UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
------------------
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
-------- ---------
- -----------------------------------------------------------------------
Commission File Number: 0-20625
-------
DUKE-WEEKS REALTY LIMITED PARTNERSHIP
State of Incorporation: IRS Employer ID Number:
Indiana 35-1898425
- ---------------------- ----------------------
Address of principal executive offices:
8888 Keystone Crossing, Suite 1200
---------------------------------
Indianapolis, Indiana 46240
----------------------------
Telephone: (317) 808-6000
-------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No
---- ----
The number of Limited Partnership Units outstanding as of November 12,
1999 was 144,130,784.
<PAGE>
DUKE-WEEKS REALTY LIMITED PARTNERSHIP
INDEX
PART I - FINANCIAL INFORMATION PAGE
- ------------------------------ ----
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance
Sheets as of September 30, 1999
(Unaudited) and December 31, 1998 2
Condensed Consolidated Statements
of Operations for the three months
and nine months ended September 30,
1999 and 1998 (Unaudited) 3
Condensed Consolidated Statements of
Cash Flows for the nine months ended
September 30, 1999 and 1998 (Unaudited) 4
Condensed Consolidated Statement of
Partners' Equity for the nine months
ended September 30, 1999 (Unaudited) 5
Notes to Condensed Consolidated
Financial Statements (Unaudited) 6-11
Independent Accountants' Review Report 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS 13-22
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 22
Item 2. Changes in Securities 22
Item 3. Defaults Upon Senior Securities 22
Item 4. Submission of Matters to a Vote
of Security Holders 22
Item 5. Other Information 22
Item 6. Exhibits and Reports on Form 8-K 23
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DUKE-WEEKS REALTY LIMITED PARTNERSHIP AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
ASSETS (Unaudited)
------
<S> <C> <C>
Real estate investments:
Land and improvements $ 596,499 $ 312,022
Buildings and tenant improvements 3,920,925 2,091,757
Construction in progress 370,595 185,950
Investments in unconsolidated companies 168,101 125,746
Land held for development 231,323 146,911
--------- ---------
5,287,443 2,862,386
Accumulated depreciation (234,071) (179,887)
--------- ---------
Net real estate investments 5,053,372 2,682,499
Cash and cash equivalents 44,812 6,626
Accounts receivable from tenants,
net of allowance of $2,361 and $896 17,720 9,641
Straight-line rent receivable,
net of allowance of $841 27,265 20,332
Receivables on construction contracts 32,914 29,162
Deferred financing costs, net of
accumulated amortization of $8,478
and $11,064 14,780 11,316
Deferred leasing and other costs,
net of accumulated amortization
of $20,749 and $16,838 67,880 53,281
Escrow deposits and other assets 77,449 41,205
--------- ---------
$5,336,192 $2,854,062
========= =========
LIABILITIES AND PARTNERS' EQUITY
--------------------------------
Indebtedness:
Secured debt $ 522,997 $ 326,317
Unsecured notes 1,175,860 590,000
Unsecured lines of credit 265,000 91,000
--------- ---------
1,964,857 1,007,317
Construction payables and
amounts due subcontractors 92,752 55,012
Accounts payable 4,089 4,836
Accrued expenses:
Real estate taxes 60,174 36,075
Interest 14,603 10,329
Other expenses 38,250 21,676
Other liabilities 29,112 21,928
Tenant security deposits
and prepaid rents 33,845 18,534
--------- ---------
Total liabilities 2,237,682 1,175,707
--------- ---------
Minority interest 608 367
--------- ---------
Partners' equity:
General partner:
Common equity 2,079,173 1,223,260
Preferred equity 587,385 348,366
--------- ---------
2,666,558 1,571,626
Limited partners' common equity 328,389 106,362
Limited partners' preferred equity 102,955 -
--------- ---------
Total partners' equity 3,097,902 1,677,988
--------- ---------
$5,336,192 $2,854,062
========= =========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
- 2 -
<PAGE>
DUKE-WEEKS REALTY LIMITED PARTNERSHIP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
(UNAUDITED)
<PAGE>
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------ ------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
RENTAL OPERATIONS:
Revenues:
Rental income $157,001 $87,699 $360,849 $245,037
Equity in earnings of
unconsolidated companies 3,272 2,649 8,559 8,066
------- ------ ------- -------
160,273 90,348 369,408 253,103
------- ------ ------- -------
Operating expenses:
Rental expenses 25,095 16,115 61,222 43,799
Real estate taxes 16,408 8,984 38,899 24,871
Interest expense 25,960 16,701 59,080 43,926
Depreciation and
amortization 32,738 17,660 74,127 48,445
------- ------ ------- -------
100,201 59,460 233,328 161,041
------- ------ ------- -------
Earnings from rental
operations 60,072 30,888 136,080 92,062
------- ------ ------- -------
SERVICE OPERATIONS:
Revenues:
Property management,
maintenance
and leasing fees 7,255 3,606 14,676 10,240
Construction management
and development fees 7,817 3,425 20,976 8,115
Other income 330 253 910 851
------- ------ ------- -------
15,402 7,284 36,562 19,206
------- ------ ------- -------
Operating expenses:
Payroll 5,916 3,178 12,972 9,865
Maintenance 4,215 613 5,817 1,811
Office and other 1,400 678 5,284 2,000
------- ------ ------- -------
11,531 4,469 24,073 13,676
------- ------ ------- -------
Earnings from service
operations 3,871 2,815 12,489 5,530
------- ------ ------- -------
General and administrative
expense (4,626) (2,792) (11,737) (8,235)
------- ------ ------- -------
Operating income 59,317 30,911 136,832 89,357
OTHER INCOME (EXPENSE):
Interest income 699 518 1,844 1,107
Earnings from property sales 3,095 661 7,380 1,615
Other expense (133) (131) (471) (192)
Other minority interest
in earnings of subsidiaries (617) (692) (1,497) (946)
------- ------ ------- -------
Net income 62,361 31,267 144,088 90,941
Dividends on preferred units (14,356) (4,702) (32,452) (14,108)
------- ------ ------- ------
Net income available for
common units $ 48,005 $26,565 $111,636 $76,833
======= ====== ======= ======
Net income per common unit:
Basic $ .35 $ .29 $ 1.00 $ .85
======= ====== ======= ======
Diluted $ .35 $ .29 $ 1.00 $ .84
======= ====== ======= ======
Weighted average number
of common units
outstanding 137,721 92,434 111,086 90,355
======= ====== ======= ======
Weighted average number
of common and dilutive
potential common units 138,923 93,279 112,106 91,252
======= ====== ======= ======
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
- 3 -
<PAGE>
DUKE-WEEKS REALTY LIMITED PARTNERSHIP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $144,088 $ 90,941
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation of buildings and tenant
improvements 66,993 43,039
Amortization of deferred financing costs 1,324 1,018
Amortization of deferred leasing and
other costs 7,134 5,406
Minority interest in earnings 1,497 946
Straight-line rental income (7,462) (4,763)
Earnings from property sales (7,380) (1,615)
Construction contracts, net 29,741 (7,311)
Other accrued revenues and
expenses, net 23,766 25,152
Equity in earnings in excess of
distributions received from
unconsolidated companies (942) (4,651)
------ -------
Net cash provided by operating activities 258,759 148,162
------- -------
Cash flows from investing activities:
Rental property development costs (306,031) (163,682)
