<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 March 31, 1996
-----------------
or
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
--------- ---------
- -----------------------------------------------------------------------------
Commission File Number: 0-20625
DUKE REALTY LIMITED PARTNERSHIP
State of Incorporation: IRS Employer ID Number:
Indiana 35-1898425
----------------- ---------------
Address of principal executive offices:
8888 KEYSTONE CROSSING, SUITE 1200
INDIANAPOLIS, INDIANA 46240
TELEPHONE: (317) 846-4700
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
------------- -----------
The number of Limited Partnership Units outstanding as of May 10, 1996
was 3,696,738.
<PAGE>
DUKE REALTY LIMITED PARTNERSHIP
INDEX
PART I - FINANCIAL INFORMATION PAGE
----
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets as of
March 31, 1996 (Unaudited) and December 31, 1995 2
Condensed Consolidated Statements of Operations for the
three months ended March 31, 1996 and 1995 (Unaudited) 3
Condensed Consolidated Statements of Cash Flows for the
three months ended March 31, 1996 and 1995 (Unaudited) 4
Condensed Consolidated Statement of Partners' Equity for
the three months ended March 31, 1996 (Unaudited) 5
Notes to Condensed Consolidated Financial Statements
(Unaudited) 6-8
Independent Accountants' Review Report 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 10-16
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 2. Changes in Securities 17
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to a Vote of
Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports of Form 8-K 17
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DUKE REALTY LIMITED PARTNERSHIP AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
March 31, December 31,
` 1996 1995
-------------- --------------
(Unaudited)
<S> <C> <C>
ASSETS
Real estate investments:
Land and improvements $ 104,287 $ 91,550
Buildings and tenant improvements 811,680 712,614
Construction in progress 101,055 96,698
Land held for development 63,939 62,637
----------- ----------
1,080,961 963,499
Accumulated depreciation (61,766) (56,335)
----------- ----------
Net real estate investments 1,019,195 907,164
Cash and cash equivalents 11,881 5,682
Accounts receivable from tenants,
net of allowance of $593 and $624 5,292 5,184
Accrued straight-line rents, net
of allowance of $841 8,878 8,101
Receivables on construction contracts 11,504 9,462
Investments in unconsolidated companies 68,157 67,771
Deferred financing costs, net of
accumulated amortization of $2,438 and $2,072 8,057 8,141
Deferred leasing and other costs, net of
accumulated amortization of $5,751 and $4,959 21,201 20,609
Escrow deposits and other assets 9,516 14,418
----------- ----------
$ 1,163,681 $1,046,532
----------- ----------
----------- ----------
LIABILITIES AND PARTNERS' EQUITY
Indebtedness:
Mortgage debt $ 282,354 $ 259,820
Unsecured notes 150,000 150,000
Lines of credit 18,000 45,000
----------- ----------
450,354 454,820
Construction payables and amounts
due subcontractors 21,828 21,410
Accounts payable 1,633 1,132
Accrued real estate taxes 11,268 10,374
Accrued interest 1,281 3,461
Other accrued expenses 3,630 5,454
Other liabilities 5,086 5,490
Tenant security deposits and prepaid rents 4,624 3,872
----------- ----------
Total liabilities 499,704 506,013
----------- ----------
Minority interest 292 298
----------- ----------
Partners' equity:
General partner 647,615 535,783
Limited partners 16,070 4,438
----------- ----------
Total partners' equity 663,685 540,221
----------- ----------
$1,163,681 $1,046,532
----------- ----------
----------- ----------
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
- 2 -
<PAGE>
DUKE REALTY LIMITED PARTNERSHIP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended March 31,
1996 1995
------------- ------------
<S> <C> <C>
RENTAL OPERATIONS:
Revenues:
Rental income $ 35,335 25,112
Equity in earnings of
unconsolidated companies 1,202 439
-------- -------
36,537 25,551
-------- -------
Operating expenses:
Rental expenses 7,144 4,884
Real estate taxes 3,208 1,925
Interest expense 7,967 5,145
Depreciation and amortization 7,046 5,592
-------- -------
25,365 17,546
-------- -------
Earnings from rental operations 11,172 8,005
-------- -------
SERVICE OPERATIONS:
Revenues:
Property management, maintenance
and leasing fees 2,714 2,476
Construction management and development fees 1,317 1,155
Other income 315 204
