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, 1998
--------------
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 5, 1998 was
91,550,173.
<PAGE>
DUKE REALTY LIMITED PARTNERSHIP
INDEX
PART I - FINANCIAL INFORMATION PAGE
- - ------------------------------ ----
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets as of
March 31, 1998 (Unaudited) and December 31, 1997 2
Condensed Consolidated Statements of Operations for
the three months ended March 31, 1998 and 1997
(Unaudited) 3
Condensed Consolidated Statements of Cash Flows for the
three months ended March 31, 1998 and 1997 (Unaudited) 4
Condensed Consolidated Statement of Partners' Equity for
the three months ended March 31, 1998 (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 9-15
Part II - Other Information
Item 1. Legal Proceedings 16
Item 2. Changes in Securities 16
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to a Vote
of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
<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,
1998 1997
-------- ------------
ASSETS (Unaudited)
------
<S> <C> <C>
Real estate investments:
Land and improvements $ 243,417 $ 231,614
Buildings and tenant improvements 1,695,001 1,591,604
Construction in progress 100,203 107,242
Investments in unconsolidated companies 115,909 106,450
Land held for development 138,889 139,817
--------- ---------
2,293,419 2,176,727
--------- ---------
Accumulated depreciation (131,629) (116,264)
--------- ---------
Net real estate investments 2,161,790 2,060,463
Cash 28,764 10,372
Accounts receivable from tenants, net
of allowance of $528 and $420 5,603 5,932
Straight-line rent receivable,
net of allowance of $841 16,033 14,746
Receivables on construction contracts 20,724 22,700
Deferred financing costs, net of
accumulated amortization of $9,763
and $9,101 10,457 12,289
Deferred leasing and other costs, net
of accumulated amortization of
$10,732 and $9,251 37,588 34,369
Escrow deposits and other assets 18,424 16,303
--------- ---------
$2,299,383 $2,177,174
========= =========
LIABILITIES AND PARTNERS' EQUITY
--------------------------------
Indebtedness:
Secured debt $ 363,898 $ 367,119
Unsecured notes 440,000 340,000
Unsecured line of credit - 13,000
--------- ---------
803,898 720,119
Construction payables and amounts
due subcontractors 33,675 40,786
Accounts payable 1,315 1,342
Accrued expenses:
Real estate taxes 27,997 25,203
Interest 4,372 6,883
Other expenses 10,702 13,851
Other liabilities 14,479 11,720
Tenant security deposits and prepaid rents 17,050 14,268
--------- ---------
Total liabilities 913,488 834,172
--------- ---------
Minority interest 29 222
--------- ---------
Partners' equity
General partner:
Common equity 1,059,217 1,016,733
Preferred equity (liquidation
preference of $225,000) 218,906 218,906
--------- ---------
1,278,123 1,235,639
Limited partners' common equity 107,743 107,141
--------- ---------
Total partners' equity 1,385,866 1,342,780
--------- ---------
$2,299,383 $2,177,174
========= =========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
<PAGE>
- 2 -
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>
1998 1997
-------- --------
<S> <C> <C>
RENTAL OPERATIONS:
Revenues:
Rental income $76,835 $49,058
Equity in earnings of
unconsolidated companies 2,841 1,860
------ ------
79,676 50,918
------ ------
Operating expenses:
Rental expenses 13,845 9,229
Real estate taxes 7,834 4,442
Interest expense 12,879 8,946
Depreciation and amortization 14,260 9,499
------ ------
48,818 32,116
------ ------
Earnings from rental operations 30,858 18,802
------ ------
SERVICE OPERATIONS:
Revenues:
Property management, maintenance
and leasing fees 3,037 2,641
Construction management and
development fees 1,559 1,066
Other income 304 232
------ ------
4,900 3,939
------ ------
Operating expenses:
Payroll 2,883 2,340
Maintenance 604 388
Office and other 518 749
------ ------
4,005 3,477
------ ------
Earnings from service operations 895 462
------ ------
General and administrative expense (2,340) (1,109)
------ ------
Operating income 29,413 18,155
OTHER INCOME (EXPENSE):
Interest income 177 251
Earnings from property sales 586 280
Other expense (31) (43)
Minority interest in earnings
of subsidiaries - 15
------ ------
Net income 30,145 18,658
Dividends on preferred units (4,703) (1,706)
------ ------
Net income available for common units $25,442 $16,952
