<PAGE>
Filed Pursuant to Rule 424(b)(2) Registration No. 33-54997
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED AUGUST 29, 1994)
3,500,000 SHARES
[LOGO]
DUKE REALTY INVESTMENTS, INC.
COMMON STOCK
---------------------
Duke Realty Investments, Inc. (the "Company") is a self-administered and
self-managed real estate investment trust that began operations through a
predecessor in 1972. The Company owns a diversified portfolio of 120 income-
producing industrial, office and retail properties, encompassing approximately
11.9 million square feet and located in eight states, and 10 buildings
encompassing approximately 1.5 million square feet currently under development.
The Company also owns approximately 1,000 acres of land for future development.
The Company has the largest commercial real estate operations in Indianapolis
and Cincinnati and is one of the largest real estate companies in the Midwest.
The Company expects to continue to pay regular quarterly dividends to its
shareholders.
All of the shares of Common Stock offered hereby are being sold by the
Company. The Common Stock is listed on the New York Stock Exchange under the
symbol DRE. The last reported sale price for the Common Stock on September 21,
1994 was $25 1/4 per share.
---------------------
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>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT (1) COMPANY (2)
<S> <C> <C> <C>
Per Share.................................. $25.25 $1.39 $23.86
Total (3).................................. $88,375,000 $4,865,000 $83,510,000
<FN>
(1) The Company has agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act of
1933, as amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $425,000.
(3) The Company has granted the several Underwriters an option to purchase up
to an additional 525,000 shares of Common Stock to cover over-allotments.
If all such shares are purchased, the total Price to Public, Underwriting
Discount and Proceeds to Company will be $101,631,250, $5,594,750 and
$96,036,500, respectively. See "Underwriting."
</TABLE>
---------------------
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR
ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION
TO THE CONTRARY IS UNLAWFUL.
-------------------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if delivered to and accepted by them, subject to
approval of certain legal matters by counsel for the Underwriters. The
Underwriters reserve the right to withdraw, cancel or modify such offer and to
reject orders in whole or in part. It is expected that delivery of the shares of
Common Stock offered hereby will be made in New York, New York on or about
September 28, 1994.
---------------------
MERRILL LYNCH & CO.
ALEX. BROWN & SONS
INCORPORATED
DEAN WITTER REYNOLDS INC.
A.G. EDWARDS & SONS, INC.
LEGG MASON WOOD WALKER
INCORPORATED
---------------------
The date of this Prospectus Supplement is September 21, 1994.
<PAGE>
[ MAP ]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON SHARES
AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
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<PAGE>
PROSPECTUS SUPPLEMENT SUMMARY
THE FOLLOWING SUMMARY 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 INCORPORATED HEREIN AND
THEREIN BY REFERENCE. UNLESS INDICATED OTHERWISE, (I) THE INFORMATION CONTAINED
IN THIS PROSPECTUS SUPPLEMENT ASSUMES NO EXERCISE OF THE UNDERWRITERS'
OVER-ALLOTMENT OPTIONS AND (II) INFORMATION IS PRESENTED AS OF JUNE 30, 1994.
ALL REFERENCES TO THE "COMPANY" IN THIS PROSPECTUS SUPPLEMENT AND THE
ACCOMPANYING PROSPECTUS INCLUDE THE COMPANY, THOSE ENTITIES OWNED OR CONTROLLED
BY THE COMPANY AND PREDECESSORS OF THE COMPANY, UNLESS THE CONTEXT INDICATES
OTHERWISE.
THE COMPANY
The Company is a self-administered and self-managed real estate investment
trust (a "REIT") that began operations through a predecessor in 1972. The
Company owns a diversified portfolio of 120 income-producing industrial, office
and retail properties (the "Properties"), encompassing approximately 11.9
million square feet and located in eight states, and 10 buildings encompassing
approximately 1.5 million square feet currently under development. The Company
also owns approximately 1,000 acres of unencumbered land (the "Land") for future
development, of which approximately 80% is zoned for industrial use and which is
typically located adjacent to the Properties. The Company provides leasing,
management, construction, development and other tenant-related services for the
Properties and certain properties owned by third parties. The Company has the
largest commercial real estate operations in Indianapolis and Cincinnati and is
one of the largest real estate companies in the Midwest. The Company 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 Company has developed over 33 million square feet of commercial property
since its founding. The Company is one of the most active developers of
industrial properties in the United States, based on square footage under
construction. During the last five years, the Company developed an average of
approximately 2.0 million square feet per year. From the completion of its
reorganization and Common Stock offering in October of 1993 through June 30,
1994, the Company completed development of 701,000 square feet and acquired
894,000 square feet of commercial properties which are 82% leased. Also, the
Company has under development approximately 1.5 million square feet of
commercial space that is 85% pre-leased and is expected to be completed by June,
1995.
The Company manages approximately 24 million square feet of property,
including 12 million square feet owned by third parties. The Company manages
approximately 30% of all suburban office, warehousing and light manufacturing
space in Indianapolis, and approximately 18% of all office, warehousing and
light manufacturing space in Cincinnati. In addition to providing services to
approximately 1,000 tenants in the Properties, the Company provides such
services to over 1,200 tenants in approximately 150 properties owned by others.
Based on published industry reports, the Company believes that it was
responsible in 1993 for approximately 35% of the net absorption (gross space
leased minus lease terminations and expirations) of warehousing and light
manufacturing space in Indianapolis and approximately 36% of the net absorption
of warehousing and light manufacturing space in Cincinnati. The Company believes
its dominant position in its markets gives it a competitive advantage in its
real estate activities.
After completion of this offering (the "Offering"), the seven senior
officers of the Company, who collectively have over 120 years of experience in
the real estate industry and have been with the Company for an average of 17
years, will beneficially own Common Stock and partnership interests ("Units")
exchangeable for Common Stock that represent approximately 17% of the Company's
Common Stock on a fully diluted basis.
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The following table provides an overview of the Properties.
SUMMARY OF PROPERTIES
<TABLE>
<CAPTION>
PERCENT
OF TOTAL
PERCENT ANNUAL NET EFFECTIVE OCCUPANCY
OF TOTAL NET EFFECTIVE ANNUAL AT
TYPE OF PROPERTY SQUARE FEET SQUARE FEET RENT (1) RENT JUNE 30, 1994
- ------------------------------------------ ------------ --------------- ------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Industrial................................ 6,997,968 59% $ 27,243,000 36% 96.10%
Office.................................... 3,819,029 32% 39,540,000 52% 92.94%
Retail.................................... 1,062,879 9% 9,045,000 12% 91.22%
------------ --- ------------- --- -----
Total..................................... 11,879,876 100% $ 75,828,000 100% 94.65%
------------ --- ------------- --- -----
------------ --- ------------- --- -----
<FN>
- ------------------------
(1) Represents annual net effective rent due from tenants in occupancy as of
June 30, 1994. Annual 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.
</TABLE>
RECENT DEVELOPMENTS
REORGANIZATION AND 1993 OFFERING. In October, 1993, the Company acquired
substantially all of the properties and businesses of Duke Associates, a related
full-service commercial real estate firm operating primarily in the Midwest (the
"Reorganization"). As part of the Reorganization, the Company effected a 1 for
4.2 Reverse Stock Split relating to its existing shares and issued an additional
14,000,833 shares of Common Stock through an offering (the "1993 Offering"),
raising gross proceeds of $332.5 million. In July, 1994, the Company increased
its quarterly dividend from $.45 to $.47 per share.
DEVELOPMENT AND ACQUISITION ACTIVITY. From the completion of the
Reorganization and the 1993 Offering through June 30, 1994, the Company
completed the development of and placed in service four properties with 701,000
square feet having a total cost of $12.2 million and acquired four properties
with 894,000 square feet and the remaining 55% joint venture interest in a
previously developed property at a total cost of $40.6 million. In addition, the
Company has initiated the development of 10 buildings encompassing 1,479,000
square feet having a total cost of $69.7 million, which are expected to be
completed and placed in service by June, 1995. These property additions (the
"New Properties"), totalling 3,074,000 square feet, consist of 71% industrial,
7% office, 15% retail, and 7% medical office projects. The total cost (including
allocation of land) of the New Properties is approximately $122.5 million. The
New Properties have an average occupancy rate as of August 25, 1994 of 83% and
provide an initial 10.8% weighted average annual unleveraged return on cost
assuming no further lease-up. However, the Company expects the stabilized
weighted average annual unleveraged return on cost (computed as property annual
contractual net operating income ("NOI") divided by total project costs) to be
in excess of 12% with anticipated leasing activity. The annual contractual NOI
expected to be generated from the New Properties, once placed in service, is
anticipated to be $13.0 million and increase to $15 million with anticipated
leasing activity. Those New Properties expected to be placed in service by
October, 1994, are anticipated to generate annualized contractual NOI of $7
million. By June, 1995, when all of the New Properties are expected to be in
service, the New Properties are anticipated to produce an additional $8 million
of annualized contractual NOI.
The total cost of the New Properties of $122.5 million includes currently
owned land basis of $8.2 million. The $8.2 million land investment represents
non-cash allocations of the portion of unencumbered Land inventory obtained
through the 1993 Reorganization and since used for new development. The
anticipated weighted average unleveraged annual return on cost for the New
Properties net of the Land basis is 13% compared to the 12% previously
discussed. The total net cost of the New Properties will be approximately
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<PAGE>
$114.3 million. These costs will be funded on a permanent basis by the net
proceeds of this Offering which are expected to be approximately $83.1 million
with the remainder of the costs to be funded by debt financings having a
weighted average interest rate of 8.38% and a term of 6.6 years. The cost of the
New Properties incurred to date has been financed with interim financing
including the Company's $60 million revolving line of credit. Following the
Offering, the revolving line of credit facility will be fully available for
additional development and acquisition activities which the Company is currently
pursuing. The Company is currently negotiating to substantially increase the
amount of its revolving line of credit.
The following table sets forth information regarding the New Properties. All
of the New Properties are wholly-owned by the Company except for Xetron.
RECENT ACTIVITY
<TABLE>
<CAPTION>
COMPLETION OR PERCENT INITIAL
ANTICIPATED PROPERTY SQUARE LEASED OR LEASE
COMPLETION PROJECT/CLIENT LOCATION TYPE FEET PRE-LEASED(10) TERM
- ----------------------- ------------------- ---------------- ---------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
COMPLETED DEVELOPMENT:
1st Qtr. 94 Xetron(1) Cincinnati, OH Industrial 100,193 100% 10 years
2nd Qtr. 94 Daydream Publishing Indianapolis, IN Industrial 98,000 100% 10 years
1st Qtr. 94 Caterpillar Indianapolis, IN Industrial 336,000 100% 6 years
2nd Qtr. 94 Redken Hebron, KY Industrial 166,400 100% 5 years
---------
700,593
---------
COMPLETED ACQUISITIONS:
2nd Qtr. 94 Xerox(2) Columbus, OH Office (2) 100% Varies
2nd Qtr. 94 C.R. Services(3) Hebron, KY Industrial 214,840 100% 10 years
Coldwater
2nd Qtr. 94 Crossing(4) Ft. Wayne, IN Retail 246,365 95% Varies
Park 100 Bldg
2nd Qtr. 94 126(5) Indianapolis, IN Industrial 60,100 100% Varies
3rd Qtr. 94 Park 100 Bldg 98(6) Indianapolis, IN Industrial 373,000 27% N/A
---------
894,305
---------
UNDER CONSTRUCTION:
3rd Qtr. 94 Veteran's Admin. Columbus, OH Medical 118,000 100% 20 years
3rd Qtr. 94 Indiana Insurance Columbus, OH Office 49,600 94% 10 years
3rd Qtr. 94 Galyan's Columbus, OH Retail 74,636 100% 20 years
3rd Qtr. 94 Sports Unlimited(7) Cincinnati, OH Retail 67,148 100% 20 years
4th Qtr. 94 Kohl's Cincinnati, OH Retail 80,684 100% 25 years
4th Qtr. 94 Silver Burdett Indianapolis, IN Industrial 553,900 100% 7 years
4th Qtr. 94 Park 100 Bldg 97(8) Indianapolis, IN Industrial 280,800 44% 5 years
1st Qtr. 95 Sterling Software Columbus, OH Office 57,660 100% 15 years
2nd Qtr. 95 St. Francis(9) Greenwood, IN Medical 95,579 36%(11) Varies
2nd Qtr. 95 John Alden Columbus, OH Office 101,200 100% 15 years
---------
1,479,207
---------
3,074,105
---------
---------
<FN>
- ------------------------------
(1) Developed through a joint venture in which the Company's unaffiliated joint
venture partner provided 100% of the financing. The Company has a 10%
limited partner equity interest.
(2) Originally developed prior to the Reorganization in a joint venture; the
Company has acquired the 55% interest of its unaffiliated joint venture
partner.
(3) Originally developed in a joint venture; the Company has acquired the 57%
interest of its unaffiliated joint venture partner.
(4) A retail center anchored by Cub Foods, Walgreens, and Ben Franklin; Walmart
and Service Merchandise also own stores in this center (114,000 and 50,000
square feet, respectively).