-------- -------
4,346 3,835
-------- -------
Operating expenses:
Payroll 2,235 1,744
Maintenance 296 236
Office and other 632 436
-------- -------
3,163 2,416
-------- -------
Earnings from service operations 1,183 1,419
-------- -------
General and administrative expense (921) (831)
-------- -------
Operating income 11,434 8,593
OTHER INCOME (EXPENSE):
Interest income 344 474
Loss from property sales (14) --
Minority interest in earnings of subsidiaries (187) (193)
-------- -------
Net income $11,577 $ 8,874
-------- -------
-------- -------
Net income per unit $ .40 $ .36
-------- -------
-------- -------
Weighted average number of units outstanding 28,686 24,388
-------- -------
-------- -------
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
- 3 -
<PAGE>
DUKE REALTY LIMITED PARTNERSHIP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
------------------------------
1996 1995
----------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net $11,577 $ 8,874
cash provided by operating activities:
Depreciation of buildings and tenant
improvements 5,936 4,641
Amortization of deferred financing costs 285 378
Amortization of deferred leasing and other costs 825 573
Minority interest in earnings of subsidiaries 187 193
Straight-line rent adjustment (831) (687)
Loss from property sales 14 --
Construction contracts, net (1,624) 2,328
Other accrued revenues and expenses, net (1,879) (360)
Equity in earnings of unconsolidated
companies (185) (42)
-------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 14,305 15,898
-------- -------
Cash flows from investing activities:
Proceeds from property sales, net 2,926 --
Rental property development costs (28,752) (15,690)
Rental property recurring building improvements (32) (65)
Acquisition of rental properties (55,038) (16,680)
Acquisition of undeveloped land (408) (474)
Recurring tenant improvements (1,762) (885)
Recurring leasing costs (632) (285)
Other deferred costs and other assets 4,048 (857)
Net investment in and advances to unconsolidated
companies (215) (40)
-------- -------
NET CASH USED BY INVESTING ACTIVITIES (79,865) (34,976)
-------- -------
Cash flows from financing activities:
Contributions from general partner 113,835 --
Proceeds from indebtedness 74,000 52
Payments on indebtedness (101,532) (1,755)
Distributions to partners (14,069) (11,461)
Distributions to minority interest (193) (251)
Deferred financing costs (282) (129)
-------- -------
NET CASH PROVIDED (USED) BY FINANCING
ACTIVITIES 71,759 (13,544)
-------- -------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 6,199 (32,622)
-------- -------
Cash and cash equivalents at beginning of period 5,682 40,427
-------- -------
Cash and cash equivalents at end of period $11,881 $ 7,805
-------- -------
-------- -------
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
- 4 -
<PAGE>
DUKE REALTY LIMITED PARTNERSHIP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF PARTNERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1996
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNER PARTNERS TOTAL
--------- --------- -------
<S> <C> <C> <C>
Balance at December 31, 1995 $535,783 $ 4,438 $540,221
Net income 9,792 1,785 11,577
Capital contribution from Duke
Realty Investments, Inc. 113,875 -- 113,875
Acquisition of property in
exchange for limited partnership
interest -- 12,081 12,081
Distributions to partners (11,835) (2,234) (14,069)
-------- -------- --------
Balance at March 31, 1996 $647,615 $ 16,070 $663,685
-------- -------- --------
-------- -------- --------
Units outstanding at
March 31, 1996 28,153 4,558 32,711
-------- -------- --------
-------- -------- --------
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
- 5 -
<PAGE>
DUKE REALTY LIMITED PARTNERSHIP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. FINANCIAL STATEMENTS
The interim condensed consolidated financial statements included herein
have been prepared by Duke Realty Limited Partnership (the "Partnership")
without audit. The statements have been prepared in accordance with generally
accepted accounting principles for interim financial information.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of
normal recurring adjustments) considered necessary for a fair presentation
have been included. These financial statements should be read in conjunction
with the consolidated financial statements and notes thereto included in the
Partnership's Annual Financial Statements.
