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 March 31, 1997
--------------
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
--------- -------
- ------------------------------------------------------------------------
Commission File Number: 0-20625
-------
DUKE REALTY LIMITED PARTNERSHIP
State of Incorporation: IRS Employer ID Number:
Indiana 35-1898425
- ----------------------- ----------------------
Address of principal executive offices:
8888 Keystone Crossing, Suite 1200
----------------------------------
Indianapolis, Indiana 46240
-----------------------------
Telephone: (317) 846-4700
--------------------------
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
--- ---
The number of Limited Partnership Units outstanding as of
May 8, 1997 was 34,870,000.
<PAGE>
DUKE REALTY LIMITED PARTNERSHIP
INDEX
PART I - FINANCIAL INFORMATION PAGE
- ------------------------------ ----
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets as of
March 31, 1997 (Unaudited) and December 31, 1996 2
Condensed Consolidated Statements of Operations for
the three months ended March 31, 1997 and 1996
(Unaudited) 3
Condensed Consolidated Statements of Cash Flows for the
three months ended March 31, 1997 and 1996
(Unaudited) 4
Condensed Consolidated Statement of Partners' Equity
for the three months ended March 31, 1997 (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 9-14
PART II - OTHER INFORMATION
- ---------------------------
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of
Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DUKE REALTY LIMITED PARTNERSHIP AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, December 31,
1997 1996
--------- -----------
ASSETS (UNAUDITED)
------
<S> <C> <C>
Real estate investments:
Land and improvements $ 144,208 $ 140,391
Buildings and tenant improvements 1,061,084 1,041,040
Construction in progress 75,814 44,060
Land held for development 63,454 65,185
--------- ---------
1,344,560 1,290,676
Accumulated depreciation (90,075) (82,207)
--------- ---------
Net real estate investments 1,254,485 1,208,469
Cash 12,902 5,346
Accounts receivable from tenants, net of
allowance of $536 and $709 4,124 5,255
Straight-line rent receivable, net of
allowance of $841 11,721 10,956
Receivables on construction contracts 10,843 12,859
Investments in unconsolidated companies 79,294 79,362
Deferred financing costs, net of accumulated
amortization of $3,952 and $3,529 7,747 8,127
Deferred leasing and other costs, net of
accumulated amortization of $9,425 and $8,276 28,577 24,293
Escrow deposits and other assets 9,053 7,732
--------- ---------
$1,418,746 $1,362,399
========= =========
LIABILITIES AND PARTNERS' EQUITY
--------------------------------
Indebtedness:
Secured debt $ 261,056 $ 261,815
Unsecured notes 240,000 240,000
Unsecured line of credit 5,000 24,000
--------- ---------
506,056 525,815
Construction payables and amounts due
subcontractors 24,270 23,167
Accounts payable 1,651 1,585
Accrued real estate taxes 14,800 14,888
Accrued interest 3,089 4,437
Other accrued expenses 5,692 6,935
Other liabilities 7,691 8,312
Tenant security deposits and prepaid rents 9,188 7,611
--------- ---------
Total liabilities 572,437 592,750
--------- ---------
Minority interest 29 380
--------- ---------
Partners' equity:
General partner
Common equity 758,046 683,710
Preferred equity 72,856 72,856
--------- ---------
830,902 756,566
Limited partners' common equity 15,378 12,703
--------- ---------
Total partners' equity 846,280 769,269
--------- ---------
$1,418,746 $1,362,399
========= =========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
- 2 -
<PAGE>
DUKE REALTY LIMITED PARTNERSHIP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31,
(IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
------ --------
<S> <C> <C>
RENTAL OPERATIONS:
Revenues:
Rental income $49,058 $ 35,335
Equity in earnings of unconsolidated
companies 1,860 1,202
------ -------
50,918 36,537
------ -------
Operating expenses:
Rental expenses 9,272 7,144
Real estate taxes 4,442 3,208
Interest expense 8,602 7,967
Depreciation and amortization 9,843 7,046
------ -------
32,159 25,365
------ -------
Earnings from rental operations 18,759 11,172
------ -------
SERVICE OPERATIONS:
Revenues:
Property management, maintenance and
leasing fees 2,641 2,714
Construction management and development
fees 1,066 1,317
Other income 232 315
------ -------
3,939 4,346
------ -------
Operating expenses:
Payroll 2,340 2,235
Maintenance 388 296
Office and other 749 632
------ -------
3,477 3,163
------ -------
Earnings from service operations 462 1,183
------ -------
General and administrative expense (1,109) (921)
------ -------
Operating income 18,112 11,434
OTHER INCOME (EXPENSE):
Interest income 251 344
