<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 June 30, 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 August 9, 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
June 30, 1996 (Unaudited) and December 31, 1995 2
Condensed Consolidated Statements of Operations for the three
and six months ended June 30, 1996 and 1995 (Unaudited) 3
Condensed Consolidated Statements of Cash Flows for the
six months ended June 30, 1996 and 1995 (Unaudited) 4
Condensed Consolidated Statement of Partners' Equity for
the six months ended June 30, 1996 (Unaudited) 5
Notes to Condensed Consolidated Financial Statements
(Unaudited) 6-7
Independent Accountants' Review Report 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 9-17
PART II - OTHER INFORMATION
- ---------------------------
Item 1. Legal Proceedings 18
Item 2. Changes in Securities 18
Item 3. Defaults Upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 18
Item 6. Exhibits and Reports of Form 8-K 18
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
DUKE REALTY LIMITED PARTNERSHIP AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<CAPTION>
June 30, December 31,
1996 1995
----------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
- -------
Real estate investments:
Land and improvements $ 109,618 $ 91,550
Buildings and tenant improvements 848,128 712,614
Construction in progress 86,618 96,698
Land held for development 65,744 62,637
--------- ---------
1,110,108 963,499
Accumulated depreciation (69,250) (56,335)
--------- ---------
Net real estate investments 1,040,858 907,164
Cash and cash equivalents 274 5,682
Accounts receivable from tenants,
net of allowance of $554 and $624 4,163 5,184
Accrued straight-line rents, net of
allowance of $841 9,204 8,101
Receivables on construction contracts 12,367 9,462
Investments in unconsolidated companies 73,164 67,771
Deferred financing costs, net of
accumulated amortization of $2,838
and $2,072 7,919 8,141
Deferred leasing and other costs,
net of accumulated amortization
of $6,614 and $4,959 20,438 20,609
Escrow deposits and other assets 10,382 14,418
--------- ---------
$1,178,769 $1,046,532
========= =========
LIABILITIES AND PARTNERS' EQUITY
- --------------------------------
Indebtedness:
Mortgage debt $ 281,856 $ 259,820
Unsecured notes 150,000 150,000
Lines of credit - 45,000
---------- ---------
431,856 454,820
Construction payables and
amounts due subcontractors 21,054 21,410
Accounts payable 3,783 1,132
Accrued real estate taxes 10,949 10,374
Accrued interest 3,422 3,461
Other accrued expenses 3,767 5,454
Other liabilities 7,663 5,490
Tenant security deposits and
prepaid rents 4,362 3,872
---------- ---------
Total liabilities 486,856 506,013
---------- ---------
Minority interest 495 298
---------- ---------
Partners' equity:
General partner 679,134 535,783
Limited partners 12,284 4,438
---------- ---------
Total partners' equity 691,418 540,221
---------- ---------
$1,178,769 $1,046,532
========= =========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
- 2 -
<PAGE>
<TABLE>
DUKE REALTY LIMITED PARTNERSHIP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
(UNAUDITED)
<CAPTION>
Three months ended Six months ended
June 30, June 30,
------------------- ----------------
1996 1995 1996 1995
------ ------ ------ -------
<S> <C> <C> <C> <C>
RENTAL OPERATIONS:
Revenues:
Rental income $36,379 $26,663 $71,714 $51,775
Equity in earnings of
unconsolidated companies 1,345 31 2,547 470
------ ------ ------ ------
37,724 26,694 74,261 52,245
------ ------ ------ ------
Operating expenses:
Rental expenses 6,737 4,660 13,881 9,544
Real estate taxes 3,299 2,365 6,507 4,290
Interest expense 6,650 4,908 14,617 10,053
Depreciation and amortization 9,111 5,511 16,157 11,103
------ ------ ------ ------
25,797 17,444 51,162 34,990
------ ------ ------ ------
Earnings from rental
operations 11,927 9,250 23,099 17,255
------ ------ ------ ------
SERVICE OPERATIONS:
Revenues:
Property management,
maintenance and leasing
fees 2,948 2,780 5,662 5,256
Construction management and
development fees 1,836 1,300 3,153 2,455
Other income 353 240 668 444
------ ------ ------ ------
5,137 4,320 9,483 8,155
------ ------ ------ ------
Operating expenses:
Payroll 2,382 1,900 4,617 3,644
Maintenance 421 310 717 546
Office and other 707 532 1,339 968
------ ------ ------ ------
3,510 2,742 6,673 5,158
------ ------ ------ ------
Earnings from service
operations 1,627 1,578 2,810 2,997