THE PARTNERSHIP
Duke Realty Limited Partnership (the "Partnership") was formed on
October 4, 1993, when Duke Realty Investments, Inc. (the "Predecessor
Company" or the "General Partner") contributed all of its properties and
related assets and liabilities along with the net proceeds of $309.2 million
from the issuance of an additional 14,000,833 shares through an offering
("1993 Offering") to the Partnership. Simultaneously, the Partnership
completed the acquisition of Duke Associates, a full-service commercial real
estate firm operating in the Midwest. The General Partner was formed in 1985
and qualifies as a real estate investment trust under provisions of the
Internal Revenue Code. In connection with the 1993 Offering, the formation of
the Partnership and the acquisition of Duke Associates, the General Partner
effected a 1 for 4.2 reverse stock split of its existing common shares. The
General Partner is the sole general partner of the Partnership and received
16,046,144 units of partnership interest in exchange for its original
contribution which represented a 78.36% interest in the Partnership. As part
of the acquisition, Duke Associates received 4,432,109 units of limited
partnership interest ("Limited Partner Units") (together with the units of
general partner interests, the ("Units")) which represented a 21.64%
interest in the Partnership. The Limited Partner Units are exchangeable for
shares of the General Partner's common stock on a one-for-one basis subject
generally to a one-year holding period.
The service operations are conducted through Duke Realty Services Limited
Partnership ("DRSLP") and Duke Construction Limited Partnership ("DCLP"),
in which the Partnership has an 89% profits interest (after certain preferred
returns on partners' capital accounts) and effective control of their
operations. The consolidated financial statements include the accounts of the
Partnership and its majority-owned or controlled subsidiaries. The equity
interests in these majority-owned or controlled subsidiaries not owned by the
Partnership are reflected as minority interests in the consolidated financial
statements.
On September 29, 1994, the General Partner issued an additional
3,887,300 shares of Common Stock through an additional offering ("1994
Offering") and received net proceeds of $92.1 million. These proceeds were
contributed to the Partnership in exchange for additional Units and were used
by the Partnership to fund development and acquisition costs of additional
rental properties.
- 6 -
<PAGE>
On May 23, 1995, the General Partner issued an additional 3,727,500
shares of Common Stock through another offering ("1995 Offering") and
received net proceeds of approximately $96.3 million. The proceeds of the
1995 Offering were contributed to the Partnership in exchange for additional
Units and were used by the Partnership to fund development and acquisition of
additional rental properties.
On September 22, 1995, the Partnership issued $150 million of unsecured
notes through a debt offering ("Debt Offering"). A portion of the proceeds
of the Debt Offering was used to reduce amounts outstanding on its unsecured
line of credit and other mortgage debt and to fund development and
acquisition of additional rental properties.
On March 29, 1996, the General Partner issued an additional 4,000,000
shares of Common Stock through an additional offering ("1996 Offering")
and received net proceeds of approximately $113.8 million. The General
Partner contributed these proceeds to the Partnership in exchange for
additional Units. These proceeds were used by the Partnership to pay down its
unsecured line of credit which had been used to fund current development and
acquisition costs.
2. LINES OF CREDIT
The Partnership has a $150 million unsecured revolving credit facility
which is available to fund current development costs and provide working
capital. The revolving line of credit matures in April 1998 and bears
interest payable at the 30-day London Interbank Offered Rate ("LIBOR") plus
1.625%. The Partnership also has a demand $7 million secured revolving credit
facility which is available to provide working capital. This facility bears
interest payable monthly at the 30-day LIBOR rate plus .75%. Outstanding
borrowings as of March 31, 1996 under the $150 million and $7 million credit
facilities were $11 million and $7 million, respectively.
3. RELATED PARTY TRANSACTIONS
The Partnership provides management, maintenance, leasing, construction,
and other tenant related services to properties in which certain executive
officers have continuing ownership interests. The Partnership was paid fees
totaling $681,000 and $656,000 for such services for the three months ended
March 31, 1996 and 1995, respectively. Management believes the terms for such
services are equivalent to those available in the market. The Partnership has
an option to purchase the executive officers' interest in each of these
properties which expires October 2003. The option price of each property was
established at the date the option was granted.
4. RECLASSIFICATIONS
Certain 1995 balances have been reclassified to conform with the 1996
presentation.
- 7 -
<PAGE>
5. SUBSEQUENT EVENTS
On April 4, 1996, the General Partner issued an additional 400,000
shares of Common Stock in connection with the 1996 Offering related to the
exercise of the Underwriters' over-allotment option. The net proceeds of
$11.4 million were contributed to the Partnership and were used to pay down
the balance on the Partnership's unsecured revolving line of credit.
On April 25, 1996, a quarterly distribution of $.49 per Unit was
declared payable on May 31, 1996, to Unitholders of record on May 17, 1996.