Earnings (loss) from property sales 280 (14)
Minority interest in earnings of subsidiaries 15 (187)
------ -------
Net income 18,658 11,577
Dividend on preferred units (1,706) -
------ -------
Net income available for common units 16,952 $ 11,577
====== =======
Net income per common unit $ .49 $ .40
====== =======
Weighted average number of common units
outstanding 34,378 28,686
====== =======
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
<PAGE>
- 3 -
DUKE REALTY LIMITED PARTNERSHIP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31,
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $18,658 $ 11,577
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation of buildings and
tenant improvements 8,386 5,936
Amortization of deferred financing costs 344 285
Amortization of deferred leasing and
other costs 1,113 825
Minority interest in earnings (15) 187
Straight-line rental income (765) (831)
(Earnings) loss from property sales (280) 14
Construction contracts, net 3,119 (1,624)
Other accrued revenues and expenses, net (141) (1,879)
Equity in earnings in excess of
distributions received from
unconsolidated companies (1,540) (185)
------ ------
Net cash provided by operating activities 28,879 14,305
------ ------
Cash flows from investing activities:
Rental property development costs (29,168) (28,752)
Acquisition of rental properties - (55,038)
Acquisition of land held for development
and infrastructure costs (5,634) (408)
Recurring costs:
Tenant improvements (2,168) (1,762)
Leasing commissions (1,295) (632)
Building improvements (116) (32)
Other deferred costs and other assets (5,444) 4,048
Proceeds from property sales, net 1,280 2,926
Net investment in and advances to
unconsolidated companies 1,369 (215)
------- ------
Net cash used by investing activities (41,176) (79,865)
------ ------
Cash flows from financing activities:
Contributions from general partner 59,390 113,835
Payments on indebtedness including
principal amortization (759) (532)
Borrowings (repayments) on lines of
credit, net (19,000) (27,000)
Distributions to partners (19,398) (14,069)
Distributions to minority interest (336) (193)
Deferred financing costs (44) (282)
------- -------
Net cash provided by financing activities 19,853 71,759
------- -------
Net increase in cash 7,556 6,199
------- -------
Cash at beginning of period 5,346 5,682
------- -------
Cash at end of period $12,902 $11,881
====== ======
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
- 4 -
<PAGE>
DUKE REALTY LIMITED PARTNERSHIP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF PARTNERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
General Partner Limited
--------------------------- Partners'
Common Preferred Common
Equity Equity Equity Total
-------- --------- --------- ---------
<S> <C> <C> <C> <C>
BALANCE AT
DECEMBER 31,
1996 $683,710 $72,856 $12,703 $769,269
Net income 15,194 1,706 1,758 18,658
Capital
contribution
from Duke Realty
Investments, Inc. 59,435 - - 59,435
Acquisition of
partnership
interest for
Common Stock
of Duke Realty
Investments, Inc. 15,514 - - 15,514
Acquisition of
property in
exchange for
Limited Partner
Units - - 2,802 2,802
Distributions to
preferred
unitholders - (1,706) - (1,706)
Distributions to
partners ($.51 per
Common Unit) (15,807) - (1,885) (17,692)
-------- ------ ------ -------
BALANCE AT
MARCH 31, 1997 $758,046 $72,856 $15,378 $846,280
======= ====== ====== ========
COMMON UNITS
OUTSTANDING
AT MARCH 31, 1997 31,442 3,378 34,820
======= ====== =======
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
<PAGE>
- 5 -
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 from the
issuance of an additional 14,000,833 units through a common stock
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 Common Stock, 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 units. The
General Partner is the sole general partner of the Partnership and
owns 90.3% of the Partnership at March 31, 1997. The remaining
limited partnership interest ("Limited Partner Units") (together
with the units of general partner interests, the ("Common Units"))
are mainly owned by the previous partners of Duke Associates. The
Limited Partner Units are exchangeable for units of the General
Partner's common stock on a one-for-one basis subject generally to
a one-year holding period. The General Partner periodically
acquires a portion of the minority interest in the Partnership
through the issuance of shares of common stock for a like number of
Common Units. The acquisition of the minority interest is 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 service operations are conducted through Duke Realty Services
Limited Partnership and Duke Construction Limited Partnership, 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.
