<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 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 November 11,
1996 was 3,710,288.
<PAGE>
DUKE REALTY LIMITED PARTNERSHIP
INDEX
PART I - FINANCIAL INFORMATION PAGE
- ------------------------------- -----
ITEM 1. FINANCIAL STATEMENTS
- ------------------------------
Condensed Consolidated Balance Sheets as of
September 30, 1996 (Unaudited) and December 31, 1995 2
Condensed Consolidated Statements of Operations for the three
and nine months ended September 30, 1996 and 1995 (Unaudited) 3
Condensed Consolidated Statements of Cash Flows for the
nine months ended September 30, 1996 and 1995 (Unaudited) 4
Condensed Consolidated Statement of Partners' Equity for
the nine months ended September 30, 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 10-17
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 on Form 8-K 18
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DUKE REALTY LIMITED PARTNERSHIP AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS SEPTEMBER 30, December 31,
- ------ 1996 1995
-------------- -----------
(UNAUDITED)
<S> <C> <C>
Real estate investments:
Land and improvements $ 131,048 $ 91,550
Buildings and tenant improvements 977,111 712,614
Construction in progress 43,041 96,698
Land held for development 66,018 62,637
--------- ---------
1,217,218 963,499
Accumulated depreciation (75,071) (56,335)
--------- ---------
Net real estate investments 1,142,147 907,164
Cash and cash equivalents 11,904 5,682
Accounts receivable from tenants, net of
allowance of $603 and $624 4,414 5,184
Accrued straight-line rents, net of
allowance of $841 10,022 8,101
Receivables on construction contracts 12,972 9,462
Investments in unconsolidated companies 73,242 67,771
Deferred financing costs, net of accumulated
amortization of $3,136 and $2,072 7,710 8,141
Deferred leasing and other costs, net of
accumulated amortization of $7,560
and $4,959 22,026 20,609
Escrow deposits and other assets 10,704 14,418
--------- ---------
$1,295,141 $1,046,532
========= =========
LIABILITIES AND PARTNERS' EQUITY
----------------------------------
Indebtedness:
Secured debt $ 263,882 $ 259,820
Unsecured notes 190,000 150,000
Unsecured line of credit 12,000 45,000
--------- ---------
465,882 454,820
Construction payables and amounts due
subcontractors 25,447 21,410
Accounts payable 2,202 1,132
Accrued real estate taxes 13,012 10,374
Accrued interest 1,100 3,461
Other accrued expenses 6,210 5,454
Other liabilities 7,814 5,490
Tenant security deposits and prepaid rents 6,705 3,872
--------- ---------
Total liabilities 528,372 506,013
--------- ---------
Minority interest 342 298
--------- ---------
Partners' equity:
General partner 754,082 535,783
Limited partners 12,345 4,438
--------- ---------
Total partners' equity 766,427 540,221
--------- ---------
$1,295,141 $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 Nine months ended
September 30, September 30,
------------------ -----------------
1996 1995 1996 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
RENTAL OPERATIONS:
Revenues:
Rental income $40,001 $ 28,923 $111,715 $ 80,698
Equity in earnings of
unconsolidated companies 1,447 175 3,994 645
------ ------ ------- ------
41,448 29,098 115,709 81,343
------ ------ ------- ------
Operating expenses:
Rental expenses 7,328 5,437 21,209 14,981
Real estate taxes 3,451 2,515 9,958 6,805
Interest expense 7,858 4,907 22,475 14,960
Depreciation and amortization 7,075 6,297 23,232 17,400
------ ------ ------- ------
25,712 19,156 76,874 54,146
------ ------ ------- ------
Earnings from rental
operations 15,736 9,942 38,835 27,197
------ ------ ------- ------
SERVICE OPERATIONS:
Revenues:
Property management,
maintenance and leasing
fees 3,027 3,023 8,689 8,279
Construction management and
development fees 1,744 1,763 4,897 4,218
Other income 271 340 939 784
------ ------ ------- ------
5,042 5,126 14,525 13,281
------ ------ ------- ------
Operating expenses:
Payroll 2,179 2,074 6,796 5,718
Maintenance 417 386 1,134 932
Office and other 619 525 1,958 1,493
------ ------ ------- ------
3,215 2,985 9,888 8,143
------ ------ ------- ------
Earnings from service
operations 1,827 2,141 4,637 5,138
------ ------ ------- ------
General and administrative
expense (931) (893) (2,895) (2,536)
------ ------ ------- ------
Operating income 16,632 11,190 40,577 29,799