(5) A warehouse facility at Park 100 Business Park where the Company currently
owns or manages 1.7 million square feet of similar space having a 2.6%
vacancy rate.
(6) A bulk warehouse facility at Park 100 Business Park where the Company
currently owns or manages 4.4 million square feet of similar space which is
fully occupied. Land is available for 300,000 square feet of additional
development.
</TABLE>
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<TABLE>
<S> <C>
(7) Anchor tenant of 51,000 square feet has a lease term of 20 years.
(8) This bulk warehouse was originally committed to without any pre-leasing. A
five year lease has been signed for 122,400 square feet of space. The
building is located at Park 100 Business Park where the Company currently
owns or manages 4.4 million square feet of similar space which is fully
occupied.
(9) Medical office building to be attached to the new $80 million ambulatory
care center on the St. Francis Hospital south campus. The Company owns the
building and has a leasehold interest in the land underlying the building.
(10) Represents completed leasing activity through August 25, 1994.
(11) This represents leases for which tenants have committed, but for which the
actual leases have not been executed.
</TABLE>
LAND ACTIVITY. Upon completion of the Reorganization and the 1993 Offering,
the Company had approximately 1,128 acres of unencumbered Land to be used
primarily for its development activities. Subsequent to the 1993 Offering, the
Company has used 125 acres of Land in its development activities. Approximately
58 acres have been sold and 15 acres have been leased. Additionally, the Company
acquired 63 acres during the second quarter of 1994 bringing the Company's total
unencumbered Land inventory held for development to approximately 1,000 acres.
THIRD PARTY DEVELOPMENT AND MANAGEMENT ACTIVITIES. Since the Reorganization
and the 1993 Offering, the Company has increased the square footage of property
managed for third parties from 11.8 million to 12.1 million square feet and has
obtained the following third party construction and development contracts:
<TABLE>
<CAPTION>
SQUARE FOOTAGE
PROPERTY LOCATION UNDER DEVELOPMENT PRODUCT TYPE COMPLETION DATE
- ---------------------- ------------------ ------------------ ------------ ------------------
<S> <C> <C> <C> <C>
Federated Cincinnati, OH 200,000 Office October 1994
Hendrickson-Turner Lebanon, IN 120,000 Industrial February 1995
ETS Indianapolis, IN 56,000 Industrial November 1994
American Trans Air Indianapolis, IN 45,000 Office August 1994
Honey Baked Ham Cincinnati, OH 28,000 Office December 1993
A-Copy Milford, CT 27,400 Office April 1994
Jewish Hospital Cincinnati, OH 18,000 Office January 1995
Goodwill Industries Indianapolis, IN 11,250 Retail September 1994
</TABLE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered........................................ 3,500,000 shares (1)
Common Stock to be Outstanding After the Offering........... 23,995,630 shares (2)
Use of Proceeds............................................. Principally to retire interim
financing incurred to fund
the Company's development and
acquisition activities and to
fund current development and
acquisition projects.
New York Stock Exchange Symbol.............................. DRE
<FN>
- ------------------------
(1) Assumes the Underwriters' over-allotment option to purchase up to 525,000
shares of Common Stock is not exercised. See "Underwriting."
(2) Includes 833,333 unregistered shares of Common Stock and 4,449,486 Units
issued by Duke Realty Limited Partnership (the "Operating Partnership")
which are exchangeable by the holder for shares of Common Stock. Does not
include Common Stock issuable upon exercise of outstanding employee stock
options, which represented 681,500 shares at June 30, 1994.
</TABLE>
S-6
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
PRO FORMA FOR
REORGANIZATION (1)
-----------------------------
SIX MONTHS SIX MONTHS YEAR ENDED
ENDED ENDED DECEMBER 31,
JUNE 30, JUNE 30, ----------------
1994 1993 1993 1992
---------- ---------- ------- -------
(IN THOUSANDS, EXCEPT PROPERTIES AND PER
SHARE DATA)
<S> <C> <C> <C> <C>
OPERATING DATA:
Revenues:
Rental properties....................................... $41,843 $39,065 $79,639 $74,439
Property management, maintenance and leasing fees....... 5,393 4,836 11,496 12,248
Construction and development fees....................... 2,963 1,328 4,875 4,370
Interest and other income............................... 1,068 1,095 1,893 1,105
---------- ---------- ------- -------
Total operating revenue................................... $51,267 $46,324 $97,903 $92,162
---------- ---------- ------- -------
---------- ---------- ------- -------
Interest expense.......................................... $ 8,723 $ 8,450 $17,280 $16,900
Depreciation and amortization............................. 8,138 9,163 18,078 18,026
Equity in earnings of unconsolidated companies............ 593 147 598 223
Income before minority interest........................... 15,534 11,228 24,978 18,366
Net income................................................ $11,420 $ 8,922 $19,076 $14,346
---------- ---------- ------- -------
---------- ---------- ------- -------
Net income per share...................................... $ 0.71 $ 0.56 $ 1.19 $ 0.89
---------- ---------- ------- -------
---------- ---------- ------- -------
OTHER DATA:
Funds from Operations (2)................................. $23,238 $20,502 $42,166 $36,624
Funds from Operations per share/Unit...................... $ 1.13 $ 1.00 $ 2.06 $ 1.79
Common Stock outstanding (3).............................. 20,478 20,478 20,478 20,478
Number of Properties at end of period..................... 120 114 114 111
Square feet available at end of period.................... 11,880 10,867 10,867 10,573
</TABLE>
<TABLE>
<CAPTION>
JUNE 30,
1994
--------
<S> <C>
BALANCE SHEET DATA:
Rental property, before accumulated depreciation.......... $589,317
Total assets.............................................. $692,487
Total debt................................................ $301,394
Shareholders' equity...................................... $343,493
</TABLE>
<TABLE>
<S> <C>
<FN>
- ------------------------
(1) Reflects October, 1993 Reorganization of the Company, including the Reverse
Stock Split, the acquisition by the Company of substantially all of the
assets of Duke Associates (a group of approximately 170 affiliated
partnerships and corporations) and the issuance of an additional 14,001
shares of Common Stock. Presented as if the companies were combined as of
January 1, 1992.
(2) Funds from Operations, as defined by the National Association of Real
Estate Investment Trusts ("NAREIT"), is net income adjusted for
depreciation and amortization and gains or losses from property sales.
Funds from Operations does not represent cash flows from operations as
defined by generally accepted accounting principles, should not be
considered as an alternative to net income as an indicator of the Company's
operating performance and is not indicative of cash available to fund all
cash flow needs.
(3) Includes 4,432 Units as of June 30, 1994 held by persons other than the
Company which are exchangeable for Common Stock.
</TABLE>
S-7
<PAGE>
THE COMPANY
The Company is a self-administered and self-managed REIT that began
operations through a predecessor in 1972. The Company owns a diversified
portfolio of 120 income-producing industrial, office and retail Properties,
encompassing approximately 11.9 million square feet and located in eight states,
and 10 buildings encompassing approximately 1.5 million square feet currently
under development. The Company also owns approximately 1,000 acres of
unencumbered Land for future development, of which approximately 80% is zoned
for industrial use and which is typically located adjacent to the Properties.
The Company provides leasing, management, construction, development and other
tenant-related services for the Properties and certain properties owned by third
parties. The Company has the largest commercial real estate operations in
Indianapolis and Cincinnati and is one of the largest real estate companies in
the Midwest. The Company 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 Company has developed over 33 million square feet of commercial property
since its founding. The Company is one of the most active developers of
industrial properties in the United States, based on square footage under
construction. During the last five years, the Company developed an average of
approximately 2.0 million square feet per year. From the completion of its
Reorganization and 1993 Offering through June 30, 1994, the Company completed
development of 701,000 square feet and acquired 894,000 square feet of
commercial properties which are 82% leased. Also, the Company has under
development approximately 1.5 million square feet of commercial space that is
85% pre-leased and is expected to be completed by June, 1995.
The Company manages approximately 24 million square feet of property,
including 12 million square feet owned by third parties. The Company manages
approximately 30% of all suburban office, warehousing and light manufacturing
space in Indianapolis, and approximately 18% of all office, warehousing and
light manufacturing space in Cincinnati. In addition to providing services to
approximately 1,000 tenants in the Properties, the Company provides such
services to over 1,200 tenants in approximately 150 properties owned by others.
Based on published industry reports, the Company believes that it was
responsible in 1993 for approximately 35% of the net absorption (gross space
leased minus lease terminations and expirations) of warehousing and light
manufacturing space in Indianapolis and for approximately 36% of the net
absorption of warehousing and light manufacturing space in Cincinnati. The
Company believes its dominant position in its market gives it a competitive
advantage in its real estate activities.
After completion of the Offering, the seven senior officers of the Company,
who collectively have over 120 years of experience in the real estate industry
and have been with the Company for an average of 17 years, will beneficially own
Common Stock and Units exchangeable for Common Stock that represent
approximately 17% of the Company's Common Stock on a fully diluted basis.
BUSINESS STRATEGY
The Company's business objective is to increase its Funds from Operations
per share by (i) maintaining and increasing property occupancy and rental rates
through the aggressive management of its portfolio of existing properties; (ii)
expanding existing properties; (iii) developing and acquiring new properties;
and (iv) providing a full line of real estate services to the Company's tenants
and to third parties. As a fully integrated commercial real estate firm, the
Company believes that its in-house leasing, management, development and
construction services and the Company's significant base of commercially zoned
and unencumbered land in existing business parks should give the Company a
competitive advantage in its future development activities.
The Company believes that the analysis of real estate opportunities and
risks can be done most effectively at regional or local levels. As a result, the
Company intends to continue its emphasis on increasing its market share and
effective rents in its existing markets primarily within the Midwest. The
Company also
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expects to utilize its approximately 1,000 acres of Land and its many business
relationships with more than 2,200 commercial tenants to expand its
build-to-suit business (development projects substantially pre-leased to a
single tenant) and to pursue other development and acquisition opportunities in
its existing markets and elsewhere, primarily in the Midwest. The Company
believes that this regional focus will allow it to assess market supply and
demand for real estate more effectively as well as to capitalize on its strong
relationships with its tenant base.
The Company's policy is to develop and seek to acquire Class A commercial
properties located in markets with high growth potential for Fortune 500
companies and other quality regional and local firms. The Company's industrial
and suburban office development focuses on business parks and mixed-use
developments suitable for development of multiple projects on a single site and
where the Company can create and control the business environment. These
business parks and mixed-use developments generally include restaurants and
other amenities which the Company believes create an atmosphere that is
particularly efficient and desirable. The Company's retail development focuses
on community, power and neighborhood centers in its existing markets. As a fully
integrated real estate company, the Company is able to arrange for or provide to
its industrial, office and retail tenants not only well located and well
maintained facilities, but also additional services such as build-to-suit
construction, tenant finish construction, expansion flexibility and advertising
and marketing services.
THE MIDWEST REAL ESTATE MARKET
The Company 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. In addition, the interstate highway
systems serving Indianapolis, Cincinnati and Columbus, principal markets in
which the Properties are located, help make those cities prime warehouse and
distribution locations. According to the Chicago Association of Commerce and
Industry, these three cities rank first, third and fourth, respectively, in
being centrally located to the top 100 markets in the United States.
Employment statistics are generally a useful measure of the viability of a
commercial real estate market because the demand for retail, office and
industrial space in a geographic area is usually linked to the levels of
business activity and disposable income. According to the applicable state labor
statistics departments and the United States Department of Labor's Bureau of
Labor Statistics, the unemployment rate for June, 1994 was 4.0%, 4.7% and 4.2%
in the Indianapolis, Cincinnati and Columbus metropolitan areas, respectively,
compared to 6.2% for the United States. Additionally, total employment has
increased 10.1%, 9.7% and 10.6% since January 1, 1989 for the Indianapolis,
Cincinnati and Columbus metropolitan areas, respectively, compared to 8.3% for
the United States.
INDIANAPOLIS, INDIANA. With over 1.4 million residents, Indianapolis is
Indiana's largest metropolitan area. With a central location at the intersection
of four interstate highways, Indianapolis continues to attract new growth by
offering a skilled workforce and stable economic base. Indianapolis' economic
base includes distribution, government, manufacturing, retail trade, service and
tourism related industries. According to the Indianapolis Chamber of Commerce,
United Airlines, Federal Express and Dow-Elanco are establishing major new
facilities in Indianapolis which are expected to create 20,000 new jobs. The
Indianapolis industrial market continues to improve as evidenced by a declining
vacancy rate. According to CB Commercial Real Estate Group, Inc. ("CB
Commercial"), the industrial vacancy rate has decreased 1.2% over the twelve
months ended March 31, 1994 to 4.0%, which is strong as compared to the national
industrial vacancy average of 7.9%, as reported by CB Commercial. According to
LANDAUER REAL ESTATE COUNSELORS' 1994 REAL ESTATE MARKET FORECAST, Indianapolis
is rated as the best warehouse and distribution market in the United States.
CINCINNATI, OHIO. Cincinnati is the second largest metropolitan area in
Ohio with a population of over 1.5 million. With an unemployment rate which is
below the national average, Cincinnati's economic base is healthy and diverse.