====== ======
Net income per common unit:
Basic $ .29 $ .25
====== ======
Diluted $ .29 $ .24
====== ======
Weighted average number of common
units outstanding 87,650 68,756
====== ======
Weighted average number of common
and dilutive potential common units 88,596 69,579
====== ======
</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>
1998 1997
--------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 30,145 $ 18,658
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation of buildings and
tenant improvements 12,650 8,386
Amortization of deferred
financing costs 354 344
Amortization of deferred leasing
and other costs 1,610 1,113
Minority interest in earnings - (15)
Straight-line rental income (1,416) (765)
Earnings from property sales (586) (280)
Construction contracts, net (5,135) 3,119
Other accrued revenues and expenses, net 3,083 (141)
Equity in earnings in excess of
distributions received from
unconsolidated companies (2,085) (1,540)
------ ------
Net cash provided by operating activities 38,620 28,879
------ ------
Cash flows from investing activities:
Rental property development costs (48,522) (29,168)
Acquisition of rental properties (36,573) -
Acquisition of land held for development
and infrastructure costs (8,310) (5,634)
Recurring costs:
Tenant improvements (2,106) (2,168)
Leasing commissions (1,197) (1,295)
Building improvements (692) (116)
Other deferred leasing costs (3,370) (4,123)
Other deferred costs and other assets (2,588) (1,321)
Proceeds from property sales, net 1,177 1,280
Net investment in and advances to
unconsolidated companies (6,870) 1,369
------- ------
Net cash used by investing activities (109,051) (41,176)
------- ------
Cash flows from financing activities:
Contributions from general partner 42,560 59,390
Payments on indebtedness including
principal amortization (4,021) (759)
Proceeds from indebtedness 100,000 -
Repayments on lines of credit, net (20,000) (19,000)
Distributions to partners (26,176) (17,692)
Distributions to preferred unitholders (4,703) (1,706)
Distributions to minority interest (193) (336)
Deferred financing costs 1,356 (44)
------- ------
Net cash provided by financing activities 88,823 19,853
------- ------
Net increase in cash 18,392 7,556
------- ------
Cash and cash equivalents at beginning
of period 10,372 5,346
------- ------
Cash and cash equivalents at end of period $ 28,764 $12,902
======= ======
</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, 1998
(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, 1997 $1,016,733 $218,906 $107,141 $1,342,780
Net income 22,250 4,703 3,192 30,145
Capital contribution from
General Partner 43,113 - - 43,113
Acquisition of property in
exchange for Limited
Partner Units - - 707 707
Distributions to preferred
unitholders - (4,703) - (4,703)
Distributions to partners
($.30 per Common Unit) (22,879) - (3,297) (26,176)
--------- ------- ------- ---------
BALANCE AT MARCH 31, 1998 $1,059,217 $218,906 $107,743 $1,385,866
========= ======= ======= =========
COMMON UNITS OUTSTANDING
AT MARCH 31, 1998 78,068 11,018 89,086
========= ======= =========
</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 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. The General Partner is the
sole general partner of the Partnership and owns 87.6% of the
Partnership at March 31, 1998. 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 $200 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 2001 and bears interest at
the 30-day London Interbank Offered Rate ("LIBOR") plus .80%. The
Partnership also has a demand $7 million secured revolving
<PAGE>
- 6 -
credit facility which is available to provide working capital. This
facility bears interest at the 30-day LIBOR rate plus .65%.
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 $600,000 and $750,000 for such services for the three months ended
March 31, 1998 and 1997, 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. NET INCOME PER COMMON UNIT
Basic net income per common unit is computed by dividing net income
available for common units by the weighted average number of common
units outstanding for the period. Diluted net income per unit is
computed by dividing net income available for common units by the
sum of the weighted average number of common units and dilutive
potential common units outstanding for the period.