OTHER INCOME (EXPENSE):
Interest income 314 288 920 1,138
Earnings (loss) from property
sales (235) - 1,369 -
Minority interest in earnings
of subsidiaries (268) (306) (698) (736)
------ ------ ------ -------
Net income 16,443 11,172 42,168 30,201
Allocation to preferred units (872) - (872) -
------ ------ ------ ------
Net income available for
common units $15,571 $11,172 $ 41,296 $30,201
====== ====== ======= ======
Net income per common unit $ .47 $ .39 $ 1.31 $ 1.15
====== ====== ======= ======
Weighted average number of
common units outstanding 33,053 28,300 31,589 26,281
====== ====== ======== ======
</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>
Nine months ended September 30,
-------------------------------
1996 1995
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 42,168 $ 30,201
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation of buildings and tenant
improvements 19,632 14,626
Amortization of deferred financing costs 895 901
Amortization of deferred leasing and other
costs 2,705 1,873
Minority interest in earnings 698 736
Straight-line rent adjustment (2,362) (1,808)
Earnings from property sales (1,369) -
Construction contracts, net 527 13,554
Other accrued revenues and expenses, net 6,710 2,047
Equity in earnings in excess of
distributions received from
unconsolidated companies (560) (123)
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 69,044 62,007
-------- --------
Cash flows from investing activities:
Rental property development costs (95,384) (79,868)
Rental property recurring building
improvements (405) (490)
Acquisition of rental properties (132,225) (42,058)
Acquisition of businesses - (25,620)
Acquisition of undeveloped land and
infrastructure costs (11,187) (21,498)
Recurring tenant improvements (4,333) (3,200)
Recurring leasing costs (2,157) (1,902)
Other deferred costs and other assets 79 (6,902)
Proceeds from property sales, net 36,657 38
Distributions received from unconsolidated
companies 6,935 -
Net investment in and advances to
unconsolidated companies (383) (7,744)
------- -------
NET CASH USED BY INVESTING ACTIVITIES (202,403) (189,244)
------- -------
Cash flows from financing activities:
Contributions from general partner 201,447 96,452
Proceeds from indebtedness 40,000 150,051
Borrowings on secured line of credit, net 7,000 -
Repayments on indebtedness including
principal amortization (27,410) (59,610)
Repayments on unsecured line of credit, net (33,000) -
Distributions to partners (47,095) (36,938)
Distributions to minority interest (654) (711)
Deferred financing costs (707) (2,832)
------- -------
NET CASH PROVIDED BY FINANCING ACTIVITIES 139,581 146,412
------- -------
NET INCREASE IN CASH AND CASH EQUIVALENTS 6,222 19,175
------- -------
Cash and cash equivalents at beginning
of period 5,682 40,427
------- -------
Cash and cash equivalents at end of period $ 11,904 $ 59,602
======= =======
</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 NINE MONTHS ENDED SEPTEMBER 30, 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 36,737 5,431 42,168
Acquisition of additional limited
partnership interest by Duke
Realty Investments, Inc. 21,167 - 21,167
Capital contribution from Duke
Realty Investments, Inc. 201,560 - 201,560
Acquisition of property in
exchange for limited
partnership interest - 8,406 8,406
Distributions to partners (41,165) (5,930) (47,095)
------- ------- -------
Balance at September 30, 1996 $754,082 $12,345 $766,427
======= ====== =======
Common units outstanding at
September 30, 1996 29,423 3,696 33,119
======= ====== =======
Preferred units outstanding at
September 30, 1996 300 - 300
======= ====== =======
</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 and the instructions for Form 10-Q
and Rule 10-01 of Regulation S-X. Accordingly, they do not include
all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal
recurring adjustments) considered necessary for a fair presentation
have been included. These financial statements should be read in
conjunction with the 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 common 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 common units of
limited partnership interest ("Limited Partner Units") (together
with the units of general partner interests, the ("Common 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.