Balanced between major Fortune 500 employers (a total of 17 are headquartered in
the
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region, including Proctor & Gamble, US Shoe, Chiquita Brands, Kroger Company and
Federated Department Stores) and entrepreneurial enterprises, Cincinnati's
economic base includes banking, distribution, manufacturing, retail trade and
service related industries. Relatively low taxes, an expanding airport (a major
North American hub for Delta Airlines) and aggressive state and local incentive
packages designed to attract new business have contributed to major corporate
relocations in Cincinnati. Additionally, PLACES RATED ALMANAC, in its most
recent edition, ranked Cincinnati as North America's best city in which to live.
Indicative of the economic strength in Cincinnati, the industrial vacancy rate
as reported by CB Commercial declined by 1.6% to 4.8% over the twelve months
ended March 31, 1994, which is below the national average of 7.9%.
COLUMBUS, OHIO. The Columbus metropolitan area has a population of
approximately 1.4 million and is the third largest metropolitan area in Ohio.
The city's central location, well-trained workforce and high quality of life
have established Columbus as a major transportation and distribution center.
Major retail corporations such as Sears, Eddie Bauer, JC Penney, Consolidated
Stores and The Limited have developed regional distribution centers in the area.
Columbus' economic base includes distribution, government, manufacturing, retail
trade and service related industries. The industrial vacancy rate of 3.2% as of
March 31, 1994 was the third lowest of the 37 markets researched by CB
Commercial in the United States. This vacancy rate represents a decrease of 1.6%
over the previous twelve months and is well below the national average of 7.9%
as reported by CB Commercial.
RECENT DEVELOPMENTS
REORGANIZATION AND 1993 OFFERING. As part of its 1993 Reorganization, the
Company acquired substantially all of the properties and businesses of Duke
Associates, a related full-service commercial real estate firm operating
primarily in the Midwest. The Company also effected a 1 for 4.2 Reverse Stock
Split relating to its existing shares and in the 1993 Offering issued an
additional 14,000,833 shares of Common Stock, raising gross proceeds of $332.5
million. In July, 1994, the Company increased its quarterly dividend from $.45
to $.47 per share.
DEVELOPMENT AND ACQUISITION ACTIVITY. From the completion of the
Reorganization and the 1993 Offering through June 30, 1994, the Company
completed the development of and placed in service four properties with 701,000
square feet having a total cost of $12.2 million and acquired four properties
with 894,000 square feet and the remaining 55% joint venture interest in a
previously developed property at a total cost of $40.6 million. In addition, the
Company has initiated the development of 10 buildings encompassing 1,479,000
square feet having a total cost of $69.7 million, which are expected to be
completed and placed in service by June, 1995. These New Properties, totalling
3,074,000 square feet, consist of 71% industrial, 7% office, 15% retail, and 7%
medical office projects. The total cost (including allocation of land) of the
New Properties is approximately $122.5 million. The New Properties have an
average occupancy rate as of August 25, 1994 of 83% and provide an initial 10.8%
weighted average annual unleveraged return on cost (computed as property annual
contractual NOI divided by total costs) assuming no further lease-up. However,
the Company expects the weighted average annual unleveraged return on cost to be
in excess of 12% with anticipated leasing activity. The annual contractual NOI
expected to be generated from the New Properties, once placed in service, is
anticipated to be $13 million and increase to $15 million with anticipated
leasing activity. Those New Properties expected to be placed in service by
October, 1994, are anticipated to generate annualized contractual NOI of $7
million. By June, 1995, when all of the New Properties are expected to be in
service, the New Properties are anticipated to produce an additional $8 million
of annualized contractual NOI.
The total cost of the New Properties of $122.5 million includes currently
owned land basis of $8.2 million. The $8.2 million land investment represents
non-cash allocations of the portion of unencumbered Land inventory obtained
through the 1993 Reorganization and since used for new development. The
anticipated weighted average unleveraged annual return cost for the New
Properties net of the Land basis is 13%
S-10
<PAGE>
compared to the 12% previously discussed. The total net cost of the New
Properties will be approximately $114.3 million. These costs will be funded on a
permanent basis by the net proceeds of this Offering which are expected to be
approximately $83.1 million with the remainder of the costs to be funded by debt
financings having a weighted average interest rate of 8.38% and a term of 6.6
years. The cost of the New Properties incurred to date has been financed with
interim financing including the Company's $60 million revolving line of credit.
Following the Offering, the revolving line of credit facility will be fully
available for additional development and acquisition activity which the Company
is currently pursuing. The Company is currently negotiating to substantially
increase the amount of its revolving line of credit.
The following table sets forth information regarding the New Properties. All
of the New Properties are wholly-owned by the Company except for Xetron.
RECENT ACTIVITY
<TABLE>
<CAPTION>
COMPLETION OR PERCENT INITIAL
ANTICIPATED PROPERTY SQUARE LEASED OR LEASE
COMPLETION PROJECT/CLIENT LOCATION TYPE FEET PRE-LEASED (10) TERM
- --------------------- ---------------------- --------------- --------- --------- ------------------- ---------
<S> <C> <C> <C> <C> <C> <C>
COMPLETED
DEVELOPMENT:
1st Qtr. 94 Xetron(1) Cincinnati, OH Industrial 100,193 100% 10 years
Indianapolis,
2nd Qtr. 94 Daydream Publishing IN Industrial 98,000 100% 10 years
Indianapolis,
1st Qtr. 94 Caterpillar IN Industrial 336,000 100% 6 years
2nd Qtr. 94 Redken Hebron, KY Industrial 166,400 100% 5 years
---------
700,593
---------
COMPLETED
ACQUISITIONS:
2nd Qtr. 94 Xerox(2) Columbus, OH Office (2) 100% Varies
2nd Qtr. 94 C.R. Services(3) Hebron, KY Industrial 214,840 100% 10 years
2nd Qtr. 94 Coldwater Crossing(4) Ft. Wayne, IN Retail 246,365 93% Varies
Indianapolis,
2nd Qtr. 94 Park 100 Bldg 126(5) IN Industrial 60,100 100% Varies
Indianapolis,
3rd Qtr. 94 Park 100 Bldg 98(6) IN Industrial 373,000 27% N/A
---------
894,305
---------
UNDER CONSTRUCTION:
3rd Qtr. 94 Veteran's Admin. Columbus, OH Medical 118,000 100% 20 years
3rd Qtr. 94 Indiana Insurance Columbus, OH Office 49,600 94% 10 years
3rd Qtr. 94 Galyan's Columbus, OH Retail 74,636 100% 20 years
3rd Qtr. 94 Sports Unlimited(7) Cincinnati, OH Retail 67,148 100% 20 years
4th Qtr. 94 Kohl's Cincinnati, OH Retail 80,684 100% 25 years
Indianapolis,
4th Qtr. 94 Silver Burdett IN Industrial 553,900 100% 7 years
Indianapolis,
4th Qtr. 94 Park 100 Bldg 97(8) IN Industrial 280,800 44% 5 years
1st Qtr. 95 Sterling Software Columbus, OH Office 57,660 100% 15 years
2nd Qtr. 95 St. Francis(9) Greenwood, IN Medical 95,579 36%(11) Varies
2nd Qtr. 95 John Alden Columbus, OH Office 101,200 100% 15 years
---------
1,479,207
---------
3,074,105
---------
---------
<FN>
- ------------------------------
(1) Developed through a joint venture in which the Company's unaffiliated joint
venture partner provided 100% of the financing. The Company has a 10%
limited partner equity interest.
(2) Originally developed prior to the Reorganization in a joint venture; the
Company has acquired the 55% interest of its unaffiliated joint venture
partner.
(3) Originally developed in a joint venture; the Company has acquired the 57%
interest of its unaffiliated joint venture partner.
(4) A retail center anchored by Cub Foods, Walgreens, and Ben Franklin; Walmart
and Service Merchandise also own stores in this center (114,000 and 50,000
square feet, respectively).
(5) A warehouse facility at Park 100 Business Park where the Company currently
owns or manages 1.7 million square feet of similar space having a 2.6%
vacancy rate.
(6) A bulk warehouse facility at Park 100 Business Park where the Company
currently owns or manages 4.4 million square feet of similar space which is
fully occupied. Land is available for 300,000 square feet of additional
development.
</TABLE>
S-11
<PAGE>
<TABLE>
<S> <C>
(7) Anchor tenant of 51,000 square feet has a lease term of 20 years.
(8) This bulk warehouse was originally committed to without any pre-leasing. A
five year lease has been signed for 122,400 square feet of space. The
building is located at Park 100 Business Park where the Company currently
owns or manages 4.4 million square feet of similar space which is fully
occupied.
(9) Medical office building to be attached to the new $80 million ambulatory
care center on the St. Francis Hospital south campus. The Company owns the
building and has a leasehold interest in the land underlying the building.
(10) Represents completed leasing activity through August 25, 1994.
(11) This represents leases for which tenants have committed, but for which the
actual leases have not been executed.
</TABLE>
LAND ACTIVITY. Upon completion of the Reorganization and the 1993 Offering,
the Company had approximately 1,128 acres of unencumbered Land to be used
primarily for its development activities. Through June 30, 1994, the Company has
used 125 acres of such Land in its development activities. Approximately 58
acres have been sold and 15 acres have been leased. Additionally, the Company
acquired 63 acres during the second quarter of 1994 bringing the Company's total
unencumbered Land inventory held for development to approximately 1,000 acres.
THIRD PARTY DEVELOPMENT AND MANAGEMENT ACTIVITIES. Since the Reorganization
and the 1993 Offering, the Company has increased the square footage of property
managed for third parties from 11.8 million to 12.1 million square feet has
obtained the following third party construction and development contracts:
<TABLE>
<CAPTION>
SQUARE FOOTAGE PRODUCT COMPLETION
PROPERTY LOCATION UNDER DEVELOPMENT TYPE DATE
- ---------------------- ------------------ ------------------ ----------- ------------------
<S> <C> <C> <C> <C>
Federated Cincinnati, OH 200,000 Office October 1994
Hendrickson-Turner Lebanon, IN 120,000 Industrial February 1995
ETS Indianapolis, IN 56,000 Industrial November 1994
American Trans Air Indianapolis, IN 45,000 Office August 1994
Honey Baked Ham Cincinnati, OH 28,000 Office December 1993
A-Copy Milford, CT 27,400 Office April 1994
Jewish Hospital Cincinnati, OH 18,000 Office January 1994
Goodwill Industries Indianapolis, IN 11,250 Retail September 1994
</TABLE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Common Stock offered
hereby are expected to be approximately $83.1 million (approximately 95.6
million if the Underwriters' over-allotment option is exercised in full). The
Company intends to use approximately $60 million of the proceeds of the Offering
to retire interim financing which has been incurred to fund the Company's
development and acquisition activities and the remainder of the proceeds to fund
current development and acquisition projects. Pending such uses, the net
proceeds may be invested in short-term income producing investments such as
commercial paper, government securities or money market funds that invest in
government securities.
S-12
<PAGE>
PRICE RANGE OF COMMON STOCK AND DIVIDEND HISTORY
The Common Stock is listed on the New York Stock Exchange under the symbol
DRE. The following table sets forth the high and low sale prices of the Common
Stock of the periods indicated and the dividend paid per share for each such
period.
<TABLE>
<CAPTION>
CLOSING PRICES
PER SHARE (1)
-------------------- DIVIDENDS
QUARTERLY PERIOD HIGH LOW PER SHARE (1)
- -------------------------------------------------------------------------------- --------- --------- ---------------
<S> <C> <C> <C>
1992
First Quarter................................................................. $ 16.80 $ 13.65 $ 0.42
Second Quarter................................................................ 18.38 15.23 0.42
Third Quarter................................................................. 17.33 15.75 0.42
Fourth Quarter................................................................ 16.80 14.70 0.42
1993
First Quarter................................................................. 22.05 15.75 0.42
Second Quarter................................................................ 21.53 18.38 0.42
Third Quarter................................................................. 24.68 19.42 0.42
Fourth Quarter (2)............................................................ 26.00 22.13 0.45
1994
First Quarter................................................................. 26.00 21.00 0.45
Second Quarter................................................................ 27.25 23.50 0.47
Third Quarter (through September 21, 1994).................................... 27.13 25.00 --
<FN>
- ------------------------
(1) All information for periods prior to the Fourth Quarter of 1993 has been
adjusted for the 1 for 4.2 Reverse Stock Split effected in October, 1993 as
part of the Reorganization.
(2) In October, 1993 the Company acquired substantially all of the properties
and businesses of Duke Associates, a related full-service commercial real
estate firm operating primarily in the Midwest. As part of this
Reorganization, the Company effected a 1 for 4.2 Reverse Stock Split of its
existing shares and issued an additional 14,000,833 shares of Common Stock
in the 1993 Offering.
</TABLE>
The last reported sale price of the Common Stock on the New York Stock
Exchange on September 21, 1994 was $25.25 per share. As of September 21, 1994,
there were 1,705 registered holders of Common Stock.