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
- 6 -
<PAGE>
revolving line of credit matures in April 1998 and bears interest
payable at the 30-day London Interbank Offered Rate ("LIBOR") plus
1.00%. The Partnership also has a demand $10 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 $750,000 and $681,000 for
such services for the three months ended March 31, 1997 and 1996,
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. FORWARD TREASURY LOCK AGREEMENT
In April 1997, the Partnership entered into a Forward Treasury
Lock Agreement in order to hedge its exposure to interest rate
fluctuations on an anticipated $100 million unsecured debt
financing expected to close by June 30, 1997. Any gain or loss
under the agreement will be amortized to interest expense over the
term of the financing.
5. SUBSEQUENT EVENTS
On April 24, 1997, a quarterly distribution of $.51 per Common
Unit was declared payable on May 30, 1997, to Common Unitholders
of record on May 16, 1997.
On April 24, 1997, a quarterly distribution was declared of
$.56875 per depositary Preferred Unit which is payable on May
30, 1997 to the Preferred Unitholders of record on May 16, 1997.
- 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 March
31, 1997, the related condensed consolidated statements of
operations and cash flows for the three months ended March
31, 1997 and 1996, and the related condensed consolidated
statement of partners' equity for the three months ended
March 31, 1997. 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, 1996, 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
29, 1997, 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, 1996 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
May 5, 1997
- 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 of 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 95.5% at March 31, 1997. The Partnership expects
to continue to maintain its overall occupancy levels at comparable
levels and also expects to be able to increase rental rates as
leases are renewed or new leases are executed. This stable
occupancy as well as increasing rental rates should improve the
Partnership's results of operations from its in-service properties.
The Partnership's strategy for continued growth also includes
developing and acquiring additional rental properties in its
primary markets and expanding into other attractive Midwestern
markets.
The following table sets forth information regarding the
Partnership's in-service portfolio of rental properties as of March
31, 1997 and 1996 (in thousands, except percentages):
<TABLE>
<CAPTION>
Total Percent of
Square Feet Total Square Feet Percent Occupied
---------------- ------------------- ------------------
Type 1997 1996 1997 1996 1997 1996
---- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
INDUSTRIAL
Service Centers 3,051 2,970 11.03% 13.32% 93.04% 94.60%
Bulk 15,531 12,155 56.15% 54.51% 95.95% 92.33%
OFFICE
Suburban 6,319 4,684 22.84% 21.01% 96.53% 96.26%
CBD 699 699 2.53% 3.14% 87.55% 93.62%
Medical 369 333 1.34% 1.49% 95.18% 89.64%
RETAIL 1,690 1,456 6.11% 6.53% 94.52% 93.73%
------ ------ ------- -------
Total 27,659 22,297 100.00% 100.00% 95.45% 93.55%
====== ====== ======= =======
</TABLE>
Management expects occupancy of the in-service property portfolio
to remain stable because (i) only 8.1% and 12.1% of the
Partnership's occupied square footage is subject to leases expiring
in the remainder of 1997 and in 1998, respectively, and (ii) the
Partnership's renewal percentage averaged 80%, 65% and 73% in 1996,
1995 and 1994, respectively.