In March 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") receiving
net proceeds of approximately $125.3 million. During the second
quarter 1996, the General Partner implemented a direct stock
purchase and
- 6 -
<PAGE>
dividend reinvestment plan and has received approximately $3.9
million of net proceeds from the sale of 129,140 shares of Common
Stock. The General Partner contributed these combined proceeds to
the Partnership in exchange for additional common units. These
proceeds were used to pay down the Partnership's unsecured line of
credit which had been used to fund the development and acquisition
of additional rental properties.
In August 1996, the General Partner issued 300,000 shares of 9.10%
Series A Cumulative Redeemable Preferred Shares ("the 1996
Preferred Offering") receiving net proceeds of approximately $72.3
million. On or after August 31, 2001, the Series A Preferred Shares
may be redeemed for cash at the option of the General Partner, in
whole or in part at a redemption price of $250.00 per share plus
accrued and unpaid distributions, if any, to the redemption date.
The redemption price of the Series A Preferred Shares (other than
any portion thereof consisting of accrued and unpaid distributions)
may only be paid from the proceeds of other capital shares of the
General Partner, which may include other classes or series of
preferred shares. The Series A Preferred Shares have no stated
maturity, will not be subject to sinking fund or mandatory
redemption provisions and are not convertible into any other
securities of the General Partner. Distributions on the Series A
Preferred Shares will be cumulative from the date of original issue
and will be payable quarterly on or about the last day of February,
May, August and November of each year, commencing on December 2,
1996, at the rate of 9.10% of the liquidation preference per annum
(equivalent to $22.75 per annum per share). The proceeds of the
1996 Preferred Offering were contributed to the Partnership in
exchange for preferred units ("Preferred Units") and were used to
retire existing secured debt as well as to fund the development and
acquisition of additional rental properties.
In April 1996, as a result of certain Limited Partners exchanging
their Common 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 725,291 shares of Common Stock for a like
number of Common 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 $21.2
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 the development and
acquisition of additional rental properties and to 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 1.25%. 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%.
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 $2.5 million and $2.1 million for such services for the
nine months ended September 30, 1996 and 1995, respectively.
Management believes the terms for such
- 7 -
<PAGE>
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 October 24, 1996, a quarterly distribution of $.51 per Common
Unit was declared payable on November 29, 1996, to Common
Unitholders of record on November 15, 1996.
On October 24, 1996, a quarterly distribution was declared of
$6.6354 per Preferred Unit for the period August 16, 1996
through November 30, 1996 which is payable on December 2, 1996
to the Preferred Unitholders of record on November 18, 1996.
In November 1996, the Partnership issued $50 million of
unsecured debt at an interest rate of 7.14%. This debt matures
in November 2004 and the proceeds were used to retire amounts
outstanding on the Partnership's lines of credit.
- 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 September
30, 1996, the related condensed consolidated statements of
operations for the three and nine months ended September 30,
1996 and 1995, the related condensed consolidated statements of
cash flows for the nine months ended September 30, 1996 and
1995, and the related condensed consolidated statement of
partners' equity for the nine months ended September 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 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,
partners' equity 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
October 31, 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 portfolio 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 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 occupancy rate
of its in-service portfolio has exceeded 92% the last two years and
was at 94.2% at September 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
September 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 3,047 2,328 11.74% 13.63% 93.94% 95.98%
Bulk 14,296 8,750 55.08% 51.23% 94.03% 96.18%
OFFICE
Suburban 5,815 3,617 22.41% 21.18% 95.84% 92.58%
CBD 699 699 2.69% 4.09% 85.20% 93.07%
Medical 333 294 1.28% 1.72% 91.59% 89.20%
RETAIL 1,766 1,392 6.80% 8.15% 95.05% 93.49%
------ ------ ------- -------
Total 25,956 17,080 100.00% 100.00% 94.23% 94.92%
====== ====== ======= =======
</TABLE>
Management expects occupancy of the in-service property portfolio to remain
stable because (i) only 3.0% and 9.6% 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 82%,
65% and 73% in the nine months ended September 30, 1996 and the years ended
December 31, 1995 and 1994, respectively.
