $35,366
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
(1) Consists of the component of FFO from the portfolio of properties
in-service at the date of formation.
(2) Consists of the component of FFO from all properties developed and
placed in-service subsequent to the date of formation.
(3) Consists of the component of FFO from all properties acquired
subsequent to the date of formation.
- 13 -
<PAGE>
While management believes that FFO is the most relevant and widely
used measure of the Partnership's operating performance, such amount
does not represent cash flow from operations as defined by generally
accepted accounting principles, should not be considered as an
alternative to net income as an indicator of the Partnership's
operating performance, and is not indicative of cash available to fund
all cash flow needs.
LIQUIDITY AND CAPITAL RESOURCES
The Partnership pays regular quarterly dividends with a policy of
distributing no more than 90% of FFO. The dividend declared on October
26, 1995 represented 79.0% of third quarter FFO. Rental and Service
Operation revenue are the principal sources of capital available to
fund the Partnership's operating expenses, debt service and recurring
capital expenditures. Net cash provided by operating activities,
totaling $62.0 million for the nine months ended September 30, 1995,
represents the primary source of liquidity to fund distributions to
unitholders and the minority interests and to fund recurring costs
associated with the renovation and re-letting of the Partnership's
properties. Recurring capital expenditures for the nine months ended
September 30, 1995 were $5.1 million. Funds Available for
Distribution (Funds From Operations adjusted for straight-line rent
and recurring capital expenditures) for the nine months ended
September 30, 1995 were $40.7 million, resulting in a payout ratio for
the dividends for such period of 93.5% of Funds Available for
Distribution.
The investing activities of the Partnership 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 Predecessor Company issued 3.7 million
shares of Common Stock through an additional offering and received net
proceeds of approximately $96.3 million. The Predecessor Company
contributed these proceeds to the Partnership in exchange for
additional partnership units. In September 1995, the Partnership
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 Partnership intends to maintain a conservative capital structure.
The Partnership's debt to total market capitalization (defined as the
total market value of all units outstanding plus the outstanding
property indebtedness) ratio at September 30, 1995 was 31.9% compared
to 30.2% at December 31, 1994.
- 14 -
<PAGE>
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 Partnership's debt (in thousands):
<TABLE>
<CAPTION>
Future
Scheduled Future
Year Amortization Maturities Total
---- ------------ ---------- --------
<S> <C> <C> <C>
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
------- ---------- --------
------- ---------- --------
</TABLE>
The Partnership and the Predecessor Company currently have 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 -
<PAGE>
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
Exhibit 27. Financial Data Schedule (EDGAR Filing Only)
- 16 -
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DUKE REALTY LIMITED PARTNERSHIP
-------------------------------
By: Duke Realty Investments, Inc.,
General Partner
Registrant
Date: 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 -
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 59,602
<SECURITIES> 0
<RECEIVABLES> 21,739
<ALLOWANCES> (1,260)
<INVENTORY> 0
<CURRENT-ASSETS> 80,240
<PP&E> 926,934
<DEPRECIATION> (52,203)
<TOTAL-ASSETS> 1,004,311
<CURRENT-LIABILITIES> 48,842
<BONDS> 412,645
<COMMON> 0
0
0
<OTHER-SE> 542,380
<TOTAL-LIABILITY-AND-EQUITY> 1,004,311
<SALES> 0
<TOTAL-REVENUES> 95,762
<CGS> 49,865
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 736
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,960
<INCOME-PRETAX> 30,201
<INCOME-TAX> 0
<INCOME-CONTINUING> 30,201
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 30,201
<EPS-PRIMARY> $1.15
<EPS-DILUTED> 0
</TABLE>