Acquisition of rental properties (124,968) (231,338)
Acquisition of land held for development
and infrastructure costs (82,995) (25,139)
Recurring costs:
Tenant improvements (14,003) (7,611)
Leasing commissions (7,952) (4,668)
Building improvements (1,564) (1,572)
Other deferred leasing costs (17,126) (11,533)
Other deferred costs and other assets (39,103) (18,278)
Proceeds from property sales, net 35,524 7,498
Other distributions received from
unconsolidated companies 16,802 -
Net investment in and advances to
unconsolidated companies (30,048) (14,095)
------- -------
NET CASH USED BY INVESTING ACTIVITIES (571,464) (470,418)
------- -------
Cash flows from financing activities:
Contributions from general partner 299,978 136,661
Proceeds from indebtedness 300,000 250,000
Borrowings (repayments) on lines of
credit, net 174,000 96,000
Payments on indebtedness including
principal amortization (264,711) (48,269)
Distributions to partners (119,382) (84,876)
Distributions to preferred unitholders (32,452) (14,108)
Distributions to minority interest (1,401) (681)
Deferred financing costs (5,141) (1,355)
------- -------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 350,891 333,372
------- -------
NET INCREASE IN CASH AND
CASH EQUIVALENTS 38,186 11,116
Cash and cash equivalents at
beginning of period 6,626 10,372
------- -------
Cash and cash equivalents at end of period $ 44,812 $ 21,488
======= =======
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
- 4 -
<PAGE>
DUKE-WEEKS REALTY LIMITED PARTNERSHIP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF PARTNERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
General Partner Limited Limited
--------------------- Partners' Partners'
Common Preferred Common Preferred
Equity Equity Equity Equity Total
--------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE AT
DECEMBER 31, 1998 $1,223,260 $348,366 $106,362 $ - $1,677,988
Net income 98,451 30,350 13,185 2,102 144,088
Capital
contribution
from General
Partner 204,332 96,519 - - 300,851
Acquisition of
Partnership
interest for
common stock
of General
Partner 49,457 - - - 49,457
Acquisition of
property in
exchange for
Limited
Partner Units - - 2,501 - 2,501
Merger with Weeks
Corporation 608,755 142,500 220,641 102,955 1,074,851
Distributions to
preferred
unitholders - (30,350) - (2,102) (32,452)
Distributions to
partners ($.94
per Common Unit) (105,227) - (14,155) - (119,382)
--------- ------- ------- ------- ---------
BALANCE AT
SEPTEMBER 30,
1999 $2,079,027 $587,385 $328,534 $102,955 $3,097,902
========= ======= ======= ======= =========
COMMON UNITS
OUTSTANDING
AT SEPTEMBER
30, 1999 125,180 18,919 144,099
========= ======= =========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
- 5 -
<PAGE>
DUKE-WEEKS REALTY LIMITED PARTNERSHIP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. FINANCIAL STATEMENTS
In July 1999, Duke Realty Investments, Inc. (the "General Partner")
and Weeks Corporation ("Weeks") consummated a merger transaction
(the "Weeks Merger") whereby Weeks and its consolidated subsidiary,
Weeks Realty L.P. ("Weeks Operating Partnership") merged with and
into the General Partner and Duke Realty Limited Partnership ("Duke
Operating Partnership"). The combined operating partnerships
continued operating under the name Duke-Weeks Realty Limited
Partnership ("the Partnership"). Financial information and
references throughout this document are labeled "the Partnership"
for both pre-merger and post-merger periods as a result of the Weeks
Merger. The Partnership's financial statements and related
footnotes as of and for the three and nine months ended September
30, 1999, give effect to the Weeks Merger which was accounted for
under the purchase method. See Note 7 for a more complete
discussion of the Weeks Merger.
The interim condensed consolidated financial statements included
herein have been prepared by the Partnership without audit. The
statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and the
instructions for Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring adjustments) considered
necessary for a fair presentation have been included. These
financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in the
Partnership's Annual Financial Statements.
THE PARTNERSHIP
The Partnership was formed on October 4, 1993, when the General Partner
contributed all of its properties and related assets and
liabilities along with the net proceeds from the issuance of an
additional 14,000,833 units through a common stock offering to the
Partnership. Simultaneously, the Partnership completed the
acquisition of Duke Associates, a full-service commercial real
estate firm operating in the Midwest. The General Partner was
formed in 1985 and qualifies as a real estate investment trust
under provisions of the Internal Revenue Code. The General Partner
is the sole general partner of the Partnership and owns 86.9% of
the Partnership at September 30, 1999. The remaining limited
partnership interest ("Limited Partner Units") (together with the
units of general partner interests, the ("Common Units")) are
mainly owned by the previous partners of Duke Associates. The
Limited Partner Units are exchangeable for units of the General
Partner's common stock on a one-for-one basis subject generally to
a one-year holding period. The General Partner periodically
acquires a portion of the minority interest in the Partnership
through the issuance of units of common stock for a like number of
Common Units. The acquisition of the minority interest is accounted
for under the purchase method with assets acquired recorded at the
fair market value of the General Partner's common stock on the date
of acquisition.
The service operations are conducted through Duke Realty Services
Limited Partnership and Duke Construction Limited Partnership, in
which the Partnership has an 89% profits interest (after certain
preferred returns on partners' capital accounts) and effective
control of their operations.
- 6 -
The consolidated financial statements include the accounts of the
Partnership and its majority-owned or controlled subsidiaries. The
equity interests in these majority-owned or controlled subsidiaries
not owned by the Partnership are reflected as minority interests in
the consolidated financial statements.
2. LINES OF CREDIT
The Partnership has the following lines of credit available (in thousands):
<TABLE>
<CAPTION>
Outstanding
Borrowing Maturity Interest at September
Description Capacity Date Rate 30, 1999
- ----------------------- ---------- --------- -------- -------------
<S> <C> <C> <C> <C>
Unsecured Line of Credit $450,000 April 2001 LIBOR + .70% $265,000
Unsecured Line of Credit 300,000 April 2001 LIBOR + .90% 0
</TABLE>
Both lines of credit are used to fund development and acquisition of
additional rental properties and to provide working capital.
Effective July 2, 1999, the interest rate on the $450 million line
of credit was adjusted from LIBOR + .80% to LIBOR + .70%. Additionally,
the $450 million line of credit allows the Partnership an option to obtain
borrowings from the financial institutions that participate in the line of
credit at rates lower than the stated interest rate, subject to certain
restrictions. Amounts outstanding on the line of creidt at September 30,
1999 are at LIBOR + .65% to .70%.
The $300 million line of credit was obtained July 2, 1999, following
the Weeks Merger (see Note 7).