The following table reconciles the components of basic and diluted
net income per unit as of March 31:
<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
Basic and diluted net income available
for Common Units $25,442 $16,952
====== ======
Weighted average partnership units
outstanding 87,650 68,756
Dilutive units for long-term
compensation plans 946 823
------ ------
Weighted average number of common
units and dilutive
potential common units 88,596 69,579
====== ======
5. SUBSEQUENT EVENTS
On April 23, 1998, a quarterly distribution of $.30 per Common Unit
was declared, payable on May 29, 1998 to Common Unitholders of record
on May 13, 1998.
On April 23, 1998, a quarterly distribution was declared of $.56875
per depositary unit of Series A Preferred Units which is payable on
May 29, 1998 to preferred unitholders of record on May 15, 1998.
On April 23, 1998, a quarterly distribution was declared of $.99875
per depositary unit of Series B Preferred Units payable on June 30,
1998 to preferred unitholders of record on June 17, 1998.
- 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, 1998,
the related condensed consolidated statements of operations and
cash flows for the three months ended March 31, 1998 and 1997,
and the related condensed consolidated statement of partners'
equity for the three months ended March 31, 1998. 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, 1997, 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, 1998, 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, 1997 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, 1998
- 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 94% the last two
years and was at 94% at March 31, 1998. 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, 1998 and 1997 (in thousands, except percentages):
</TABLE>
<TABLE>
<CAPTION>
Total Percent of
Square Feet Total Square Feet Percent Occupied
-------------- ----------------- ----------------
Type 1998 1997 1998 1997 1998 1997
- - -------------- ----- ----- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
INDUSTRIAL
Service Ctrs. 3,761 3,051 8.59% 11.03% 91.71% 93.04%
Bulk 26,878 15,531 61.37% 56.15% 92.88% 95.95%
OFFICE
Suburban 10,129 6,319 23.13% 22.84% 96.30% 96.53%
CBD 699 699 1.60% 2.53% 95.20% 87.55%
Medical 289 369 .65% 1.34% 98.38% 95.18%
RETAIL 2,041 1,690 4.66% 6.11% 95.30% 94.52%
------ ------ ------- -------
Total 43,797 27,659 100.00% 100.00% 93.75% 95.45%
====== ====== ======= =======
</TABLE>
Management expects occupancy of the in-service property portfolio
to remain stable because (i) only 8.6% and 12.3% of the
Partnership's occupied square footage is subject to leases
expiring in the remainder of 1998 and in 1999, respectively, and
(ii) the Partnership's renewal percentage averaged 81%, 80% and
65% in 1997, 1996 and 1995, respectively.
- 9 -
<PAGE>
The following table reflects the Partnership's in-service
portfolio lease expiration schedule as of March 31, 1998 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-
Yr.of Square tual Square tual Square tual Square tual
Exp. Feet Rent Feet Rent Feet Rent Feet Rent
- - ----- ----- --------- ------ -------- ----- -------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1998 2,734 $ 10,641 759 $ 8,393 29 $ 345 3,522 $ 19,379
1999 3,558 15,034 1,365 15,153 119 1,254 5,042 31,441
2000 2,909 12,358 1,011 13,167 128 1,555 4,048 27,080
2001 3,162 12,901 1,473 17,798 91 1,084 4,726 31,783
2002 3,795 15,399 1,480 16,986 157 1,740 5,432 34,125
2003 1,997 8,125 696 8,567 87 925 2,780 17,617
2004 842 3,872 302 3,746 17 178 1,161 7,796
2005 1,814 5,824 955 13,241 181 1,562 2,950 20,627
2006 2,052 7,212 647 9,837 5 67 2,704 17,116
2007 2,319 7,160 362 4,635 76 760 2,757 12,555
2008
and
There-
after 3,230 11,746 1,654 22,785 1,055 8,512 5,939 43,043
------ ------ ------ ------- ----- ------ ------ -------
Total
Leased 28,412 $110,272 10,704 $134,308 1,945 $17,982 41,061 $262,562
====== ======= ====== ======= ===== ====== ====== =======
Total
Portfolio
Sq.Ft. 30,639 11,117 2,041 43,797
====== ====== ===== ======
Annualized
net effective
rent per
sq. ft. $ 3.88 $ 12.55 $ 9.25 $ 6.39
====== ====== ====== =======
