<PAGE>
Filed Pursuant to Rule 424(b)(5)
Commission File No. 333-26845-01
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED MAY 27, 1997
$100,000,000
[LOGO]
DUKE REALTY LIMITED PARTNERSHIP
PUTTABLE RESET SECURITIES PURS-SM- DUE MARCH 1, 2016
---------
Interest on the Puttable Reset Securities PURS-SM- due March 1, 2016 of Duke
Realty Limited Partnership is payable semiannually on March 1 and September 1 of
each year, commencing September 1, 1998. From and including March 1, 1998 to but
excluding March 1, 2006, interest on the Bonds will accrue at an annual rate
equal to 7.05%. On March 1, 2006, the interest rate may be reset as a fixed rate
determined by the Calculation Agent on the basis of certain bids to be requested
from reference dealers, as described below. See "Description of Bonds--Interest"
and "--Reset of Interest Rate."
On the Reset Date specified above, Goldman, Sachs & Co. will have the right
to purchase all of the outstanding Bonds (in whole and not in part) from the
holders, at a price equal to 100% of the principal amount of the Bonds
purchased. If Goldman, Sachs & Co. does not exercise its Call Option, then the
Operating Partnership will repurchase from each holder on the Reset Date all of
the holder's Bonds, at a price equal to 100% of the principal amount of the
Bonds repurchased, unless the holder elects to retain them by notifying the
Trustee in the required manner. In all cases, the Operating Partnership will
remain obligated to pay accrued and unpaid interest on the Bonds on the Reset
Date. These purchase rights and obligations are subject to the requirements and
exceptions described in this document. See "Description of Bonds--Call Option"
and "--Put Option."
The Bonds will be represented by one or more global Bonds registered in the
name of a nominee of The Depository Trust Company. Beneficial interests in the
global Bonds will be shown on, and transfers will be effected only through,
records maintained by DTC and its participants. Except as described in this
document, Bonds in definitive form will not be issued. See "Description of
Bonds--Global Securities."
--------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT
OR THE PROSPECTUS TO WHICH IT RELATES.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
--------------
<TABLE>
<CAPTION>
PROCEEDS TO
INITIAL PUBLIC UNDERWRITING OPERATING
OFFERING PRICE (1) DISCOUNT (2) PARTNERSHIP (1)(3)
--------------------------- --------------------------- ---------------------------
<S> <C> <C> <C>
Per Bond...................... 99.936% 0.625% 101.961%
Total......................... $99,936,000 $625,000 $101,961,000
</TABLE>
- --------------
(1) Plus accrued interest from March 1, 1998.
(2) The Operating Partnership has agreed to indemnify the Underwriters against
certain liabilities, including liabilities under the Securities Act of 1933.
(3) Before deducting estimated expenses of $35,000 payable by the Operating
Partnership. The proceeds to the Operating Partnership include an amount
equal to 2.65% of the principal amount of the Bonds, which will be paid by
Goldman, Sachs & Co. in consideration of the Call Option it will have with
respect to the Bonds.
--------------
The Bonds are offered severally by the Underwriters, subject to receipt and
acceptance by them and subject to their right to reject any order in whole or in
part. The Bonds are expected to be ready for delivery in book-entry form only
through the facilities of DTC in New York, New York on or about March 10, 1998,
against payment therefor in immediately available funds.
GOLDMAN, SACHS & CO. UBS SECURITIES
---------
The date of this Prospectus Supplement is March 5, 1998.
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE BONDS, INCLUDING OVER-
ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS IN SUCH BONDS, AND THE
IMPOSITION OF A PENALTY BID, IN CONNECTION WITH THIS OFFERING. FOR A DESCRIPTION
OF THESE ACTIVITIES, SEE "UNDERWRITING."
PURS-SM- IS A SERVICE MARK OF GOLDMAN, SACHS & CO.
S-2
<PAGE>
THE FOLLOWING INFORMATION IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE
READ IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION APPEARING ELSEWHERE IN
THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS OR DOCUMENTS
INCORPORATED HEREIN AND THEREIN BY REFERENCE. UNLESS INDICATED OTHERWISE, THE
INFORMATION CONTAINED IN THIS PROSPECTUS SUPPLEMENT IS PRESENTED AS OF SEPTEMBER
30, 1997. UNIT AND PER UNIT AMOUNTS IN THIS PROSPECTUS SUPPLEMENT REFLECT THE
OPERATING PARTNERSHIP'S TWO-FOR-ONE UNIT SPLIT WHICH OCCURRED ON AUGUST 25,
1997. ALL REFERENCES TO THE "OPERATING PARTNERSHIP" IN THIS PROSPECTUS
SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS INCLUDE THE OPERATING PARTNERSHIP AND
THOSE ENTITIES OWNED OR CONTROLLED BY THE OPERATING PARTNERSHIP, UNLESS THE
CONTEXT INDICATES OTHERWISE.
WHEN USED IN THIS PROSPECTUS SUPPLEMENT, THE WORDS "BELIEVES," "EXPECTS" AND
SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS WITHIN
THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND
SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. SUCH STATEMENTS
ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES WHICH COULD CAUSE ACTUAL RESULTS
TO DIFFER MATERIALLY. READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE
FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE HEREOF. THE
OPERATING 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.
THE OPERATING PARTNERSHIP
Duke Realty Limited Partnership (the "Operating Partnership" or the
"Partnership") is managed by its general partner, Duke Realty Investments, Inc.
(the "Company"), a self-administered and self-managed real estate investment
trust (a "REIT"), and began operations through a related entity in 1972. At
September 30, 1997, the Operating Partnership owned a diversified portfolio of
278 in-service industrial, office and retail properties (the "Properties"),
encompassing approximately 34.2 million square feet located in seven states, and
31 buildings and one building expansion encompassing approximately 4.5 million
square feet under development. The Operating Partnership also owned
approximately 1,500 acres of unencumbered land (the "Land") for future
development, of which approximately 72% is zoned for industrial use and which is
typically located adjacent to the Properties. The Operating Partnership provides
leasing, management, construction, development and other tenant-related services
for the Properties and certain properties owned by third parties. The Operating
Partnership believes that the Midwest offers a relatively strong and stable
economy compared to other regions of the United States and provides significant
growth potential due to its central location, established manufacturing base,
skilled work force and moderate labor costs.
The Operating Partnership has developed approximately 52 million square feet
of commercial property since its founding including an average of approximately
4.4 million square feet per year during the last five years. In addition, the
Operating Partnership acquired approximately 8.9 million square feet during the
three years ended December 31, 1996. During the nine months ended September 30,
1997, the Operating Partnership placed in service 3.9 million square feet of new
development and acquired 3.4 million square feet of property.
The Operating Partnership manages approximately 47 million square feet of
property, including over 8.2 million square feet owned by third parties. The
Operating Partnership manages approximately 35% and 29% of all competitive
suburban office, warehousing and light manufacturing space in Indianapolis and
Cincinnati, respectively. In addition to providing services to more than 1,900
tenants in the Properties, the Operating Partnership provides such services to
over 900 tenants in 92 properties owned by third parties. Based on market data
maintained by the Operating Partnership, the Operating Partnership believes that
it was responsible in the first six months of 1997 for approximately 67% and 34%
of the net absorption (gross space leased minus lease terminations and
expirations) of competitive suburban office, warehousing and light manufacturing
space in Indianapolis and Cincinnati, respectively. The Operating Partnership
believes that its dominant position in the primary markets in which it operates
gives it a competitive advantage in its real estate activities.
S-3
<PAGE>
All of the Company's interests in the Properties and Land are held directly
or indirectly by, and substantially all of its operations relating to the
Properties are conducted through, the Operating Partnership. Partnership
interests ("Units") in the Operating Partnership may be exchanged by the holders
thereof, other than the Company, for common stock of the Company (the "Common
Stock") on a one-for-one basis. Upon an exchange of Units for Common Stock, the
Company's percentage interest in the Operating Partnership will increase. The
Company controls the Operating Partnership as the sole general partner and
owner, as of September 30, 1997, of approximately 92% of the Units. In addition,
the senior management team of the Company owns approximately 10.75% of the
Company through Common Stock and Unit ownership.
The following tables provide an overview of the Properties as of September
30, 1997.
SUMMARY OF PROPERTIES
(IN THOUSANDS, EXCEPT PERCENTAGES)
<TABLE>
<CAPTION>
PERCENT OF ANNUAL NET PERCENT OF TOTAL OCCUPANCY
SQUARE TOTAL SQUARE EFFECTIVE NET EFFECTIVE AT
TYPE OF PROPERTY FEET FEET RENT (1) ANNUAL RENT SEPTEMBER 30, 1997
- ------------------------------------- --------- --------------- ------------- ----------------- ---------------------
<S> <C> <C> <C> <C> <C>
Industrial........................... 23,256 68% $ 83,601 40% 94.5%
Office............................... 9,292 27 109,720 53 96.6%
Retail............................... 1,692 5 15,601 7 96.3%
--------- --- ------------- ---
Total................................ 34,240 100% $ 208,922 100% 95.1%
--------- --- ------------- ---
--------- --- ------------- ---
</TABLE>
- --------------
(1) Represents annual net effective rent due from tenants in occupancy as of
September 30, 1997. Net effective rent ("Net Effective Rent") equals the
average annual rental property revenue over the terms of the respective
leases, excluding additional rent due as operating expense reimbursements,
landlord allowances for operating expenses and percentage rents.
SQUARE FOOTAGE AND ANNUAL NET EFFECTIVE RENT OF PROPERTIES
(IN THOUSANDS, EXCEPT PERCENTAGES)
<TABLE>
<CAPTION>
SQUARE FEET
----------------------------------------------------------- ANNUAL NET PERCENT OF ANNUAL
PERCENT OF EFFECTIVE NET EFFECTIVE
PRIMARY MARKET INDUSTRIAL OFFICE RETAIL TOTAL TOTAL RENT (1) RENT
- ------------------------------ ----------- --------- --------- --------- ------------- ------------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Indianapolis.................. 13,624 1,458 194 15,276 45% $ 62,834 30%
Cincinnati.................... 4,255 3,159 781 8,195 24 58,886 28
Columbus...................... 2,071 1,481 219 3,771 11 26,362 13
St Louis...................... 1,188 998 -- 2,186 6 18,038 9
Cleveland..................... 790 1,201 -- 1,991 6 16,841 8
Chicago....................... -- 995 -- 995 3 15,199 7
Nashville 634 -- -- 634 2 4,333 2
Other (2)..................... 694 -- 498 1,192 3 6,429 3
----------- --------- --------- --------- --- ------------- ---
Total....................... 23,256 9,292 1,692 34,240 100% $ 208,922 100%
----------- --------- --------- --------- --- ------------- ---
----------- --------- --------- --------- --- ------------- ---
Percent of total square
feet........................ 68% 27% 5% 100%
----------- --------- --------- ---------
----------- --------- --------- ---------
</TABLE>
- --------------
(1) Represents annual Net Effective Rent due from tenants in occupancy as of
September 30, 1997, excluding additional rent due as a result of operating
expense reimbursements, landlord allowances for operating expenses and
percentage rents.
(2) Represents properties not located in the Operating Partnership's primary
markets. These properties are located in other similar Midwestern markets.
S-4
<PAGE>
RECENT DEVELOPMENTS
OPERATING PERFORMANCE
For the nine months ended September 30, 1997, the Operating Partnership
reported the following information as compared to the same period in 1996.
<TABLE>
<CAPTION>
1997 1996
------------- -------------
(IN THOUSANDS)
<S> <C> <C>
OPERATING DATA:
Rental Operations revenue........................................................... $ 158,722 $ 115,709
Service Operations revenue.......................................................... 14,985 14,525
Earnings from Rental Operations..................................................... 57,629 38,948
Earnings from Service Operations.................................................... 4,499 4,637
Operating income.................................................................... 57,588 40,690
Net income available for common unitholders......................................... 51,430 41,296
<CAPTION>
1997 1996
------------- -------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA (AS OF SEPTEMBER 30):
Real estate investments............................................................. $ 1,665,515 $ 1,217,218
Total assets........................................................................ 1,927,455 1,295,141
Total liabilities................................................................... 691,297 528,372
Total partners' equity.............................................................. 1,235,992 766,427
<CAPTION>
1997 1996
------------- -------------
(IN THOUSANDS, EXCEPT RATIOS
AND NUMBER OF PROPERTIES)
<S> <C> <C>
OTHER DATA:
Funds From Operations (1)........................................................... $ 81,947 $ 63,631
Cash flow provided by (used by):
Operating activities.............................................................. 109,749 69,044
Investing activities.............................................................. (380,494) (202,403)
Financing activities.............................................................. 439,309 139,581
EBIDA............................................................................... 117,503 86,887
Ratio of earnings to fixed charges.................................................. 2.13 2.22
Ratio of FFO to fixed charges....................................................... 2.89 2.99
Number of properties at end of period............................................... 278 233
In-service square footage at end of period.......................................... 34,240 25,956
Under development square footage at end of period................................... 4,490 2,980
</TABLE>
- --------------
(1) Funds from Operations ("FFO") is defined by the National Association of Real
Estate Investment Trusts ("NAREIT") 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 interests,
unconsolidated partnerships and joint ventures are calculated to reflect FFO
on the same basis). FFO 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 Operating
Partnership's operating performance and is not indicative of cash available
to fund all cash flow needs.