- 10 -
<PAGE>
The following table reflects the Partnership's in-service
portfolio lease expiration schedule as of September 30, 1996 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 Square Contract Square Contract Square Contract Square Contract
Expir. Feet Rent Feet Rent Feet Rent Feet Rent
- ------ ------ -------- ------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1996 615 $ 2,711 104 $ 960 17 $ 133 736 $ 3,804
1997 1,547 6,512 733 7,877 67 719 2,347 15,108
1998 2,373 9,075 691 7,200 115 1,208 3,179 17,483
1999 2,063 8,922 821 8,900 119 1,203 3,003 19,025
2000 2,000 7,814 725 8,965 124 1,421 2,849 18,200
2001 2,130 8,667 707 7,724 106 1,188 2,943 17,579
2002 327 1,438 694 7,347 106 994 1,127 9,779
2003 73 645 154 1,927 36 328 263 2,900
2004 865 3,397 92 1,079 13 126 970 4,602
2005 1,440 4,552 496 6,357 173 1,479 2,109 12,388
There-
after 2,873 8,699 1,257 15,750 802 6,233 4,932 30,682
------ ------- ----- ------ ----- ------ ------ -------
Total
Leased 16,306 $62,432 6,474 $74,086 1,678 $15,032 24,458 $151,550
====== ====== ===== ====== ===== ====== ====== =======
Total
Port-
folio 17,343 6,847 1,766 25,956
====== ===== ===== ======
Annualized net
effective rent
per square
foot $ 3.83 $ 11.44 $ 8.96 $ 6.20
====== ====== ====== =======
</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
development and acquisition of additional rental properties in its
primary markets; (ii) the expansion into other attractive Midwestern
markets; and (iii) the completion of the three million square feet
of properties under development at September 30, 1996 over the next
six quarters. The three million square feet of properties under
development should provide future earnings from rental operations
growth for the Partnership as they are placed in service as follows
(in thousands, except percent leased and stabilized returns):
<TABLE>
<CAPTION>
Anticipated
In-Service Square Percent Project Stabilized
Date Feet Leased Costs Return
---------------- ------- ------- -------- -----------
<S> <C> <C> <C> <C>
4th Quarter 1996 778 66% $ 38,922 11.8%
1st Quarter 1997 541 34% 15,160 10.9%
2nd Quarter 1997 631 64% 31,591 12.2%
3rd Quarter 1997 930 84% 23,387 11.4%
Thereafter 100 80% 8,923 12.6%
----- -------
2,980 66% $117,983 11.8%
===== =======
</TABLE>
RESULTS OF OPERATIONS
- ---------------------
Following is a summary of the Partnership's operating results and
property statistics for the three and nine months ended September
30, 1996 and 1995 (in thousands, except number of properties and
per unit amounts):
- 11 -
<PAGE>
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------ -----------------
1996 1995 1996 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
Rental Operations revenue $41,448 $29,098 $115,709 $81,343
Service Operations revenue 5,042 5,126 14,525 13,281
Earnings from Rental Operations 15,736 9,942 38,835 27,197
Earnings from Service Operations 1,827 2,141 4,637 5,138
Operating income 16,632 11,190 40,577 29,799
Net income available for common
units $15,571 $11,172 $41,296 $30,201
Weighted average common units
outstanding 33,053 28,300 31,589 26,281
Net income per common unit $ .47 $ .39 $ 1.31 $ 1.15
Number of in-service properties
at end of period 233 167 233 167
In-service square footage at end
of period 25,956 17,080 25,956 17,080
Under development square footage
at end of period 2,980 2,807 2,980 2,807
</TABLE>
COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 1996 TO THREE MONTHS
ENDED SEPTEMBER 30, 1995
- -------------------------------------------------------------------
Rental Operations
- ------------------
The Partnership increased its in-service portfolio of rental
properties from 167 properties comprising 17.1 million square feet
at September 30, 1995 to 233 properties comprising 26.0 million
square feet at September 30, 1996 through the acquisition of 50
properties totaling 5.0 million square feet and the completion of
18 properties and three building expansions totaling 4.1 million
square feet developed by the Partnership. The Partnership also
disposed of two properties totaling 226,000 square feet. These 66
net additional rental properties primarily account for the $12.3
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 66 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 $3.0 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.