Since its organization in 1986, the Company has paid regular and
uninterrupted dividends. The Company intends to continue to declare quarterly
dividends on its Common Stock. However, no assurances can be given as to the
amounts of future dividends as such dividends are subject to the Company's cash
flow from operations, earnings, financial condition, capital requirements and
such other factors as the board of directors deems relevant. If the shares being
issued in this Offering are outstanding on the applicable record date, the
holders thereof on such record date will be entitled to receive any dividend
which may be declared by and at the discretion of the Board of Directors for the
Third Quarter.
DIVIDEND REINVESTMENT PLAN
The Company has an Automatic Dividend Reinvestment Plan (the "Plan") which
allows stockholders to acquire additional shares of Common Stock by
automatically reinvesting cash dividends. Common Stock is acquired pursuant to
the Plan at a price equal to the prevailing market price of such Common Stock,
without payment of any brokerage commission or service charge. The Plan also
allows participating stockholders to purchase Common Stock pursuant to the same
terms and in the same manner as cash dividends are invested in amounts of not
less than $100 and more than $3,000 per calendar quarter, without payment of any
brokerage commission or service charge. Stockholders who do not participate in
the Plan continue to receive cash dividends, as declared. As of September 21,
1994, approximately 19% of the Company's registered stockholders participated in
the Plan.
S-13
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of June
30, 1994 and as adjusted to give effect to the Offering and the anticipated use
of the proceeds thereof as described under "Use of Proceeds."
<TABLE>
<CAPTION>
AT JUNE 30, 1994
------------------------
HISTORICAL AS ADJUSTED
---------- -----------
(IN THOUSANDS)
<S> <C> <C>
Mortgage and Construction Debt.................................................. $ 301,394 $301,394(2)
---------- -----------
Shareholders' Equity:
Preferred Stock ($.01 par value),
5,000 shares authorized, none issued
Common Stock ($.01 par value),
45,000 shares authorized; 16,046 outstanding; 19,546 outstanding as adjusted
(1).......................................................................... 160 195
Additional paid-in-capital.................................................... 377,450 460,500
Distributions in excess of net income......................................... (34,117) (34,117)
---------- -----------
Total Shareholders' Equity.................................................... 343,493 426,578
---------- -----------
Total Capitalization............................................................ $ 644,887 $727,972
---------- -----------
---------- -----------
<FN>
- ------------------------
(1) Does not include 4,449 shares reserved for issuance upon exchange of issued
and outstanding Units.
(2) Includes the effect of the $60 million mortgage loan closed subsequent to
June 30, 1994 and assumes that the proceeds from the Offering and the
mortgage loan are used to fully retire the Company's line of credit
facility and fund new development and acquisition costs.
</TABLE>
S-14
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following sets forth selected financial and operating information on a
pro forma basis for the Company for the years ended December 31, 1993 and 1992
and for the six months ended June 30, 1993. The pro forma information is
presented as if the 1993 Offering and the Reorganization had occurred as of
January 1, 1992. Also set forth are selected historical financial data for the
Company as of and for the six months ended June 30, 1994, which were derived
from the Company's financial statements, which are incorporated by reference in
the accompanying Prospectus.
The following selected financial information should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" for the Company and the financial statements incorporated by
reference in the accompanying Prospectus.
<TABLE>
<CAPTION>
PRO FORMA FOR REORGANIZATION
(1)
-----------------------------
YEAR ENDED
SIX MONTHS SIX MONTHS DECEMBER 31,
ENDED JUNE ENDED JUNE ----------------
30, 1994 30, 1993 1993 1992
---------- ---------- ------- -------
(IN THOUSANDS, EXCEPT PROPERTIES AND PER
SHARE DATA)
<S> <C> <C> <C> <C>
OPERATING DATA:
Revenues:
Rental properties....................................... $ 41,843 $39,065 $79,639 $74,439
Property management, maintenance and leasing fees....... 5,393 4,836 11,496 12,248
Construction and development fees....................... 2,963 1,328 4,875 4,370
Interest and other income............................... 1,068 1,095 1,893 1,105
---------- ---------- ------- -------
Total operating revenue................................... $ 51,267 $46,324 $97,903 $92,162
---------- ---------- ------- -------
---------- ---------- ------- -------
Interest expense.......................................... $ 8,723 $ 8,450 $17,280 $16,900
Depreciation and amortization............................. 8,138 9,163 18,078 18,026
Equity in earnings of unconsolidated companies............ 593 147 598 223
Income before minority interest........................... 15,534 11,228 24,978 18,366
Net income................................................ $ 11,420 $ 8,922 $19,076 $14,346
---------- ---------- ------- -------
---------- ---------- ------- -------
Net income per share...................................... $ 0.71 $ 0.56 $ 1.19 $ 0.89
---------- ---------- ------- -------
---------- ---------- ------- -------
OTHER DATA:
Funds from Operations (2)................................. $ 23,238 $20,502 $42,166 $36,624
Funds from Operations per share/Unit...................... $ 1.13 $ 1.00 $ 2.06 $ 1.79
Common Stock outstanding (3).............................. 20,478 20,478 20,478 20,478
Number of Properties at end of period..................... 120 114 114 111
Square feet available at end of period.................... 11,880 10,867 10,867 10,573
</TABLE>
<TABLE>
<CAPTION>
JUNE 30,
1994
---------
<S> <C>
BALANCE SHEET DATA:
Rental property, before accumulated depreciation.......... $589,317
Total assets.............................................. $692,487
Total debt................................................ $301,394
Shareholders' equity...................................... $343,493
<FN>
- --------------------------
(1) Reflects October, 1993 Reorganization of the Company, including the Reverse
Stock Split, the acquisition by the Company of substantially all of the
assets of Duke Associates (a group of approximately 170 affiliated
partnerships and corporations) and the issuance of an additional 14,001
shares of Common Stock. Presented as if the companies were combined as of
January 1, 1992.
(2) Funds from Operations, as defined by NAREIT, is net income adjusted for
depreciation and amortization and gains or losses from property sales.
Funds from Operations does not represent cash flows from operations as
defined by generally accepted accounting principles, should not be
considered as an alternative to net income as an indicator of the Company's
operating performance and is not indicative of cash available to fund all
cash flow needs.
(3) Includes 4,432 Units as of June 30, 1994 held by persons other than the
Company which are exchangeable for Common Stock.
</TABLE>
S-15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
REORGANIZATION AND 1993 OFFERING
In the Reorganization, the Company acquired substantially all of the
properties and businesses of Duke Associates, a related full-service commercial
real estate firm operating primarily in the Midwest, effected a 1 for 4.2
Reverse Stock Split of its existing shares and issued an additional 14,000,833
shares of Common Stock in the 1993 Offering. Substantially all of the $309.3
million of net proceeds of the 1993 Offering were used to repay indebtedness of
the reorganized Company. As a result of the Reorganization, the Company's
Properties are owned through the Operating Partnership, of which the Company is
the sole general partner and owner of approximately 78% of the Units. Following
the Offering, the Company will own approximately 81% of the Units.
RESULTS OF OPERATIONS -- SIX MONTHS ENDED JUNE 30, 1994 COMPARED TO PRO FORMA
FOR THE SIX MONTHS ENDED JUNE 30, 1993
The revenues from rental properties increased from $39.1 million on a pro
forma basis for the six months ended June 30, 1993 to $41.8 million for the six
months ended June 30, 1994. This $2.7 million increase is primarily attributed
to an expansion of the property portfolio, an increase in the occupancy of the
Properties and increasing net effective rents, offset by the establishment of a
reserve for accrued straight-line rents receivable of $750,000.
Service operations and other revenue increased from $7.3 million on a pro
forma basis for the six months ended June 30, 1993 to $9.4 million for the six
months ended June 30, 1994. This $2.1 million increase results primarily from
increased leasing fees of the managed properties portfolio and increased
construction management and development fees resulting from increased
construction and development activity.
Primarily as a result of the revenue increases above, net income increased
from $8.9 million on a pro forma basis for the six months ended June 30, 1993 to
$11.4 million for the six months ended June 30, 1994.
The occupancy at June 30, 1994 for all of the Properties in which the
Company owns a whole or partial interest was 96.1% for the industrial properties
(91.2% at June 30, 1993), 92.9% for the office and medical office properties
(88.3% at June 30, 1993), and 91.2% for the retail properties (91.3% at June 30,
1993), for an overall occupancy rate of 94.6% (90.8% at June 30, 1993).
Management expects occupancy to remain stable because only 6% and 12% of the
Company's portfolio is subject to leases expiring in the rest of 1994 and 1995,
respectively.
FUNDS FROM OPERATIONS
Management believes that Funds from Operations is the industry standard for
reporting the operations of real estate investment trusts. Funds from Operations
were $23.2 million or $1.13 per fully diluted share for the six months ended
June 30, 1994 compared to $20.5 million or $1.00 per fully diluted share on a
pro forma basis for the six months ended June 30, 1993. This growth is due
primarily to portfolio expansion, increased average occupancy of the portfolio
and increased earnings from the service operations.
At June 30, 1994, the Company had approximately 1.5 million square feet of
property under development which was approximately 85% pre-leased. This
development is expected to contribute significantly to the Company's future
growth of Funds from Operations. See "Recent Developments."
While management believes that Funds from Operations is the most relevant
and widely used measure of the Company's operating performance, such amounts do
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 Company's operating performance, and are not indicative
of cash available to fund all cash flow needs.
S-16
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company pays regular quarterly dividends with a general policy of
distributing no more than 90% of Funds from Operations. The dividend paid in
May, 1994 and the dividend payable August 31, 1994 represent 81% of the first
and second quarter Funds from Operations, respectively. The Company has in place
a $60.0 million revolving credit facility which is being used to fund existing
and new development costs, property acquisitions and to provide working capital
when needed. The Company is currently in negotiations with the line of credit
lenders to substantially increase the size of the credit facility. The Company
closed in August, a seven year, $60.0 million mortgage loan commitment from an
institutional lender which bears interest at a fixed rate of 8.72%.
Approximately $41 million of this commitment was funded in August, 1994 with the
remaining $19 million expected to be funded in September and December of 1994.
The proceeds were used to fund land purchases, retire existing debt, replenish
working capital and to fund development in process. Additional development costs
for new projects and acquisitions will be funded through the proceeds of this
Offering, the existing revolving line of credit, the remaining mortgage loan
commitment and other construction and acquisition financing.
The Company intends to limit its debt to no more than 50% of its total
market capitalization. The Company's debt to total market capitalization at June
30, 1994 was 36.7%. Following the Offering, the Company's debt to total market
capitalization will be 33.2%, based on a stock price of $25.25 per share. After
the Offering, the Company could incur up to 304.5 million of additional debt and
remain within its 50% debt to total market capitalization guideline, based on a
stock price of $25.25 per share.
At June 30, 1994, the Company had mortgage debt outstanding of $243.9
million, a construction loan outstanding of $944,000 and $56.5 million
outstanding on its revolving line of credit, for total debt outstanding of
$301.4 million. The mortgage debt bears a weighted average interest rate of
6.93% and matures at varying dates through 2018. Scheduled principal
amortization on the mortgage debt was $784,000 for the six months ended June
30,1994 and will be $761,000 for the remainder of 1994. The construction loan
bears interest at prime plus 1% and matures in October of 1994. The revolving
line of credit bears interest at LIBOR plus 2% (effective rate of 6.133% at June
30, 1994) and matures in March 1996. Upon closing of the $60.0 million permanent
loan, the pro forma total debt outstanding would bear a weighted average
interest rate of 7.29%, of which only 2.6% is currently floating rate debt. A
portion of the proceeds of the Offering will be utilized to temporarily payoff
the revolving line of credit, making it fully available for future acquisitions
and development. The total debt in unconsolidated subsidiaries at June 30, 1994
is $49.2 million, of which the Company's percentage share is $11.0 million. The
unconsolidated subsidiary debt has a weighted average interest rate of 6.6% of
which only 16.2% is currently floating rate debt.
Rental and Service Operation revenue have been the principal sources of
capital used to fund the Company's operating expenses, debt service and
recurring capital expenditures. Recurring capital expenditures for the first six
months of 1994 were $2.2 million. Funds Available for Distribution (Funds from
Operations adjusted for straight-line rent and recurring capital expenditures)
for the six months ended June 30, 1994 were $20.3 million, resulting in a payout
ratio for the dividends for such period of 92.7% of Funds Available for
Distribution.