- 8 -
<PAGE>
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
The Partners
DUKE REALTY LIMITED PARTNERSHIP:
We have reviewed the condensed consolidated balance sheet of Duke Realty
Limited Partnership and subsidiaries as of March 31, 1996, the related
condensed consolidated statements of operations and cash flows for the three
months ended March 31, 1996 and 1995, and the related statement of partners'
equity for the three months ended March 31, 1996. These condensed
consolidated financial statements are the responsibility of the Partnership's
management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical review
procedures to financial data, and making inquiries of persons responsible for
financial and accounting matters. It is substantially less in scope than an
audit conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the condensed consolidated financial statements referred to
above for them to be in conformity with generally accepted accounting
principles.
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet of Duke Realty Limited
Partnership and subsidiaries as of December 31, 1995, and the related
consolidated statements of operations and cash flows for the year then ended
(not presented herein); and in our report dated January 31, 1996, we
expressed an unqualified opinion on those consolidated financial statements.
In our opinion, the information set forth in the accompanying condensed
consolidated balance sheet as of December 31, 1995 is fairly presented, in
all material respects, in relation to the consolidated balance sheet from
which it has been derived.
KPMG Peat Marwick LLP
Indianapolis, Indiana
April 19, 1996
- 9 -
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Partnership's operating results depend primarily upon income from
the rental operations of its industrial, office and retail properties located
in its primary markets. This income from rental operations is substantially
influenced by the supply and demand for the Partnership's rental space in its
primary markets.
In addition, the Partnership's continued growth is dependent upon its
ability to maintain occupancy rates and increase rental rates on its
in-service portfolios and to continue development and acquisition of
additional rental properties. The Partnership's primary markets in the
Midwest have continued to offer strong and stable local economies compared to
other regions of the United States and have provided attractive new
development opportunities because of their central location, established
manufacturing base, skilled work force and moderate labor costs.
Consequently, the Partnership's overall occupancy rate of its in-service
portfolio has exceeded 93% the last two years and was at 93.6% at March 31,
1996. The Partnership expects to continue to maintain its overall occupancy
levels at comparable levels and also expects to be able to increase rental
rates as leases are renewed or new leases are executed. This stable
occupancy as well as increasing rental rates should improve the Partnership's
results of operations from its in-service properties. The Partnership's
strategy for continued growth also includes developing and acquiring
additional rental properties in its primary markets and expanding into other
attractive Midwestern markets.
The following table sets forth information regarding the Partnership's
in-service portfolio of rental properties as of March 31, 1996 and 1995 (in
thousands, except percentages):
<TABLE>
<CAPTION>
TOTAL PERCENT OF
SQUARE FEET TOTAL SQUARE FEET PERCENT OCCUPIED
------------- ----------------- ------------------
TYPE 1996 1995 1996 1995 1996 1995
- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
INDUSTRIAL
Service Centers 2,970 2,051 13.32% 14.20% 94.60% 96.04%
Bulk 12,154 7,039 54.51% 48.74% 92.33% 94.08%
OFFICE
Suburban 4,685 3,090 21.01% 21.40% 96.26% 90.68%
CBD 699 698 3.14% 4.83% 93.62% 87.29%
Medical 333 198 1.49% 1.37% 89.64% 98.71%
RETAIL 1,456 1,366 6.53% 9.46% 93.73% 96.78%
------ ------ ------ ------ ----- -----
Total 22,297 14,442 100.00% 100.00% 93.55% 93.62%
------ ------ ------ ------ ----- -----
------ ------ ------ ------ ----- -----
</TABLE>
- 10 -
<PAGE>
RESULTS OF OPERATIONS
Following is a summary of the Partnership's operating results and
property statistics for the three months ended March 31, 1996 and 1995 (in
thousands, except number of properties and per Unit amounts):
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Rental Operations revenue $36,537 $25,551
Service Operations revenue 4,346 3,835
Earnings from Rental Operations 11,172 8,005
Earnings from Service Operations 1,183 1,419
Operating income 11,434 8,593
Net income $11,577 $ 8,874
Weighted average units outstanding 28,686 24,388
Net income per unit $ 0.40 $ 0.36
Number of in-service properties at end of period 215 136
In-service square footage at end of period 22,297 14,442
Under development square footage at end of period 2,891 2,991
</TABLE>
COMPARISON OF THREE MONTHS ENDED MARCH 31, 1996 TO THREE MONTHS ENDED MARCH 31,
1995
RENTAL OPERATIONS
The Partnership increased its in-service portfolio of rental properties
from 136 properties comprising 14.4 million square feet at March 31, 1995 to
215 properties comprising 22.3 million square feet at March 31, 1996 through
the acquisition of 65 properties totaling 5.1 million square feet and the
placement in service of 18 properties and three building expansions totaling
3.3 million square feet developed by the Partnership. The Partnership also
disposed of four properties totaling 603,000 square feet. These 79 net
additional rental properties primarily account for the $11.0 million increase
in revenues from Rental Operations from 1995 to 1996. The increase from 1995
to 1996 in rental expenses, real estate taxes and depreciation and
amortization expense is also a result of the additional 79 in-service rental
properties.