For the fourth quarter ended December 31, 1997, the Operating Partnership
reported net income available for common unitholders of $21.4 million on
revenues of $78.4 million, which represents a significant increase from $17.4
million and $51.8 million, respectively, for the fourth quarter of 1996.
S-5
<PAGE>
Funds from Operations also increased to $36.9 million for the fourth quarter of
1997 from $23.8 million for the fourth quarter of 1996.
FINANCING
In July 1997, the Company issued 3.0 million Depositary Shares, each
representing 1/10 of a Series B Cumulative Step-Up Redeemable Preferred Share,
raising net proceeds of $146.1 million. These securities are not redeemable
prior to September 30, 2007 and offer a cumulative distribution of 7.99% through
September 2012, and 9.99% thereafter. The proceeds of this financing were
contributed by the Company to the Operating Partnership and were fully used to
reduce the outstanding balance on the Operating Partnership's unsecured line of
credit and to fund the development and acquisition of additional rental
properties.
The Operating Partnership issued $100 million of unsecured Pass-through
Asset Trust Securities ("PATS") on August 21, 1997. The PATS bear interest at a
coupon rate of 6.95% and mature on August 15, 2004. The effective rate of the
PATS is 7.347%, which includes the effect of the settlement of a forward
Treasury lock agreement which the Operating Partnership entered into in April
1997. The Operating Partnership and an affiliate of the placement agent for the
PATS can effectively agree to reset the interest rate and remarket the
underlying notes with a maturity of August 15, 2011.
The Operating Partnership reduced the interest rate on its $150.0 million
unsecured line of credit from the 30-day London Interbank Offered Rate ("LIBOR")
plus 1.25% to LIBOR plus 1.00% effective March 27, 1997. Effective August 28,
1997, the unsecured line of credit was increased to $200.0 million and the
interest rate was reduced to LIBOR plus .80%. This line of credit also includes
a "competitive bid option" and matures in April 2001.
In September 1997, the Company issued approximately 10.5 million shares of
its Common Stock for public sale through a group of underwriters, raising net
proceeds of $214.4 million. The Company also issued 926,280 shares of Common
Stock to a unit trust, raising net proceeds of approximately $18.9 million. In
December 1997, the Company issued 449,438 shares of Common Stock to a unit
trust, raising net proceeds of approximately $9.5 million. In February 1998, the
Company issued 661,157 shares of Common Stock to a unit trust, raising net
proceeds of approximately $14.3 million. In each case, the net proceeds were
contributed by the Company to the Operating Partnership in exchange for
additional Units.
DEVELOPMENT AND ACQUISITIONS
During the first eleven months of 1997, the Operating Partnership completed
development of and placed in service 28 properties and two property expansions
comprising 5.3 million square feet at a total cost of $197.9 million. The
Operating Partnership had 21 properties and two property expansions under
development at November 30, 1997 comprising 4.2 million square feet expected to
have a total cost of $203.4 million upon completion. Also during the first
eleven months of 1997, the Operating Partnership acquired 83 properties with 8.3
million square feet at a total cost of $593.1 million.
These property additions (the "New Properties"), totaling 17.9 million
square feet, consist of 72% industrial, 25% office and 3% retail projects. The
total cost of the New Properties is expected to be $994.4 million. At November
30, 1997, the New Properties which had been placed in service were 92% leased,
and the New Properties under construction were 62% pre-leased for a combined
total of 85% leased. The New Properties are expected to provide a weighted
average unleveraged stabilized return on cost (computed as property annual
contractual net operating income ("NOI") divided by total project costs) of
10.7% with anticipated leasing activity. The annual contractual NOI to be
generated from the New Properties, once placed in service, is expected to be
$106.0 million with anticipated additional leasing.
S-6
<PAGE>
The Operating Partnership's expectations of total cost and annual
contractual NOI constitute forward-looking information that is subject to risks
inherent in the completion of construction of the properties under development
such as material price fluctuations, construction schedule delays and
availability of skilled labor as well as the leasing of any unleased portion of
the properties. Such risks could cause actual results to differ materially from
the Operating Partnership's expectations.
The following table sets forth information regarding each of the New
Properties as of November 30, 1997.
<TABLE>
<CAPTION>
IN-SERVICE OR
ANTICIPATED PROPERTY PERCENTAGE SQUARE PERCENT LEASED OR
IN-SERVICE DATE PROJECT/TENANT LOCATION TYPE OWNERSHIP FEET PRE-LEASED (1)
- --------------- -------------------------- --------------- --------- --------------- --------- -------------------
<S> <C> <C> <C> <C> <C> <C>
DEVELOPMENT COMPLETED IN 1997:
1st Qtr. 1997 Park Fletcher Building 33 Indianapolis, Industrial 50% 112,710 100%
IN
1st Qtr. 1997 Dukeport 2 St. Louis, MO Industrial 100% 244,800 65%
2nd Qtr. 1997 Silver Burdett Ginn Indianapolis, Industrial 100% 183,950 100%
Expansion IN
2nd Qtr. 1997 Vanstar Indianapolis, Industrial 100% 415,680 100%
IN
2nd Qtr. 1997 North Airport Park Bldg. 2 Indianapolis, Industrial 100% 377,280 100%
IN
2nd Qtr. 1997 Pamida Lebanon, IN Industrial 100% 200,000 100%
2nd Qtr. 1997 Skyport Building 1 Cincinnati, OH Industrial 100% 316,800 100%
2nd Qtr. 1997 Parkwood Place Columbus, OH Office 100% 156,000 100%
2nd Qtr. 1997 Purity Wholesale Lebanon, IN Industrial 100% 556,248 100%
3rd Qtr. 1997 Freedom Square III Cleveland, OH Office 100% 71,025 78%
3rd Qtr. 1997 Sofa Express--Florence Florence, KY Retail 100% 20,250 100%
3rd Qtr. 1997 Mr. Coffee Cleveland, OH Industrial 100% 458,000 100%
3rd Qtr. 1997 Southpointe C Columbus, OH Industrial 100% 322,000 78%
3rd Qtr. 1997 Three Parkwood Indianapolis, Office 100% 121,246 89%
IN
4th Qtr. 1997 Beiersdorf Cincinnati, OH Industrial 100% 252,000 100%
4th Qtr. 1997 Haywood Oaks Building 8 Nashville, TN Industrial 100% 71,610 100%
4th Qtr. 1997 Anthem Cincinnati, OH Office 100% 78,240 100%
4th Qtr. 1997 4660 Governor's Pointe Cincinnati, OH Office 100% 76,465 91%
4th Qtr. 1997 Compmanagement Columbus, OH Office 100% 68,700 100%
4th Qtr. 1997 Southpointe Building D Columbus, OH Industrial 100% 116,520 35%
4th Qtr. 1997 Hamilton Crossing Building Indianapolis, Office 100% 32,800 77%
2 IN
4th Qtr. 1997 Park 100 Building 133 Indianapolis, Industrial 100% 20,530 100%
IN
4th Qtr. 1997 Landerbrook Corporate Ctr. Cleveland, OH Office 100% 110,148 63%
4th Qtr. 1997 Gov. Point Retail North Cincinnati, OH Retail 100% 128,747 100%
(Lowes)
4th Qtr. 1997 Mosteller II Cincinnati, OH Industrial 100% 261,440 71%
4th Qtr. 1997 Park Fletcher Building 34 Indianapolis, Industrial 50% 230,400 56%
IN
4th Qtr. 1997 Southpointe Building E Columbus, OH Industrial 100% 82,520 0%
4th Qtr. 1997 Park 100 Building 132 Indianapolis, Office 100% 27,600 100%
IN
4th Qtr. 1997 Biggs B-Shoppes Cincinnati, OH Retail 100% 13,000 100%
4th Qtr. 1997 Fountain Place Cincinnati, OH Retail 25% 207,170 95%
---------
5,333,879 89%
---------
---------
<CAPTION>
IN-SERVICE OR INITIAL
ANTICIPATED LEASE
IN-SERVICE DATE TERM (2)
- --------------- ------------
<S> <C>
DEV
1st Qtr. 1997 5 years
1st Qtr. 1997 5 years
2nd Qtr. 1997 7 years
2nd Qtr. 1997 10 years
2nd Qtr. 1997 5 years
2nd Qtr. 1997 10 years
2nd Qtr. 1997 5 years
2nd Qtr. 1997 15 years
2nd Qtr. 1997 10 years
3rd Qtr. 1997 Varies
3rd Qtr. 1997 10 years
3rd Qtr. 1997 15 years
3rd Qtr. 1997 8 years
3rd Qtr. 1997 7 years
4th Qtr. 1997 10 years
4th Qtr. 1997 5 years
4th Qtr. 1997 10 years
4th Qtr. 1997 Varies
4th Qtr. 1997 15 years
4th Qtr. 1997 15 years
4th Qtr. 1997 10 years
4th Qtr. 1997 15 years
4th Qtr. 1997 Varies
4th Qtr. 1997 20 years
4th Qtr. 1997 10 years
4th Qtr. 1997 5 years
4th Qtr. 1997 N/A
4th Qtr. 1997 10 years
4th Qtr. 1997 5 years
4th Qtr. 1997 20 years
</TABLE>
S-7
<PAGE>
<TABLE>
<CAPTION>
IN-SERVICE OR
ANTICIPATED
IN-SERVICE PROPERTY PERCENTAGE SQUARE PERCENT LEASED OR
DATE PROJECT/TENANT LOCATION TYPE OWNERSHIP FEET PRE-LEASED (1)
- -------------- ---------------------------- ---------------- --------- --------------- ---------- -------------------
<S> <C> <C> <C> <C> <C> <C>
UNDER DEVELOPMENT:
4th Qtr. 1997 Park Fletcher Building 35 Indianapolis, IN Industrial 50% 96,000 67%
4th Qtr. 1997 Dukeport 3 St. Louis, MO Industrial 100% 214,400 0%
1st Qtr. 1998 Prentice Hall Lebanon, IN Industrial 100% 577,340 100%
1st Qtr. 1998 Software Artistry Indianapolis, IN Office 100% 108,273 75%
1st Qtr. 1998 World Park Building 28 Cincinnati, OH Industrial 100% 220,160 87%
1st Qtr. 1998 Woodland Corporate Ctr. One Indianapolis, IN Office 100% 77,125 74%
1st Qtr. 1998 Park Fletcher Building 36 Indianapolis, IN Industrial 50% 52,800 0%
2nd Qtr. 1998 Rings Road Office Building Columbus, OH Office 100% 145,000 20%
2nd Qtr. 1998 World Park Building 29 Cincinnati, OH Industrial 100% 452,000 100%
2nd Qtr. 1998 Dukeport 4 St. Louis, MO Industrial 100% 153,600 0%
2nd Qtr. 1998 Sterling 4 Columbus, OH Office 100% 94,219 100%
2nd Qtr. 1998 MCI St. Louis, MO Office 100% 97,356 100%
2nd Qtr. 1998 Westport Center I St. Louis, MO Industrial 100% 177,600 0%
2nd Qtr. 1998 Park 100 Building 134 Indianapolis, IN Industrial 100% 110,400 41%
2nd Qtr. 1998 Fountain Parkway Building B Cleveland, OH Industrial 100% 108,000 0%
2nd Qtr. 1998 Strongville Park 82, Bldg. B Cleveland, OH Industrial 100% 72,000 0%
2nd Qtr. 1998 Thomson Expansion Indianapolis, IN Industrial 50% 740,155 100%
2nd Qtr. 1998 Franklin Road Expansion Indianapolis, IN Industrial 100% 150,000 0%
3rd Qtr. 1998 Creekside Crossing One Nashville, TN Office 100% 112,800 0%
3rd Qtr. 1998 Governors Pointe 4680 Bldg. Cincinnati, OH Office 100% 126,102 0%
3rd Qtr. 1998 Western Hills Marketplac Cincinnati, OH Retail 100% 149,000 88%
3rd Qtr. 1998 Four Parkwood Indianapolis, IN Office 100% 130,436 0%
4th Qtr. 1998 Tri-County Marketplace Cincinnati, OH Retail 100% 74,174 100%
----------
4,238,940 62%
----------
1997 ACQUISITIONS:
2nd Qtr. 1997 NGIC/Pointe 70 St. Louis, MO Office 100% 215,549 99%
2nd Qtr. 1997 Dyment/Johnson Controls Cleveland, OH Industrial 100% 331,550 91%
2nd Qtr. 1997 Central Park of Lisle Chicago, IL Office 50% 345,200 96%
2nd Qtr. 1997 8555 Keystone Crossing Indianapolis, IN Office 100% 75,545 94%
2nd Qtr. 1997 Sun TV Columbus, OH Industrial 100% 789,175 100%
3rd Qtr. 1997 7910 and 7320 Kentucky Drive Cincinnati, OH Industrial 100% 132,274 100%
3rd Qtr. 1997 One Ashview Cincinnati, OH Office 100% 120,853 100%
3rd Qtr. 1997 Remington Buildings Cincinnati, OH Office 100% 76,556 100%
3rd Qtr. 1997 Executive Towers Chicago, IL Office 100% 649,842 97%
3rd Qtr. 1997 Riverport Properties St. Louis, MO Office/ 100% 582,091 100%
Industrial
3rd Qtr. 1997 6111 Oaktree Boulevard Cleveland, OH Office 100% 70,906 62%
4th Qtr. 1997 Blue Ash Office Center VI Cincinnati, OH Office 100% 35,603 90%
4th Qtr. 1997 Baur Portfolio St. Louis, MO Office/ 100% 982,114 99%
Industrial
4th Qtr. 1997 Solon Industrial Buildings Cleveland, OH Industrial 100% 674,432 92%
4th Qtr. 1997 RL Johnson Portfolio Minneapolis, MN Industrial 100% 3,224,301 88%
----------
8,305,991 94%
----------
17,878,810 85%
----------
----------
<CAPTION>
IN-SERVICE OR
ANTICIPATED INITIAL
IN-SERVICE LEASE
DATE TERM (2)
- -------------- ---------
<S> <C>
UNDER DEVELOPM
4th Qtr. 1997 5 years
4th Qtr. 1997 N/A
1st Qtr. 1998 10 years
1st Qtr. 1998 15 years
1st Qtr. 1998 5 years
1st Qtr. 1998 10 years
1st Qtr. 1998 N/A
2nd Qtr. 1998 10 years
2nd Qtr. 1998 10 years
2nd Qtr. 1998 N/A
2nd Qtr. 1998 15 years
2nd Qtr. 1998 10 years
2nd Qtr. 1998 N/A
2nd Qtr. 1998 5 years
2nd Qtr. 1998 N/A
2nd Qtr. 1998 N/A
2nd Qtr. 1998 10 years
2nd Qtr. 1998 N/A
3rd Qtr. 1998 N/A
3rd Qtr. 1998 N/A
3rd Qtr. 1998 Varies
3rd Qtr. 1998 N/A
4th Qtr. 1998 15 years
1997 ACQUISITI
2nd Qtr. 1997 Varies
2nd Qtr. 1997 10 years
2nd Qtr. 1997 Varies
2nd Qtr. 1997 Varies
2nd Qtr. 1997 5 years
3rd Qtr. 1997 Varies
3rd Qtr. 1997 5 years
3rd Qtr. 1997 5 years
3rd Qtr. 1997 12 years
3rd Qtr. 1997 8 years
3rd Qtr. 1997 5 years
4th Qtr. 1997 7 years
4th Qtr. 1997 12 years
4th Qtr. 1997 5 years
4th Qtr. 1997 8 years
</TABLE>
- --------------
(1) Represents completed leasing activity through November 30, 1997.