3. RELATED PARTY TRANSACTIONS
The Partnership provides management, maintenance, leasing,
construction, and other tenant related services to properties in
which certain executive officers have continuing ownership
interests. The Partnership was paid fees totaling $2.0 million for
such services for both the nine months ended September 30, 1999 and
1998.
Management believes the terms for such services are equivalent to
those available in the market. The Partnership has an option to
purchase the executive officers' interest in each of these
properties which expires October 2003. The option price of each
property was established at the date the option was granted.
4. NET INCOME PER COMMON UNIT
Basic net income per common unit is computed by dividing net income
available for common units by the weighted average number of common
units outstanding for the period. Diluted net income per unit is
computed by dividing net income available for common units by the
sum of the weighted average number of common units and dilutive
potential common units outstanding for the period.
- 7 -
<PAGE>
The following table reconciles the components of basic and diluted
net income per common unit for the three and nine months ended
September 30:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -----------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Basic net income available
for common units $ 48,005 $26,565 $111, 636 $76,833
======= ====== ======== ======
Weighted average number
of common units
outstanding 137,721 92,434 111,086 90,355
Dilutive units for
long-term compensation plans 1,202 845 1,020 897
======= ====== ======= ======
Weighted average number of
common units and dilutive
potential common units 138,923 93,279 112,106 91,252
======= ====== ======= ======
</TABLE>
The Preferred D Series Convertible equity (see Note 6) and
Preferred G Convertible units (see Note 6) were both anti-dilutive
at September 30, 1999; therefore, no conversion to common units is
included in weighted units outstanding.
5. SEGMENT REPORTING
The Partnership is engaged in four operating segments; the
ownership and rental of office, industrial and retail real estate
investments and the providing of various real estate services such
as property management, maintenance, leasing and construction
management to third-party property owners ("Service Operations").
The Partnership's reportable segments offer different products or
services and are managed separately because each requires different
operating strategies and management expertise. There are no
material intersegment sales or transfers.
Non-segment revenue to reconcile to total revenue consists mainly
of equity in earnings of unconsolidated companies. Non-segment
assets to reconcile to total assets consist of corporate assets
including cash, deferred financing costs and investments in
unconsolidated companies.
The Partnership assesses and measures segment operating results
based on an industry performance measure referred to as Funds From
Operations ("FFO"). The National Association of Real Estate
Investment Trusts defines FFO as net income or loss, excluding
gains or losses from debt restructuring and sales of depreciated
operating property, plus operating property depreciation and
amortization and adjustments for minority interest and
unconsolidated companies on the same basis. FFO is not a measure of
operating results or cash flows from operating activities as
measured by generally accepted accounting principles, is not
necessarily indicative of cash available to fund cash needs and
should not be considered an alternative to cash flows as a measure
of liquidity. Interest expense and other non-property specific
revenues and expenses are not allocated to individual segments in
determining the Partnership's performance measure.
The revenues and FFO for each of the reportable segments for the
three and nine months ended September 30, 1999 and 1999 and the
assets for each of the reportable segments as of September 30, 1999
and December 31, 1999 are summarized as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ -----------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues
Rental Operations:
Office Properties $ 77,676 $56,266 $200,328 $155,794
Industrial Properties 73,486 26,170 141,876 74,011
Retail Properties 6,491 5,298 18,569 15,365
Service Operations 15,402 7,284 36,562 19,206
------- ------ ------- -------
Total Segment Revenues 173,055 95,018 397,335 264,376
Non-Segment Revenue 2,620 2,614 8,635 7,933
------- ------ ------- -------
Consolidated Revenue $175,675 $97,632 $405,970 $272,309
======= ====== ======= =======
- 8 -
<PAGE>
Funds From Operations
Rental Operations:
Office Properties $ 51,794 $38,296 $137,199 $109,122
Industrial Properties 56,435 18,663 109,488 57,078
Retail Properties 5,366 4,323 15,295 12,648
Services Operations 3,871 2,816 12,489 5,531
------- ------ ------- -------
Total Segment FFO $117,466 $64,098 $274,471 $184,379
Non-Segment FFO:
Interest expense (25,960) (16,701) (59,080) (43,926)
Interest income 699 518 1,844 1,107
General and administrative
expense (4,626) (2,792) (11,737) (8,235)
Other revenues and
expenses, net 2,459 1,188 (149) (2,672)
Minority interest
in earnings-other (617) (692) (1,497) (946)
Joint venture FFO 4,542 3,749 12,585 10,716
Dividends on preferred
units (14,356) (4,703) (32,452) (14,109)
------- ------ ------- -------
Consolidated FFO 79,607 44,665 183,985 126,314
Depreciation and
amortization (32,738) (17,660) (74,127) (48,445)
Share of joint venture
adjustments (1,270) (1,101) (4,026) (2,651)
Earnings from depreciated
property sales 2,406 661 5,804 1,615
------- ------ ------- -------
Net Income Available
for Common Units $ 48,005 $26,565 $111,636 $ 76,833
======= ====== ======= =======
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- -----------
<S> <C> <C>
Assets
- ------
Rental Operations:
Office Properties $2,395,813 $1,409,162
Industrial Properties 2,103,070 907,656
Retail Properties 190,313 161,675
Service Operations 84,383 55,268
--------- ---------
Total Segment Assets 4,773,579 2,533,761
Non-Segment Assets 562,613 320,301
--------- ---------
Consolidated Assets $5,336,192 $2,854,062
========= =========
</TABLE>
6. PARTNERS' EQUITY
The following series of preferred equity are outstanding as of
September 30, 1999 (in thousands, except percentages):
<TABLE>
<CAPTION>
Units Dividend Redemption Liquidation Conver-
Description Outstanding Rate Date Preference Book Value tible
- ----------- ----------- -------- ---------- ----------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
Preferred A
Series 300 9.100% 08/31/01 $ 75,000 $ 72,288 No
Preferred B
Series 300 7.990% 09/30/07 150,000 146,050 No
Preferred D
Series 540 7.375% 12/31/03 135,000 129,600 Yes
Preferred E
Series 400 8.250% 01/20/04 100,000 96,519 No
Preferred F
Series 600 8.000% 10/10/02 150,000 142,500 No
</TABLE>
All series of preferred equity require cumulative distributions,
have no stated maturity date, and the redemption price of each
series may only be paid from the proceeds of other capital
contributions of the General Partner, which may include other
classes or series of preferred equity.
The Preferred Series D equity is convertible at a conversion rate
of 9.3677 common units for each preferred unit outstanding.
The dividend rate on the Preferred B Series equity increases to
9.99% after September 12, 2012.