------ ------ ------ ------
General and administrative
expense (1,043) (812) (1,964) (1,643)
------- ------ ------- -------
Operating income 12,511 10,016 23,945 18,609
OTHER INCOME (EXPENSE):
Interest income 264 376 608 850
Earnings from property sales 1,618 - 1,604 -
Minority interest in earnings
of subsidiaries (243) (237) (430) (430)
------ ------ ------ ------
Net income $14,150 $10,155 $25,727 $19,029
====== ====== ====== ======
Net income per unit $ .43 $ .39 $ .83 $ .75
====== ====== ====== ======
Weighted average number of
units outstanding 33,011 26,113 30,848 25,255
====== ====== ====== ======
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
- 3 -
<PAGE>
<TABLE>
DUKE REALTY LIMITED PARTNERSHIP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<CAPTION>
Six months ended
June 30,
-----------------------
1996 1995
------- ------
<S> <C> <C>
Cash flows from operating activities:
Net income $25,727 $19,029
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation of buildings and
tenant improvements 13,839 9,337
Amortization of deferred financing costs 603 584
Amortization of deferred leasing and
other costs 1,715 1,182
Minority interest in earnings of
subsidiaries 430 430
Straight-line rent adjustment (1,544) (1,264)
Earnings from property sales (1,618) -
Construction contracts, net (3,261) 11,443
Other accrued revenues and expenses, net 3,713 (114)
Equity in earnings in excess of distri-
butions received from unconsolidated
companies (468) (73)
------ -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 39,136 40,554
------ -------
Cash flows from investing activities:
Proceeds from property sales, net 35,482 38
Rental property development costs (60,452) (56,238)
Rental property recurring building
improvements (219) (186)
Acquisition of rental properties (65,426) (42,058)
Acquisition of undeveloped land and
infrastructure costs (6,832) (7,150)
Recurring tenant improvements (3,092) (2,089)
Recurring leasing costs (1,385) (925)
Other deferred costs and other assets 1,814 (3,274)
Distributions received from unconsolidated
companies 6,935 -
Net investment in and advances to uncon-
solidated companies (409) (2,539)
------- -------
NET CASH USED BY INVESTING ACTIVITIES (93,584) (114,421)
------- -------
Cash flows from financing activities:
Contributions from general partner 126,083 82,273
Proceeds from indebtedness - 51
Payments on indebtedness (46,030) (2,699)
Distributions to partners (30,237) (23,071)
Distributions to minority interest (233) (458)
Deferred financing costs (543) (1,555)
------- -------
NET CASH PROVIDED BY FINANCING ACTIVITIES 49,040 54,541
------- -------
NET DECREASE IN CASH AND CASH EQUIVALENTS (5,408) (19,326)
------- -------
Cash and cash equivalents at beginning of
period 5,682 40,427
------- ------
Cash and cash equivalents at end of period $ 274 $21,101
======= ======
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
- 4 -
<PAGE>
<TABLE>
DUKE REALTY LIMITED PARTNERSHIP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF PARTNERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS)
(UNAUDITED)
<CAPTION>
General Limited
Partner Partners Total
------- -------- ---------
<S> <C> <C> <C>
Balance at December 31, 1995 $535,783 $ 4,438 $540,221
Net income 22,241 3,486 25,727
Acquisition of additional limited
partnership interest by Duke
Realty Investments, Inc. 21,141 - 21,141
Capital contribution from Duke
Realty Investments, Inc. 126,160 - 126,160
Acquisition of property in
exchange for limited
partnership interest - 8,406 8,406
Distributions to partners (26,191) (4,046) (30,237)
------- ------ -------
Balance at June 30, 1996 $679,134 $12,284 $691,418
======= ====== =======
Units outstanding at June 30, 1996 29,320 3,697 33,017
======= ====== =======
</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 March 29, 1996, the General Partner issued 4,400,000 shares (includes
400,000 shares issued on April 4, 1996 related to the exercise of the
Underwriters' over-allotment option) of Common Stock through an additional
offering ( "1996 Offering") and received net proceeds of approximately
$125.3 million. During the second quarter 1996, the General Partner
implemented a direct stock purchase and dividend reinvestment plan and
- 6 -
<PAGE>
received $829,000 of net proceeds from the sale of 28,315 additional shares
of Common Stock. The General Partner contributed these combined 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.