- 12 -
<PAGE>
As a result of the above-mentioned items, earnings from rental
operations increased $5.8 million from $9.9 million for the three
months ended September 30, 1995 to $15.7 million for the three
months ended September 30, 1996.
Service Operations
- -------------------
Service Operation revenues remained stable at $5.0 million for the
three months ended September 30, 1996 as compared to $5.1 million
for the three months ended September 30, 1995. Service Operation
operating expenses increased from $3.0 million to $3.2 million for
the three months ended September 30, 1996 as compared to the three
months ended September 30, 1995 primarily as a result of an
increase in operating expenses resulting from the overall growth
of the Partnership and the additional regional offices opened in
1995 and 1996.
As a result of the above-mentioned items, earnings from Service
Operations decreased from $2.1 million for the three months ended
September 30, 1995 to $1.8 million for the three months ended
September 30, 1996.
General and Administrative Expense
- -----------------------------------
General and administrative expense remained stable at
approximately $900,000 for the three months ended September 30,
1996 and 1995.
Other Income (Expense)
- -----------------------
During the three months ended September 30, 1996, the Partnership
recognized a loss of $235,000 on property sales. The majority of
the loss related to additional closing costs paid related to a
sale of a property in the second quarter of 1996. The year-to-date
gain on the sale of this building is $1.4 million.
Net Income Available for Common Units
- --------------------------------------
Net income available for common units for the three months ended
September 30, 1996 was $15.6 million compared to net income
available for common units of $11.2 million for the three months
ended September 30, 1995. This increase results primarily from the
operating result fluctuations in rental and service operations
explained above.
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1996 TO NINE MONTHS
ENDED SEPTEMBER 30, 1995
- -----------------------------------------------------------------
Rental Operations
- -----------------
The expansion of the in-service rental property portfolio by 66
additional rental properties from September 30, 1995 to September
30, 1996 primarily accounts for the $34.4 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 66 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.
- 13 -
<PAGE>
Interest expense increased by approximately $7.5 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 $11.6 million from $27.2 million for the nine
months ended September 30, 1995 to $38.8 million for the nine
months ended September 30, 1996.
Service Operations
- -------------------
Service Operation revenues increased from $13.3 million to $14.5
million for the nine months ended September 30, 1996 as compared
to the nine months ended September 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 $8.1 million to $9.9 million for the nine months
ended September 30, 1996 as compared to the nine months ended
September 30, 1995 primarily as a result of an increase in
operating expenses resulting from the overall growth of the
Partnership and the additional regional offices opened in 1995 and
1996.
As a result of the above-mentioned items, earnings from Service
Operations decreased from $5.1 million to $4.6 million for the
nine months ended September 30, 1995 and 1996, respectively.
Other Income (Expense)
- ---------------------
Interest income decreased from $1.1 million for the nine months
ended September 30, 1995 to $920,000 for the nine months ended
September 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 and a debt offering in September 1995
which resulted in excess cash balances being invested through
September 30, 1995.