- 9 -
<PAGE>
PREFERRED UNITS
On July 2, 1999, in accordance with the terms of the Weeks Merger,
the Partnership converted 1,400,000 Weeks Operating Partnership 8%
Series C cumulative redeemable preferred limited partnership
interests into 1,400,000 8% Series G cumulative redeemable
preferred limited partnership interests (the "Series G Preferred
Units"). The Series G Preferred Units were recorded at a value of
$35,000,000 based upon the estimated fair market value at the date
of the merger announcement. The Series G Preferred Units have a
liquidation preference of $25.00 per preferred unit and are
redeemable by the Partnership on or after November 6, 2003, at a
redemption price of $25.00 per preferred unit. In combination with
the conversion of the Series G Preferred Units, the Partnership
issued a warrant that entitles its holder to purchase either
1,046,729 shares of the 1,400,000 shares of 8% Series I Preferred
Stock at a price of $25.00 per share. The Series G Preferred Units
are authomatically redeemed upon the exercise of the warrant. The
warrant has a perpetual term unless the Series G Preferred units
are redeemed by the Partnership, in which case the warrant expires
within 30 days of redemption.
Alson on July 2, 1999 and in accordance with the terms of the Weeks
Merger, the Partnership converted 2,600,000 Weeks Operating
Partnership 8.625% Series D cumulative redeemable preferred limited
partnership interest into 2,600,000 8.625% Series H cumulative
redeemable preferred limited partnership interest (the "Series H
Preferred Units"). The Series H Preferred Units were recorded at a
value of $67,955,000 based upon the estimated fair market value at
the date of the merger announcment. The Series H Preferred Units
have a liquidation preference of $25.00 per preferred unit and are
redeemable at the option of the Partnership on or after November
12, 2003, at a redemption price of $25.00 per preferred unit.
COMMON UNITS
On July 2, 1999, in accordance with the terms of the Weeks Merger,
the Partnership issued 10,144,424 Partnership common units to Weeks
Operating Partnership limited partnership unitholders at a rate of
1.38 Partnership common units for each Weeks Operating Partnership
limited partnership unit outstanding.
7. MERGER WITH WEEKS CORPORATION
In July 1999, the General Partner and Weeks approved a merger
transaction whereby Weeks, a self-administered, self-managed
geographically focused Real Estate Investment Trust ("REIT") which
operated primarily in the southeastern United States and its
consolidated subsidiary, Weeks Operating Partnership, were merged
with and into the General Partner and its consolidated subsidiary,
Duke Operating Partnership. The combined Operating Partnership has
continued under the name Duke-Weeks Realty Limited Partnership. In
accordance with the terms of the Weeks Merger, each outstanding
Weeks Operating Partnership common unit was converted into the
right to receive 1.38 common units of the Partnership and each
outstanding Weeks Operating Partnership Series A preferred equity
was converted into the right to receive one unit of a new class of
the Partnership Series F preferred equity. The total purchase price
of Weeks and Weeks Operating Partnership aggregated approximately
$1.9 billion, which included the assumption of the outstanding debt
and liabilities of Weeks Operating Partnership of approximately
$775 million.
- 10 -
<PAGE>
The following summarized pro forma unaudited information represents
the combined historical operating results of Weeks Operating
Partnership and Duke Operating Partnership with the appropriate
purchase accounting adjustments, assuming the Weeks Merger had
occurred on January 1, 1998. The pro forma financial information
presented is not necessarily indicative of what the Partnership's
actual operating results would have been had Weeks Operating
Partnership and Duke Operating Partnership constituted a single
entity during such periods (in thousands, except per unit amounts):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ ------------------
1999 1998 1999 1998
---- ---- ---- ----
(Actual) (Pro Forma) (Pro Forma) (Pro Forma)
<S> <C> <C> <C> <C>
Rental Income $157,001 $127,312 $451,932 $354,720
======= ======= ======= =======
Net earnings attributable
to Common Units $ 48,005 $ 35,577 $136,623 $102,677
======= ======= ======= =======
Weighted average Common
Units outstanding:
Basic 137,721 128,012 136,350 126,075
======= ======= ======= =======
Diluted 138,923 130,061 137,540 127,209
======= ======= ======= =======
Earnings attributable
to Common Units:
Basic $ .35 $ .28 $ 1.00 $ .82
====== ====== ======= =======
Diluted $ .35 $ .27 $ .99 $ .81
====== ====== ======= =======
</TABLE>
8. SUBSEQUENT EVENTS
The Board of Directors of the General Partner declared the
following distributions on October 27, 1999:
<TABLE>
<CAPTION>
Quarterly
Class Amount/Unit Record Date Payment Date
- ---------- ------------ ----------- --------------
<S> <C> <C> <C>
Common $ 0.39 November 19, 1999 November 30, 1999
Preferred:
Series A $0.56875 November 16, 1999 November 30, 1999
Series B $0.99875 December 17, 1999 December 31, 1999
Series D $0.46094 December 17, 1999 December 31, 1999
Series E $0.51563 December 17, 1999 December 31, 1999
Series F $0.50000 January 17, 2000 January 31, 2000
</TABLE>
- 11 -
<PAGE>
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
The Partners
DUKE-WEEKS REALTY LIMITED PARTNERSHIP:
We have reviewed the condensed consolidated balance sheet of Duke-
Weeks Realty Limited Partnership and subsidiaries as of September
30, 1999, the related condensed consolidated statements of
operations for the three months and nine months ended September 30,
1999 and 1998, the related condensed consolidated statements of
cash flows for the nine months ended September 30, 1999 and 1998,
and the related condensed consolidated statement of partners'
equity for the nine months ended September 30, 1999. These
condensed consolidated financial statements are the responsibility
of the Partnership's management.
We conducted our review in accordance with standards established by
the American Institute of Certified Public Accountants. A review of
interim financial information consists principally of applying
analytical procedures to financial data and making inquiries of
persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which
is the expression of an opinion regarding the financial statements
taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications
that should be made to the condensed consolidated financial
statements referred to above for them to be in conformity with
generally accepted accounting principles.
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet of Duke-Weeks
Realty Limited Partnership and subsidiaries as of December 31,
1998, and the related consolidated statements of operations and
cash flows for the year then ended (not presented herein); and in
our report dated January 26, 1999 (except as to Note 12, which is
as of March 1, 1999), we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information
set forth in the accompanying condensed consolidated balance sheet
as of December 31, 1998 is fairly presented, in all material
respects, in relation to the consolidated balance sheet from which
it has been derived.
KPMG LLP
Indianapolis, Indiana
October 26, 1999
- 12 -
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
- --------
The Partnership's operating results depend primarily upon income
from the rental operations of its industrial, office and retail
properties located in its primary markets. This income from rental
operations is substantially influenced by the supply and demand for
the Partnership's rental space in its primary markets. In addition,
the Partnership's continued growth is dependent upon its ability to
maintain occupancy rates and increase rental rates of its in-
service portfolio and to continue development and acquisition of
additional rental properties.
The Partnership's primary markets have continued to offer strong
and stable local economies and have provided attractive new
development opportunities because of their established
manufacturing base, skilled work force and moderate labor costs.
Consequently, the Partnership's occupancy rate of its in-service
portfolio has averaged 94.3% the last two years. The Partnership
expects to continue to maintain its overall occupancy 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 markets (see
Merger with Weeks Operating Partnership below).