- 9 -
<PAGE>
The following table reflects the Partnership's in-service portfolio
lease expiration schedule as of March 31, 1997 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 Portfolio
---------------- --------------- -------------- -----------------
Contrac- Contrac- Contrac- Contrac-
Year of Sq. tual Sq. tual Sq. tual Sq. tual
Exp. Feet Rent Feet Rent Feet Rent Feet Rent
------- ------ --------- ----- -------- ---- -------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1997 1,605 $ 6,435 495 $ 5,003 48 $ 528 2,148 $ 11,966
1998 2,332 8,740 750 8,123 107 1,115 3,189 17,978
1999 2,218 9,619 908 9,798 120 1,233 3,246 20,650
2000 2,165 8,841 840 10,200 103 1,244 3,108 20,285
2001 2,512 9,891 865 9,546 88 1,062 3,465 20,499
2002 1,023 4,032 848 9,071 134 1,401 2,005 14,504
2003 292 1,766 217 2,489 35 317 544 4,572
2004 865 3,221 195 2,386 13 126 1,073 5,733
2005 1,256 4,069 535 6,770 177 1,505 1,968 12,344
2006 2,038 6,457 352 4,359 5 67 2,395 10,883
2007
and
There-
after 1,435 4,722 1,058 13,775 767 6,506 3,260 25,003
------ ------ ----- ------ ----- ------ ------ -------
Total
Leased 17,741 $67,793 7,063 $81,520 1,597 $15,104 26,401 $164,417
====== ====== ===== ====== ===== ====== ======= =======
Total
Portfolio
Square
Feet 18,582 7,387 1,690 27,659
====== ===== ===== ======
Annualized net
effective rent
per square foot $ 3.82 $ 11.54 $ 9.46 $ 6.23
====== ====== ====== =======
</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 5.1 million
square feet of properties under development at March 31, 1997 over
the next four quarters. The 5.1 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>
2nd Quarter 1997 1,650 81% $ 50,332 11.9%
3rd Quarter 1997 1,931 69% 65,067 11.1%
4th Quarter 1997 668 72% 44,004 11.7%
1st Quarter 1998 830 79% 37,833 11.5%
----- -------
5,079 75% $197,236 11.5%
===== =======
</TABLE>
RESULTS OF OPERATIONS
---------------------
Following is a summary of the Partnership's operating results and
property statistics for the three months ended March 31, 1997 and
1996 (in thousands, except number of properties and per unit
amounts):
- 10 -
<PAGE>
<TABLE>
<CAPTION>
Three months ended March 31,
----------------------------
1997 1996
---------- -----------
<S> <C> <C>
Rental Operations revenue $50,918 $36,537
Service Operations revenue 3,939 4,346
Earnings from Rental Operations 18,759 11,172
Earnings from Service Operations 462 1,183
Operating income 18,112 11,434
Net income available for common
units $16,952 $11,577
Weighted average common units
outstanding 34,378 28,686
Net income per common unit $ .49 $ .40
Number of in-service properties
at end of period 250 214
In-service square footage at
end of period 27,659 22,297
Under development square footage
at end of period 5,079 2,891
</TABLE>
COMPARISON OF THREE MONTHS ENDED MARCH 31,1997 TO THREE MONTHS
--------------------------------------------------------------
ENDED MARCH 31,1996
-------------------
Rental Operations
-----------------
The Partnership increased its in-service portfolio of rental
properties from 214 properties comprising 23.0 million square feet
at March 31, 1996 to 250 properties comprising 27.7 million square
feet at March 31, 1997 through the acquisition of 23 properties
totaling 2.1 million square feet and the completion of 15
properties and three building expansions totaling 3.5 million
square feet developed by the Partnership. The Partnership also
disposed of two properties totaling 226,000 square feet. These 36
net additional rental properties primarily account for the $14.4
million increase in revenues from Rental Operations from 1996 to
1997. The Partnership also received a $1.2 million net lease
termination payment made by a tenant in one of the Partnership's
office properties which is included in rental income for the three
months ended March 31, 1997. The increase from 1996 to 1997 in
rental expenses, real estate taxes and depreciation and
amortization expense is also a result of the additional 36 in-
service rental properties.
Interest expense increased by approximately $600,000 from $8.0
million for the three months ended March 31, 1996 to $8.6 million
for the three months ended March 31, 1997 due to additional
unsecured debt issued in its medium-term note program in the last
two quarters of 1996 to fund the development and acquisition of
additional rental properties.
As a result of the above-mentioned items, earnings from rental
operations increased $7.6 million from $11.2 million for the three
months ended March 31, 1996 to $18.8 million for the three months
ended March 31, 1997.
Service Operations
------------------
Service Operation revenues decreased to $3.9 million for the three
months ended March 31, 1997 as compared to $4.3 million for the
three months ended March 31, 1996. This decrease was primarily the
result of a decrease in construction management fees caused by
unfavorable weather conditions during the three months ended March
31, 1997. Service Operation operating expenses increased from $3.2
million to $3.5 million for the three months ended March 31, 1997
as compared to the three months ended March 31, 1996 primarily as a
result of an increase in operating expenses resulting from the
overall growth of the Partnership.
- 11 -
<PAGE>
As a result of the above-mentioned items, earnings from Service
Operations decreased from $1.2 million for the three months ended
March 31, 1996 to $462,000 for the three months ended March 31,
1997.