At June 30, 1994, scheduled maturities of the mortgage debt were as follows:
<TABLE>
<CAPTION>
MATURITIES
--------------
YEAR (IN THOUSANDS)
---------------------------------------------------
<S> <C>
Through December 31, 1994.......................... $ 761
1995............................................... 6,032
1996............................................... 61,647
1997............................................... 4,124
1998............................................... 88,079
1999............................................... 1,936
2000............................................... 2,350
2001............................................... 2,291
2002............................................... 2,494
2003............................................... 67,643
Thereafter......................................... 6,593
--------------
Total.......................................... $243,950
--------------
--------------
</TABLE>
S-17
<PAGE>
PROPERTIES
GENERAL
The Company owns whole or partial interests in (i) the Properties,
consisting of 120 industrial, office and retail income-producing properties
located in Indiana, Ohio, Illinois, Michigan, Tennessee, Kentucky, Wisconsin and
Missouri; (ii) 10 buildings currently under development and (iii) the Land,
consisting of approximately 1,000 acres of unencumbered land for future
development in Indiana, Ohio, Illinois, Kentucky, and Tennessee. The Properties
are comprised of a broad range of product types which include bulk and medium
bulk warehouse and distribution facilities, light manufacturing facilities,
multi-tenant flex space buildings, suburban office buildings, downtown office
buildings, and neighborhood, power and community shopping centers. Substantially
all of the Properties were originally developed by the Company. The total square
footage in the Properties is approximately 11.9 million, consisting of
approximately 7.0 million square feet of industrial space, approximately 3.8
million square feet of office space and approximately 1.1 million square feet of
retail space. The average annual net effective rental per leased square foot at
June 30, 1994 was $6.66. The total annual net effective rental income of the
Properties based upon tenants in occupancy as of June 30, 1994 is approximately
$75.8 million, with $27.2 million relating to the industrial Properties, $39.6
million relating to the office Properties and $9.0 million relating to the
retail Properties. At June 30, 1994, the Properties were approximately 95%
leased.
The following table gives a summary of the location and type of Properties
by square footage.
SQUARE FOOTAGE OF PROPERTIES BY STATE AND TYPE OF PROPERTY
<TABLE>
<CAPTION>
STATE INDUSTRIAL OFFICE RETAIL TOTAL
- ----------------------------------------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Indiana.................................. 3,919,381 1,084,610 440,335 5,444,326
Ohio..................................... 1,806,047 2,489,200 418,827 4,714,074
Illinois................................. 126,000 -- 170,963 296,963
Tennessee................................ 323,700 -- -- 323,700
Kentucky................................. 669,240 -- -- 669,240
Missouri................................. -- -- 32,754 32,754
Michigan................................. -- 245,219 -- 245,219
Wisconsin................................ 153,600 -- -- 153,600
---------- ---------- ---------- ------------
Total................................ 6,997,968 3,819,029 1,062,879 11,879,876
---------- ---------- ---------- ------------
---------- ---------- ---------- ------------
Percent of total..................... 59% 32% 9% 100%
---------- ---------- ---------- ------------
---------- ---------- ---------- ------------
</TABLE>
The following table sets forth the aggregate average percent leased for all
of the Properties during the last three years.
AVERAGE OCCUPANCY
(ALL PROPERTIES)
<TABLE>
<CAPTION>
SQUARE FEET AVERAGE
YEAR AVAILABLE OCCUPANCY
- -------------------------------------------------------------------- ------------ -------------
<S> <C> <C>
Through June 30, 1994............................................... 11,879,876 93.9%
1993................................................................ 10,864,245 92.1%
1992................................................................ 10,572,874 89.3%
1991................................................................ 10,062,903 84.1%
</TABLE>
The following table shows lease expirations for leases in place as of June
30, 1994 for each of the ten years beginning with the remainder of 1994 for the
Properties, assuming none of the tenants exercises early termination or renewal
options.
S-18
<PAGE>
LEASE EXPIRATIONS
(ALL PROPERTIES)
<TABLE>
<CAPTION>
ANNUAL NET PERCENT OF
EFFECTIVE ANNUAL NET PERCENT OF
NET RENTABLE ANNUAL NET RENT PER EFFECTIVE TOTAL LEASED
AREA (IN SQ. EFFECTIVE SQ. FT. RENT SQ. FT.
YEAR OF NUMBER OF FT.) SUBJECT RENT UNDER UNDER REPRESENTED REPRESENTED
LEASE LEASES TO EXPIRING EXPIRING EXPIRING BY EXPIRING BY EXPIRING
EXPIRATION EXPIRING LEASES LEASES (1) LEASES (1) LEASES LEASES
- ----------- ----------- ------------ ------------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
1994 114 646,616 $ 3,882,820 $ 6.00 5.12% 5.75%
1995 191 1,323,616 8,411,276 $ 6.35 11.09% 11.77%
1996 206 1,711,087 9,782,094 $ 5.72 12.90% 15.22%
1997 143 1,080,216 7,248,617 $ 6.71 9.56% 9.61%
1998 136 1,562,538 9,046,254 $ 5.79 11.93% 13.90%
1999 88 1,379,023 8,978,952 $ 6.51 11.84% 12.27%
2000 28 883,312 5,889,516 $ 6.67 7.77% 7.86%
2001 20 408,274 3,047,436 $ 7.46 4.02% 3.63%
2002 11 267,898 2,903,379 $ 10.90 3.85% 2.38%
2003 9 154,192 1,809,197 $ 11.73 2.39% 1.37%
2004 and 30 1,827,387 14,828,563 $ 8.14 19.53% 16.24%
thereafter
--- ------------ -------------
TOTAL 976 11,244,159 $ 75,828,104 $ 6.74
--- ------------ -------------
--- ------------ -------------
<FN>
- ------------------------
(1) Represents annual net effective rent due from tenants in occupancy as of
June 30, 1994. Annual 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.
</TABLE>
INDUSTRIAL PROPERTIES
The industrial Properties are primarily in industrial or business parks that
have been developed by the Company and include all types of warehouse and light
manufacturing buildings from multi-tenant flex space facilities providing leased
space as small as 1,200 square feet to bulk distribution facilities providing
leased space of more than 500,000 square feet. Approximately 73% of the square
footage of the industrial properties is contained in bulk distribution
facilities. The diversity of industrial buildings allows the Company to cater to
many segments of the industrial market and renders the Company less dependent
upon any specific market segment.
The following table sets forth the aggregate average percent leased and
annual net effective rental per leased square foot of available square footage
for all of the industrial Properties during the last three years.
S-19
<PAGE>
AVERAGE OCCUPANCY AND AVERAGE RENTALS
(INDUSTRIAL PROPERTIES)
<TABLE>
<CAPTION>
ANNUAL NET
EFFECTIVE RENTAL
SQUARE FEET AVERAGE PER LEASED SQUARE
YEAR AVAILABLE OCCUPANCY FOOT (1)
- ------------------------------------------------------------ ----------- -------------- -----------------
<S> <C> <C> <C>
Through June 30, 1994....................................... 6,997,968 95.3% $3.97(2)(3)
1993........................................................ 6,235,835 93.2% $4.06(3)
1992........................................................ 5,962,235 89.7% $3.91
1991........................................................ 5,962,235 84.8% $3.92
<FN>
- ------------------------
(1) Calculated as the average annual rental property revenue over the terms of
the respective leases, excluding tenant reimbursements for operating
expenses and excluding landlord allowances for operating expenses, divided
by the average total square feet under lease during the year.
(2) The average annual net effective rental per square foot decreased in the
first six months of 1994 because the increase in square footage available
relates primarily to bulk warehouse space which provides a lower average
annual net effective rent per square foot.
(3) During 1993 and the first six months of 1994, 822,128 and 895,194 square
feet, respectively, were leased or renewed at an average annual net
effective rental per leased square foot of $4.83.
</TABLE>
The following table shows lease expirations for leases in place as of June
30, 1994, for each of the ten years beginning with the remainder of 1994, for
the industrial Properties, assuming none of the tenants exercises early
termination or renewal options.
LEASE EXPIRATIONS
(INDUSTRIAL PROPERTIES)
<TABLE>
<CAPTION>
ANNUAL
NET NET PERCENT OF PERCENT OF
RENTABLE EFFECTIVE ANNUAL NET TOTAL
AREA (IN ANNUAL NET RENT PER EFFECTIVE LEASED SQ.
NUMBER SQ. FT.) EFFECTIVE SQ. FT. RENT FT.
YEAR OF OF SUBJECT TO RENT UNDER UNDER REPRESENTED REPRESENTED
LEASE LEASES EXPIRING EXPIRING EXPIRING BY EXPIRING BY EXPIRING
EXPIRATION EXPIRING LEASES LEASES(1) LEASES(1) LEASES LEASES
- ---------- -------- ---------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
1994 41 482,663 $ 2,197,220 $ 4.55 8.07% 7.18%
1995 62 754,801 2,689,445 $ 3.56 9.87% 11.22%
1996 73 1,119,598 3,978,869 $ 3.55 14.61% 16.65%
1997 38 596,879 2,288,973 $ 3.83 8.40% 8.88%
1998 45 1,085,355 4,249,120 $ 3.91 15.60% 16.14%
1999 30 901,996 3,623,537 $ 4.02 13.30% 13.41%
2000 13 634,889 2,682,186 $ 4.22 9.85% 9.44%
2001 7 271,576 1,519,722 $ 5.60 5.58% 4.04%
2002 1 600 4,660 $ 7.77 .02% .01%
2003 -- -- -- -- -- --
2004 and 10 876,938 4,009,043 $ 4.57 14.70% 13.03%
thereafter
--- ---------- -----------
TOTAL 320 6,725,295 $27,242,775 $ 4.05
--- ---------- -----------
--- ---------- -----------
<FN>
- ------------------------
(1) Represents annual net effective rent due from tenants in occupancy as of
June 30, 1994. Annual 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.
</TABLE>
S-20
<PAGE>
OFFICE PROPERTIES
The Company's portfolio of office Properties includes three downtown
buildings as well as 39 suburban office buildings located in developed business
parks and mixed-use developments with excellent interstate access and
visibility. The Company believes that all of its office Properties are among the
highest in quality available to tenants in its markets. This diverse mix of
office buildings is occupied by tenants spanning all segments of the office
market.
The following table sets forth the aggregate average percent leased and
annual net effective rental per leased square foot of available square footage
for all of the office Properties during the last three years.
AVERAGE OCCUPANCY AND AVERAGE RENTALS
(OFFICE PROPERTIES)
<TABLE>
<CAPTION>
ANNUAL NET
EFFECTIVE RENTAL
SQUARE FEET AVERAGE PER LEASED SQUARE
YEAR AVAILABLE OCCUPANCY FOOT (1)
- ------------------------------------------------------------ ----------- -------------- -----------------
<S> <C> <C> <C>
Through June 30, 1994....................................... 3,819,029 92.1% $10.92(2)
1993........................................................ 3,811,904 90.5% $10.91(2)
1992........................................................ 3,811,904 88.9% $10.89
1991........................................................ 3,305,162 83.7% $10.75
<FN>
- ------------------------
(1) Calculated as the average annual rental property revenue over the terms of
the respective leases, excluding tenant reimbursements for operating
expenses and excluding landlord allowances for operating expenses, divided
by the average total square feet under lease during the year.
(2) During 1993 and the first six months of 1994, 670,686 and 196,791 square
feet, respectively, were leased or renewed at an average annual net
effective rental per leased square foot of $10.28.
</TABLE>
The following table shows lease expirations for leases in place as of June
30, 1994, for each of the ten years beginning with the remainder of 1994, for
the office Properties, assuming none of the tenants exercises early termination
or renewal options.
S-21
<PAGE>
LEASE EXPIRATIONS
(OFFICE PROPERTIES)
<TABLE>
<CAPTION>
NET
RENTABLE ANNUAL NET PERCENT OF PERCENT OF
AREA (IN EFFECTIVE ANNUAL NET TOTAL
SQ. FT.) ANNUAL NET RENT PER EFFECTIVE LEASED SQ.
NUMBER SUBJECT EFFECTIVE SQ. FT. RENT FT.
YEAR OF OF TO RENT UNDER UNDER REPRESENTED REPRESENTED
LEASE LEASES EXPIRING EXPIRING EXPIRING BY EXPIRING BY EXPIRING
EXPIRATION EXPIRING LEASES LEASES (1) LEASES (1) LEASES LEASES
- ---------- -------- --------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
1994 52 122,042 $ 1,255,969 $10.29 3.18% 3.44%
1995 104 499,305 5,024,927 $10.06 12.71% 14.07%
1996 89 437,194 4,395,010 $10.05 11.12% 12.32%
1997 71 384,878 3,887,406 $10.10 9.83% 10.84%
1998 64 396,145 3,927,893 $ 9.92 9.93% 11.16%
1999 42 431,209 4,796,290 $11.12 12.13% 12.15%
2000 9 199,693 2,767,454 $13.86 7.00% 5.63%
2001 10 107,798 1,261,727 $11.70 3.19% 3.04%
2002 4 174,853 2,055,108 $11.75 5.20% 4.93%
2003 5 117,696 1,479,320 $12.57 3.74% 3.32%
2004 and 9 678,544 8,689,089 $12.81 21.97% 19.10%
thereafter
--- --------- -----------
TOTAL 459 3,549,357 $39,540,193 $11.14
--- --------- -----------
--- --------- -----------
<FN>
- ------------------------
(1) Represents annual net effective rent due from tenants in occupancy as of
June 30, 1994. Annual 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.
</TABLE>
RETAIL PROPERTIES
The retail Properties, which also cater to a variety of retail markets,
include one regional shopping center, 10 neighborhood shopping centers, three
shopping centers designed primarily to serve the business parks in which they
are located and three free-standing single tenant buildings. The retail
Properties are generally located in upscale suburban and high growth areas.