The following table sets forth information regarding the
Partnership's in-service portfolio of rental properties as of
September 30, 1999 and 1998 (in thousands, except percentages):
<TABLE>
<CAPTION>
Total Percent of
Square Feet Total Square Feet Percent Occupied
-------------- ----------------- ----------------
Type 1999 1998 1999 1998 1999 1998
- ---- ---- ---- ----- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Industrial
Service Centers 11,313 5,601 12.8% 11.3% 93.9% 93.7%
Bulk 56,527 29,009 64.0% 58.6 92.4% 95.1%
Office
Suburban 16,751 11,950 19.0% 24.1 92.7% 96.0%
CBD 861 699 1.0% 1.4 92.2% 97.0%
Retail 2,836 2,249 3.2% 4.6 93.7% 97.0%
------ ------ ------ ------
Total 88,288 49,508 100.0% 100.0% 92.7% 95.3%
====== ====== ====== ======
</TABLE>
Management expects occupancy of the in-service property portfolio
to remain stable because (i) only 4.3% and 9.8% of the
Partnership's occupied square footage is subject to leases
expiring in the remainder of 1999 and in 2000, respectively, and
(ii) the Partnership's renewal percentage averaged 69%, 81% and
80% in 1998, 1997 and 1996, respectively.
- 13 -
<PAGE>
The following table reflects the Partnership's in-service portfolio
lease expiration schedule as of September 30, 1999 by product type
indicating square footage and annualized net effective rents under
expiring leases (in thousands, except per square foot amounts):
<TABLE>
<CAPTION>
Total
Portfolio Industrial Office Retail
----------------------- ------------------ --------------- ------------
Yr of Sq. Rent Sq. Rent Sq. Rent Sq. Rent
Exp Ft. $ % Ft. $ Ft. $ Ft. $
- ----- ---- -------- ---- ------ -------- ------ -------- ---- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1999 3,499 $ 22,043 4% 2,947 $ 15,510 538 $ 6,367 14 $ 166
2000 8,056 47,778 9% 6,283 26,933 1,600 19,236 173 1,609
2001 9,265 56,896 11% 7,220 31,712 1,942 23,956 103 1,228
2002 10,605 69,527 13% 8,151 39,697 2,318 28,166 136 1,664
2003 9,314 64,880 12% 7,180 36,099 1,959 25,805 175 2,976
2004 9,028 65,467 12% 6,784 34,658 2,112 29,557 132 1,252
2005 6,009 37,242 7% 4,536 18,280 1,223 16,794 250 2,168
2006 4,745 30,825 6% 3,798 17,061 936 13,614 11 150
2007 4,572 25,338 5% 3,882 16,074 626 8,680 64 584
2008 5,379 34,303 6% 4,368 19,440 965 14,249 46 614
2009
and
There-
after 11,365 80,417 15% 7,705 35,807 2,107 30,173 1,553 14,437
------ ------- ---- ------ ------ ----- ------- ------ ------
Total
Leased 81,837 $534,716 100% 62,854 $291,271 16,326 $216,597 2,657 $26,848
====== ======= ==== ====== ======= ====== ======= ===== ======
Total
Port-
folio
Square
Feet 88,288 67,840 17,612 2,836
====== ====== ====== =====
Annualized
net effective
rent per
square foot $ 6.53 $ 4.63 $ 13.27 $ 10.10
======= ======= ======= ======
</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 markets
(see Merger with Weeks Corporation below); and (iii) the completion
of the 12.5 million square feet of properties under development at
September 30, 1999 over the next three quarters and thereafter. The
12.5 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 Anticipated
In-Service Square Percent Project Stabilized
Date Feet Leased Costs Return
- -------------- ------- ------ ------- -----------
<S> <C> <C> <C> <C>
4th Quarter 1999 5,379 56% $294,528 11.4%
1st Quarter 2000 3,048 35% 222,649 10.9%
2nd Quarter 2000 2,256 52% 140,531 11.2%
Thereafter 1,796 55% 149,537 11.7%
------ -------
12,479 50% $807,245 11.3%
====== =======
</TABLE>
MERGER WITH WEEKS OPERATING PARTNERSHIP
In July 1999, the General Partner and Weeks approved a merger
transaction ("Weeks Merger") whereby Weeks, a self-administered,
self-managed geographically focused Real Estate Investment Trust
("REIT") which operated primarily in the southeastern United
States, and its consolidated subsidiary, Weeks Operating
Partnership, were merged with and into the General Partner and its
consolidated subsidiary, Duke Operating Partnership. The combined
Operating Partnership has continued its existence under the name
Duke-Weeks Realty Limited Partnership. In accordance with the terms
of the Weeks Merger, each outstanding Weeks Operating Partnership
common unit was converted into the right to receive 1.38 common
units of the Partnership and each outstanding Weeks
- 14 -
<PAGE>
Operating Partnership Series A preferred equity was converted into
the right to receive one unit of a new class of the Partnership
Series F preferred equity. The total purchase price of Weeks and
Weeks Operating Partnership aggregated approximately $1.9 billion,
which included the assumption of the outstanding debt and
liabilities of Weeks Operating Partnership of approximately $775
million.
The following summarized pro forma unaudited information represents
the combined historical operating results of Weeks Operating
Partnership and Duke Operating Partnership with the appropriate
purchase accounting adjustments, assuming the Weeks Merger had
occurred on January 1, 1998. The pro forma financial information
presented is not necessarily indicative of what the Partnership's
actual operating results would have been had Weeks Operating
Partnership and Duke Operating Partnership constituted a single
entity during such periods (in thousands, except per unit amounts):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -----------------
1999 1998 1999 1998
---- ---- ---- ----
(Actual) (Pro Forma) (Pro Forma) (Pro Forma)
<S> <C> <C> <C> <C>
Rental Income $157,001 $127,312 $451,932 $354,720
======= ======= ======= =======
Net earnings attributable
to Common Units $ 48,005 $ 35,577 $136,623 $102,677
======= ======= ======= =======
Weighted average Common
Units outstanding:
Basic 137,721 128,012 136,350 126,075
======= ======= ======= =======
Diluted 138,923 130,061 137,540 127,209
======= ======= ======= =======
Earnings attributable to
Common Units:
Basic $ .35 $ .28 $ 1.00 $ .82
======= ======= ======= =======
Diluted $ .35 $ .27 $ .99 $ .81
======= ======= ======= =======
</TABLE>
RESULTS OF OPERATIONS
Following is a summary of the Partnership's operating results and
property statistics for the three and nine months ended September
30, 1999 and 1998 (in thousands, except number of properties and
per unit amounts):
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------ ------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Rental Operations revenue $160,273 $ 90,348 $369,408 $253,103
Service Operations revenue 15,402 7,284 36,562 19,206
Earnings from Rental
Operations 60,072 30,888 136,080 92,062
Earnings from Service
Operations 3,871 2,815 12,489 5,530
Operating income 59,317 30,911 136,832 89,357
Net income available for
common shares $ 41,462 $23,449 $ 98,452 $ 67,569
Weighted average common
shares outstanding 118,820 81,594 97,966 79,461
Weighted average common
and dilutive potential
common shares 138,923 93,279 112,106 91,252
Basic income per common share $ .35 $ .29 $ 1.00 $ .85
Diluted income per
common share $ .35 $ .29 $ 1.00 $ .84
Number of in-service
properties at end of period 841 428 841 428
In-service square footage at
end of period 88,288 49,508 88,288 49,508
Under development square
footage at end of period 12,479 5,088 12,479 5,088
</TABLE>
- 15 -
<PAGE>
COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 1999 TO THREE MONTHS
ENDED SEPTEMBER 30, 1998
- -------------------------------------------------------------------
Rental Operations
- -----------------
The Partnership increased its in-service portfolio of rental
properties from 428 properties comprising 49.5 million square feet
at September 30, 1998 to 841 properties comprising 88.3 million
square feet at September 30, 1999 through the acquisition of 374
properties totaling 32.2 million square feet and the completion of
49 properties and six building expansions totaling 7.5 million
square feet developed by the Partnership. Of these additional
properties, 335 properties totaling 28.6 million square feet relate
to the merger with Weeks Corporation. The Partnership also
disposed of ten properties totaling 868,000 square feet. These 413
net additional rental properties primarily account for the $69.9
million increase in revenues from Rental Operations from 1998 to
1999. The increase from 1998 to 1999 in rental expenses, real
estate taxes and depreciation and amortization expense is also a
result of the additional 413 in-service rental properties.