General and Administrative Expense
----------------------------------
General and administrative expense increased from $921,000 for the
three months ended March 31, 1996 to $1.1 million for the three
months ended March 31, 1997 primarily as a result of increased
state and local taxes due to the growth in revenues and net income
of the Partnership.
Other Income (Expense)
----------------------
Interest income decreased from $344,000 for the three months ended
March 31, 1996 to $251,000 for the three months ended March 31,
1997 primarily as a result of interest income which was earned on
certain escrows during the three months ended March 31, 1996 which
were refunded later in 1996.
Net Income Available for Common Units
-------------------------------------
Net income available for common units for the three months ended
March 31, 1997 was $17.0 million compared to net income available
for common units of $11.6 million for the three months ended March
31, 1996. This increase results primarily from the operating result
fluctuations in rental and service operations explained above.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities totaling $29.0 million
and $14.3 million for the three months ended March 31, 1997 and
1996, 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. 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 $41.2 million and
$79.9 million for the three months ended March 31, 1997 and 1996,
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. In 1997, $34.8 million was
invested in the development of additional rental properties and the
acquisition of land held for development. In 1996, the investment
in the development and acquisition of additional rental properties
and land held for development was $84.2 million. Included in the
$84.2 million of net cash used by investing activities for the
development and acquisition of rental properties for the three
months ended March 31, 1996 is $44.5 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 $76.0 million which included the
assumption of $23.1 million of mortgage debt and the issuance of
$8.4 million of
- 12 -
<PAGE>
Common Units. In March 1996, the Partnership received $113.8
million of net proceeds from the General Partner's common stock
offering which was used to pay down amounts outstanding on the
unsecured line of credit and to fund current development and
acquisition activity. In January 1997, the Partnership received
$56.7 million of net proceeds from the General Partner's common
stock offering which was used to pay down amounts outstanding on
the unsecured line of credit and to fund current development
activity. During the three months ended March 31, 1997, the
Partnership also received $2.7 million of net proceeds from the
issuance of common stock under the General Partner's Direct Stock
Purchase and Dividend Reinvestment Plan.
The Partnership has a $150 million unsecured line of credit which
matures in April 1998. In January 1996, the borrowing rate was
LIBOR plus 1.625%. In September 1996, the borrowing rate was
reduced to LIBOR plus 1.25%. On March 27, 1997 the borrowing rate
was further reduced to LIBOR plus 1.00%. The Partnership also has a
demand $10 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 Form
S-3 Registration Statements with the Securities and Exchange
Commission ("Shelf Registrations") which had remaining availability
as of April 29, 1997 of approximately $410 million to issue common
stock, preferred stock or unsecured debt securities. The General
Partner and the Partnership intend to issue additional equity or
debt under these Shelf Registrations as capital needs arise to fund
the development and acquisition of additional rental properties.
The total debt outstanding at March 31, 1997 consists of
notes totaling $506.1 million with a weighted average interest rate
of 7.58% maturing at various dates through 2017. The Partnership
has $245.0 million of unsecured debt and $261.1 million of secured
debt outstanding at March 31, 1997. Scheduled principal
amortization of such debt totaled $759,000 for the three
months ended March 31, 1997.
Following is a summary of the scheduled future amortization and
maturities of the Partnership's indebtedness at March 31, 1997 (in
thousands):
<TABLE>
<CAPTION>
Repayments
---------------------------------------- Weighted Average
Scheduled Interest Rate of
Year Amortization Maturities Total Future Repayments
---- ------------ ---------- -------- ------------------
<S> <C> <C> <C> <C>
1997 $ 2,629 $ 10,000 $ 12,629 6.66%
1998 4,410 51,590 56,000 7.26%
1999 5,146 28,470 33,616 6.15%
2000 3,227 44,853 48,080 7.38%
2001 2,930 59,954 62,884 8.72%
2002 3,189 50,000 53,189 7.36%
2003 902 68,216 69,118 8.48%
2004 978 50,000 50,978 7.14%
2005 1,064 100,000 101,064 7.48%
2006 1,160 - 1,160 7.38%
Thereafter 17,338 - 17,338 7.54%
------ ------- -------
Total $42,973 $463,083 $506,056 7.58%
====== ======= =======
</TABLE>
The 1997 maturities consist of the outstanding balance on the
Partnership's $10 million demand secured line of credit.