(2) Represents lease term of the building's primary tenant or tenants.
RECENT ACQUISITIONS
During the fourth quarter of 1997, the Operating Partnership purchased two
large portfolios of properties in St. Louis and Minneapolis (the "Recent
Acquisitions") for an aggregate purchase price of approximately $297.9 million.
S-8
<PAGE>
The following describes each of the Recent Acquisitions.
BAUR PROPERTIES. In October 1997, the Operating Partnership acquired Baur
Properties' existing rental properties and operations in St. Louis. Baur
Properties has been in operation in St. Louis for over 43 years and is one of
the leading suburban office developers and operators in the Midwest. The Baur
rental property portfolio consists of eight suburban office buildings totaling
904,000 square feet and three industrial buildings totaling 78,000 square feet.
Seven of the suburban office projects are located in Maryville Centre, one of
the premier suburban office parks in St. Louis. The acquisition also included
undeveloped land to accommodate approximately one million square feet of
additional suburban office development and the property management and
development operations of Baur Properties. Accordingly, Edward T. Baur, the
Chairman of Baur Properties, became Vice President and General Manager of
the Operating Partnership's St. Louis operations. Along with its existing
operations in St. Louis, the Operating Partnership believes this acquisition
will make it the dominant real estate developer in this market. The Operating
Partnership believes this acquisition is in accordance with its strategy of
dominating its Midwestern markets.
R.L. JOHNSON COMPANY. In October 1997, the Operating Partnership acquired
R.L. Johnson Company's existing rental properties and operations in Minneapolis.
R.L. Johnson Company has been in operation for over 34 years and is one of the
leading developers and operators of industrial real estate in Minneapolis. The
R.L. Johnson rental property portfolio consists of 41 industrial buildings
totaling 3.2 million square feet. Robb Johnson, the President of R.L. Johnson
Company, became Vice President and General Manager of the Operating
Partnership's Minneapolis operations. The Operating Partnership believes this
acquisition is in accordance with its strategy of dominating its Midwestern
markets.
USE OF PROCEEDS
The net proceeds to the Operating Partnership from the sale of the Bonds
offered hereby are expected to be approximately $102.0 million. The Operating
Partnership presently intends to use the net proceeds to retire the outstanding
balance on its lines of credit (the "Lines of Credit") and to fund development
and acquisition of additional rental properties. See "Recent Developments." The
Lines of Credit had an outstanding balance of approximately $85.0 million on
March 3, 1998, bearing interest at LIBOR plus .65% to .80%, with $7.0 million
due on demand and $78.0 million due in April 2001.
S-9
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Operating
Partnership and its subsidiaries as of September 30, 1997 and as adjusted to
give effect to issuance of $100,000,000 of the Bonds offered hereby and the
application of the net proceeds thereof. The table should be read in conjunction
with the Operating Partnership's consolidated financial statements incorporated
herein by reference.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
----------------------------
HISTORICAL AS ADJUSTED
------------- -------------
(IN THOUSANDS)
<S> <C> <C>
Debt:
Secured Debt (1)(2)........................................... $ 256,239 $ 256,239
Unsecured Debt................................................ 340,000 440,000
Unsecured Lines of Credit (1)................................. -- --
------------- -------------
Total Debt.................................................. 596,239 696,239
------------- -------------
Minority Interest............................................... 166 166
------------- -------------
Partners' Equity:
Preferred Equity.............................................. 218,906 218,906
Common Equity (2)............................................. 1,017,086 1,017,086
------------- -------------
Total Partners' Equity...................................... 1,235,992 1,235,992
------------- -------------
Total Capitalization............................................ $ 1,832,397 $ 1,932,397
------------- -------------
------------- -------------
</TABLE>
- --------------
(1) The Operating Partnership has $78 million outstanding on its unsecured lines
of credit as of March 3, 1998 to fund its current development and
acquisitions. The Operating Partnership also has the full amount outstanding
on its $7 million secured line of credit at March 3, 1998.
(2) As part of the acquisition of certain properties subsequent to September 30,
1997, the Operating Partnership assumed $106.8 million of secured debt and
issued Units of common equity of $89.8 million. In addition, subsequent to
September 30, 1997, the Company issued 1.1 million shares of Common Stock,
raising net proceeds of $23.8 million which were contributed by the Company
to the Operating Partnership in exchange for additional Units of common
equity.
RATIOS OF EARNINGS TO FIXED CHARGES
The Operating Partnership's ratio of earnings to fixed charges for the nine
months ended September 30, 1997 was 2.13. For purposes of computing this ratio,
earnings have been calculated by adding fixed charges, excluding capitalized
interest, to income (loss) before gains or losses on property sales. Fixed
charges consist (if applicable) of interest costs, whether expensed or
capitalized, the interest component of rental expense and amortization of debt
issuance costs.
For a statement of the Operating Partnership's ratios of earnings to fixed
charges for prior periods, see "Ratios of Earnings to Fixed Charges" in the
accompanying Prospectus.
S-10
<PAGE>
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 95.1% at September 30, 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 September 30, 1997 and 1996 (in
thousands, except percentages):
<TABLE>
<CAPTION>
PERCENT OF TOTAL PERCENT OCCUPIED
TOTAL SQUARE FEET SQUARE FEET
-------------------- -------------------- --------------------
TYPE 1997 1996 1997 1996 1997 1996
- --------------------------------------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
INDUSTRIAL
Service Centers...................... 3,122 3,047 9.1% 11.7% 93.4% 93.9%
Bulk................................. 20,134 14,296 58.8 55.1 94.6 94.0
OFFICE
Suburban............................. 8,303 5,815 24.3 22.4 96.8 95.8
CBD.................................. 699 699 2.0 2.7 94.0 85.2
Medical.............................. 290 333 0.9 1.3 98.4 91.6
RETAIL................................. 1,692 1,766 4.9 6.8 96.3 95.5
--------- --------- --------- ---------
Total................................ 34,240 25,956 100.0% 100.0% 95.1% 94.2%
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
Management expects occupancy of the in-service property portfolio to remain
stable because (i) only 3.0% and 10.3% of the Partnership's occupied square
footage is subject to leases expiring in the fourth quarter of 1997 and in 1998,
respectively, and (ii) the Partnership's renewal percentage averaged 80%, 65%
and 73% in 1996, 1995 and 1994, respectively.
S-11
<PAGE>
The following table reflects the Partnership's in-service portfolio lease
expiration schedule as of September 30, 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
----------------------- ----------------------- ----------------------- -----------------------
CONTRACTUAL CONTRACTUAL CONTRACTUAL CONTRACTUAL
YR. OF EXP. SQ. FEET RENT SQ. FEET RENT SQ. FEET RENT SQ. FEET RENT
- ------------------------ --------- ------------ --------- ------------ --------- ------------ --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1997.................. 758 $ 3,146 212 $ 2,170 21 $ 239 991 $ 5,555
1998.................. 2,431 9,054 835 9,745 94 1,019 3,360 19,818
1999.................. 2,281 9,775 1,169 12,639 114 1,181 3,564 23,595
2000.................. 2,159 8,973 914 11,322 122 1,461 3,195 21,756
2001.................. 2,644 10,225 1,370 16,022 93 1,100 4,107 27,347
2002.................. 2,964 10,953 1,260 14,118 155 1,669 4,379 26,740
2003.................. 403 2,321 338 3,959 43 381 784 6,661
2004.................. 938 3,832 270 3,309 17 168 1,225 7,309
2005.................. 1,440 4,501 771 10,729 177 1,509 2,388 16,739
2006.................. 1,853 6,298 533 8,340 5 67 2,391 14,705
2007 and Thereafter..... 4,094 14,523 1,305 17,367 789 6,807 6,188 38,697
--------- ------------ --------- ------------ --------- ------------ --------- ------------
Total Leased............ 21,965 $ 83,601 8,977 $ 109,720 1,630 $ 15,601 32,572 $ 208,922
--------- ------------ --------- ------------ --------- ------------ --------- ------------
--------- ------------ --------- ------------ --------- ------------ --------- ------------
Total Portfolio Sq.
Feet.................. 23,256 9,292 1,692 34,240
--------- --------- --------- ---------
--------- --------- --------- ---------
Annualized Net Effective
Rent Per Sq. Foot..... $ 3.81 $ 12.22 $ 9.57 $ 6.41
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</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 4.5 million square feet of properties
under development at September 30, 1997 over the next four quarters. The 4.5
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
PERCENT PROJECT STABILIZED
ANTICIPATED IN-SERVICE DATE SQUARE FEET LEASED COSTS RETURN
- ----------------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
4th Quarter 1997............................... 1,557 50% $ 81,142 11.7%
1st Quarter 1998............................... 1,036 82 38,973 11.4
2nd Quarter 1998............................... 1,548 54 78,467 11.5
Thereafter..................................... 349 55 32,825 11.5
----- -----------
4,490 59% $ 231,407 11.6%
----- -----------
----- -----------
</TABLE>
The Operating Partnership's expectations of in-service dates, project costs
and anticipated stabilized return constitute forward-looking information that is
subject to risks inherent in the completion of construction of the properties
under development such as material price fluctuations, construction schedule
delays and availability of skilled labor as well as the leasing of any unleased
portion of the properties. Such risks could cause actual results to differ
materially from the Operating Partnership's expectations.