In April 1996, as a result of Unitholders exchanging their Units for shares
of Common Stock of the General Partner pursuant to the Partnership
Agreement, the General Partner acquired a portion of the minority interest
in the Partnership through the issuance of 724,453 shares of Common Stock
for a like number of Units. The acquisition of the minority interest was
accounted for under the purchase method with assets acquired recorded at
the fair market value of the General Partner's Common Stock on the date of
acquisition. The acquisition amount of $21.1 million was allocated to
rental properties based on their estimated fair values.
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 1.50%. 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%. There were no outstanding borrowings under these facilities as of
June 30, 1996.
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 $1.6 million and $1.3 million for such services for
the six months ended June 30, 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.
5. SUBSEQUENT EVENTS
On July 25, 1996, a quarterly distribution of $.51 per Unit was declared
payable on August 30, 1996, to Unitholders of record on August 16, 1996.
In July 1996, the Partnership issued $40 million of unsecured debt at an
interest rate of 7.28%. This debt matures in July 2000 and the proceeds
were used to retire amounts outstanding on the Partnership's lines of
credit.
- 7 -
<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 June 30, 1996, the
related condensed consolidated statements of operations for the three
and six months ended June 30, 1996 and 1995, the related condensed
consolidated statements of cash flows for the six months ended
June 30, 1996 and 1995, and the related condensed consolidated
statement of partners' equity for the six months ended June 30, 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
August 5, 1996
- 8 -
<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 92% at June 30, 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 June 30, 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 2,971 2,167 12.80% 14.28% 93.62% 94.02%
Bulk 12,926 7,151 55.67% 47.14% 90.50% 96.82%
OFFICE
Suburban 4,684 3,588 20.17% 23.65% 97.12% 93.92%
CBD 699 699 3.01% 4.61% 81.29% 90.49%
Medical 333 198 1.43% 1.31% 90.26% 98.71%
RETAIL 1,606 1,366 6.92% 9.01% 92.98% 95.14%
------ ------ ------- ------- ------ ------
Total 23,219 15,169 100.00% 100.00% 92.13% 95.32%
====== ====== ======= ======= ====== ======
</TABLE>
The decrease in occupancy from 1995 to 1996 can be attributed to the
scheduled lease expiration of a 90,000 square foot tenant in a
downtown Cincinnati office building and a recently acquired 358,000
square foot industrial facility that was unoccupied at June 30, 1996.
In July 1996, the Partnership re-leased approximately 204,000 square
feet of such industrial facility.
- 9 -
<PAGE>
Management expects occupancy of the in-service property portfolio to
remain stable because (i) only 5.1% and 8.5% 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 June 30, 1996, including properties under development,
by product type indicating square footage and annualized net effective
rents under expiring leases (in thousands, except per square foot
amounts):
<TABLE>
<CAPTION>
Industrial Office Retail Total
---------------- ------------- -------------- -------------
Year
of Sq. Sq. Sq. Sq.
Exp. Feet Dollars Feet Dollars Feet Dollars Feet Dollars
---- ------ ------- ------ ------- ------ ------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1996 1,005 $ 4,279 196 $ 1,836 26 $ 250 1,227 $ 6,365
1997 1,311 5,889 638 6,877 77 843 2,026 13,609
1998 2,270 8,544 651 6,894 111 1,162 3,032 16,600
1999 1,953 8,213 737 7,998 115 1,159 2,805 17,370
2000 1,871 7,320 654 8,193 119 1,359 2,644 16,872
2001 2,335 8,961 556 5,869 92 1,026 2,983 15,856
2002 321 1,379 651 6,896 88 784 1,060 9,059
2003 105 814 150 1,815 36 328 291 2,957
2004 865 3,322 89 1,043 13 126 967 4,491
2005 703 2,557 496 6,313 173 1,479 1,372 10,349
There-
after 3,247 10,398 1,211 15,808 1,036 7,708 5,494 33,914
------ ------ ----- ------- ----- ------ ------ -------
Total
Leased 15,986 $61,676 6,029 $69,542 1,886 $16,224 23,901 $147,442
====== ====== ===== ====== ===== ====== ====== =======
Total
Port-
folio 18,069 6,498 2,051 26,618
====== ===== ===== ======
Annualized
net effective
rent per
square foot $ 3.86 $ 11.53 $ 8.60 $ 6.17
====== ====== ====== =======
</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 completion of the 3.4 million
square feet of properties under development at June 30, 1996 over the
next five quarters; (ii) the development and acquisition of additional
rental properties in its primary markets; and (iii) the expansion into
other attractive Midwestern markets.