During the nine months ended September 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 $1.4
million on the sale.
General and Administrative Expense
- ----------------------------------
General and administrative expense increased from $2.5 million for
the nine months ended September 30, 1995 to $2.9 million for the
nine months ended September 30, 1996 primarily as a result of
increased state and local taxes due to the growth in revenues of
the Partnership. Property advertising expense also increased due
to the rapidly expanding size of the Partnership.
Net Income Available for Common Units
- -------------------------------------
Net income available for common units for the nine months ended
September 30, 1996 was $41.3 million compared to net income
available for common units of $30.2 million for the nine months
- 14 -
<PAGE>
ended September 30, 1995. This increase results primarily from the
operating result fluctuations in rental and service operations and
earnings from property sales explained above.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities totaling $69.0 million
and $62.0 million for the nine months ended September 30, 1996 and
1995, respectively, represents the primary source of liquidity to
fund distributions to Common Unitholders and the other minority
interests and to fund recurring costs associated with the
renovation and re-letting of the Partnership's properties.
Excluding the impact of the timing of cash receipts and payments
related to the Partnership's third-party construction contracts,
net cash provided by operating activities increased from $48.4
million for nine months ended September 30, 1995 to $68.5 million
for the nine months ended September 30, 1996. This increase is
primarily a result of, 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 $202.4 million and
$189.2 million for the nine months ended September 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 property sales. During the nine
months ended September 30, 1996, the Partnership sold two
properties and three parcels of land for net proceeds of $36.7
million. The sale of the John Alden Miami building pursuant to a
purchase option accounted for $32.9 million of these proceeds. In
1995, $147.5 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 $227.6 million. Included in the $227.6
million of net cash used by investing activities for the
development and acquisition of rental properties for the nine
months ended September 30, 1996 is $44.9 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 and the issuance of
$8.4 million of Limited Partner Units.
Net cash provided by financing activities totaling $146.4 million
for the nine months ended September 30, 1995 is comprised mainly
of the contribution of proceeds from the General Partner's $96.3
million equity offering in May 1995 and a $150 million unsecured
debt offering in September 1995 net of distributions to Common
Unitholders.
In March 1996, the Partnership received a contribution of $125.3
million from the General Partner's 1996 Offering which was used to
pay down amounts outstanding on the unsecured line of credit.
During the nine months ended September 30, 1996, the Partnership
also received a contribution of $3.9 million from the General
Partner related to the issuance of common stock under the General
Partner's dividend reinvestment and optional stock purchase
program. In August 1996, the Partnership received a contribution
of $72.3 million from the General Partner's 1996 Preferred
Offering. The Partnership used $25.8 million of these proceeds to
pay off existing secured debt which was scheduled to mature in the
fourth quarter of 1996 and the remainder to fund the development
and acquisition of additional rental properties. In July 1996, the
Partnership issued $40 million of unsecured debt under its medium-
term note program. These notes mature in July 2000 and bear
interest at 7.28%. These proceeds were used to fund third quarter
development and acquisition activity.
- 15 -
<PAGE>
In April 1995, the Partnership obtained a $100 million unsecured
line of credit with a borrowing rate of LIBOR plus 2.00% 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 September 1996, the
borrowing rate was further reduced to LIBOR plus 1.25%. 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 General Partner and the Partnership currently have on file two
Form S-3 Registration Statements with the Securities and Exchange
Commission ("Shelf Registrations") which had remaining
availability as of November 11, 1996 of approximately $470 million
to issue 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 mortgage debt outstanding at September 30, 1996 consists
of notes totaling $465.9 million with a weighted average interest
rate of 7.70% maturing at various dates through 2014. The
Partnership has $202.0 million of unsecured debt and $263.9
million of secured debt outstanding at September 30, 1996.
Scheduled principal amortization of such mortgage debt totaled $1.6
million for the nine months ended September 30, 1996.