</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 4.3 million
square feet of properties under development at March 31, 1998 over
the next four quarters. The 4.3 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 1998 2,218 69% $ 70,045 11.2%
3rd Quarter 1998 442 41% 39,541 12.0%
4th Quarter 1998 811 15% 91,231 11.5%
1st Quarter 1999 823 85% 110,402 10.0%
----- -------
4,294 59% $311,219 11.0%
===== =======
</TABLE>
RESULTS OF OPERATIONS
Following is a summary of the Partnership's operating results and
property statistics for the three months ended March 31, 1998 and
1997 (in thousands, except number of properties and per share
amounts):
- 10 -
<PAGE>
<TABLE>
<CAPTION>
Three months ended March 31,
----------------------------
1998 1997
--------- ---------
<S> <C> <C>
Rental Operations revenue $79,676 $50,918
Service Operations revenue 4,900 3,939
Earnings from Rental
Operations 30,858 18,802
Earnings from Service
Operations 895 462
Operating income 29,413 18,155
Net income available for
common Units $25,442 $16,952
Weighted average common
Units outstanding 87,650 68,756
Weighted average common
and dilutive potential
common Units 88,596 69,579
Basic income per common Unit $ .29 $ .25
Diluted income per common Unit $ .29 $ .24
Number of in-service properties
at end of period 381 250
In-service square footage at
end of period 43,797 27,659
Under development square
footage at end of period 4,294 5,079
</TABLE>
COMPARISON OF THREE MONTHS ENDED MARCH 31, 1998 TO THREE MONTHS ENDED
MARCH 31, 1997
---------------------------------------------------------------------
Rental Operations
-----------------
The Partnership increased its in-service portfolio of rental
properties from 250 properties comprising 27.7 million square
feet at March 31, 1997 to 381 properties comprising 43.8 million
square feet at March 31, 1998 through the acquisition of 100
properties totaling 9.5 million square feet and the completion of
36 properties and two building expansions totaling 7.1 million
square feet developed by the Partnership. The Partnership also
disposed of 5 properties totaling approximately 400,000 square
feet. These 131 net additional rental properties primarily
account for the $28.8 million increase in revenues from Rental
Operations from 1997 to 1998. The Partnership also received $3.4
million of net lease termination payments which is included in
rental income for the three months ended March 31, 1998. Included
in rental income for the three months ended March 31, 1997 is
$1.2 million of net lease termination payments. The increase from
1997 to 1998 in rental expenses, real estate taxes and
depreciation and amortization expense is also a result of the
additional 131 in-service rental properties.
Interest expense increased by approximately $4.3 million from
$8.6 million for the three months ended March 31, 1997 to $12.9
million for the three months ended March 31, 1998 due to
additional unsecured debt issued in the Partnership's medium-term
note program in the third quarter of 1997 to fund the development
and acquisition of additional rental properties.
As a result of the above-mentioned items, earnings from rental
operations increased $12.1 million from $18.8 million for the
three months ended March 31, 1997 to $30.9 million for the three
months ended March 31, 1998.
Service Operations
------------------
Service Operations revenues increased to $4.9 million for the
three months ended March 31, 1998 as compared to $3.9 million for
the three months ended March 31, 1997 primarily as a result of
increases in construction management fee revenue because of an
increase in third-party construction volume. Service Operations
operating expenses increased from $3.5 million
- 11 -
<PAGE>
to $4.0 million for the three months ended March 31, 1998 as
compared to the three months ended March 31, 1997 primarily as a
result of an increase in operating expenses resulting from the
overall growth of the Partnership.
As a result of the above-mentioned items, earnings from Service
Operations increased from $462,000 for the three months ended
March 31, 1997 to $895,000 for the three months ended March 31,
1998.