RESULTS OF OPERATIONS
---------------------
Following is a summary of the Partnership's operating results and
property statistics for the three and six months ended June 30, 1996
and 1995 (in thousands, except number of properties and per unit
amounts):
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
-------------------- -----------------
1996 1995 1996 1995
------ -------- -------- -------
<S> <C> <C> <C> <C>
Rental Operations revenue $37,724 $26,694 $74,261 $52,245
Service Operations revenue 5,137 4,320 9,483 8,155
Earnings from Rental
Operations 11,927 9,250 23,099 17,255
Earnings from Service
Operations 1,627 1,578 2,810 2,997
Operating income 12,511 10,016 23,945 18,609
Net income $14,150 $10,155 $25,727 $19,029
Weighted average units
outstanding 33,011 26,113 30,848 25,255
Net income per unit $ 0.43 $ 0.39 $ 0.83 $ 0.75
Number of in-service
properties at end of period 220 144 220 144
In-service square footage at
end of period 23,219 15,169 23,219 15,169
Under development square
footage at end of period 3,400 3,382 3,400 3,382
</TABLE>
- 10 -
<PAGE>
COMPARISON OF THREE MONTHS ENDED JUNE 30, 1996 TO THREE MONTHS
--------------------------------------------------------------
ENDED JUNE 30, 1995
-------------------
Rental Operations
-----------------
The Partnership increased its in-service portfolio of rental
properties from 144 properties comprising 15.2 million square feet at
June 30, 1995 to 220 properties comprising 23.2 million square feet at
June 30, 1996 through the acquisition of 60 properties totaling 4.9
million square feet and the completion of 18 properties and two
building expansions totaling 3.4 million square feet developed by the
Partnership. The Partnership also disposed of two properties totaling
226,000 square feet. These 76 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 76 in-service rental
properties.
The increase in equity in earnings of unconsolidated companies is due
to the formation of a 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. In May 1996, the Partnership
contributed a 600,000 square foot industrial building to the joint
venture at an agreed value of $13.9 million and received a
distribution of $6.935 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 $1.8 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)and to fund development and
acquisition of additional rental properties during the fourth quarter
of 1995.
As a result of the above-mentioned items, earnings from rental
operations increased $2.7 million from $9.2 million for the three
months ended June 30, 1995 to $11.9 million for the three months ended
June 30, 1996.
Service Operations
------------------
Service Operation revenues increased from $4.3 million to $5.1 million
for the three months ended June 30, 1996 as compared to the three
months ended June 30, 1995 primarily as a result of increases in
leasing fee revenue and construction management fee revenue because of
an increase in construction volume.
- 11 -
<PAGE>
Service Operation operating expenses increased from $2.7 million to
$3.5 million for the three months ended June 30, 1996 as compared to
the three months ended June 30, 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.
As a result of the above-mentioned items, earnings from Service
Operations remained stable at approximately $1.6 million for the three
months ended June 30, 1996 and 1995.
Other Income (Expense)
----------------------
Interest income decreased from $376,000 for the three months ended
June 30, 1995 to $264,000 for the three months ended June 30, 1996
primarily as a result of the temporary short-term investment of excess
proceeds from the General Partner's equity offering in May 1995 which
resulted in approximately $35 million of excess cash being invested
through June 30, 1995.
During the three months ended June 30, 1996, the Partnership sold a
251,000 square foot corporate headquarters facility that it recently
completed for John Alden Life Insurance Company in Miami, Florida. The
project was sold for approximately $32.9 million pursuant to the
purchase option contained in John Alden's lease agreement. The
Partnership recognized a gain of approximately $1.6 million on the
sale. Proceeds from this sale are being reinvested in new developments
and acquisitions in the Partnership's core markets.
Net Income
----------
Net income for the three months ended June 30, 1996 was $14.2 million
compared to net income of $10.2 million for the three months ended
June 30, 1995. This increase results primarily from the operating
result fluctuations in rental and service operations and earnings from
property sales explained above.
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1996 TO SIX MONTHS ENDED
----------------------------------------------------------------
JUNE 30, 1995
-------------
Rental Operations
-----------------
The expansion of the in-service rental property portfolio by 76
additional rental properties from June 30, 1995 to June 30, 1996
primarily accounts for the $22.1 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 76 in-service rental
properties.