S-12
<PAGE>
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, 1997 and 1996 (in
thousands, except number of properties and per unit amounts):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- ------------------------
1997 1996 1997 1996
--------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Rental Operations revenue................... $ 56,218 $ 41,448 $ 158,722 $ 115,709
Service Operations revenue.................. 5,917 5,042 14,985 14,525
Earnings from Rental Operations............. 20,454 15,782 57,629 38,948
Earnings from Service Operations............ 2,325 1,827 4,499 4,637
Operating income............................ 20,731 16,678 57,588 40,690
Net income available for common units....... $ 18,014 $ 15,571 $ 51,430 $ 41,296
Weighted average common units outstanding... 72,069 66,106 70,238 63,178
Net income per common unit.................. $ 0.25 $ 0.24 $ 0.73 $ 0.65
Number of in-service properties at end of
period.................................... 278 233 278 233
In-service square footage at end of
period.................................... 34,240 25,956 34,240 25,956
Under development square footage at end of
period.................................... 4,490 2,980 4,490 2,980
</TABLE>
COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 1997 TO THREE MONTHS ENDED
SEPTEMBER 30, 1996
RENTAL OPERATIONS
The Partnership increased its in-service portfolio of rental properties from
233 properties comprising 25.9 million square feet at September 30, 1996 to 278
properties comprising 34.2 million square feet at September 30, 1997 through the
acquisition of 32 properties totaling 4.2 million square feet and the completion
of 20 properties and 2 building expansions totaling 4.7 million square feet
developed by the Partnership. The Partnership also disposed of 7 properties
totaling 592,000 square feet. These 45 net additional rental properties
primarily account for the $14.8 million increase in revenues from Rental
Operations from 1996 to 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 45 in-service rental properties.
Interest expense increased by approximately $1.4 million from $7.9 million
for the three months ended September 30, 1996 to $9.3 million for the three
months ended September 30, 1997 due to additional unsecured debt issued in the
Partnership's medium-term note program in the last quarter of 1996 to fund the
development and acquisition of additional rental properties as well as $100
million of unsecured debt issued in the third quarter to fund 1997 development
and acquisition activity.
As a result of the above-mentioned items, earnings from rental operations
increased $4.6 million from $15.8 million for the three months ended September
30, 1996 to $20.4 million for the three months ended September 30, 1997.
S-13
<PAGE>
SERVICE OPERATIONS
Service Operation revenues increased by $900,000 from $5.0 million for the
three months ended September 30, 1996 to $5.9 million for the three months ended
September 30, 1997 due mainly to increased construction fee revenue related to
increased construction volume. As a result, earnings from Service Operations
increased slightly from $1.8 million for the three months ended September 30,
1996 to $2.3 million for the three months ended September 30, 1997.
GENERAL AND ADMINISTRATIVE EXPENSE
General and administrative expense increased from $931,000 for the three
months ended September 30, 1996 to $2.0 million for the three months ended
September 30, 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 increased from $314,000 for the three months ended September
30, 1996 to $798,000 for the three months ended September 30, 1997 primarily as
a result of interest income which was earned on excess cash balances resulting
from the Company's September 1997 Common Stock offerings, the net proceeds of
which were contributed to the Partnership. Other expense consists of costs
incurred during the pursuit of various build-to-suit development projects or the
acquisition of real estate assets. During the three months ended September 30,
1997, approximately $174,000 of costs were expensed in connection with the
decision to terminate the pursuit of the acquisition of two large real estate
portfolios.
NET INCOME AVAILABLE FOR COMMON UNITS
Net income available for common units for the three months ended September
30, 1997 was $18.0 million compared to net income available for common units of
$15.6 million for the three months ended September 30, 1996. This increase
results primarily from the operating result fluctuations in rental and service
operations explained above.
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1997 TO NINE MONTHS ENDED
SEPTEMBER 30, 1996
RENTAL OPERATIONS
The Partnership increased its in-service portfolio of rental properties from
233 properties comprising 25.9 million square feet at September 30, 1996 to 278
properties comprising 34.2 million square feet at September 30, 1997 through the
acquisition of 32 properties totaling 4.2 million square feet and the completion
of 20 properties and 2 building expansions totaling 4.7 million square feet
developed by the Partnership. The Partnership also disposed of 7 properties
totaling 592,000 square feet. These 45 net additional rental properties
primarily account for the $43.0 million increase in revenues from Rental
Operations from 1996 to 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 45
in-service rental properties.
Interest expense increased by approximately $4.7 million from $22.5 million
for the nine months ended September 30, 1996 to $27.2 million for the nine
months ended September 30, 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 well as $100
million of unsecured debt issued in the third quarter to fund 1997 development
and acquisitions.
S-14
<PAGE>
As a result of the above-mentioned items, earnings from rental operations
increased $18.7 million from $38.9 million for the nine months ended September
30, 1996 to $57.6 million for the nine months ended September 30, 1997.
SERVICE OPERATIONS
Service Operation revenues increased to $15.0 million for the nine months
ended September 30, 1997 as compared to $14.5 million for the nine months ended
September 30, 1996. This increase was primarily the result of an increase in
third-party maintenance fee revenue. Service Operation operating expenses
increased from $9.9 million to $10.5 million for the nine months ended September
30, 1997 as compared to the nine months ended September 30, 1996 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
decreased slightly from $4.6 million for the nine months ended September 30,
1996 to $4.5 million for the nine months ended September 30, 1997.
GENERAL AND ADMINISTRATIVE EXPENSE
General and administrative expense increased from $2.9 million for the nine
months ended September 30, 1996 to $4.5 million for the nine months ended
September 30, 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 increased from $920,000 for the nine months ended September
30, 1996 to $1.2 million for the nine months ended September 30, 1997 primarily
as a result of interest income which was earned on excess cash balances
resulting from the Company's September 1997 Common Stock offerings, the net
proceeds of which were contributed to the Partnership. Other expense consists of
the write-off of costs incurred during the pursuit of various build-to-suit
development projects or the acquisition of real estate assets. During the nine
months ended September 30, 1997, approximately $486,000 of costs were expensed
in connection with the decision to terminate the pursuit of the acquisition of
two large real estate portfolios.
NET INCOME AVAILABLE FOR COMMON UNITS
Net income available for common units for the nine months ended September
30, 1997 was $51.4 million compared to net income available for common units of
$41.3 million for the nine months ended September 30, 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 $109.7 million and $69.1
million for the nine months ended September 30, 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 $380.5 million and $202.4
million for the nine months ended September 30, 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, $414.6 million
was invested in
S-15
<PAGE>
the development and acquisition 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 $238.8 million. During the nine months ended September 30, 1997,
the Partnership contributed properties to an existing joint venture at an agreed
value of approximately $60 million. The Partnership recorded its investment in
the joint venture related to this additional contribution at its carrying value
of $48.6 million. The joint venture partner contributed cash to the venture
equal to 49.9% of the agreed value of the properties contributed, $30.0 million,
and this cash was distributed to the Partnership and reduced its recorded
investment in the venture. This same joint venture received $60 million of
proceeds from a mortgage loan financing and distributed 50.1% of the proceeds to
the Partnership. During the nine months ended September 30, 1997, the
Partnership invested over $30 million in a newly formed joint venture with an
institutional investor which allowed the joint venture to purchase a 345,000
square foot office property in Chicago, Illinois which was over 95% occupied.
Net cash provided by financing activities totaling $439.3 million and $139.6
million for the nine months ended September 30, 1997 and 1996, respectively,
represents the source of funds from equity and debt offerings and borrowings on
the lines of credit to fund the Partnership's investing activities. Also
included in financing activities are the distribution of funds to unitholders
and minority interests. In 1996, the Partnership received $129.2 million of net
proceeds from the Company's common equity offerings which was used to pay down
amounts outstanding on the unsecured line of credit and to fund current
development and acquisition activity. In 1997, the Partnership received $300.5
million of net proceeds from the Company's common equity offerings which was
used to pay down amounts outstanding on the unsecured line of credit and to fund
current development activity. In the third quarter of 1997, the Partnership
received $146.1 million of net proceeds from the offering of the Company's 7.99%
Series B Step-Up Redeemable Preferred Shares and $100 million from the offering
of 6.95% Pass-Through Asset Trust Securities due August 2004.
The Partnership has a $200 million unsecured line of credit which matures in
April 2001. This facility bears interest payable at the 30-day LIBOR rate plus
.80%. The Partnership has been able to reduce the borrowing rate on this line of
credit from LIBOR plus 1.625% at December 31, 1996 to the current interest rate
of LIBOR 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 payable at the 30-day LIBOR rate plus .75%.
The Company 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 September 30, 1997 of approximately
$514.0 million to issue common stock, preferred stock or unsecured debt
securities. The Company 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 September 30, 1997 consists of notes totaling
$596.2 million with a weighted average interest rate of 7.57% maturing at
various dates through 2017. The Partnership has $340.0 million of unsecured debt
and $256.2 million of secured debt outstanding at September 30, 1997. Scheduled
principal amortization of such debt totaled $2.6 million for the nine months
ended September 30, 1997.
S-16
<PAGE>
Following is a summary of the scheduled future amortization and maturities
of the Partnership's indebtedness at September 30, 1997 (in thousands):
<TABLE>
<CAPTION>
REPAYMENTS
--------------------------------------- WEIGHTED AVERAGE
SCHEDULED INTEREST RATE OF
YEAR AMORTIZATION MATURITIES TOTAL FUTURE REPAYMENTS
- --------------------------------------------------- ------------- ----------- ----------- ---------------------
<S> <C> <C> <C> <C>
1997............................................... $ 915 $ -- $ 915 7.77%
1998............................................... 4,574 42,090 46,664 7.15%
1999............................................... 5,323 28,470 33,793 6.17%
2000............................................... 3,418 44,853 48,271 7.39%
2001............................................... 3,137 59,954 63,091 8.71%
2002............................................... 3,412 50,000 53,412 7.37%
2003............................................... 1,144 68,216 69,360 8.48%
2004............................................... 1,239 150,000 151,239 7.28%
2005............................................... 1,346 100,000 101,346 7.48%
2006............................................... 1,465 -- 1,465 7.58%
Thereafter......................................... 17,391 9,292 26,683 7.70%
------------- ----------- -----------
Total.............................................. $ 43,364 $ 552,875 $ 596,239 7.57%
------------- ----------- -----------
------------- ----------- -----------
</TABLE>
Unit and per unit amounts in the consolidated financial statements of the
Partnership have been restated to reflect the two-for-one split of the
Partnership's common units payable on August 25, 1997 to common unitholders of
record on August 18, 1997.
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 October 23, 1997 payable on November 28, 1997 to
unitholders of record on November 14, 1997, which represents an annualized
distribution of $1.20 per unit. A quarterly distribution of $.56875 per
depositary unit of the 9.10% Series A Cumulative Redeemable Preferred Units was
declared on October 23, 1997 which is payable on November 28, 1997 to preferred
unitholders of record on November 14, 1997. On October 23, 1997, the Board of
Directors declared a distribution of $.99875 per depositary unit on the Series B
Cumulative Step-Up Redeemable Preferred Units. The distribution is payable on
December 31, 1997 to preferred unitholders of record on December 17, 1997. Each
depositary unit represents one-tenth of a unit of the Partnership's Series A
Preferred Units or Series B Preferred Units, as applicable.
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.
S-17
<PAGE>
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,
-------------------------- --------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net income available for common units..................... $ 18,014 $ 15,571 $ 51,430 $ 41,296
Add back:
Depreciation and amortization........................... 10,702 6,783 30,253 22,337
Share of joint venture depreciation and amortization.... 757 484 2,071 1,367
(Earnings) loss from property sales..................... (1,425) 235 (1,807) (1,369)
------------ ------------ ------------ ------------
FUNDS FROM OPERATIONS..................................... $ 28,048 $ 23,073 $ 81,947 $ 63,631
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
CASH FLOW PROVIDED BY (USED BY):
Operating activities.................................... $ 37,544 $ 29,894 $ 109,749 $ 69,044
Investing activities.................................... (204,317) (108,805) (380,494) (202,403)
Financing activities.................................... 337,592 90,541 439,309 139,581
</TABLE>
The increase in FFO for the three and nine months ended September 30, 1997
compared to the three and nine months ended September 30, 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.