Interest expense increased by approximately $9.3 million from $16.7
million for the three months ended September 30, 1998 to $26.0
million for the three months ended September 30, 1999 primarily as
a result of $300.0 million of unsecured debt issued in the first
two quarters of 1999 to fund development and acquisition activity,
and $240 million of secured debt and $287 million of unsecured debt
assumed July 2, 1999 in the merger with Weeks (see Merger with
Weeks Corporation below).
As a result of the above-mentioned items, earnings from rental
operations increased $29.2 million from $30.9 million for the three
months ended September 30, 1998 to $60.1 million for the three
months ended September 30, 1999.
Service Operations
- ------------------
Service Operation revenues increased by $8.1 million from $7.3
million for the three months ended September 30, 1998 to $15.4
million for the three months ended September 30, 1999 primarily as
a result of increases in construction management fee revenue due to
an increase in third-party construction volume.
As a result of the above-mentioned items, earnings from Service
Operations increased from $2.8 million for the three months ended
September 30, 1998 to $3.9 million for the three months ended
September 30, 1999.
Net Income Available for Common Unitholders
- -------------------------------------------
Net income available for common unitholders for the three months
ended September 30, 1999 was $48.0 million compared to net income
available for common unitholders of $26.6 million for the three
months ended September 30, 1998. This increase results primarily
from the operating result fluctuations in rental and service
operations explained above.
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1999 TO NINE MONTHS
ENDED SEPTEMBER 30, 1998
- ------------------------------------------------------------------
Rental Operations
- -----------------
The Partnership increased its in-service portfolio of rental
properties from 428 properties comprising 49.5 million square feet
at September 30, 1998 to 841 properties comprising 88.3 million
square feet
- 16 -
<PAGE>
at September 30, 1999 through the acquisition of 374
properties totaling 32.2 million square feet and
the completion of 49 properties and six building expansions
totaling 7.5 million square feet developed by the Partnership. Of
these additional properties, 335 properties totaling 28.6 million
square feet relate to the merger with Weeks Corporation. The
Partnership also disposed of ten properties totaling 868,000
square feet. These 413 net additional rental properties primarily
account for the $116.3 million increase in revenues from Rental
Operations from 1998 to 1999. The increase from 1998 to 1999 in
rental expenses, real estate taxes and depreciation and
amortization expense is also a result of the additional 413 in-
service rental properties.
Interest expense increased by approximately $15.2 million from
$43.9 million for the nine months ended September 30, 1998 to
$59.1 million for the nine months ended September 30, 1999
primarily as a result of $300.0 million of unsecured debt issued
in the first two quarters of 1999 to fund development and
acquisition activity, and $240 million of secured debt and $287
million of unsecured debt assumed July 2, 1999 in the merger with
Weeks (see Merger with Weeks Corporation below).
As a result of the above-mentioned items, earnings from rental
operations increased $44.0 million from $92.1 million for the nine
months ended September 30, 1998 to $136.1 million for the nine
months ended September 30, 1999.
Service Operations
- ------------------
Service Operation revenues increased by $17.4 million from $19.2
million for the nine months ended September 30, 1998 to $36.6
million for the nine months ended September 30, 1999 primarily as a
result of increases in construction management fee revenue due to
an increase in third-party construction volume, particularly a
265,000 square foot suburban office build-to-suit building which
resulted in substantial revenue during the period.
Service Operations operating expenses increased from $13.7 million
to $24.1 million for the nine months ended September 30, 1999 as
compared to the nine months ended September 30, 1998 primarily as
a result of an increase in construction activity and an increase in
income taxes resulting from the growth in net income related to
third party construction.
As a result of the above-mentioned items, earnings from Service
Operations increased from $5.5 million for the nine months ended
September 30, 1998 to $12.5 million for the nine months ended
September 30, 1999.
General and Administrative Expense
- ----------------------------------
General and administrative expense increased from $8.2 million for
the nine months ended September 30, 1998 to $11.7 million for the
nine months ended September 30, 1999 primarily as a result of
internal acquisition costs which are no longer permitted to be
capitalized being charged to general and administrative expense as
well as an increase in state and local taxes due to the overall
growth of the Partnership.
Net Income Available for Common Unitholders
- -------------------------------------------
Net income available for common unitholders for the nine months
ended September 30, 1999 was $111.6 million compared to net income
available for common unitholders of $76.8 million for the nine
- 17 -
<PAGE>
months ended September 30, 1998. 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 $258.8 million
and $148.2 million for the nine months ended September 30, 1999
and 1998, respectively, represents the primary source of liquidity
to fund distributions to preferred unitholders and the other
minority interests and to fund recurring costs associated with the
renovation and re-letting of the Partnership's properties.
Net cash used by investing activities totaling $571.5 million and
$470.4 million for the nine months ended September 30, 1999 and
1998, 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.
Net cash provided by financing activities totaling $350.9 million
and $333.4 million for the nine months ended September 30, 1999 and
1998, respectively, is comprised of debt and equity issuances, net
of distributions to unitholders and repayments of outstanding
indebtedness. In the first nine months of 1999, the Partnership
received $203.5 million of net proceeds from the issuance of common
shares by the General Partner and $96.5 million of net proceeds
from a preferred stock offering by the General Partner. The
Partnership also issued $300.0 million of unsecured debt. The
Partnership used the net proceeds to reduce amounts outstanding
under the Partnership's lines of credit and to fund the development
and acquisition of additional rental properties.
In the first nine months of 1998, the Partnership received $136.7
million of net proceeds from the issuance of common shares by the
General Partner and issued $250.0 million of unsecured debt. The
Partnership used the net proceeds to reduce amounts outstanding
under the Partnership's lines of credit and to fund the development
and acquisition of additional rental properties.