The increase in equity in earnings of unconsolidated companies is due
to the effect of the formation of Dugan Realty L.L.C. on December 28,
1995, as discussed previously.
- 12 -
<PAGE>
Interest expense increased by approximately $4.5 million. This
increase was primarily because of the 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%.
As a result of the above-mentioned items, earnings from rental
operations increased $5.8 million from $17.3 million for the six
months ended June 30, 1995 to $23.1 million for the six months ended
June 30, 1996.
Service Operations
------------------
Service Operation revenues increased from $8.2 million to $9.5 million
for the six months ended June 30, 1996 as compared to the six months
ended June 30, 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 expenses increased from $5.2 million to $6.7 million
for the six months ended June 30, 1996 as compared to the six months
ended June 30, 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 six months
ended June 30, 1996.
As a result of the above-mentioned items, earnings from Service
Operations decreased slightly from $3.0 million to $2.8 million for
the six months ended June 30, 1995 and 1996, respectively.
Other Income (Expense)
---------------------
Interest income decreased from $850,000 for the six months ended June
30, 1995 to $608,000 for the six months ended June 30, 1996 primarily
as a result of the temporary short-term investment of excess proceeds
from the General Partner's equity offering in May 1995 which resulted
in approximately $35 million of excess cash being invested through
June 30, 1995.
During the six months ended June 30, 1996, the Partnership sold a
251,000 square foot corporate headquarters facility that it recently
completed for John Alden Life Insurance Company in Miami, Florida. The
project was sold for approximately $32.9 million pursuant to the
purchase option contained in John Alden's lease agreement. The
Partnership recognized a gain of approximately $1.6 million on the
sale.
Net Income
----------
Net income for the six months ended June 30, 1996 was $25.7 million
compared to net income of $19.0 million for the six months ended June
30, 1995. This increase results primarily from the operating result
fluctuations in rental and service operations and earnings from
property sales explained above.
- 13 -
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities totaling $39.1 million and
$40.6 million for the six months ended June 30, 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
$29.2 million for six months ended June 30, 1995 to $42.4 million for
the six months ended June 30, 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 $93.6 million and
$114.4 million for the six months ended June 30, 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 net of proceeds received
from earnings from property sales. During the six months ended June 30,
1996, the Partnership sold two properties and a small parcel of land
for net proceeds of $35.5 million. The sale of the John Alden Miami
building accounted for $32.9 million of these proceeds. In 1995, $98.2
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 $125.9
million. Included in the $125.9 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 partnership 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 six
months ended June 30, 1996 is the receipt of approximately $4.9
million of escrow deposits related to one of the Partnership's
mortgage loans classified as net cash provided from other deferred
costs and other assets.
Net cash provided by financing activities totaling $68.6 million for
the six months ended June 30, 1995 is comprised mainly of the
contribution of proceeds from the General Partner's equity offering in
May 1995 net of distributions to Unitholders. In 1996, the Partnership
received the contribution of $126.1 million from the General Partner's
1996 Offering and the dividend reinvestment plan which was 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%. In
July 1996, the borrowing rate was further reduced to LIBOR plus 1.50%
as a result of an increase in the Partnership's investment grade debt
rating from Moody's Rating Agency. 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%.
- 14 -
<PAGE>
The General Partner and the Partnership currently have on file two
Form S-3 Registration Statements with the Securities and Exchange
Commission ("Shelf Registrations") which have remaining availability
as of June 30, 1996 of approximately $635 million to issue additional
common stock, preferred stock or unsecured debt securities. The
General Partner and the Partnership intend to issue additional
securities under these Shelf Registrations as capital needs arise to
fund the development and acquisition of additional rental properties.
The total debt outstanding at June 30, 1996 consists of notes
totaling $431.9 million with a weighted average interest rate of 7.55%
maturing at various dates through 2018. The Partnership has $150
million of unsecured debt and $281.9 million of secured debt
outstanding at June 30, 1996. Scheduled principal amortization of
such debt totaled $1.0 million for the six months ended June 30, 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 $ 1,116 $ 59,619 60,735 5.28%
1997 2,282 22,841 25,123 9.14%
1998 2,478 45,216 47,694 7.13%
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%
There-
after 4,072 - 4,072 5.20%
------ ------- -------
Total $21,156 $410,700 $431,856
====== ======= =======
</TABLE>
The 1996 maturities consist of $59.6 million of secured notes which
mature in October through December. The Partnership currently intends
to repay this mortgage debt through the issuance of unsecured debt
securities available under its Shelf Registrations. 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 2.0%.