DESCRIPTION OF THE BONDS
THE PUTTABLE RESET SECURITIES PURS-SM- DUE MARCH 1, 2016 (THE "BONDS")
CONSTITUTE A SEPARATE SERIES OF THE DEBT SECURITIES DESCRIBED IN THE
ACCOMPANYING PROSPECTUS. REFERENCE SHOULD BE MADE TO THE PROSPECTUS FOR A
DETAILED SUMMARY OF CERTAIN ADDITIONAL PROVISIONS OF THE BONDS. THE DESCRIPTION
OF THE BONDS IN THIS PROSPECTUS SUPPLEMENT SUPPLEMENTS THE DESCRIPTION OF THE
DEBT SECURITIES CONTAINED IN THE PROSPECTUS. IF THE DESCRIPTIONS CONTAINED IN
THESE DOCUMENTS ARE INCONSISTENT, THIS PROSPECTUS SUPPLEMENT CONTROLS.
CAPITALIZED TERMS USED BUT NOT DEFINED HEREIN HAVE THE MEANINGS GIVEN THEM IN
THE PROSPECTUS.
GENERAL
The Bonds will mature on March 1, 2016 (the "Final Maturity") but are
subject to earlier repurchase by the Operating Partnership as described in
"--Put Option" below. The Bonds are not otherwise subject to redemption and are
not entitled to the benefit of any sinking fund. The aggregate principal amount
of the Bonds is limited to $100,000,000, but the Indenture does not limit the
amount of other Debt Securities that may be issued by the Operating Partnership.
The Bonds will be unsecured, general obligations of the Operating Partnership
and will rank on a parity with all other unsecured and unsubordinated
indebtedness of the Operating Partnership.
If any interest, principal or other payment to be made in respect of the
Bonds (including any payment pursuant to the Call Option or any Put Option
described below) would otherwise be due on a day that is not a Business Day (as
defined below), payment may be made on the next succeeding day that is a
Business Day, with the same effect as if payment were made on the due date.
"Business Day"
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means any day other than a Saturday, a Sunday, or a day on which banking
institutions in New York City are authorized or obligated by law to close.
"Market Day," as used below, means a Business Day other than a day on which
dealings in the U.S. Treasury bond market are generally not being conducted.
The Operating Partnership has agreed with Goldman, Sachs & Co., as holder of
the Call Option (as defined below), that, notwithstanding any provision to the
contrary set forth in the Indenture, the Operating Partnership will not cause or
permit the terms or provisions of the Bonds (or the Indenture, as it relates to
the Bonds) to be modified in any way, and may not make open market or other
purchases of the Bonds except pursuant to the Put Option, without the prior
written consent of Goldman, Sachs & Co.
The Bonds will be issued in fully registered form in denominations of, and
integral multiples of, $1,000. Transfers of the Bonds are registrable and
principal is payable at the corporate trust office of the Trustee, at 14 Wall
Street, Eighth Floor, New York, New York 10005. The Bonds will initially be
issued in global form. See "--Global Securities."
INTEREST
Interest will accrue on the principal amount of each Bond at the applicable
rate described below, from and including March 1, 1998 to but excluding the date
on which the principal amount is paid in full. Interest accrued on each Bond
will be payable in arrears on March 1 and September 1 of each year, commencing
on September 1, 1998, in each case to the holder of record of the Bond on the
February 15 or August 15 next preceding the interest payment date (each an
"Interest Payment Record Date"). The Interest Payment Record Date will differ
from the record date for the exercise of the Call Option and Put Option
described below.
From and including March 1, 1998 but excluding March 1, 2006, interest will
accrue at an annual rate equal to 7.05%.
On March 1, 2006 (the "Reset Date"), the interest rate on the Bonds will be
reset so as to equal a fixed rate determined as described under "--Reset of
Interest Rate" below. Notwithstanding the foregoing, the interest rate on a
particular Bond will not be reset on the Reset Date if the Operating Partnership
is obligated to repurchase such Bond on such date, and a reset scheduled to
occur on the Reset Date may not occur because of a Market Disruption Event or a
Failed Remarketing.
See "--Reset of Interest Rate" below.
CALL OPTION
Goldman, Sachs & Co. (or any successor firm) may purchase all of the
outstanding Bonds (in whole and not in part) from the holders on the Reset Date
(such right, the "Call Option") at a price equal to 100% of the principal amount
of Bonds purchased (the "Face Value") and subject to Goldman, Sachs & Co. giving
notice of its intention to purchase the outstanding Bonds as described below (a
"Call Notice"). In addition, the Operating Partnership will remain obligated to
pay all accrued and unpaid interest on the Bonds. Interest that becomes payable
on the Reset Date will be payable to the holders of record on the corresponding
Interest Payment Record Date, as provided in the Bonds and the Indenture.
To exercise the Call Option, Goldman, Sachs & Co. must give a Call Notice to
the holders of outstanding Bonds no later than the tenth Market Day prior to the
Reset Date, in the manner described under "--Certain Notices" below. In the
event a Call Notice is duly given, each holder will be obligated to sell to
Goldman, Sachs & Co., and Goldman, Sachs & Co. will be obligated to purchase
from each holder, at the Face Value on the Reset Date, the Bonds held of record
by the holder on the Reset Date. Such sale and purchase will be effected through
the facilities of The Depository Trust Company ("DTC"), with each holder being
deemed to have automatically tendered its Bonds for sale to Goldman, Sachs & Co.
on the Reset Date in accordance with applicable DTC procedures. Each holder's
automatic tender of Bonds will be subject to the holder's receipt of payment of
the Face Value of the Bonds from Goldman,
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Sachs & Co. on the Reset Date. Until purchased or paid by the Operating
Partnership, the Bonds will remain outstanding notwithstanding any exercise of
the Call Option by Goldman, Sachs & Co.
See "--Settlement on Exercise of Put and Call Options."
If the Call Option is exercised, all Bonds outstanding on the Reset Date
will be subject to purchase by Goldman, Sachs & Co. as described above. This
will be the case for every holder (and every beneficial owner) of Bonds
outstanding on the Reset Date, including those who acquire an interest in the
Bonds after the Call Notice is given or who are otherwise unaware that the Call
Notice has been given.
PUT OPTION
If Goldman, Sachs & Co. does not exercise the Call Option, each holder of
outstanding Bonds may require the Operating Partnership to repurchase all of the
holder's Bonds (in whole and not in part) on the Reset Date (such right, its
"Put Option") at a price equal to 100% of the principal amount of the Bonds
repurchased (the "Put Price"), in the circumstances described in the next
paragraph. The accrued and unpaid interest on the repurchased Bonds that becomes
payable on the Reset Date will be payable by the Operating Partnership to the
holders of record on the corresponding Interest Payment Record Date, as provided
in the Bonds and the Indenture. If for any reason payment of the Put Price is
not made when due, the accrued interest from the Reset Date to the date payment
is made would be payable by the Operating Partnership as part of the Put Price.
On the Reset Date, each holder will be deemed to have exercised its Put
Option automatically for the full principal amount of the Bonds held of record
by such holder on the Reset Date unless either
(x) Goldman, Sachs & Co. has duly given a Call Notice or (y) if Goldman, Sachs &
Co. does not exercise the Call Option, (i) no later than 10:00 A.M. (New York
City time) on the seventh Market Day prior to the Reset Date, the holder gives
notice to the Trustee that the holder elects not to sell any of its Bonds to the
Operating Partnership on the Reset Date (a "Hold Notice") and (ii) the notice is
effective under the 10% Requirement described in the next paragraph. A Hold
Notice must be given in the manner described under "Certain Notices" below.
Consequently, with respect to each holder, if a Call Notice is not duly given by
Goldman, Sachs & Co. and an effective Hold Notice is not duly given by the
holder, the Operating Partnership will be obligated to repurchase from the
holder, and the holder will be obligated to sell to the Operating Partnership,
at the Put Price on the Reset Date, the Bonds held of record by the holder on
the Reset Date. Such sale and purchase will be effected through the facilities
of DTC, with each holder who has not given an effective Hold Notice being deemed
to have automatically tendered its Bonds for sale to the Operating Partnership
on the Reset Date in accordance with applicable DTC procedures. If the Operating
Partnership is obligated to purchase any Bonds pursuant to the Put Option, the
Bonds subject to purchase will remain outstanding until the Put Price (and
accrued interest) in respect thereof has been paid. See "--Settlement on
Exercise of Put and Call Options."
Notwithstanding the foregoing, no Hold Notice will be effective unless Hold
Notices are duly given with respect to at least 10% of the aggregate principal
amount of the Bonds outstanding on the tenth Market Day prior to the Reset Date.
The provision described in this paragraph is called the "10% Requirement." If
any holder gives a Hold Notice to the Trustee when the 10% Requirement has not
been satisfied, the Trustee will give written notice of that fact (a "10%
Requirement Notice") to the holder and the Operating Partnership not later than
the close of business on the seventh Market Day before the Reset Date, in the
manner described under "Certain Notices" below.
RESET OF INTEREST RATE
The interest rate on each Bond will be reset on the Reset Date, unless the
Operating Partnership is obligated to repurchase the Bond on such date pursuant
to the holder's Put Option. Consequently, the interest rate on an outstanding
Bond will be reset on the Reset Date if either of the following occurs: (x)
Goldman, Sachs & Co. elects to purchase all of the outstanding Bonds on the
Reset Date pursuant to
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the Call Option or (y) Goldman, Sachs & Co. does not elect to do so, the holder
elects not to exercise its Put Option by giving the Trustee a Hold Notice and
the Hold Notice is effective under the 10% Requirement. Notwithstanding the
foregoing, reset of the interest rate is subject to the occurrence of a Market
Disruption Event or a Failed Remarketing as described below.
The Operating Partnership has initially appointed Goldman, Sachs & Co. as
its agent for the purpose of resetting the interest rate (such agent or any
successor agent, the "Calculation Agent"). If the interest rate is to be reset
on the Reset Date, the Calculation Agent will effect the reset as follows.
On the sixth Market Day prior to the Reset Date (the "Calculation Date"),
the Calculation Agent will undertake the following actions to calculate a fixed
rate at which interest will accrue on the Bonds from and including the Reset
Date to but excluding the Final Maturity (such period, the "Reset Period"). In
paragraphs (a) through (c) below, all references to specific hours are
references to prevailing New York City time, and each notice will be given
telephonically and will be confirmed as soon as possible by facsimile to each of
the Calculation Agent and the Operating Partnership. The times set forth below
are guidelines for action, and the Calculation Agent will use reasonable efforts
to adhere to these times.
(a) At 11:00 A.M., the Calculation Agent will select three financial
institutions (one of which will be Goldman, Sachs & Co. if it so
requests) that deal in the Operating Partnership's debt securities and
have agreed to participate as reference dealers in accordance with the
terms described below (the "Reference Dealers"). If Goldman, Sachs & Co.
has exercised the Call Option and so requests, each Reference Dealer must
include in its participation agreement a written commitment (satisfactory
to Goldman, Sachs & Co.) that, if it is selected as the Final Dealer (as
defined below), it will purchase from Goldman, Sachs & Co. on the
Calculation Date for settlement on the Reset Date and at the Final Offer
Price (as defined below), all the Bonds that Goldman, Sachs & Co.
purchases pursuant to the Call Option and tenders for resale to the Final
Dealer on the Reset Date. For each Reference Dealer, the Calculation
Agent will request the name of and telephone and facsimile numbers for
one individual to represent such Reference Dealer.
(b) At 12:00 P.M., the Calculation Agent will:
(i) determine (or obtain from Goldman, Sachs & Co., if Goldman, Sachs &
Co. has exercised the Call Option) the approximate ten-year U.S.
Treasury bond yield at or about such time, which will be expressed as
a percentage (the "Designated Treasury Yield") and will be based on
the then-current, ten-year U.S. Treasury bond (the "Designated
Treasury Bond");
(ii) calculate and provide to the Reference Dealers, on a preliminary
basis, a hypothetical price at which the Bonds might be offered for
sale to a Reference Dealer on the Reset Date (the "Offer Price"). The
Offer Price will be expressed as a percentage of the principal amount
of the Bonds and will equal 100% plus the Margin (as defined below),
if the Treasury Rate Difference (as defined below) is positive, or
100% minus the Margin, if the Treasury Rate Difference is negative.
The Margin will also be expressed as a percentage of the principal
amount of the Bonds and will equal the present value of the absolute
value of the Treasury Rate Difference applied to twenty semi-annual
periods (i.e., ten years), discounted at the Designated Treasury
Yield divided by two. The "Treasury Rate Difference" means the
percentage (which may be positive or negative) equal to (x) 5.86%
(the "Initial Treasury Yield") minus (y) the Designated Treasury
Yield; and
(iii) request each Reference Dealer to provide to the Calculation Agent,
when notified of the Final Offer Price as described in paragraph (c)
below, a firm bid, expressed as a percentage representing an interest
rate spread over the Designated Treasury Yield (the "Spread"), at
which such Reference Dealer would be willing to purchase on the
Calculation Date for settlement on the Reset Date, at the Final Offer
Price, all of the Bonds then
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outstanding. Each such firm bid is to be given on an "all-in" basis
and is to remain open for at least 30 minutes after it is given.