The increase in equity in earnings of unconsolidated companies is due to
the formation of a large joint venture on December 28, 1995. The Partnership
formed this joint venture (Dugan Realty L.L.C.) with an institutional real
estate investor and purchased 25 industrial buildings totaling approximately
2.3 million square feet. Upon formation of the venture, the Partnership
contributed approximately 1.4 million square feet of recently developed and
acquired industrial properties, 113 acres of recently acquired land held for
future development and approximately $16.7 million of cash for a 50.1%
interest in the joint venture with a total initial recorded investment of
approximately $59.4 million. The Partnership accounts for its investment in
this joint venture on the equity method because the joint venture partner's
approval is required for all major decisions and the joint venture partner
has equal control regarding the primary day-to-day operations of the venture.
Interest expense increased by approximately $2.8 million. This increase
was primarily because of interest expense on the $150 million of unsecured
notes which the Partnership issued in September 1995. These notes bear
interest at an effective rate of 7.46%. The proceeds from these notes were
used to (i) retire the outstanding balance of $35.0 million on the
Partnership's line of credit; (ii) retire $39.5 million of mortgage debt
which had a weighted average interest rate of 6.08% and was scheduled to
reset at a market interest rate in the fourth quarter of 1995; and (iii) fund
development and acquisition of additional rental properties during the fourth
quarter of 1995.
- 11 -
<PAGE>
As a result of the above-mentioned items, earnings from rental
operations increased $3.2 million from $8.0 million for the three months
ended March 31, 1995 to $11.2 million for the three months ended March 31,
1996.
Management expects occupancy of the in-service property portfolio to
remain stable because (i) only 8.7% and 8.4% of the Partnership's occupied
square footage is subject to leases expiring in the remainder of 1996 and in
1997, respectively, and (ii) the Partnership's renewal percentage averaged
65%, 73% and 65% in 1995, 1994 and 1993, respectively.
The following table reflects the Partnership's lease expiration schedule
as of March 31, 1996, including properties under development, by product type
indicating square footage and annualized net effective rents under expiring
leases (in thousands):
<TABLE>
<CAPTION>
INDUSTRIAL OFFICE RETAIL TOTAL
--------------- -------------- -------------- ---------------
YEAR OF SQUARE SQUARE SQUARE SQUARE
EXPIRATION FEET DOLLARS FEET DOLLARS FEET DOLLARS FEET DOLLARS
- ---------- ------ ------- ------ -------- ------ ------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1996 1,656 $ 5,598 344 $ 3,356 54 $ 548 2,054 $ 9,502
1997 1,275 5,852 619 6,729 74 822 1,968 13,403
1998 2,356 8,957 652 6,934 113 1,187 3,121 17,078
1999 1,938 8,147 709 7,643 111 1,115 2,758 16,905
2000 1,865 8,289 644 8,024 123 1,383 2,632 17,696
2001 1,910 7,325 484 5,160 86 953 2,480 13,438
2002 217 963 640 6,647 88 784 945 8,394
2003 55 555 146 1,819 37 328 238 2,702
2004 857 3,260 89 1,042 13 126 959 4,428
2005 703 2,557 491 6,290 173 1,479 1,367 10,326
Thereafter 2,613 7,890 1,421 19,026 967 6,970 5,001 33,886
------ ------- ----- ------- ----- ------- ------ --------
Total Leased 15,445 $59,393 6,239 $72,670 1,839 $15,695 23,523 $147,758
------ ------- ----- ------- ----- ------- ------ --------
------ ------- ----- ------- ----- ------- ------ --------
Total Portfolio 16,653 6,559 1,975 25,188
------ ----- ----- ------
------ ----- ----- ------
Annualized net
effective rent
per square foot $ 3.84 $ 11.65 $ 8.53 $ 6.28
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
This stable occupancy, along with stable rental rates in each of the
Partnership's markets, will allow the in-service portfolio to continue to
provide a comparable or increasing level of earnings from rental operations.