General and Administrative Expense
-----------------------------------
General and administrative expense increased from $1.1 million
for the three months ended March 31, 1997 to $2.3 million for the
three months ended March 31, 1998 primarily as a result of the
growth in revenues and net income of the Partnership.
Other Income (Expense)
----------------------
Interest income decreased from $251,000 for the three months
ended March 31, 1997 to $177,000 for the three months ended March
31, 1998 primarily as a result of interest income which was
earned on short-term investments during the three months ended
March 31, 1997. Other expense consists of costs incurred in
pursuit of unsuccessful development on acquisition opportunities.
Net Income Available for Common Units
-------------------------------------
Net income available for common units for the three months ended
March 31, 1998 was $25.4 million compared to net income available
for common units of $17.0 million for the three months ended
March 31, 1997. 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 $38.6 million
and $28.9 million for the three months ended March 31, 1998 and
1997, 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 $109.1 million and
$41.2 million for the three months ended March 31, 1998 and 1997,
respectively, represents the investment of funds by the
Partnership to expand its portfolio of rental properties through
the development and acquisition of additional rental properties.
In 1998, $93.4 million was invested in the development and
acquisition of additional rental properties and the acquisition
of land held for development. In 1997, the investment in the
development and acquisition of additional rental
- 12 -
<PAGE>
properties and land held for development was $34.8 million.
Included in the $93.4 million of net cash used by investing
activities for the development and acquisition of rental
properties for the three months ended March 31, 1998 are
acquisitions of two portfolios consisting of fourteen industrial
buildings and one office building.
Net cash provided by financing activities totaling $88.8 million
and $19.9 million for the three months ended March 31, 1998 and
1997, respectively, represents funds from equity and debt
offerings and borrowings under the lines of credit to fund the
Partnership's investing activities. Also included in financing
activities is the distribution of funds to unitholders and
minority interests. 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. In 1998, the Partnership received $33.1 million of net
proceeds from the General Partner's Common Stock offerings which
was used to pay down amounts outstanding on the unsecured line of
credit and to fund current development and acquisition activity.
During the three months ended March 31, 1998, the Partnership
received $7.4 million of net proceeds from the issuance of common
stock under the General Partner's Direct Stock Purchase and
Dividend Reinvestment Plan. In the first quarter of 1998, the
Partnership received $100.0 million of net proceeds from the
offering of 7.05% Puttable Reset Securities due March 1, 2006.
The Partnership has a $200 million unsecured line of credit which
matures in April 2001 and bears interest at the 30-day LIBOR rate
plus .80%. The Partnership also has a demand $7 million secured
revolving credit facility which is available to provide working
capital. This facility bears interest at the 30-day LIBOR rate
plus .65%.
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 May 5, 1998 of approximately $1.4 billion 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, 1998 consists of notes
totaling $803.9 million with a weighted average interest rate of
7.50% maturing at various dates through 2025. The Partnership has
$440.0 million of unsecured debt and $363.9 million of secured
debt outstanding at March 31, 1998. Scheduled principal
amortization of such debt totaled $1.7 million for the three
months ended March 31, 1998.
Following is a summary of the scheduled future amortization and
maturities of the Partnership's indebtedness at March 31, 1998
(in thousands):
- 13 -
<PAGE>
<TABLE>
<CAPTION>
Repayments
--------------------------------------- Weighted Average
Scheduled Interest Rate of
Year Amortization Maturities Total Future Repayments
- - ----- ------------ ----------- --------- ------------------
<S> <C> <C> <C> <C>
1998 $ 5,140 $ 40,659 $ 45,799 7.16%
1999 5,827 30,450 36,277 6.68%
2000 6,204 64,850 71,054 7.15%
2001 5,864 74,560 80,424 8.33%
2002 6,366 50,000 56,366 7.40%
2003 4,415 66,141 70,556 8.47%
2004 3,398 177,035 180,433 7.41%
2005 3,681 100,000 103,681 7.49%
2006 3,989 100,000 103,989 7.07%
2007 3,516 14,939 18,455 7.77%
Thereafter 36,864 - 36,864 6.84%
------ ------- -------
Total $85,264 $718,634 $803,898 7.50%
====== ======= =======
</TABLE>
The Partnership intends to pay regular quarterly distributions
from net cash provided by operating activities. A quarterly
distribution of $.30 per common unit was declared on April 23,
1998 payable on May 29, 1998, which represents an annualized
dividend of $1.20 per common unit. A quarterly distribution of
$.56875 per depositary unit of Series A Preferred Units was
declared on April 23, 1998 which is payable on May 29, 1998. A
quarterly Distribution of $.99875 per depositary unit on the
Series B Cumulative Preferred Units was declared on April 23,
1998 which is payable on June 30, 1998.