(c) At 12:30 P.M., the Calculation Agent will determine (or obtain from
Goldman Sachs & Co., if Goldman, Sachs & Co. has exercised the Call
Option) the Designated Treasury Yield on a final basis, and calculate and
provide to the Reference Dealers the Offer Price on a final basis (the
"Final Offer Price") and request each Reference Dealer to submit its bid
immediately as described in clause (b)(iii) above. If the Calculation
Agent receives at least two bids, the following will occur:
(i) the Reference Dealer providing the bid representing the lowest
all-in Spread (the "Final Spread") will be the "Final Dealer";
(ii) if Goldman, Sachs & Co. has exercised the Call Option, the Final
Dealer will be obligated to purchase from Goldman, Sachs & Co. at the
Final Offer Price, for settlement on the Reset Date, all the Bonds
that Goldman, Sachs & Co. purchases pursuant to the Call Option and
tenders for resale to the Final Dealer on the Reset Date (assuming
that the interest rate on the Bonds will be reset so as to equal the
Adjusted Rate (as defined below) during the Reset Period); as
described below, the Final Dealer will not be obligated to purchase
any Bonds if Goldman, Sachs & Co. has not exercised the Call Option;
(iii) the Calculation Agent will calculate and provide to the Operating
Partnership the "Adjusted Rate," which will be the semi-annual,
bond-equivalent, fixed interest rate on the Bonds required to
produce, during the Reset Period, a semi-annual, bond-equivalent
yield on the Bonds that equals the sum of the Final Spread plus the
final Designated Treasury Yield, assuming that the Bonds are
purchased on the Reset Date at the Final Offer Price and will remain
outstanding until the Final Maturity; and
(iv) the interest rate on the Bonds will be adjusted so as to equal the
Adjusted Rate, effective from and including the Reset Date to but
excluding the Final Maturity. If Goldman, Sachs & Co. has not
exercised the Call Option and any holder gives an effective Hold
Notice to the Trustee, the Operating Partnership will promptly give
written notice of the Adjusted Rate to the holder.
As indicated above, all determinations regarding the Designated Treasury Yield
and the Designated Treasury Bond as described in clause (b)(i) and the first
sentence of clause (c) above will be made by Goldman, Sachs & Co. if another
party is acting as the Calculation Agent, unless Goldman, Sachs & Co. has
elected not to exercise the Call Option.
If the Calculation Agent determines that, on the Calculation Date, (x) a
Market Disruption Event (as defined below) has occurred or is continuing or (y)
fewer than two Reference Dealers have provided firm bids in a timely manner
pursuant to participation agreements satisfactory to Goldman, Sachs & Co.
substantially as described above (a "Failed Remarketing"), the steps
contemplated above will be taken on the next Market Day on which the Calculation
Agent determines that no Market Disruption Event has occurred or is continuing
and at least two Reference Dealers have provided bids pursuant to participation
agreements satisfactory to Goldman, Sachs & Co. substantially as contemplated
above. If the Calculation Agent determines that a Market Disruption Event and/or
a Failed Remarketing has occurred or is continuing for at least four consecutive
Market Days starting on the Calculation Date, then Goldman, Sachs & Co. will be
deemed not to have exercised the Call Option, all holders will be deemed to have
exercised their Put Options and the Operating Partnership will repurchase all
the Bonds from the holders on the Reset Date at the Put Price (and will pay
Goldman, Sachs & Co. an amount equal to the Margin). In these circumstances, the
holders of the Bonds may not continue to hold the Bonds by giving a Hold Notice.
The Calculation Agent will notify the Operating Partnership of such
determination promptly after the close of business on such fourth Market Day.
The Operating Partnership will give
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notice to the holders that the Bonds will be repurchased by the Operating
Partnership from the holders on the Reset Date at the Put Price, no later than
the second Market Day prior to the Reset Date in the manner described under
"Certain Notices" below. If at any time Goldman, Sachs & Co. is not acting as
Calculation Agent, then the determinations and notice to the Operating
Partnership described in this paragraph will be made and given by Goldman, Sachs
& Co., unless Goldman, Sachs & Co. does not exercise the Call Option, in which
case such determinations and notice will be made and given by the Calculation
Agent
"Market Disruption Event" means any of the following: (i) a suspension or
material limitation in trading in securities generally on the New York Stock
Exchange or the establishment of minimum prices on such exchange; (ii) a general
moratorium on commercial banking activities declared by either federal or New
York State authorities; (iii) any material adverse change in the existing
financial, political or economic conditions in the United States of America;
(iv) an outbreak or escalation of hostilities involving the United States of
America or the declaration of a national emergency or war by the United States
of America; or (v) any material disruption of the U.S. government securities
market, U.S. corporate bond market and/or U.S. federal wire system.
There is no assurance that the Calculation Agent will receive at least two
qualifying bids from Reference Dealers in connection with the Reset Date. All
determinations regarding Market Disruption Events and Failed Remarketings,
including whether or not any event has occurred or is continuing, will be made
by the Calculation Agent (or Goldman, Sachs & Co., as applicable) in its sole
discretion.
If Goldman, Sachs & Co. has not exercised the Call Option, the Final Dealer
will not be obligated to purchase Bonds from any holder, and no holder will be
obligated to sell Bonds to the Final Dealer. Consequently, in deciding whether
to give a Hold Notice, holders should not assume that any dealer will be
prepared to purchase their Bonds at the Final Offer Price or otherwise.
All determinations made by the Calculation Agent (or Goldman, Sachs & Co.)
regarding the matters described above will be final, conclusive and binding on
all concerned and will not give rise to any liability on the part of the
Calculation Agent (or Goldman, Sachs & Co.), the Trustee or the Operating
Partnership.
SETTLEMENT ON EXERCISE OF THE PUT AND CALL OPTIONS
If the Call Option is exercised, then, on the Reset Date, all beneficial
interests in the Bonds will be transferred to a DTC account designated by
Goldman, Sachs & Co. The transfers will be made automatically, without any
action on the part of any beneficial owner, by book entry through DTC. Goldman,
Sachs & Co. will be obligated to make payment of the Face Value of the Bonds to
DTC, for credit to the accounts of the DTC participants through which beneficial
interests in the Bonds are held, by the close of business on the Reset Date.
Each transfer will be made against the corresponding payment, and each payment
will be made against the corresponding transfer, in accordance with applicable
DTC procedures. If Goldman, Sachs & Co. fails to pay the Face Value of the Bonds
on the Reset Date, the Call Option will be deemed not to have been exercised and
the Put Option will be deemed to have been exercised with respect to all of the
outstanding Bonds. In these circumstances, the holders of the Bonds may not
continue to hold the Bonds by giving an effective Hold Notice, and the Operating
Partnership will be obligated to pay, not later than the second Business Day
after the Reset Date, the Put Price for the Bonds (plus accrued interest from
the Reset Date to the date payment is made) on the Reset Date, with settlement
occurring as described in the next paragraph. In any event, the Operating
Partnership will remain obligated to make payment of accrued and unpaid interest
due on the Bonds, with interest payable on the Reset Date being payable to the
holders of record on the corresponding Interest Payment Record Date, as provided
in the Bonds and in the Indenture.
If the Put Option is exercised, then, on the Reset Date, all beneficial
interests in the Bonds to be purchased will be transferred to a DTC account
designated by the Operating Partnership. The transfers
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will be made automatically, without any action on the part of any beneficial
owner, by book entry through DTC. The Operating Partnership will be obligated to
make payment of the Put Price of the relevant Bonds to DTC, for credit to the
accounts of the DTC participants through which beneficial interests in these
Bonds are held, by the close of business on the Reset Date. Each transfer will
be made against the corresponding payment, and each payment will be made against
the corresponding transfer, in accordance with applicable DTC procedures. If the
Operating Partnership fails to pay the Put Price of the relevant Bonds on the
Reset Date, accrued interest from the Reset Date to the date the payment is made
will be payable as part of the Put Price. With respect to all the Bonds, whether
or not purchased pursuant to the Put Option, the Operating Partnership will
remain obligated to make payment of accrued and unpaid interest due on the
Bonds, with interest payable on the Reset Date being payable to the holders of
record on the corresponding Interest Payment Record Date, as provided in the
Bonds and in the Indenture.
The transactions described above will be effected on the Reset Date through
DTC in accordance with the procedures of DTC, and the accounts of the respective
DTC participants will be debited and credited and the Bonds delivered by book
entry as necessary to effect the purchases and sales thereof. The transactions
will settle in immediately available funds through DTC's Same-Day Funds
Settlement System.
The settlement procedures described above, including those for payment for
and delivery of Bonds purchased by Goldman, Sachs & Co. or the Operating
Partnership on the Reset Date, may be modified, notwithstanding any contrary
terms of the Indenture, to the extent required by DTC or, if the book-entry
system is no longer available for the Bonds at the relevant time, to the extent
required to facilitate these transactions in Bonds in certificated form. In
addition, Goldman, Sachs & Co. and the Operating Partnership may,
notwithstanding any contrary terms of the Indenture, modify the settlement
procedures referred to above in order to facilitate the settlement process.
Under the terms of the Bonds, the Operating Partnership has agreed that,
notwithstanding any provision to the contrary set forth in the Indenture, (i) it
will use its best efforts to maintain the Bonds in book-entry form with DTC or
any successor thereto and to appoint a successor depository to the extent
necessary to maintain the Bonds in book-entry form and (ii) it will waive any
discretionary right it otherwise may have under the Indenture to cause the Bonds
to be issued in certificated form.
For further information with respect to payments, transfers and settlement
through DTC,
see "--Global Securities" below.
CERTAIN COVENANTS
LIMITATIONS ON INCURRENCE OF DEBT. The Operating Partnership will not, and
will not permit any Subsidiary to, incur any Debt (as defined below), other than
intercompany debt (representing Debt to which the only parties are the Company,
the Operating Partnership and any of their Subsidiaries (but only so long as
such Debt is held solely by any of the Company, the Operating Partnership and
any Subsidiary) that is subordinate in right of payment to the Bonds) if,
immediately after giving effect to the incurrence of such additional Debt, the
aggregate principal amount of all outstanding Debt of the Operating Partnership
and its Subsidiaries on a consolidated basis determined in accordance with
generally accepted accounting principles is greater than 55% of the sum of (i)
the Operating Partnership's Total Assets (as defined below) as of the end of the
calendar quarter covered in the Operating Partnership's Annual Report on Form
10-K or Quarterly Report on Form 10-Q, as the case may be, most recently filed
with the Securities and Exchange Commission (or, if such filing is not permitted
under the Exchange Act, with the Trustee) prior to the incurrence of such
additional Debt and (ii) any increase in Total Assets from the end of such
quarter including, without limitation, any increase in Total Assets resulting
from the incurrence of such additional Debt (such increase together with the
Operating Partnership's Total Assets shall be referred to as the "Adjusted Total
Assets").
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In addition to the foregoing limitation on the incurrence of Debt, the
Operating Partnership will not, and will not permit any Subsidiary to, incur any
Debt if the ratio of Consolidated Income Available for Debt Service to the
Annual Service Charge (in each case as defined below) for the four consecutive
fiscal quarters most recently ended prior to the date on which such additional
Debt is to be incurred shall have been less than 2.0 to 1, on a pro forma basis
after giving effect to the incurrence of such Debt and to the application of the
proceeds therefrom, and calculated on the assumption that (i) such Debt and any
other Debt incurred by the Operating Partnership or its Subsidiaries since the
first day of such four-quarter period and the application of the proceeds
therefrom, including to refinance other Debt, had occurred at the beginning of
such period, (ii) the repayment or retirement of any other Debt by the Operating
Partnership or its Subsidiaries since the first day of such four-quarter period
had been incurred, repaid or retired at the beginning of such period (except
that, in making such computation, the amount of Debt under any revolving credit
facility shall be computed based upon the average daily balance of such Debt
during such period), (iii) any income earned as a result of any increase in
Adjusted Total Assets since the end of such four-quarter period had been earned,
on an annualized basis, for such period, and (iv) in the case of any acquisition
or disposition by the Operating Partnership or any Subsidiary of any asset or
group of assets since the first day of such four-quarter period, including,
without limitation, by merger, stock purchase or sale, or asset purchase or
sale, such acquisition or disposition or any related repayment of Debt had
occurred as of the first day of such period with the appropriate adjustments
with respect to such acquisition or disposition being included in such pro forma
calculation.