The Partnership also expects to realize growth in earnings from rental
operations through (i) the placement in-service of the 2.9 million square
feet of properties under development at March 31, 1996 over the next six
quarters; (ii) the development and acquisition of additional rental
properties in its primary markets; and (iii) the expansion into other
attractive Midwestern markets.
SERVICE OPERATIONS
Service Operation revenues increased from $3.8 million to $4.3 million
for the three months ended March 31, 1996 as compared to the three months
ended March 31, 1995 primarily as a result of increases in maintenance fee
revenue because of winter weather conditions and construction management fee
revenue because of an increase in construction volume.
Service Operation operating expenses increased from $2.4 million to $3.2
million for the three months ended March 31, 1996 as compared to the three
months ended March 31, 1995 primarily as a result of (i) an increase in
operating expenses resulting from the overall growth of the Partnership and
(ii) a decrease in costs allocated to the Rental Operations segment because
of a reduction in development and leasing activity in the Partnership's owned
properties for the quarter.
- 12 -
<PAGE>
As a result of the above-mentioned items, earnings from Service
Operations decreased by approximately $236,000 for the three months ended
March 31, 1996 as compared to the three months ended March 31, 1995.
OTHER INCOME (EXPENSE)
Interest income decreased from $474,000 for the three months ended March
31, 1995 to $344,000 for the three months ended March 31, 1996 primarily as a
result of the temporary short-term investment of excess proceeds from the
1994 Offering which resulted in approximately $40 million of cash on hand at
December 31, 1994.
NET INCOME
Net income for the three months ended March 31, 1996 was $11.6 million
compared to net income of $8.9 million for the three months ended March 31,
1995. This increase results primarily from the operating result fluctuations
in rental and service operations explained above.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities totaling $14.3 million and
$15.9 million for the three months ended March 31, 1996 and 1995,
respectively, represents the primary source of liquidity to fund
distributions to Unitholders and the other minority interests and to fund
recurring costs associated with the renovation and re-letting of the
Partnership's properties. The primary reason for the decrease in net cash
provided by operating activities is the timing of cash receipts and payments
related to the Partnership's third-party construction contracts. Excluding
the impact of these construction contracts, net cash provided by operating
activities increased from $13.6 million for three months ended March 31, 1995
to $15.9 million for the three months ended March 31, 1996. This increase is
primarily due to, as discussed above under "Results of Operations," the
increase in net income resulting from the expansion of the in-service
portfolio through development and acquisitions of additional rental
properties.
Net cash used by investing activities totaling $79.9 million and $35.0
million for the three months ended March 31, 1996 and 1995, respectively,
represents the investment of funds by the Partnership to expand its portfolio
of rental properties through the development and acquisition of additional
rental properties. In 1995, $32.4 million was invested in the development and
acquisition of additional rental properties. In 1996, the investment in the
development and acquisition of additional rental properties increased to
$83.8 million. Included in the $83.8 million of net cash used by investing
activities for the development and acquisition of rental properties is $53.3
million related to the acquisition of eight suburban office buildings
totaling 782,000 gross square feet in Cleveland, Ohio. The purchase price of
these eight buildings was approximately $76 million which included the
assumption of $23.1 million of mortgage debt. The buildings were 99% leased
in the aggregate and are primarily located in a prime submarket on
Cleveland's southside which has a vacancy rate of less than 5%. The
acquisition included the purchase of the operations of an established
Cleveland property management and development company that allowed the
Partnership to immediately have a presence in the market. This acquisition
positions the Partnership to immediately pursue additional industrial and
suburban office development and acquisition opportunities in Cleveland. Also
included in net cash provided by investing activities for the three months
ended March 31, 1996 is the receipt of approximately $4.9 million of escrow
deposits related to one of the Partnership's mortgage loans.
- 13 -
<PAGE>
Net cash used by financing activities totaling $13.5 million for the
three months ended March 31, 1995, is comprised mainly of distributions to
Unitholders. In 1996, the General Partner received $113.8 million from the
1996 Offering. These proceeds were contributed to the Partnership in exchange
for additional Units and were used to pay down amounts outstanding on the
unsecured line of credit.