The Partnership intends to pay regular quarterly distributions from
net cash provided by operating activities. A quarterly distribution of
$.51 per Unit was declared on July 25, 1996 payable on August 30, 1996
to Unitholders of record on August 16, 1996, which represents an
annualized distribution of $2.04 per Unit.
- 15 -
<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 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 and six months ended June 30 as follows (in thousands):
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
------------------- ------------------
1996 1995 1996 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net income $14,150 $10,155 $25,727 $19,029
Add back:
Depreciation and
amortization 8,793 5,305 15,554 10,518
Share of joint venture
depreciation and
amortization 443 71 883 144
Earnings from property
sales (1,618) - (1,604) -
------ ------ ------ ------
Funds From Operations $21,768 $15,531 $40,560 $29,691
====== ====== ====== ======
Cash flow provided by (used by):
Operating activities $24,633 $24,905 $39,102 $ 40,797
Investing activities (13,719) (79,456) (93,584) (114,421)
Financing activities (22,718) 82,158 49,041 68,603
</TABLE>
The increase in FFO for the three and six months ended June 30, 1996
compared to the three and six months ended June 30, 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 and six
months ended June 30 as follows (in thousands):
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
-------------------- ----------------
1996 1995 1996 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
Rental operations:
Original portfolio $15,497 $14,787 $30,547 $29,816
Development 4,290 2,371 8,539 4,128
Acquisitions 6,857 2,576 12,653 4,144
Investments in
unconsolidated
companies 1,788 102 3,430 613
Interest expense (6,650) (4,908) (14,617) (10,053)
Amortization of deferred
financing fees (318) (206) (603) (585)
------ ------ ------ ------
Net rental operations 21,464 14,722 39,949 28,063
Service operations, net
of minority interest 1,365 1,326 2,349 2,537
Other, net (1,061) (517) (1,738) (909)
------ ------ ------ ------
FUNDS FROM OPERATIONS $21,768 $15,531 $40,560 $29,691
====== ====== ====== ======
</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 calculations of FFO
for the three and six months ended June 30, 1995 has been revised
accordingly.
- 16 -
<PAGE>
The calculations of FFO for the three and six months ended June 30,
1995 have also been revised to conform with the presentation of FFO
for the three and six months ended June 30, 1996 which exclude 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.
- 17 -
<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
- --------------------------
The statements contained herein which are not historical facts are forward-
looking statements based on economic forecasts, budgets and other factors
which, by their nature, involve known risks, uncertainties and other factors
which may cause the actual results, performance or achievements of Duke
Realty Limited Partnership to be materially different from any future results
implied by such statements. In particular, among the factors that could
cause actual results to differ materially are the following: business
conditions and general economy; competitive factors; interest rates and
other risks inherent in the real estate business. For further information
on factors which could impact the Partnership and the statements contained
herein, 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
- -----------------------------------------
Exhibit 15. Letter regarding unaudited interim financial information
Exhibit 27. Financial Data Schedule (EDGAR Filing Only)
- 18 -
<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: August 9, 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)
- 19 -
Exhibit 15
- ----------
The Partners
Duke Realty Limited Partnership:
Gentlemen:
RE: Registration Statement No. 33-61361 and 333-4695-01
With respect to the subject registration
statement, we acknowledge our awareness of the
use therein of our report dated August 5, 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
August 5, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM DUKE REALTY
LIMITED PARTNERSHIP AND SUBSIDIARIES' JUNE 30, 1996 CONSOLIDATED FINANCIAL
STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 274
<SECURITIES> 0
<RECEIVABLES> 27,129
<ALLOWANCES> (1,395)
<INVENTORY> 0
<CURRENT-ASSETS> 27,186
<PP&E> 1,110,108
<DEPRECIATION> (69,250)
<TOTAL-ASSETS> 1,178,769
<CURRENT-LIABILITIES> 55,495
<BONDS> 431,856
0
0
<COMMON> 0
<OTHER-SE> 691,418
<TOTAL-LIABILITY-AND-EQUITY> 1,178,769
<SALES> 0
<TOTAL-REVENUES> 85,956
<CGS> 45,182
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 430
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,617
<INCOME-PRETAX> 25,727
<INCOME-TAX> 0
<INCOME-CONTINUING> 25,727
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 25,727
<EPS-PRIMARY> $0.83
<EPS-DILUTED> 0
</TABLE>