In addition to the foregoing limitations on the incurrence of Debt, the
Operating Partnership will not, and will not permit any Subsidiary to, incur any
Debt secured by any mortgage, lien, charge, pledge, encumbrance or security
interest of any kind upon any of the property of the Operating Partnership or
any Subsidiary ("Secured Debt"), whether owned at the date of the Indenture or
thereafter acquired, if, immediately after giving effect to the incurrence of
such additional Secured Debt, the aggregate principal amount of all outstanding
Secured Debt of the Operating Partnership and its Subsidiaries on a consolidated
basis is greater than 40% of the Operating Partnership's Adjusted Total Assets.
For purposes of the forgoing provisions regarding the limitation on the
incurrence of Debt, Debt shall be deemed to be "incurred" by the Operating
Partnership and its Subsidiaries on a consolidated basis whenever the Operating
Partnership and its Subsidiaries on a consolidated basis shall create, assume,
guarantee or otherwise become liable in respect thereof.
MAINTENANCE OF TOTAL UNENCUMBERED ASSETS. The Operating Partnership is
required to maintain Total Unencumbered Assets of not less than 185% of the
aggregate outstanding principal amount of the Unsecured Debt of the Operating
Partnership.
As used herein:
"ANNUAL SERVICE CHARGE" as of any date means the maximum amount which is
expensed in any 12-month period for interest on Debt.
"CONSOLIDATED INCOME AVAILABLE FOR DEBT SERVICE" for any period means
Consolidated Net Income (as defined below) of the Operating Partnership and its
Subsidiaries (i) plus amounts which have been deducted for (a) interest on Debt
of the Operating Partnership and its Subsidiaries, (b) provision for taxes of
the Operating Partnership and its Subsidiaries based on income, (c) amortization
of debt discount, (d) provisions for or realized losses on properties, (e)
depreciation and amortization, (f) the effect of any noncash charge resulting
from a change in accounting principles in determining Consolidated Net Income
for such period and (g) amortization of deferred charges and (ii) less amounts
which have been included for gains on properties.
"CONSOLIDATED NET INCOME" for any period means the amount of consolidated
net income (or loss) of the Operating Partnership and its Subsidiaries for such
period determined on a consolidated basis in accordance with generally accepted
accounting principles.
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"DEBT" of the Operating Partnership or any Subsidiary means any indebtedness
of the Operating Partnership and its Subsidiaries, whether or not contingent, in
respect of (i) borrowed money evidenced by bonds, notes, debentures or similar
instruments, (ii) indebtedness secured by any mortgage, pledge, lien, charge,
encumbrance or any security interest existing on property owned by the Operating
Partnership or any Subsidiary, (iii) the reimbursement obligations, contingent
or otherwise, in connection with any letters of credit actually issued or
amounts representing the balance deferred and unpaid of the purchase price of
any property except any such balance that constitutes an accrued expense or
trade payable or (iv) any lease of property by the Operating Partnership and its
Subsidiaries as lessee which is reflected in the Operating Partnership's
consolidated balance sheet as a capitalized lease in accordance with generally
accepted accounting principles, in the case of items of indebtedness under (i)
through (iii) above to the extent that any such items (other than letters of
credit) would appear as a liability on the Operating Partnership's consolidated
balance sheet in accordance with generally accepted accounting principles, and
also includes, to the extent not otherwise included, any obligation by the
Operating Partnership or any Subsidiary to be liable for, or to pay, as obligor,
guarantor or otherwise (other than for purposes of collection in the ordinary
course of business), indebtedness of another person (other than the Operating
Partnership or any Subsidiary) (it being understood that Debt shall be deemed to
be incurred by the Operating Partnership and its Subsidiaries on a consolidated
basis whenever the Operating Partnership and its Subsidiaries on a consolidated
basis shall create, assume, guarantee or otherwise become liable in respect
thereof).
"FUNDS FROM OPERATIONS" for any period means the Consolidated Net Income of
the Operating Partnership and its Subsidiaries for such period without giving
effect to depreciation and amortization, gains or losses from extraordinary
items, gains or losses on sales of real estate, gains or losses on investments
in marketable securities and any provision/benefit for income taxes for such
period, plus the allocable portion, based on the Operating Partnership's
ownership interest, of funds from operations of unconsolidated joint ventures,
all determined on a consistent basis in accordance with generally accepted
accounting principles.
"SUBSIDIARY" means a corporation, partnership or limited liability company,
a majority of the outstanding voting stock, partnership interests or membership
interests, as the case may be, of which is owned or controlled, directly or
indirectly, by the Operating Partnership or by one or more other Subsidiaries of
the Operating Partnership. For the purposes of this definition, "voting stock"
means stock having voting power for the election of directors, or trustees, as
the case may be, whether at all times or only so long as no senior class of
stock has such voting power by reason of any contingency.
"TOTAL ASSETS" as of any date means the sum of (i) the Undepreciated Real
Estate Assets and (ii) all other assets of the Operating Partnership and its
Subsidiaries on a consolidated basis determined in accordance with generally
accepted accounting principles (but excluding intangibles and accounts
receivable).
"TOTAL UNENCUMBERED ASSETS" means the sum of (i) those Undepreciated Real
Estate Assets not subject to an encumbrance and (ii) all other assets of the
Operating Partnership and its Subsidiaries not subject to an encumbrance
determined in accordance with generally accepted accounting principles (but
excluding accounts receivable and intangibles).
"UNDEPRECIATED REAL ESTATE ASSETS" as of any date means the cost (original
cost plus capital improvements) of real estate assets of the Operating
Partnership and its Subsidiaries on such date, before depreciation and
amortization, determined on a consolidated basis in accordance with generally
accepted accounting principles.
"UNSECURED DEBT" means Debt of the Operating Partnership or any Subsidiary
which is not secured by any mortgage, lien, charge, pledge or security interest
of any kind upon any of the properties of the Operating Partnership or any
Subsidiary.
Reference is made to the section entitled "Description of Debt
Securities--Certain Covenants" in the accompanying Prospectus for a description
of additional covenants applicable to the Bonds. Compliance with the covenants
described herein and such additional covenants with respect to the
S-26
<PAGE>
Bonds generally may not be waived by the Board of Directors of the Company, as
general partner of the Operating Partnership, or by the Trustee unless the
Holders of at least a majority in principal amount of all outstanding Bonds
consent to such waiver.
GLOBAL SECURITIES
Upon original issuance, the Bonds will be represented by one or more global
securities (the "Global Securities") having an aggregate principal amount equal
to that of the Bonds represented thereby. Each Global Security will be deposited
with, or on behalf of, The Depository Trust Company, as depository (the
"Depository"), and registered in the name of Cede & Co., a nominee of the
Depository. The Global Securities will bear legends regarding the restrictions
on exchanges and registration of transfer thereof referred to below and any
other matters as may be provided for by the Indenture.
The Depository has advised the Operating Partnership as follows: The
Depository is a limited-purpose trust company organized under the Banking Law of
the State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code, and a
"clearing agency" registered pursuant to the provisions of section 17A of the
Securities Exchange Act of 1934. The Depository was created to hold securities
of its participants and to facilitate the clearance and settlement of securities
transactions among its participants in such securities through electronic
book-entry changes in accounts of the participants, thereby eliminating the need
for physical movement of securities certificates. The Depository's participants
include securities brokers and dealers (including the Underwriters), banks,
trust companies, clearing corporations and certain other organizations, some of
whom (and/or their representatives) own the Depository. Access to the
Depository's book-entry system is also available to others, such as banks,
brokers, dealers and trust companies that clear through or maintain a custodial
relationship with a participant, either directly or indirectly.
Notwithstanding any provision of the Indenture or the Bonds described
herein, no Global Security may be exchanged in whole or in part for Bonds
registered, and no transfer of a Global Security in whole or in part may be
registered, in the name of any Person other than the Depository for such Global
Security or any nominee of the Depository unless (i) the Depository has notified
the Operating Partnership that it is unwilling or unable to continue as
Depository for the Global Security or has ceased to be qualified to act as such
as required pursuant to the Indenture or (ii) there shall have occurred and be
continuing an Event of Default with respect to the Bonds represented by such
Global Security. All Bonds issued in exchange for a Global Security or any
portion thereof will be registered in such names as the Depository may direct.
As long as the Depository, or its nominee, is the registered holder of a
Global Security, the Depository or such nominee, as the case may be, will be
considered the sole owner and holder of such Global Security and the Bonds
represented thereby for all purposes under the Bonds and the Indenture. Except
in the limited circumstances referred to above, owners of beneficial interests
in a Global Security will not be entitled to have such Global Security or any
Bonds represented thereby registered in their names, will not receive or be
entitled to receive physical delivery of certificated Bonds in exchange therefor
and will not be considered to be the owners or holders of such Global Security
or any Bonds represented thereby for any purpose under the Bonds or the
Indenture. All payments of principal of and interest on a Global Security will
be made to the Depository or its nominee, as the case may be, as the holder
thereof. The laws of some jurisdictions require that certain purchasers of
securities take physical delivery of such securities in definitive form. These
laws may impair the ability to transfer beneficial interests in a Global
Security.
Ownership of beneficial interests in a Global Security will be limited to
institutions that have accounts with the Depository or its nominee
("participants") and to persons that may hold beneficial interests through
participants. In connection with the issuance of any Global Security, the
Depository will credit, on its book-entry registration and transfer system, the
respective principal amounts of Bonds represented by the Global Security to the
accounts of its participants. Ownership of beneficial interests in a Global
Security will be shown only on, and the transfer of those ownership interests
will be effected only through, records maintained by the Depository (with
respect to participants' interests) or any such
S-27
<PAGE>
participant (with respect to interests of persons held by such participants on
their behalf). Payments, transfers, exchanges, notices and others matters
relating to beneficial interests in a Global Security may be subject to various
policies and procedures adopted by the Depository from time to time. None of the
Operating Partnership, the Trustee, the Calculation Agent (or Goldman, Sachs &
Co.) or any of their respective agents will have any responsibility or liability
for any aspect of the Depository's or any participant's records relating to, or
for payments or notices on account of, beneficial interests in a Global
Security, or for maintaining, supervising or reviewing any records relating to
such beneficial interests.
CERTAIN NOTICES
With respect to any Bonds represented by a Global Security, Call Notices,
10% Requirement Notices and any other notices to be given to the holders of the
Bonds will be deemed to have been duly given to the holders when given to DTC,
or its nominee, in accordance with DTC's policies and procedures. The Operating
Partnership believes that DTC's practice is to inform its participants of any
such notice it receives, in accordance with its policies and procedures. Persons
who hold beneficial interests in the Bonds through DTC or its direct or indirect
participants may wish to consult with them about the manner in which notices and
other communications relating to the Bonds may be given and received through the
facilities of DTC. Neither the Operating Partnership, the Calculation Agent (nor
Goldman, Sachs & Co.) nor the Trustee will have any responsibility with respect
to those policies and procedures or for any notices or other communications
among DTC, its direct and indirect participants and the beneficial owners of the
Bonds in global form.
With respect to any Bonds not represented by a Global Security, Call
Notices, 10% Requirement Notices and any other notices to be given to the
holders of the Bonds will be deemed to have been duly given to the holders upon
the mailing of such notices to the holders at their respective addresses as they
appear on the Bond register maintained by the Operating Partnership or its agent
as of the close of business preceding the day notice is given.
Neither the failure to give any notice nor any defect in any notice given to
a particular holder will affect the sufficiency of any notice given to another
holder.
Hold Notices may be given by a holder to the Trustee only by facsimile
transmission or by mail and MUST ACTUALLY BE RECEIVED by the Trustee at the
following address no later than 10:00 A.M., New York City time, on the seventh
Market Day prior to the Reset Date:
The First National Bank
of Chicago
One North State Street, 9th Floor
Chicago, Illinois 60602
Attention: Corporate Trust Administration
Facsimile no.: 312-407-1708
Hold Notices may be given with respect to a Bond only by the registered
holder of the Bond. Therefore, in the case of any beneficial interest in a Bond
represented by a Global Security, a Hold Notice must be given by DTC or its
agent, and any owner of a beneficial interest that wants a Hold Notice to be
given with respect to the interest will need to make arrangements with DTC
and/or the applicable direct or indirect participants for the notice to be given
in a timely manner.
MISCELLANEOUS
The Indenture provides that, except for any consent that must be given by
the Holder of each Debt Security affected by certain modifications and
amendments to the Indenture, or as otherwise provided in the Indenture, any
resolution presented to a meeting or adjourned meeting duly reconvened at which
a quorum is present may be adopted by the affirmative vote of the persons
entitled to vote a majority in aggregate principal amount of the Outstanding
Securities represented at such meeting.