The following table sets forth the aggregate average percent leased and
annual net effective rental per leased square foot for all of the retail
Properties during the last three years.
AVERAGE OCCUPANCY AND AVERAGE RENTALS
(RETAIL PROPERTIES)
<TABLE>
<CAPTION>
ANNUAL NET
EFFECTIVE RENTAL
SQUARE FEET AVERAGE PER LEASED SQUARE
YEAR AVAILABLE OCCUPANCY FOOT (1)
- ------------------------------------------------------------ ----------- -------------- -----------------
<S> <C> <C> <C>
Through June 30, 1994....................................... 1,062,879 90.8% $8.92(2)
1993........................................................ 816,506 91.2% $9.04(2)
1992........................................................ 795,506 87.2% $8.85
1991........................................................ 795,506 81.0% $8.70
<FN>
- ------------------------
(1) Calculated as the average annual rental property revenue over the terms of
the respective leases, excluding tenant reimbursements for operating
expenses and excluding landlord allowances for operating expenses, divided
by the average total square feet under lease during the year.
(2) During 1993 and the first six months of 1994, 73,668 and 60,008 square
feet, respectively, were leased or renewed at an average annual net
effective rental per leased square foot of $11.28.
</TABLE>
S-22
<PAGE>
The following table shows lease expirations for leases in place as of June
30, 1994, for each of the ten years beginning with the remainder of 1994, for
the retail Properties, assuming none of the tenants exercises early termination
or renewal options.
LEASE EXPIRATIONS
(RETAIL PROPERTIES)
<TABLE>
<CAPTION>
NET ANNUAL
RENTABLE NET PERCENT OF PERCENT OF
AREA (IN EFFECTIVE ANNUAL NET TOTAL
SQ. FT.) ANNUAL NET RENT PER EFFECTIVE LEASED SQ.
NUMBER SUBJECT EFFECTIVE SQ. FT. RENT FT.
YEAR OF OF TO RENT UNDER UNDER REPRESENTED REPRESENTED
LEASE LEASES EXPIRING EXPIRING EXPIRING BY EXPIRING BY EXPIRING
EXPIRATION EXPIRING LEASES LEASES(1) LEASES(1) LEASES LEASES
- ---------- -------- -------- ---------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
1994 21 41,911 $ 429,631 $10.25 4.75% 4.32%
1995 26 69,510 696,904 $10.03 7.71% 7.17%
1996 43 154,295 1,408,215 $ 9.13 15.57% 15.91%
1997 34 98,459 1,072,238 $10.89 11.85% 10.16%
1998 27 81,038 869,241 $10.73 9.61% 8.36%
1999 16 45,818 559,125 $12.20 6.18% 4.73%
2000 6 48,730 439,876 $ 9.03 4.86% 5.03%
2001 3 28,900 265,987 $ 9.20 2.94% 2.98%
2002 6 92,445 843,611 $ 9.13 9.33% 9.54%
2003 4 36,496 329,877 $ 9.04 3.65% 3.76%
2004 and 11 271,905 2,130,431 $ 7.84 23.55% 28.04%
thereafter
--- -------- ----------
TOTAL 197 969,507 $9,045,136 $ 9.33
--- -------- ----------
--- -------- ----------
<FN>
- ------------------------
(1) Represents annual net effective rent due from tenants in occupancy as of
June 30, 1994. Annual 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.
</TABLE>
LAND
Substantially all the Land is located adjacent to the Properties in
industrial or business parks that have been developed by the Company.
Approximately 80% of the Land is zoned for industrial use, with the remainder
zoned for either office or retail use. All of the Land is unencumbered, has
available to it appropriate utilities and is ready for immediate development.
The Company believes that approximately 125 buildings containing approximately
13.3 million square feet of commercial development can be constructed on the
Land. The Company believes that the Land gives it a competitive advantage over
other real estate companies operating in its markets.
The following table describes the acreage and zoning of the Land as of June
30, 1994.
S-23
<PAGE>
LAND HELD FOR DEVELOPMENT
<TABLE>
<CAPTION>
YEAR COMPANY'S
DESCRIPTION/LOCATION ZONED USE ACQUIRED ACREAGE OWNERSHIP
- -------------------------------------- ----------- ----------- ----------- --------------
<S> <C> <C> <C> <C>
Park 100 Business Park Industrial 1972-1993 353.1 100%
Indianapolis, IN
South Park Business Center Industrial 1989 36.1 100%
Greenwood, IN
Park 50 TechneCenter Industrial 1977/1989 60.9 100%
Cincinnati, OH
World Park Industrial 1987/1991 126.5 100%
Cincinnati, OH
Southpark Business Center Industrial 1989 16.8 100%
Hebron, KY
Governor's Pointe Industrial 1986 51.1 100%(1)
Cincinnati, OH
Haywood Oaks TechneCenter Industrial 1988 26.7 100%
Nashville, TN
Park 101 Industrial 1986 60.1 100%
Decatur, IL
Southpointe Industrial 1994 53.7 100%
Columbus, OH
Parkwood Crossing Office 1989 45.0 50%(2)
Indianapolis, IN
Hamilton Crossing Office 1988 94.9 50%(2)
Carmel, IN
Merchant Street Office 1990 5.6 100%
Cincinnati, OH
Tri-County Office Park Office 1986 3.2 100%
Cincinnati, OH
American Center Office 1990 2.6 100%
Nashville, TN
Corporate Park at Tuttle Crossing Office 1989/1994 16.5 100%
Columbus, OH
Fidelity Drive Office 1984 10.0 100%
Cincinnati, OH
South Park Business Center Retail 1989 20.1 100%
Greenwood, IN
Governor's Plaza Retail 1988 1.1 100%
Cincinnati, OH
Greenwood Corner Retail 1986 0.4 100%
Indianapolis, IN
</TABLE>
S-24
<PAGE>
<TABLE>
<CAPTION>
YEAR COMPANY'S
DESCRIPTION/LOCATION ZONED USE ACQUIRED ACREAGE OWNERSHIP
- -------------------------------------- ----------- ----------- ----------- --------------
<S> <C> <C> <C> <C>
Coldwater Crossing Retail 1994 8.4 100%
Ft. Wayne, IN
Sawmill Road Retail 1994 1.5 100%
Columbus, OH
<FN>
- ------------------------
(1) Pursuant to a land contract whereby the Company is the purchaser.
(2) This Land is owned by a partnership in which the Company is a 50% partner.
</TABLE>
TENANTS
The Company's Properties have a diverse and stable base of approximately
1,000 tenants. Many of the tenants are Fortune 500 companies and engage in a
wide variety of businesses, including manufacturing, retailing, wholesale trade,
distribution, and professional services. Approximately 50% of the square footage
of the Properties is occupied by tenants with a net worth based on book value of
$100 million or greater. More than 80% of the gross leasable area of the
Properties is occupied by tenants who have been in business for more than 10
years. The Company renewed 70% of the tenants available to be renewed over the
18 months ended June 30, 1994, on approximately 2 million square feet up for
renewal. No single tenant accounts for more than 5% of the Company's total
revenues.
The following table sets forth information regarding the 10 largest tenants
of the Properties based upon 1993 base contractual rental revenue.
<TABLE>
<CAPTION>
LEASE PERCENTAGE 1993 BASE PERCENTAGE OF
EXPIRATION SQUARE OF TOTAL RENTAL BASE RENTAL
TENANT LOCATION DATE FOOTAGE SQUARE FEET REVENUES (4) RENTAL REVENUES
- ------------------------- ------------ ----------- --------- ----------- --------------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
General Electric......... Cincinnati Varies(1) 269,011 2.3% $ 3,896 4.7%
SDRC..................... Cincinnati 4/30/11 240,513 2.0% 2,286 2.7%
Lenscrafters, Inc........ Cincinnati 12/31/99 156,779 1.3% 2,250 2.7%
LCI Communications....... Cincinnati 11/30/05 164,639 1.4% 2,195 2.6%
Associated Group......... Indianapolis Varies(2) 188,988 1.6% 1,845 2.2%
Federated Dept. Stores... Cincinnati 4/30/99(3) 157,584 1.3% 1,820 2.2%
Cincinnati Enquirer...... Cincinnati 6/30/12 117,301 1.0% 1,689 2.0%
Cincinnati Bell
Telephone............... Cincinnati 4/14/96 92,551 .8% 1,629 2.0%
Ordernet Services,
Inc..................... Cincinnati 9/30/00 106,300 .9% 1.613 2.0%
Champion Spark Plugs..... Indianapolis 10/14/98 512,777 4.3% 1,327 1.6%
--------- --- ------- ---
TOTAL.................... 2,006,443 16.9% $20,550 24.7%
--------- --- ------- ---
--------- --- ------- ---
<FN>
- ------------------------
(1) General Electric represents a total of 10 leases, with maturities ranging
from 1994 to 1997.
(2) Associated Group (Blue Cross/Blue Shield) represents a total of seven
leases under various tenant names, with maturities ranging from 1996 to
1998.
(3) Tenant has exercised an option to terminate 114,434 square feet of the
indicated space to relocate in October, 1994 into a new facility being
developed on a third party fee basis by the Company. The Company has
obtained management of the new facility and is negotiating with prospects
to re-lease the space to be vacated.
(4) Base rental revenues represent the annualized gross contractual rent as of
December 31, 1993 including landlord operating expense allowances and
excluding tenant operating expense reimbursements.
</TABLE>
S-25
<PAGE>
TABLE OF PROPERTIES
The following table sets forth information concerning the Company's
properties as of June 30, 1994.
<TABLE>
<CAPTION>
COMPANY'S SQUARE PERCENT
NAME/LOCATION OWNERSHIP YEAR BUILT FEET LEASED (1) SIGNIFICANT TENANTS (2)
- -------------------------- ---------- -------------- ------- ---------- -----------------------------------
<S> <C> <C> <C> <C> <C>
INDUSTRIAL
Indianapolis, Indiana
PARK 100 BUSINESS PARK
Building 38 100% 1978 6,000 100% Langford's Collision (100%)
Building 43 100% 1971 26,871 100% Integrated Clinical (100%)
Building 74 10%-50%(3) 1988 257,400 100% South Carolina Tees (35%), Ternes
Packaging - Indiana (65%)
Building 76 10%-50%(3) 1988 81,695 100% Telamon Corp. (26%), Howard W. Sams
(19%), Pro-Vet Cos., Inc. (25%),
Ingersoll-Rand (20%)
Building 77 100% 1988 193,400 100% Service Graphics (65%), Federal
Mogul Corp. (35%)
Building 78 10%-50%(3) 1988 512,777 100% Champion Spark Plug (100%)
Building 79 100% 1988 66,000 80% Encor Technologies, Inc. (53%),
Braun Media Services, Inc. (13%)
Building 80 100% 1988 66,000 88% Data Chem., Inc. (26%), Arcane
Leasing Resources (13%), SSI
Medical Services (10%), Hercules
Hydraulics (12%), Coast to Coast
Analytical (20%)
</TABLE>
S-26
<PAGE>
<TABLE>
<CAPTION>
COMPANY'S SQUARE PERCENT
NAME/LOCATION OWNERSHIP YEAR BUILT FEET LEASED (1) SIGNIFICANT TENANTS (2)
- -------------------------- ---------- -------------- ------- ---------- -----------------------------------
<S> <C> <C> <C> <C> <C>
Building 83 100% 1989 96,000 100% Midwest Roll Forming (30%), Tank
Construction (10%), Telamon Corp.
(25%), State Lottery Commission
(22%), Bel Hybrids & Magnetics
(13%)
Building 84 100% 1989 96,000 100% Magnetech Corp. (27%), Datagraphic,
Inc. (18%), Courterco, Inc. (30%),
Nina International, Inc. (25%)
Building 85 10%-50%(3) 1989 180,100 100% Pepsico, Inc. (100%)
Building 87 10%-50%(3) 1989 350,000 100% Epson America, Inc. (100%)
Building 89 10%-50%(3) 1990 311,600 100% Becton Dickinson & Co. (100%)
Building 91 10%-50%(3) 1990 144,000 100% Pepsico, Inc. (60%), Cabot Safety
Corp. (40%)
Building 92 10%-50%(3) 1991 45,917 100% Keebler Company (100%)
Building 95 100% 1993 336,000 100% Caterpillar Logistics (100%)
Building 109 100% 1985 46,000 82% Createc Corp. (16%), First Data
Resources (12%), NBG Ent. (11%),
Quick Change (12%), Wabash Valley
Power Assoc. (12%)
Building 117 10%-50%(3) 1988 135,600 99% Accordia School Benefits (29%)
Building 120 10%-50%(3) 1989 54,982 100% Nat'l Retail Hardware (38%),
Peoples Bank & Trust (40%)
</TABLE>
S-27
<PAGE>
<TABLE>
<CAPTION>
COMPANY'S SQUARE PERCENT
NAME/LOCATION OWNERSHIP YEAR BUILT FEET LEASED (1) SIGNIFICANT TENANTS (2)
- -------------------------- ---------- -------------- ------- ---------- -----------------------------------
<S> <C> <C> <C> <C> <C>
Building 122 100% 1990 73,274 96% Haynes & Pittenger (38%), RJE
Interiors, Inc. (14%), Acordia
Health Industry (28%)
Building 125 100% 1994 98,000 100% Day Dream Publishing, Inc. (100%)
Building 126 100% 1984 60,100 64% Harlan Bakeries, Inc. (26%),
Ackerman Chacco Co., Inc. (14%),
Amarr Cos., Inc. (13%), Commercial
Movers, Inc. (11%)
SHADELAND STATION
Buildings 204 & 205 100% 1984 48,600 87% Southwestern Bell (80%)
HUNTER CREEK BUSINESS PARK
Building 1 10%-50%(3) 1989 86,500 100% Trilithic (41%), Nissin Int'l
Transport (22%), Exhaust Prod.