In March 1994, the Partnership obtained a $60 million secured credit
facility which was available to fund development and acquisition of
additional rental properties and to provide working capital as needed. In
April 1995, the Partnership replaced the secured line of credit with a $100
million unsecured line of credit which matures in April 1998. In January
1996, the Partnership increased the unsecured line of credit to $150 million
and reduced the borrowing rate to LIBOR plus 1.625%. There were $11 million
of borrowings outstanding under this line of credit as of March 31, 1996. The
Partnership also has a demand $7 million secured revolving credit facility
which is available to provide working capital. This facility bears interest
payable at the 30-day LIBOR rate plus .75%. The current 30-day LIBOR rate as
of April 22, 1996 was 5.4375%.
The General Partner and the Partnership currently have on file a Form
S-3 Registration Statement with the Securities and Exchange Commission
("Shelf Registration") which has remaining availability as of March 31,
1996 of approximately $210 million to issue additional common stock,
preferred stock or unsecured debt securities. The General Partner and the
Partnership intend to issue additional securities under such Shelf
Registration as capital needs arise to fund the development and acquisition
of additional rental properties.
The total debt outstanding at March 31, 1996 consists of notes totaling
$450.4 million with a weighted average interest rate of 7.51% maturing at
various dates through 2018. Scheduled principal amortization of such debt
totaled $532,000 for the three months ended March 31, 1996. Following is a
summary of the scheduled future amortization and maturities of the
Partnership's indebtedness (in thousands):
<TABLE>
<CAPTION>
REPAYMENTS
----------------------------------- WEIGHTED AVERAGE
SCHEDULED INTEREST RATE OF
YEAR AMORTIZATION MATURITIES TOTAL FUTURE REPAYMENTS
- ---- ------------ ---------- ----- -----------------
<S> <C> <C> <C> <C>
1996 $ 1,614 $ 66,619 $ 68,233 5.39%
1997 2,282 22,841 25,123 9.14%
1998 2,478 56,216 58,694 7.10%
1999 2,698 -- 2,698 8.26%
2000 2,717 4,854 7,571 7.87%
2001 2,378 59,954 62,332 8.72%
2002 2,590 50,000 52,590 7.37%
2003 252 68,216 68,468 8.48%
2004 273 -- 273 5.20%
2005 300 100,000 100,300 7.51%
Thereafter 4,072 -- 4,072 5.20%
------- -------- --------
Total $21,654 $428,700 $450,354
------- -------- --------
------- -------- --------
</TABLE>
The 1996 maturities consist of $59.6 million of borrowings which mature
in October through December as well as $7.0 million drawn on the
Partnership's demand secured revolving credit facility. The Partnership
currently intends to repay this mortgage debt through the issuance of either
common or preferred equity by the General Partner or unsecured debt
securities by the Partnership available under its Shelf Registration. The
Partnership estimates that if unsecured debt securities are issued, based on
current market interest rates, the rate on such debt would increase by
approximately 2.6%. Of the 1998 maturities, $11 million represents the
outstanding balance as of March 31, 1996 on the Partnership's unsecured line
of credit.
- 14 -
<PAGE>
The Partnership intends to pay regular quarterly distributions from net cash
provided by operating activities. A quarterly distribution of $.49 per Unit was
declared on April 25, 1996 payable on May 31, 1996 to Unitholders of record on
May 17, 1996, which represents an annualized distribution of $1.96 per Unit.
FUNDS FROM OPERATIONS
Management believes that Funds From Operations ("FFO"), which is defined by the
National Association of Real Estate Investment Trusts as net income or loss
excluding gains or losses from debt restructuring and sales of property plus
depreciation and amortization, and after adjustments for minority interest,
unconsolidated partnerships and joint ventures (adjustments for minority
interest, unconsolidated partnerships and joint ventures are calculated to
reflect FFO on the same basis), is the industry standard for reporting the
operations of real estate investment trusts.
The following table reflects the calculation of the Partnership's FFO for the
three months ended March 31, as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Net income $11,577 $ 8,874
Add back:
Depreciation and amortization 6,761 5,213
Share of joint venture depreciation
and amortization 440 73
Loss on property sales 14 --
------- -------
FUNDS FROM OPERATIONS $18,792 $14,160
------- -------
------- -------
CASH FLOW PROVIDED BY (USED BY):
Operating activities $14,305 $15,898
Investing activities (79,865) (34,976)
Financing activities 71,759 (13,544)
</TABLE>
The increase in FFO for the three months ended March 31, 1996 compared to the
three months ended March 31, 1995 results primarily from the increased in-
service rental property portfolio as discussed above under "Results of
Operations." The following table indicates components of such growth for each
of the three months ended March 31, as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Rental operations:
Original portfolio $15,050 $15,029
Development 4,249 1,757
Acquisitions 5,796 1,568
Investments in unconsolidated companies 1,642 511
Interest expense (7,967) (5,145)
Amortization of deferred financing fees (285) (379)
------- -------
Net rental operations 18,485 13,341
Service operations, net of minority interest 984 1,212
Other, net (677) (393)
------- -------
FUNDS FROM OPERATIONS $18,792 $14,160
------- -------
------- -------
</TABLE>
In March 1995, NAREIT issued a clarification of its definition of FFO effective
for years beginning after December 31, 1995. The clarification provides that
amortization of deferred financing costs and depreciation of non-rental real
estate assets are no longer to be added back to net income in arriving at FFO.