The Partnership has the following lines of credit available (in thousands):
<TABLE>
<CAPTION>
Outstanding
Borrowing Maturity Interest at September
Description Capacity Date Rate 30, 1999
- ------------------------ ---------- ---------- --------- -------------
<S> <C> <C> <C> <C>
Unsecured Line of Credit $450,000 April 2001 LIBOR + .70% $265,000
Unsecured Line of Credit 300,000 April 2001 LIBOR + .90% 0
</TABLE>
Both lines of credit are used to fund development and acquisition of
additional rental properties and to provide working capital.
Effective July 2, 1999, the interest rate on the $450 million line
of credit was adjusted from LIBOR + .80% to LIBOR + .70%. Additionally,
the $450 million line of credit allows the Partnership an option
to obtain borrowings from the financial institutions that participate
in the line of credit at rates lower than the stated interest rate,
subject to certain restrictions. Amounts outstanding on the line of
credit at September 30, 1999 are at LIBOR + .65% to .70%.
The $300 million line of credit was obtained July 2, 1999, following
with the Merger with Weeks Corporation.
- 18 -
<PAGE>
The Partnership and the General Partner currently have on file
three Form S-3 Registration Statements with the Securities and
Exchange Commission ("Shelf Registrations") which had remaining
availability as of September 30, 1999 of approximately $417.9
million to issue common stock, preferred stock or unsecured debt securities.
The Partnership and the General Partner 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 Partnership and General Partner also plan to file
additional shelf registrations as necessary.
The total debt outstanding at September 30, 1999 consists of notes
totaling $2.0 billion with a weighted average interest rate of
7.16% maturing at various dates through 2028. The Partnership has
$1.4 billion of unsecured debt and $523.0 million of secured debt
outstanding at September 30, 1999. Scheduled principal
amortization of such debt totaled $7.6 million for the nine months
ended September 30, 1999.
Following is a summary of the scheduled future amortization and
maturities of the Partnership's indebtedness at September 30, 1999
(in thousands):
<TABLE>
<CAPTION>
Future Repayments
------------------------------------------ Weighted Average
Scheduled Interest Rate of
Year Amortization Maturities Total Future Repayments
----- ------------ ---------- ------------- -----------------
<S> <C> <C> <C> <C>
1999 $ 4,018 $ 27,935 $ 31,953 6.25%
2000 15,363 66,561 81,924 7.09%
2001 13,684 442,120 455,804 6.71%
2002 13,542 55,037 68,579 7.42%
2003 12,651 243,194 255,845 7.62%
2004 12,282 176,151 188,433 7.41%
2005 11,256 313,662 324,918 7.16%
2006 10,575 146,156 156,731 7.40%
2007 8,910 16,555 25,465 7.44%
2008 8,068 100,000 108,068 6.80%
Thereafter 36,121 231,016 267,137 7.16%
------- --------- ---------
Total $146,470 $1,818,387 $1,964,857 7.16%
======= ========= =========
</TABLE>
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 depreciated property, plus operating
property depreciation and amortization and adjustments for minority
interest and unconsolidated companies on the same basis, is the
industry standard for reporting the operations of real estate
investment trusts.
The following table reflects the calculation of the Partnership's
FFO for the three and nine months ended September 30 as follows (in
thousands):
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------- -----------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income available for
common units $ 48,005 $ 26,565 $111,636 $ 76,833
Add back:
Depreciation and amortization 32,738 17,660 74,127 48,445
Share of joint venture adjustments 1,270 1,101 4,026 2,651
Earnings from depreciated
property sales (2,406) (661) (5,804) (1,615)
------- ------- ------- -------
FUNDS FROM OPERATIONS $ 79,607 $ 44,655 $183,985 $126,314
======= ======= ======= =======
CASH FLOW PROVIDED BY (USED BY):
Operating activities $176,189 $ 47,928 $258,759 $148,162
Investing activities (248,488) (118,517) (571,464) (470,418)
Financing activities (50,985) 70,169 350,891 333,372
</TABLE>
- 19 -
<PAGE>
The increase in FFO for the three and nine months ended September
30, 1999 compared to the three and nine months ended September 30,
1998 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.
YEAR 2000
The Year 2000 problem refers to the inability of certain computer
programs to recognize the year 2000 and other key dates thus
resulting in a variety of possible problems including data
corruption and total system failures. Commonly thought of as a
mainframe computer problem, the Year 2000 problem can also affect
software and embedded microchips which run systems that control
building functions, such as elevators, security (including access),
heating, ventilation and air conditioning and fire protection. The
terms "Year 2000 ready" and "Year 2000 readiness" are often used to
describe a computer system that will continue to operate properly
prior to, during and after January 1, 2000 (taking into account
that the Year 2000 is a leap year) and is thus not affected by the
Year 2000 problem. Duke-Weeks Realty Corporation (the
"Partnership") is committed to ensuring the highest level of tenant
satisfaction reasonably possible and clearly recognizes the
importance to our tenants, as well as our unitholders, of having in
place a Year 2000 readiness plan.
In February, 1998, the Partnership formed a Year 2000 Task Force to
address the Year 2000 problem on a company-wide basis, including
properties and information systems. The Task Force is comprised of
representatives from senior management in the areas of Property and
Asset Management, Construction, Information Systems and Legal. The
Board of Directors and Audit Committee of the Partnership are
advised quarterly of the status of the activities undertaken by the
Task Force.
The Partnership adopted a Year 2000 readiness plan for its
buildings in April 1998 following the basic framework recommended
by the Building Owners and Managers Association. This Year 2000
readiness plan consists of eight (8) steps focusing on the
identification, prioritization and remediation of potential Year
2000 problems arising from software and embedded chips located
within the building systems at the Partnership's properties.
The Partnership recognizes that the Year 2000 problem could affect
it operations as well as the proper functioning of the embedded
systems included in the Partnership's properties. In particular
property, the problem could affect the functioning of elevators,
heating and air conditioning systems, security systems and other
automated building systems. Management has identified and
inventoried the building systems and equipment at the Partnership's
existing properties to determine which systems could be affected by
the Year 2000 problem. The inventory has been entered into a data
base containing a readiness status of each such system. This data
base allows Management to quickly monitor ongoing progress related
to the Year 2000 readiness of all affected building systems. Under
the direction of the Year 2000 Task Force, the property manager of
each building has contacted in writing each building system
manufacturer or supplier that has supplied an active and affected
building system. Each manufacturer or supplier was sent a
comprehensive questionnaire designed to
- 20 -
<PAGE>
assess the manufacturer's effort in assuring that the affected building
systems are or, in sufficient time prior to January 1, 2000, will be
Year 2000 ready. Based on the responses received from the manufacturers
and suppliers of the building systems, Management developed a work plan
detailing the tasks and resources required to ready the operations
and systems of the Partnership's properties for the Year 2000. In
many cases the Partnership will be relying on these statements from
outside vendors as to the Year 2000 readiness of their systems, and
will not, in most circumstances, attempt any independent
verification. The work plan includes prioritization and appropriate
timetables for the necessary remediation and testing of affected
building systems, as well as the preparation of contingency plans
if Year 2000 readiness can not be achieved.