S-28
<PAGE>
U.S. FEDERAL INCOME TAX CONSEQUENCES
CONSEQUENCES OF BOND OWNERSHIP
The following is a discussion of some ways in which the United States
federal income tax consequences of ownership of a Bond may differ from the
consequences of ownership of conventional bonds. It does not deal with all
aspects of the tax consequences of the ownership of Bonds, however, or with
special classes of holders, such as financial institutions, dealers in
securities or currencies, traders in securities that elect to mark to market,
tax-exempt organizations, life insurance companies, non-U.S. persons or persons
who hold Bonds as part of broader hedged transactions. The discussion is based
on current provisions of the Internal Revenue Code of 1986, as amended, Treasury
regulations, current administrative pronouncements of the Internal Revenue
Service (the "IRS") and judicial decisions now in effect, all of which are
subject to change at any time, possibly with retroactive effect. No statutory,
judicial or administrative authority directly addresses the tax treatment of the
Bonds or instruments similar to the Bonds for United States federal income tax
purposes. Therefore, no assurance can be given that the IRS will agree with the
tax consequences described herein or that these consequences will not be
successfully challenged. ACCORDINGLY, PROSPECTIVE PURCHASERS SHOULD CONSULT
THEIR OWN TAX ADVISORS CONCERNING THE TAX CONSEQUENCES, IN THEIR PARTICULAR
CIRCUMSTANCES, OF PURCHASING, OWNING AND SELLING BONDS, AND ANY UNCERTAINTIES
CONCERNING THESE CONSEQUENCES.
The following discussion applies only to Bonds purchased directly from the
Operating Partnership on original issue, and it assumes that the Bonds are
purchased for an amount equal to the stated principal amount, plus the amount
allocable to pre-issuance accrued interest (such sum, the "Stated Principal
Amount").
A holder that purchases a Bond at original issue should be treated for tax
purposes as having (i) purchased the Bond for an amount equal to its fair market
value on the original issue date and (ii) effectively sold the Call Option to
Goldman, Sachs & Co. for an amount equal to the excess of such fair market value
over the Stated Principal Amount (the "Call Option Premium"). A holder should be
able to elect, however, to treat the Bond and the Call Option as a single
instrument for tax purposes ("integrated treatment") by satisfying the
contemporaneous identification requirements of Treasury Regulations Section
1.1275-6. Although not free from doubt, a holder should be able to satisfy these
requirements by, on or prior to the date the Bond is issued, (a) marking the
date of the purchase of the Bond on the cover of this Prospectus Supplement, (b)
writing on that cover that the holder wishes to treat the Bond and the Call
Option as an integrated hedging transaction for U.S. federal income tax purposes
and (c) retaining a copy of this Prospectus Supplement in the holder's books and
records.
If integrated treatment applies, a holder will include interest on the Bonds
in its income (at the rate of interest initially in effect) as it is paid or
accrued, in accordance with the holder's method of accounting. If the Call
Option is not exercised and the holder gives an effective Hold Notice, a holder
will include interest in income at the applicable Adjusted Rate for the Reset
Period. Assuming that the holder does not seek to make an election to amortize a
deemed purchase of the Bond at a premium, a holder that purchased a Bond for an
amount equal to the Stated Principal Amount should not recognize net gain or
loss upon the exercise of the Put Option or Call Option or upon receipt of the
principal amount at Final Maturity.
If integrated treatment does not apply, the treatment of a holder should be
substantially similar to the treatment described above, although the matter is
not free from doubt. A holder may in that case be required, however, to treat
the Bond as governed by certain contingent payment debt regulations. In that
case, a holder who accounts for interest income on a cash basis and who receives
interest for a period which straddles the end of a taxable year may be required
to include interest in the holder's income for the year in which the interest is
accrued, rather than the year in which it is received, as if the holder were
accounting for interest income on an accrual basis. In addition, a holder may be
required to treat gain from the disposition of a Bond as ordinary income, and
may be permitted to treat loss from the disposition of a Bond as ordinary loss,
to the extent not in excess of previously accrued interest income from the Bond.
Assuming that the holder does not seek to make an election to amortize a deemed
S-29
<PAGE>
purchase of the Bond at a premium, a holder that purchased a Bond for an amount
equal to the Stated Principal Amount should not recognize net gain or loss upon
the exercise of the Put Option or Call Option. If neither the Call Option nor
the Put Option is exercised, the holder will recognize income on the Reset Date
in an amount equal to the Call Option Premium. Such income will be treated as
short-term capital gain. In such a case, a holder's adjusted tax basis in a Bond
will be increased by the Call Option Premium.
TAXPAYER RELIEF ACT OF 1997
Prospective purchasers should be aware that the recently enacted Taxpayer
Relief Act of 1997 (the "1997 Act") made numerous changes to the Code, including
reducing the maximum tax imposed on net capital gains from the sale or exchange
of assets held for more than 18 months by individuals, trusts and estates to
20%. This reduced tax rate is effective for sales and exchanges occurring after
July 28, 1997. The 1997 Act also makes certain changes to the requirements to
qualify as a REIT and to the taxation of REITs and their shareholders.
The 1997 Act contains significant changes to the taxation of capital gains
of individuals, trusts and estates. For gains realized after July 28, 1997, and
subject to certain exceptions, the maximum rate of tax on net capital gains of
individuals, trusts and estates from the sale or exchange of assets held for
more than 18 months has been reduced to 20%, and the maximum rate is reduced to
18% for assets acquired after December 31, 2000 and held for more than five
years. For taxpayers who would be subject to a maximum tax rate of 15%, the rate
on net capital gains is reduced to 10%, and effective for taxable years
commencing after December 31, 2000, the rate is reduced to 8% for assets held
for more than five years. The maximum rate for net capital gains attributable to
the sale of depreciable real property held for more than 18 months is 25% to the
extent of the deductions for depreciation with respect to such property.
Long-term capital gain allocated by the Operating Partnership or the Company to
their respective equity owners will be subject to the 25% rate to the extent
that the gain does not exceed depreciation on real property sold. The maximum
rate of capital gains tax for capital assets held more than one year but not
more than 18 months remains at 28%. The taxation of capital gains of
corporations was not changed by the 1997 Act.
The 1997 Act also includes several provisions that are intended to simplify
the taxation of REITs. These provisions are effective for taxable years
beginning after the date of enactment of the 1997 Act which, as to the Company,
is its taxable year commencing January 1, 1998. First, in determining whether a
REIT satisfies the income tests, a REIT's rental income from a property will not
cease to qualify as "rents from real property" merely because the REIT performs
services for a tenant other than permitted customary services if the amount that
the REIT is deemed to have received as a result of performing such impermissible
services does not exceed one percent of all amounts received directly or
indirectly by the REIT with respect to such property. The amount that a REIT
will be deemed to have received for performing impermissible services is at
least 150% of the direct cost to the REIT of providing those services. Second,
certain non-cash income, including income from cancellation of indebtedness and
original issue discount, will be excluded from income in determining the amount
of dividends that a REIT is required to distribute. Third, a REIT may elect to
retain and pay income tax on any net long-term capital gains and require its
shareholders to include such undistributed net capital gains in their income. If
a REIT makes such an election, the REIT's shareholders would receive a tax
credit attributable to their share of capital gains tax paid by the REIT on the
undistributed net capital gain that was included in the shareholders' income,
and such shareholders will receive an increase in the basis of their shares in
the amount of undistributed net capital gain included in their income reduced by
the amount of the credit. Fourth, the 1997 Act repeals the requirement that a
REIT receive less than 30% of its gross income from the sale or disposition of
stock or securities held for less than one year, gain from prohibited
transactions, and gain from certain sales of real property held less than four
years. Finally, the 1997 Act contains a number of technical provisions that
reduce the risk that a REIT will inadvertently cease to qualify as a REIT.
S-30
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the Terms Agreement (which
incorporates by reference the terms of the Underwriting Agreement), the
Operating Partnership has agreed to sell to each of the Underwriters named
below, and each of the Underwriters has severally agreed to purchase, the
principal amount of the Bonds set forth opposite its name below.
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
UNDERWRITER OF BONDS
- ----------------------------------------------------------------------------------------------- -----------------
<S> <C>
Goldman, Sachs & Co............................................................................ $ 75,000,000
UBS Securities LLC............................................................................. 25,000,000
-----------------
-----------------
Total........................................................................................ $ 100,000,000
</TABLE>
Under the terms and conditions of the Terms Agreement, the Underwriters are
committed to take and pay for all of the Bonds, if any are taken.
The Underwriters propose to offer the Bonds in part directly to the public
at the initial public offering price set forth on the cover page of this
Prospectus Supplement and in part to certain securities dealers at such price
less a concession of 0.375% of the principal amount of the Bonds. The
Underwriters may allow, and such dealers may reallow, a concession not to exceed
0.250% of the principal amount of the Bonds to certain brokers and dealers.
After the Bonds are released for sale to the public, the offering price and
other selling terms may from time to time be varied by the Underwriters.
The Bonds are a new issue of securities with no established trading market.
The Operating Partnership has been advised by the Underwriters that the
Underwriters intend to make a market in the Bonds but are not obligated to do so
and may discontinue market making at any time without notice. No assurance can
be given as to the liquidity of the trading market for the Bonds.
The Operating Partnership has agreed to indemnify the Underwriters against
certain liabilities, including liabilities under the Securities Act of 1933.
The proceeds to the Operating Partnership include an amount equal to 2.65%
of the principal amount of the Bonds, which will be paid by Goldman, Sachs & Co.
in consideration of the Call Option it will have with respect to the Bonds.
In connection with the offering, the Underwriters may purchase and sell the
Bonds in the open market. These transactions may include over-allotment and
stabilizing transactions and purchases to cover short positions created by the
Underwriters in connection with the offering. Stabilizing transactions consist
of certain bids or purchases for the purpose of preventing or retarding a
decline in the market price of the Bonds; and short positions created by the
Underwriters involve the sale by the Underwriters of a greater number of Bonds
than they are required to purchase from the Operating Partnership in the
offering. The Underwriters also may impose a penalty bid, whereby selling
concessions allowed to broker-dealers in respect of the Bonds sold in the
offering may be reclaimed by the Underwriters if such Bonds are repurchased by
the Underwriters in stabilizing or covering transactions. These activities may
stabilize, maintain or otherwise affect the market price of the Bonds, which may
be higher than the price that might otherwise prevail in the open market, and
these activities, if commenced, may be discontinued at any time. These
transactions may be effected in the over-the-counter market or otherwise.
VALIDITY OF THE BONDS
The validity of the Bonds offered hereby will be passed upon for the
Operating Partnership by Bose McKinney & Evans, Indianapolis, Indiana, and for
the Underwriters by Sullivan & Cromwell, New York, New York. As to all matters
of Indiana law, Sullivan & Cromwell will rely on the opinion of Bose McKinney &
Evans. As to all matters of New York law, Bose McKinney & Evans will rely on the
opinion of Sullivan & Cromwell.
S-31
<PAGE>
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NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS
PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE
SECURITIES DESCRIBED IN THE PROSPECTUS SUPPLEMENT OR AN OFFER TO ANY PERSON IN
ANY JURISDICTION WHERE SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE
DELIVERY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS NOR ANY SALE MADE
HEREUNDER AND THEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE OPERATING PARTNERSHIP SINCE
THE DATE HEREOF OR THAT THE INFORMATION HEREIN OR THEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO ITS DATE.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
PROSPECTUS SUPPLEMENT
The Operating Partnership..................... S-3
Recent Developments........................... S-5
Use of Proceeds............................... S-9
Capitalization................................ S-10
Ratios of Earnings to Fixed Charges........... S-10
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... S-11
Description of the Bonds...................... S-18
U.S. Federal Income Tax Consequences.......... S-29
Underwriting.................................. S-31
Validity of the Bonds......................... S-31
PROSPECTUS
Available Information......................... 2
Incorporation of Certain Documents by
Reference.................................... 2
The Company and the Operating Partnership..... 3
Use of Proceeds............................... 3
Ratios of Earnings to Fixed Charges........... 4
Description of Debt Securities................ 4
Description of Preferred Stock................ 15
Description of Depositary Shares.............. 21
Description of Common Stock................... 24
Federal Income Tax Considerations............. 26
Plan of Distribution.......................... 33
Legal Opinions................................ 34
Experts....................................... 34
</TABLE>
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- --------------------------------------------------------------------------------
<PAGE>
$100,000,000
[LOGO]
DUKE REALTY
LIMITED PARTNERSHIP
PUTTABLE RESET SECURITIES
PURS-SM- DUE MARCH 1, 2016
-----------
PROSPECTUS SUPPLEMENT
-----------
GOLDMAN, SACHS & CO.
UBS SECURITIES