The Partnership adopted these changes effective January 1, 1996, and the
calculation of FFO for the three months ended March 31, 1995 has been revised
accordingly.
- 15 -
<PAGE>
The calculation of FFO for the three months ended March 31, 1995 has also been
revised to conform with the presentation of FFO for the three months ended March
31, 1996 which excludes amounts attributable to minority interests.
While management believes that FFO is the most relevant and widely used measure
of the Partnership's operating performance, such amount does not represent cash
flow from operations as defined by generally accepted accounting principles,
should not be considered as an alternative to net income as an indicator of the
Partnership's operating performance, and is not indicative of cash available to
fund all cash flow needs.
- 16 -
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
TEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
The statements contained herein which are not historical facts are
forward-looking statements based on economic forecasts, strategic plans and
other factors which, by their nature, involve risk and uncertainties. In
particular, among the factors that could cause actual results to differ
materially are the following: business conditions and general economy;
competitive factors; political decisions affecting land use permits, interest
rates and other risks inherent in the real estate business. For further
information on factors which could impact the Partnership and the statements,
reference is made to the Partnership's and the General Partner's other
filings with the Securities and Exchange Commission.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A report on Form 8-K dated January 12, 1996, as amended on March 22, 1996 on
Form 8-K/A, was filed with the Commission to report under Item 5 the
formation of a joint venture on December 28, 1995 with an institutional real
estate investor.
A report on Form 8-K dated March 5, 1996, as amended on March 22, 1996 on Form
8-K/A, was filed with the Commission to report under Item 5 the acquisition of
eight suburban office buildings and the operations of an established property
management and development company in Cleveland, Ohio.
Exhibit 15. Letter regarding unaudited interim financial information
Exhibit 27. Financial Data Schedule (EDGAR Filing Only)
- 17 -
<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: May 14, 1996 /s/ Thomas L. Hefner
----------------------- -----------------------------
President and
Chief Executive Officer
/s/ Darell E. Zink, Jr.
-----------------------------
Executive Vice President and
Chief Financial Officer
/s/ Dennis D. Oklak
-----------------------------
Vice President and Treasurer
(Chief Accounting Officer)
- 18 -
<PAGE>
Exhibit 15
The Partners
Duke Realty Limited Partnership:
Gentlemen:
RE: Registration Statement No. 33-61361
With respect to the subject registration statement, we acknowledge our awareness
of the use therein of our report dated April 19, 1996 related to our review of
interim financial information.
Pursuant to Rule 436(c) under the Securities Act of 1933, such report is not
considered a part of a registration statement prepared or certified by an
accountant, or a report prepared or certified by an accountant within the
meaning of sections 7 and 11 of the Act.
KPMG Peat Marwick LLP
Indianapolis, Indiana
April 19, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM DUKE REALTY
LIMITED PARTNERSHIP AND SUBSIDIARIES' MARCH 31, 1996 CONSOLIDATED FINANCIAL
STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 11,881
<SECURITIES> 0
<RECEIVABLES> 27,108
<ALLOWANCES> (1,434)
<INVENTORY> 0
<CURRENT-ASSETS> 38,193
<PP&E> 1,080,961
<DEPRECIATION> (61,766)
<TOTAL-ASSETS> 1,163,681
<CURRENT-LIABILITIES> 49,350
<BONDS> 450,354
0
0
<COMMON> 0
<OTHER-SE> 663,685
<TOTAL-LIABILITY-AND-EQUITY> 1,163,681
<SALES> 0
<TOTAL-REVENUES> 41,213
<CGS> 21,482
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 187
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,967
<INCOME-PRETAX> 11,577
<INCOME-TAX> 0
<INCOME-CONTINUING> 11,577
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,577
<EPS-PRIMARY> .40
<EPS-DILUTED> 0
</TABLE>