The contingency planning process is complete. The Partnership's
contingency plans generally provide for obtaining or allowing
alternative access, limited electrical and telephone service and,
security and other basic services. The Partnership's contingency
plans focus on those operational systems and utilities which, if
interrupted, could cause the greatest disruption to the
Partnership's properties and business operations. The contingency
plans establish in detail the actions to be followed in the event
of a system or utility failure. The contingency plans also identify
key contacts for purposes of remediating system and utility
failures and other requirements such as staffing, equipment, office
supplies and quality assurance issues.
The Partnership has made Year 2000 readiness an important aspect of
its building acquisition due diligence and inspection process. The
Partnership endeavors to obtain Year 2000 representations from
sellers and conducts inspections of critical systems. Newly
acquired facilities are promptly subjected to the Partnership's
eight-step plan and results are added to the database.
Based upon a cost assessment prepared by the Task Force, the
Partnership has budgeted approximately $250,000 of non-reimbursable
expenses for the upgrade and replacement of certain building
systems having potential Year 2000 related problems.
In addition to assessing the readiness of the building systems of
the Partnership's properties, the Partnership continues to actively
contact and monitor the compliance efforts of utility companies and
telecommunication providers which provide services to the
Partnership's properties. The Partnership has contacted the various
municipalities where the Partnership's properties are located to
assess the readiness of these municipalities where the Partnership's
properties are located to provide fire, police and other necessary
services upon the Year 2000. The readiness of these providers and
municipalities has been taken into consideration in preparing
contingency plans for the Partnership and its properties.
The Partnership does not anticipate that the other services
provided for the benefit of our tenants such as janitorial, tenant
finish, monthly itemized billing, and other tenant services will be
affected by the Year 2000 problem. The Partnership is proactively
contacting those types of suppliers, vendors and service providers
to make sure that there is no interruption or discontinuance of any
services or products provided for the benefit of our tenants at the
Year 2000. Any negative responses to such inquiries have been and
continues to be added to the contingency plans.
The Partnership retained a third-party consultant to identify and
assess the Year 2000 readiness of the Partnership's information
systems. Such systems include, but are not limited to, accounting
and property management, network operations, desktop and software
applications, internally developed software and other general
information systems and software utilized for payroll, human
resources,
- 21 -
<PAGE>
budgeting and tenant services. The initial phase of identification
and assessment of the Partnership's information systems was completed
April 1, 1999 at a cost of $75,000. A budget and timetable for replacement,
upgrade of or contingencies for the foregoing systems, that are not Year
2000 ready has been developed and is being implemented. The estimated cost
associated with such replacement and upgrade is budgeted to be $340,000.
There can be no assurance that the Partnership will be able to
identify and correct all aspects of the Year 2000 problem that
affect it in sufficient time, that its contingency plans or that
the costs of achieving Year 2000 readiness will not be material.
However, based on the information prepared by the Partnership or
received to date, Management does not currently expect that the
Year 2000 problem will have a material impact on the Partnership's
business, operations or financial condition. This expectation is
based on Management's analysis related to the Year 2000 readiness
of the building systems of the Partnership's properties, our
vendors, suppliers, service providers and tenants, and the
Partnership's information systems.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
- --------------------------
None
Item 2. Changes in Securities
- ------------------------------
None
Item 3. Defaults upon Senior Securities
- ----------------------------------------
None
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
None.
Item 5. Other Information
- --------------------------
When used in this Form 10-Q, the words "believes," "expects,"
"estimates" and similar expressions are intended to identify
forward looking-statements. Such statements are subject to certain
risks and uncertainties which could cause actual results to differ
materially. In particular, among the factors that could cause
actual results to differ materially are continued qualification as
a real estate investment trust, general business and economic
conditions, competition, increases in real estate construction
costs, interest rates, accessibility of debt and equity capital
markets and other risks inherent in the real estate business
including tenant defaults, potential liability relating to
environmental matters and illiquidity of real estate investments.
Readers are cautioned not to place undue reliance on these forward-
looking statements, which speak only as of the date hereof. The
Partnership undertakes no obligation to publicly release the
results of any revisions to these forward-looking statements which
may be made to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events.
Readers are also advised to refer to the Partnership's Form 8-K
Report as filed with the U.S. Securities and Exchange Commission on
March 29, 1996 for additional information concerning these risks.
- 22 -
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
Exhibits
The Following exhibits are filed or incorporated by reference as
a part of this report:
Exhibit 15. Letter regarding unaudited interim financial information
Exhibit 27. Financial Data Schedule (EDGAR Filing Only)
Reports on Form 8-K
The Partnership filed an 8-K on July 16, 1999, to file exhibits in
connection with the merger with Weeks Operating Partnership.
The Partnership filed an 8-K on August 31, 1999, to file
exhibits, including financial statements, in connection with
the merger with Weeks Operating Partnership.
- 23 -
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
DUKE-WEEKS REALTY LIMITED PARTNERSHIP
By: Duke Realty Investments, Inc.,
General Partner
Registrant
Date: November 12, 1999 /s/ Thomas L. Hefner
------------------ --------------------------
President and
Chief Executive Officer
/s/ Darell E. Zink, Jr.
--------------------------
Executive Vice President and
Chief Financial Officer
/s/ Dennis D. Oklak
--------------------------
Executive Vice President and
Chief Administrative Officer
- 24 -
Exhibit 15
The Partners
DUKE-WEEKS REALTY LIMITED PARTNERSHIP:
RE: Registration Statement No. 333-04695, 333-26845 and 333-49911
With respect to the subject registration statement, we
acknowledge our awareness of the use therein of our report
dated October 26, 1999 related to our review of interim
financial information.
Pursuant to Rule 436(c) under the Securities Act of 1933,
such report is not considered a part of a registration
statement prepared or certified by an accountant, or a report
prepared or certified by an accountant within the meaning of
sections 7 and 11 of the Act.
KPMG LLP
Indianapolis, Indiana
November 11, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMTION EXTRACTED FROM
DUKE-WEEKS REALTY LIMITED PARTNERSHIP AND SUBSIDIARIES' CONDENSED
FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 44,812
<SECURITIES> 0
<RECEIVABLES> 81,101
<ALLOWANCES> (3,202)
<INVENTORY> 0
<CURRENT-ASSETS> 172,895
<PP&E> 5,053,372
<DEPRECIATION> (234,071)
<TOTAL-ASSETS> 5,336,192
<CURRENT-LIABILITIES> 272,825
<BONDS> 1,964,857
0
0
<COMMON> 0
<OTHER-SE> 3,097,902
<TOTAL-LIABILITY-AND-EQUITY> 5,336,192
<SALES> 0
<TOTAL-REVENUES> 415,194
<CGS> 0
<TOTAL-COSTS> (210,529)
<OTHER-EXPENSES> (33,949)
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<INCOME-PRETAX> 111,636
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