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,
------------------
1998 1997
-------- --------
<S> <C> <C>
Net income available for common Units $25,442 $16,952
Add back:
Depreciation and amortization 14,260 9,499
Share of joint venture adjustments 582 523
Earnings from property sales (586) (280)
------ ------
FUNDS FROM OPERATIONS $39,698 $26,694
====== ======
CASH FLOW PROVIDED BY (USED BY):
Operating activities $ 38,620 $28,879
Investing activities (109,051) (41,176)
Financing activities 88,823 19,853
</TABLE>
- 14 -
<PAGE>
The increase in FFO for the three months ended March 31, 1998
compared to the three months ended March 31, 1997 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.
RECENTLY ENACTED ACCOUNTING PRONOUNCEMENTS
In March 1998, the Emerging Issues Task Force of the Financial
Accounting Standards Board reached a consensus on Issue No. 97-11
"Accounting for Internal Costs Relating to Real Estate Property
Acquisitions" which requires the internal cost of pre-acquisition
activities incurred in connection with the acquisition of an
operating property be expensed as incurred. During the first
quarter of 1998, the Partnership capitalized approximately
$275,000 of internal costs of pre-acquisition activities which
under Issue No. 97-11 would have been expensed.
- 15 -
<PAGE>
Part II - Other Information
- - ---------------------------
Item 1. Legal Proceedings
- - --------------------------
None
Item 2. Changes in Securities
- - ------------------------------
None
Item 3. Defaults upon Senior Securities
- - ----------------------------------------
None
Item 4. Submission of Matters to a Vote of Security Holders
- - ------------------------------------------------------------
None
Item 5. Other Information
- - --------------------------
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, 1997 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)
- 16 -
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DUKE REALTY LIMITED PARTNERSHIP
-------------------------------
By: Duke Realty Investments, Inc.,
General Partner
Registrant
Date: May 14, 1998 /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
--------------------------------
Executive Vice President and
Chief Administrative Officer
- 17 -
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, 1998 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 11, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM DUKE
REALTY LIMITED PARTNERSHIP AND SUBSIDIARIES' MARCH 31, 1998 CONSOLIDATED
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 28,764
<SECURITIES> 0
<RECEIVABLES> 43,729
<ALLOWANCES> (1,369)
<INVENTORY> 0
<CURRENT-ASSETS> 73,515
<PP&E> 2,293,419
<DEPRECIATION> (131,629)
<TOTAL-ASSETS> 2,299,383
<CURRENT-LIABILITIES> 109,619
<BONDS> 803,898
0
0
<COMMON> 0
<OTHER-SE> 1,385,866
<TOTAL-LIABILITY-AND-EQUITY> 2,299,383
<SALES> 0
<TOTAL-REVENUES> 85,339
<CGS> 42,315
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 4,703
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,879
<INCOME-PRETAX> 25,442
<INCOME-TAX> 0
<INCOME-CONTINUING> 25,442
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 25,442
<EPS-PRIMARY> $.29
<EPS-DILUTED> $.29
</TABLE>
<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.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 12,902
<SECURITIES> 0
<RECEIVABLES> 28,065
<ALLOWANCES> (1,377)
<INVENTORY> 0
<CURRENT-ASSETS> 36,922
<PP&E> 1,423,854
<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> 27,799
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,691
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,946
<INCOME-PRETAX> 16,952
<INCOME-TAX> 0
<INCOME-CONTINUING> 16,952
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,952
<EPS-PRIMARY> $.25
<EPS-DILUTED> $.24
</TABLE>