Warehouse (15%), Lazarus Real
Estate, Inc. (22%)
Building 2 10%-50%(3) 1989 202,560 100% Wal-Mart Stores (100%)
HILLSDALE TECHNECENTER
Building 4 100% 1987 73,874 88% Dugdale Communications (13%),
Community Hospitals (31%), Net
Midwest, Inc. (12%)
Building 5 100% 1987 67,500 92% Wiltrout Sales (17%), Advanced
Automation Tech. (12%)
Building 6 100% 1987 64,000 100% Adminastar (100%)
</TABLE>
S-28
<PAGE>
<TABLE>
<CAPTION>
COMPANY'S SQUARE PERCENT
NAME/LOCATION OWNERSHIP YEAR BUILT FEET LEASED (1) SIGNIFICANT TENANTS (2)
- -------------------------- ---------- -------------- ------- ---------- -----------------------------------
<S> <C> <C> <C> <C> <C>
Carmel, Indiana
HAMILTON CROSSING
Building 1 100% 1989 51,825 86% Charles Schwab & Co. (30%), Bacompt
Systems, Inc. (28%)
Greenwood, Indiana
SOUTH PARK BUSINESS CENTER
Building 2 100% 1990 86,806 99% Acordia Construction Benefits
(12%), American Electronics, Inc.
(10%), Pro Industries (11%)
Cincinnati, Ohio (4)
PARK 50 TECHNECENTER
Building 20 100% 1987 96,000 60% Computer Technology (31%)
Building 25 100% 1989 78,328 100% Zonic Corp. (45%), SDRC (25%),
Hyper Shoppes, Inc. (30%)
GOVERNOR'S POINTE
4700 Building 100% 1987 76,400 89% Allen Bradley Co. (19%), Konica
Business Machines (12%)
4800 Building 100% 1989 80,000 92% General Electric (50%), Community
Mutual Ins. Co. (27%)
4900 Building 100% 1987 76,400 90% Federated Dept. Stores (57%),
Intergraph Corporation (13%)
WORLD PARK
Building 5 100% 1987 59,700 75% Amerimed Equip. (17%), Pak/ Teem,
Inc. (11%)
</TABLE>
S-29
<PAGE>
<TABLE>
<CAPTION>
COMPANY'S SQUARE PERCENT
NAME/LOCATION OWNERSHIP YEAR BUILT FEET LEASED (1) SIGNIFICANT TENANTS (2)
- -------------------------- ---------- -------------- ------- ---------- -----------------------------------
<S> <C> <C> <C> <C> <C>
Building 6 100% 1987 92,400 100% Caterpillar Logistics (56%),
Omnicare, Inc. (26%), Copy
Duplicating Products (11%)
Building 7 100% 1987 96,000 100% CTL-Aerospace (100%)
Building 8 100% 1989 192,000 100% Container Corp. (38%), Duplex
Products, Inc. (31%), Dobson
Moving & Storage (13%), Perkins
Restaurant Co. (18%)
Building 9 100% 1989 58,800 89% Lenscrafters (20%), Philips Medical
Systems (20%)
Building 11 100% 1989 96,000 90% Cincinnati Screen Supply (20%), The
U.S. Shoe Corp. (70%)
Building 14 100% 1989 166,400 100% Kenco/Microage (62%), Suntory Water
Group (12%)
Building 15 100% 1990 93,600 100% Stolle Research & Develop (100%)
Building 16 100% 1989 93,600 100% Valvoline, Inc. (100%)
ENTERPRISE BUSINESS PARK
Building A 100% 1990 87,400 95% The Future Now, Inc. (38%),
Advanced Office Systems (14%)
Building B 100% 1990 84,940 87% General Electric Supply (11%),
Payless Cashways, Inc. (18%)
Cincinnati, Ohio (4)
TRI-COUNTY BUSINESS PARK
Xetron 10%(5) 1994 100,193 100% Xetron (100%)
</TABLE>
S-30
<PAGE>
<TABLE>
<CAPTION>
COMPANY'S SQUARE PERCENT
NAME/LOCATION OWNERSHIP YEAR BUILT FEET LEASED (1) SIGNIFICANT TENANTS (2)
- -------------------------- ---------- -------------- ------- ---------- -----------------------------------
<S> <C> <C> <C> <C> <C>
OTHER INDUSTRIAL --
CINCINNATI
U.S. Post Office 40%(6) 1992 57,886 100% U.S. Postal Service (100%)
Building
Columbus, Ohio
PET FOODS
Pet Foods Distribution 100% 1993 120,000 100% Pet Foods (100%)
Building
Hebron, Kentucky (7)
SOUTHPARK BUSINESS
CENTER
Building 1 100% 1990 96,000 100% James & Loretta England (44%),
Surgical Laser Technology (33%),
Quality Food & Vending (13%),
Drysdale Direct Express (10%)
Building 3 100% 1991 192,000 73% Cincinnati Terminal Warehouse (73%)
CR Services 100% 1994 214,840 100% SKF USA, Inc. (100%)
Redken Laboratories 100% 1994 166,400 100% Redken Laboratories, Inc. (100%)
Decatur, Illinois
PARK 101 BUSINESS CENTER
Building 3 100% 1979 75,600 74% Illinois Power Company (12%)
Building 8 100% 1980 50,400 84% Federal Express (14%), Decatur
Office Systems (14%), Hinckley-
Schmitt, Inc. (13%)
</TABLE>
S-31
<PAGE>
<TABLE>
<CAPTION>
COMPANY'S SQUARE PERCENT
NAME/LOCATION OWNERSHIP YEAR BUILT FEET LEASED (1) SIGNIFICANT TENANTS (2)
- -------------------------- ---------- -------------- ------- ---------- -----------------------------------
<S> <C> <C> <C> <C> <C>
Nashville, Tennessee
HAYWOOD OAKS
TECHNECENTER
Building 2 100% 1988 50,400 100% Beacon Int'l, U.S.A. (19%), Major
Video Concepts (31%), Synermed,
Inc. (17%)
Building 3 100% 1988 52,800 100% Copper & Brass Sales (23%), ATEC
Associates, Inc. (30%), Tennessee
Scale Works (14%), Virogroup, Inc.
(25%)
Building 4 100% 1988 46,800 100% US Telecom Inc/ Sprint (62%),
Product Assembly (17%)
Building 5 100% 1988 60,300 96% Allen-Bradley Co., Inc. (28%)
Building 6 100% 1989 113,400 100% Primus Automotive (48%)
Milwaukee, Wisconsin
Music Box Building 33%(8) 1993 153,600 100% San Francisco Music Box Company, a
subsidiary of The Woolworth
Companies (100%)
OFFICE
Indianapolis, Indiana
PARK 100 BUSINESS PARK
Building 34 100% 1979 22,272 82% James H. Drew Corp. (20%), Indiana
Properties, Inc. (12%), Million &
Co., P.C. (12%)
</TABLE>
S-32
<PAGE>
<TABLE>
<CAPTION>
COMPANY'S SQUARE PERCENT
NAME/LOCATION OWNERSHIP YEAR BUILT FEET LEASED (1) SIGNIFICANT TENANTS (2)
- -------------------------- ---------- -------------- ------- ---------- -----------------------------------
<S> <C> <C> <C> <C> <C>
Building 116 100% 1988 35,700 100% Technalysis, Inc. (37%), Woolpert
Consultants (37%)
Building 118 100% 1988 35,700 100% Benicorp Ins. (33%), Kosene &
Kosene Dev. (12%), Construction
Magazine Grp. (15%), Acordia
Senior Benefits (20%), Policy
Management Systems (20%)
Building 119 100% 1989 53,300 97% Anthem Health Sys. (91%)
CopyRite Building 50%(9) 1992 48,000 100% Alco Standard Corporation (100%)
WOODFIELD AT THE
CROSSING
Two Woodfield Crossing 100% 1987 117,818 90% General Accident Ins. Co. (19%)
Three Woodfield Crossing 100% 1989 259,777 90% E.F.S., Inc. (20%), Medi-Span, Inc.
(10%)
PARKWOOD CROSSING
Parkwood I 50%(10) 1990 108,281 98% Tandem Computer (12%), VanGuard
Services (11%)
SHADELAND STATION
7240 Shadeland Station 67%(11) 1985 45,585 98% Den-Mat Corp. (14%), James River
Paper Co., Inc. (44%)
7330 Shadeland Station 100% 1988 42,619 100% American Family Ins. (78%), Medcor
Data (12%)
7340 Shadeland Station 100% 1989 32,235 100% Truevision, Inc. (75%), Analysts
International (25%)
</TABLE>
S-33
<PAGE>
<TABLE>
<CAPTION>
COMPANY'S SQUARE PERCENT
NAME/LOCATION OWNERSHIP YEAR BUILT FEET LEASED (1) SIGNIFICANT TENANTS (2)
- -------------------------- ---------- -------------- ------- ---------- -----------------------------------
<S> <C> <C> <C> <C> <C>
7351 Shadeland Station 100% 1983 27,740 76% Mgmt. Computer (23%), Northside
Counseling (11%), Garrison &
Kiefer (14%), Action Systems
Associates (10%)
7369 Shadeland Station 100% 1989 15,551 100% Truevision, Inc. (70%), Fairbanks
Hospital, Inc. (14%), Techsoft
Systems, Inc. (16%)
7400 Shadeland Station 100% 1990 49,544 100% Edward B. Morris Assoc. (27%),
Ryland Mortgage Company (12%)
KEYSTONE AT THE CROSSING
F.C. Tucker Building 100% 1978 4,840 100% F. C. Tucker (100%)
(12)
3520 Commerce Crossing 100% 1976 30,000 100% Indiana Wesleyan University (100%)
(13)
Carmel, Indiana
CARMEL MEDICAL CENTER
Building I (14) 100% 1985 40,060 100% Indiana Institute for Low Back Care
(17%), Carmel OB/ GYN (12%)
Building II (14) 100% 1989 39,973 100% St. Vincent Sports Med. (35%), St.
Vincent Hosp. & Health (31%)
Greenwood, Indiana
SOUTH PARK BUSINESS
CENTER
Building 1 100% 1989 39,715 96% Alverno Admin (11%), Brylane L.P.
(29%), Cummins Engine Co., Inc.