- 13 -
<PAGE>
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 April 24, 1997 payable on
May 30, 1997 which represents an annualized distribution of $2.04
per common unit. A quarterly distribution of $.56875 per depositary
preferred unit was declared on April 24, 1997 which is payable on
May 30, 1997.
FUNDS FROM OPERATIONS
Management believes that Funds From Operations ("FFO"), which is
defined by the National Association of Real Estate Investment
Trusts as net income or loss excluding gains or losses from debt
restructuring and sales of property plus depreciation and
amortization, and after adjustments for minority interest,
unconsolidated partnerships and joint ventures (adjustments for
minority interest, unconsolidated partnerships and joint ventures
are calculated to reflect FFO on the same basis), is the industry
standard for reporting the operations of real estate investment
trusts.
The following table reflects the calculation of the Partnership's
FFO for the three months ended March 31 as follows (in thousands):
<TABLE>
<CAPTION>
Three months ended
March 31,
--------------------
(in thousands) 1997 1996
-------- --------
<S> <C> <C>
Net income available for common
units $16,952 $11,577
Add back:
Depreciation and amortization 9,499 6,761
Share of joint venture depreciation
and amortization 523 440
(Earnings) loss from property sales (280) 14
------ ------
FUNDS FROM OPERATIONS $26,694 $18,792
====== ======
CASH FLOW PROVIDED BY (USED BY):
Operating activities $28,879 $14,305
Investing activities (41,176) (79,865)
Financing activities 19,853 71,759
</TABLE>
The increase in FFO for the three months ended March 31, 1997
compared to the three months ended March 31, 1996 results primarily
from the increased in-service rental property portfolio as
discussed above under "Results of Operations."
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.
- 14 -
<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
- --------------------------
When used in this Form 10-Q, the words "believes," "expects,"
"estimates" and similar expressions are intended to identify
forward looking-statements. Such statements are subject to certain
risks and uncertainties which could cause actual results to differ
materially. In particular, among the factors that could cause
actual results to differ materially are continued qualification of
the General Partner as a real estate investment trust, general
business and economic conditions, competition, increases in real
estate construction costs, interest rates, accessibility of debt
and equity capital markets and other risks inherent in the real
estate business including tenant defaults, potential liability
relating to environmental matters and illiquidity of real estate
investments. Readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of the date
hereof. The Partnership undertakes no obligation to publicly
release the results of any revisions to these forward-looking
statements which may be made to reflect events or circumstances
after the date hereof or to reflect the occurrence of
unanticipated events. Readers are also advised to refer to the
General Partner's Form 8-K Report as filed with the U.S.
Securities and Exchange Commission on March 29, 1996 for
additional information concerning these risks.
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)
- 15 -
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
DUKE REALTY LIMITED PARTNERSHIP
- -------------------------------
By: Duke Realty Investments, Inc.,
General Partner
Registrant
Date: May 12, 1997 /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)
- 16 -
Exhibit 15
- ----------
The Partners
Duke Realty Limited Partnership:
Gentlemen:
RE: Registration Statement No. 33-61361, 333-04695, and 333-26845
With respect to the subject registration statement, we
acknowledge our awareness of the use therein of our report
dated May 5, 1997 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
May 12, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM DUKE
REALTY LIMITED PARTNERSHIP AND SUBSIDIARIES' MARCH 31, 1997 CONSOLIDATED
FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 12,902
<SECURITIES> 0
<RECEIVABLES> 28,065
<ALLOWANCES> (1,377)
<INVENTORY> 0
<CURRENT-ASSETS> 36,922
<PP&E> 1,344,560
<DEPRECIATION> (90,075)
<TOTAL-ASSETS> 1,418,746
<CURRENT-LIABILITIES> 66,410
<BONDS> 506,056
0
0
<COMMON> 0
<OTHER-SE> 846,280
<TOTAL-LIABILITY-AND-EQUITY> 1,418,746
<SALES> 0
<TOTAL-REVENUES> 55,388
<CGS> 28,143
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,691
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,602
<INCOME-PRETAX> 16,952
<INCOME-TAX> 0
<INCOME-CONTINUING> 16,952
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,952
<EPS-PRIMARY> $0.49
<EPS-DILUTED> 0
</TABLE>