Following is a summary of the scheduled future amortization and
maturities of the Partnership's indebtedness at September 30, 1996
(in thousands):
<TABLE>
<CAPTION>
Repayments
-------------------------------------------
Weighted Average
Scheduled Interest Rate of
Year Amortization Maturities Total Future Repayments
---- ------------ ------------- --------- -----------------
<S> <C> <C> <C> <C>
1996 $ 507 $ 40,853 $ 41,360 6.29%
1997 2,303 24,216 26,519 9.15%
1998 2,478 57,216 59,694 7.09%
1999 2,698 - 2,698 8.28%
2000 2,717 44,854 47,571 7.38%
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 5.61%
2005 300 100,000 100,300 7.51%
Thereafter 4,077 - 4,077 5.61%
------ ------- -------
Total $20,573 $445,309 $465,882 7.70%
====== ======= =======
</TABLE>
The 1996 maturities consist of a $33.9 million secured loan which
was scheduled to mature in October 1996, as well as the
outstanding balance on the Partnership's $7 million demand secured
line of credit. The Partnership has extended the $33.9 million
loan until April 1997 and intends to refinance the loan prior to
April 1997.
The Partnership intends to pay regular quarterly distributions
from net cash provided by operating activities. A quarterly
distribution of $.51 per Common Unit was declared on October 24,
1996 payable on November 29, 1996 to Common Unitholders of record
on November 15, 1996, which represents an annualized distribution
of $2.04 per Common Unit. A quarterly distribution of $6.6354 per
Preferred Unit was declared on October 24, 1996 for the period
August 16, 1996 through November 30, 1996 which is payable on
December 2, 1996 to Preferred Unitholders of record on November
18, 1996.
- 16 -
<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 nine months ended September 30 as follows
(in thousands):
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
-------------------- -------------------
1996 1995 1996 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net income available for common
units $15,571 $11,172 $41,296 $30,201
Add back:
Depreciation and amortization 6,783 5,981 22,337 16,499
Share of joint venture
depreciation and amortization 484 92 1,367 236
(Earnings) loss from property
sales 235 - (1,369) -
------ ------ ------ -------
FUNDS FROM OPERATIONS $23,073 $17,245 $63,631 $ 46,936
====== ====== ====== =======
CASH FLOW PROVIDED BY (USED BY):
Operating activities $29,942 $21,210 $ 69,044 $ 62,007
Investing activities (108,819) (74,823) (202,403) (189,244)
Financing activities 90,540 77,809 139,581 146,412
</TABLE>
The increase in FFO for the three and nine months ended September
30, 1996 compared to the three and nine months ended September 30,
1995 results primarily from the increased in-service rental
property portfolio as discussed above under "Results of
Operations."
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 nine months ended
September 30, 1995 have been revised accordingly.
The calculations of FFO for the three and nine months ended September
30, 1995 have also been revised to conform with the presentation of
FFO for the three and nine months ended September 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 that
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 Realth Investments, Inc.,
General Partner
Registrant
Date: November 11, 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 -
<PAGE>
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 October 31, 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
October 31, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM DUKE
REALTY LIMITED PARTNERSHIP AND SUBSIDIARIES' SEPTEMBER 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 11,904
<SECURITIES> 0
<RECEIVABLES> 28,852
<ALLOWANCES> (1,444)
<INVENTORY> 0
<CURRENT-ASSETS> 39,994
<PP&E> 1,217,218
<DEPRECIATION> (75,071)
<TOTAL-ASSETS> 1,295,141
<CURRENT-LIABILITIES> 62,832
<BONDS> 465,882
0
0
<COMMON> 0
<OTHER-SE> 766,427
<TOTAL-LIABILITY-AND-EQUITY> 1,295,141
<SALES> 0
<TOTAL-REVENUES> 132,523
<CGS> 67,182
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,570
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22,475
<INCOME-PRETAX> 41,296
<INCOME-TAX> 0
<INCOME-CONTINUING> 41,296
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 41,296
<EPS-PRIMARY> $1.31
<EPS-DILUTED> 0
</TABLE>