(12%)
</TABLE>
S-34
<PAGE>
<TABLE>
<CAPTION>
COMPANY'S SQUARE PERCENT
NAME/LOCATION OWNERSHIP YEAR BUILT FEET LEASED (1) SIGNIFICANT TENANTS (2)
- -------------------------- ---------- -------------- ------- ---------- -----------------------------------
<S> <C> <C> <C> <C> <C>
Building 3 100% 1990 35,900 100% United Home Life Ins. (50%),
Personnel Management, Inc. (24%),
Philip Morris U.S.A. (12%)
Cincinnati, Ohio(4)
GOVERNOR'S HILL
8600 Governor's Hill 100% 1986 200,584 88% Lenscrafters (72%)
8700 Governor's Hill 100% 1985 58,617 100% General Electric Corp. (100%)
8790 Governor's Hill 100% 1985 58,177 99% General Electric Corp. (28%),
Tandem Computers, Inc. (14%)
8800 Governor's Hill 100% 1985 28,700 100% Southern Ohio Telephone (85%)
GOVERNOR'S POINTE
4605 Governor's Pointe 100% 1990 175,485 100% GE Capital (72%), Cincom Systems,
Inc. (16%)
4705 Governor's Pointe 100% 1988 140,984 100% Federated Dept. Stores (81%), Ford
Motor Company (19%)
4770 Governor's Pointe 100% 1986 76,037 66% Siemens Energy (7%)
PARK 50 TECHNECENTER
SDRC Building 100% 1991 221,215 100% SDRC (100%)
400 TechneCenter Drive 100% 1985 70,644 83% Philip Morris U.S.A. (11%),
Clermont Savings Bank (11%)
DOWNTOWN CINCINNATI
311 Elm Street (15) 100% 1902/1986(16) 90,127 100% Star Bank (75%), Space Design
Interior, Inc. (25%)
312 Plum Street 100% 1987 230,000 90% Cincinnati Bell (29%), Savings &
Loan Data Corp. (26%)
</TABLE>
S-35
<PAGE>
<TABLE>
<CAPTION>
COMPANY'S SQUARE PERCENT
NAME/LOCATION OWNERSHIP YEAR BUILT FEET LEASED (1) SIGNIFICANT TENANTS (2)
- -------------------------- ---------- -------------- ------- ---------- -----------------------------------
<S> <C> <C> <C> <C> <C>
312 Elm Street (17) 100% 1992 378,000 87% Cincinnati Enquirer (28%),
Prudential Insurance Co. (24%),
GSA (20%)
KENWOOD COMMONS
Building I 50%(18) 1986 46,470 100% Digital Communications (100%)
Building II 50%(18) 1986 46,434 88% Bethesda Health Care (16%), Cross &
Associates (18%)
OTHER OFFICE --
CINCINNATI
Triangle Office Park 100% 1965/1985(19) 172,650 84% Accufax (10%)
Fidelity Drive Building 100% 1972 38,000 100% Reuben H. Donnelley Corp. (100%)
Tri-County Office Park 100% 1971, 1973(&20) 102,166 59% Pope & Assoc. (13%)
1982
Columbus, Ohio
THE CORPORATE PARK AT
TUTTLE CROSSING
4600 Lakehurst 100% 1990 106,300 100% Ordernet Services (100%)
4650 Lakehurst 100% 1990 164,639 100% LCI Communications (Litel) (100%)
5555 Parkcenter 100% 1992 83,971 100% Xerox (33%), Metal Forge (30%),
VOCA (28%)
Livonia, Michigan
SEVEN MILE CROSSING
38705 Seven Mile (21) 100% 1988 113,066 95% Amoco Oil Co. (12%)
38701 Seven Mile (21) 100% 1989 132,153 99% U.S. Sprint Communications (21%)
</TABLE>
S-36
<PAGE>
<TABLE>
<CAPTION>
COMPANY'S SQUARE PERCENT
NAME/LOCATION OWNERSHIP YEAR BUILT FEET LEASED (1) SIGNIFICANT TENANTS (2)
- -------------------------- ---------- -------------- ------- ---------- -----------------------------------
<S> <C> <C> <C> <C> <C>
RETAIL
Indianapolis, Indiana
PARK 100 BUSINESS PARK
Woodland Shoppes 100% 1989 19,716 70% McTee, Inc. (18%), D.K. Brunchies,
Building 121 Inc. (18%), Dr. Jeffrey Golder
(11%)
Park 100 Retail Center 100% 1978 14,504 80% Little Bit of Italy (20%), The
Cleaning Shop (10%), Shoe Hospital
Corp. (10%), Park 100 Liquors
(21%)
CASTLETON CORNER
Michael's Plaza 100% 1984 46,374 92% Michael's Arts & Crafts (40%),
Hoosier Cash & Carry (28%)
Cub Plaza 100% 1986 60,136 93% Pet Food Supermarket (38%), Outback
Steakhouse, Inc. (12%)
Fort Wayne, Indiana
Coldwater Crossing 100% 1990 246,365 93% Cub Foods (26%), Regal Cinemas,
Inc. (13%)
Greenwood, Indiana
GREENWOOD CORNER
First Indiana Bank 100% 1988 2,400 100% First Indiana Bank (100%)
Branch
Greenwood Corner Shoppes 100% 1986 50,840 97% Fraziers Distributing (11%), Drug
Emporium (45%)
Dayton, Ohio
Sugarcreek Plaza 100% 1988 77,940 98% Drug Emporium (31%)
</TABLE>
S-37
<PAGE>
<TABLE>
<CAPTION>
COMPANY'S SQUARE PERCENT
NAME/LOCATION OWNERSHIP YEAR BUILT FEET LEASED (1) SIGNIFICANT TENANTS (2)
- -------------------------- ---------- -------------- ------- ---------- -----------------------------------
<S> <C> <C> <C> <C> <C>
Cincinnati, Ohio (4)
Governor's Plaza 100% 1990 181,493 100% Wal-Mart (63%)
King's Mall Shopping 100% 1990 52,661 83% Body Dynamics (26%), Evenson Cards
Center I Shop (11%), Grand Oriental (12%)
King's Mall Shopping 100% 1988 67,725 100% Pet Food Supermarket (37%),
Center II Discovery Zone (15%)
Steinberg's 85%(22) 1993 21,008 100% Steinberg's Inc. (100%)
Park 50 Plaza 100% 1989 18,000 28% Park 50 Copy (13%)
Ellisville, Missouri
Ellisville Plaza 100% 1987 32,754 84% Pier I Imports (22%), Fitzpatrick
Pharmacy (12%), Outback Steakhouse
(20%)
Bloomington, Illinois
Lakewood Plaza Shopping 100% 1987 84,410 94% Shoe Carnival (21%), Whitlock
Center Automotive (14%)
Champaign, Illinois
Market View 100% 1985 86,553 72% T.J. Maxx (29%), Silo #425 (14%)
Livonia, Michigan
Cooker Restaurant 100%(23) N/A N/A 100% Cooker Restaurant
INDUSTRIAL -- UNDER
CONSTRUCTION
Indianapolis, Indiana
PARK 100 BUSINESS PARK
Building 96 100% 1994 553,900 100% Silver Burdett Ginn, Inc. (100%)
Building 97 100% 1994 280,800 44% Butler-MacDonald, Inc. (44%)
</TABLE>
S-38
<PAGE>
<TABLE>
<CAPTION>
COMPANY'S SQUARE PERCENT
NAME/LOCATION OWNERSHIP YEAR BUILT FEET LEASED (1) SIGNIFICANT TENANTS (2)
- -------------------------- ---------- -------------- ------- ---------- -----------------------------------
<S> <C> <C> <C> <C> <C>
OFFICE -- UNDER
CONSTRUCTION
Columbus, Ohio
TUTTLE CROSSING
Building 3 100% 1994 49,600 94% Indiana Insurance (50%), Geraghty &
Miller, Inc. (39%)
Building 4 100% 1994 57,660 100% Sterling Software, Inc. (100%)
Building 5 100% 1994 101,200 60% John Alden Life Insurance (60%)
MEDICAL OFFICE -- UNDER
CONSTRUCTION
Columbus, Ohio
Veterans Administration 100% 1994 118,000 100% VA Hospital (100%)
Clinic
Greenwood, Indiana
St. Francis Medical 100%(24) 1994 95,579 21%(25) --
Building
RETAIL -- UNDER
CONSTRUCTION
Columbus, Ohio
Galyan's Trading Company 100% 1994 74,636 100% Galyan's Trading Co. (100%)
Cincinnati, Ohio (4)
Kohl's 100% 1994 80,684 100% Kohl's (100%)
Sports Unlimited 85% 1994 67,148 100% Cincinnati Sports (76%), Fore
Seasons Golf, Inc. (10%), Brown
Group Retail, Inc. (14%)
<FN>
- ------------------------
(1) Includes space leased, even if not occupied, as of June 30, 1994.
(2) Includes tenants leasing 10% or more of square footage in any one Property
(with the percentage of square footage in parentheses) or the largest
tenant if no tenant is over 10%.
(3) These buildings are owned by a partnership in which the Company is a joint
venture partner. The Company owns a 10% capital interest in the partnership
and will receive a 50% interest in the residual cash flow after payment of
a preferred return to the other partner on its capital interest.
</TABLE>
S-39
<PAGE>
<TABLE>
<S> <C>
(4) Properties designated to be in Cincinnati, Ohio may be in the greater
Cincinnati area.
(5) The Company owns a 10% interest in this building as a limited partner and
shares in the cash flow from the building in accordance with such ownership
interest.
(6) This building is owned by a limited partnership in which the Company has a
1% general partnership interest and a 39% limited partnership interest. The
Company shares in the cash flow from such building in accordance with the
Company's ownership interest.
(7) Although located in Hebron, Kentucky, this is considered part of the
greater Cincinnati, Ohio, or Covington, Kentucky area.
(8) The Company owns a 33-1/3% interest in this building as a limited partner
and shares in the cash flow from the building in accordance with such
ownership interest.
(9) The Company owns a 50% general partnership interest in this building with
the other 50% being owned by the tenant in the building. The Company shares
in the cash flow from the building in accordance with such partnership
interest.
(10) This building is owned by Parkwood Crossing Joint Venture, a partnership in
which the Company is a joint venture partner. The Company has a 50% general
partnership interest and shares in the cash flow from such building in
accordance with such ownership interest after payment of a cumulative
preferred return to the other partner.
(11) The Company owns a 66.67% general partnership interest in the partnership
owning this building. The remaining interest is owned by a former tenant in
the building. The Company shares in the cash flow of this building in
accordance with the Company's partnership interest.
(12) The Company has a leasehold interest in the land underlying this building
with a lease term expiring October 31, 2067.
(13) The Company has a leasehold interest in the building and the underlying
land with a lease term expiring May 9, 2006.
(14) The Company owns these buildings and has a leasehold interest in the land
underlying these buildings, with the lease term expiring November 16, 2043.
(15) The Company has a leasehold interest in the building and the underlying
land with a lease term expiring December 31, 2020. The Company has an
option to purchase the fee interest in the property at any time.
(16) This building was renovated in 1986.
(17) A portion of the land underlying this building is held by the Company as a
leasehold interest, with the lease term expiring March 31, 2021.
(18) These buildings are owned by Kenwood Office Associates, a partnership in
which the Company has a 50% general partnership interest. The Company
shares in the cash flow from such buildings in accordance with the
Company's ownership interest.
(19) This building was renovated in 1985.
(20) Tri-County Office Park has four buildings. One was built in 1971, two were
built in 1973, and one was built in 1982.
(21) The Company has a leasehold interest in the land underlying these
buildings, with a lease term expiring May 31, 2057, and the Company owns
the buildings.
(22) The Company has a contractual obligation to acquire a 100% ownership
interest in this building, which should occur prior to November 1, 1994.
</TABLE>
S-40
<PAGE>
<TABLE>
<S> <C>
(23) The Company holds the land under this building under a long-term lease with
the lease term expiring May 31, 2057 and subleases the land to the tenant
with the sublease term expiring on August 31, 2009. In the event of a
default by the tenant under the sublease, the Company would acquire title
to the building upon termination of the sublease.
(24) The Company will hold a leasehold interest in the land underlying this
owned building upon
completion for a term of 50 years commencing when the building is
completed, with two 20-year options.
(25) This represents leases for which tenants have committed, but for which the
actual leases have not been executed.
</TABLE>
S-41
<PAGE>
MANAGEMENT
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE PRINCIPAL OCCUPATIONS AND OTHER DIRECTORSHIPS
- ------------------------- --- ---------------------------------------------------------------------------------
<S> <C> <C>
John W. Wynne (1) 61 Director and Chairman of the Board; Director of First Indiana Corporation;
retired from Bose McKinney & Evans, attorneys. Mr. Wynne is one of the original
founders of the Company.
Thomas L. Hefner (1) 47 Director; President and Chief Executive Officer. Mr. Hefner joined the Company in
1981 and became Chief Operating Officer in 1986. Before joining the Company he
served as a Vice President of Indiana National Bank and Senior Vice President of
INB Mortgage Corporation. He has also served as the General Manager of the
Company's Indiana operations.
Daniel C. Staton (1) 41 Director; Executive Vice President and Chief Operating Officer. Mr. Staton joined
the Company in 1981 and has been responsible for the Company's Ohio operations
since 1983.
Darell E. Zink, Jr. (1) 47 Director; Executive Vice President, Chief Financial Officer and Assistant
Secretary; Director of Inland Mortgage Corporation. Mr. Zink, Jr. joined the
Company in 1982. He is a former partner of the Indianapolis law firm of Bose
McKinney & Evans.
Geoffrey Button 45 Director; Executive Director of Wyndham Investments Limited, a property holding
company of Allied Lyons Pension Funds which has been an investor in a
substantial number of properties developed by the Company; Director of Major
Realty, a Florida-based development company.
Howard L. Feinsand 46 Director; Senior Vice President of Capital Markets, Pricing and Investor Programs
of G E Capital Aviation Services, Inc., a wholly-owned subsidiary of G E Capital
Services; formerly managing partner of Golenbock and Barrell, attorneys, from
1987 to 1989.
John D. Peterson 60 Director; Chairman and Chief Executive Officer of City Securities Corporation, a
securities brokerage firm headquartered in Indianapolis, Indiana which he has
served in a variety of positions since 1955; Director of Capital Industries,
Inc., a distributor of truck parts and related services, and Lilly Industries,
Inc., a manufacturer of industrial coatings.
Dr. Sydney C. Reagan 78 Director; Professor Emeritus of Real Estate at Southern Methodist University;
Owner of Dr. Syd Reagan Real Estate, a commercial real estate investment and
brokerage firm. From 1982 to 1984, Dr. Reagan was Senior Vice President of
Robert Laam Company, a commercial real estate brokerage firm. Dr. Reagan was
Chairman of the Real Estate Department from 1955 to 1976 and Professor at the
Cox School of Business at Southern Methodist University from 1955 to 1981. Dr.
Reagan is also a Director of First American Savings Banc.
James E. Rogers 46 Director; Chairman, President and Chief Executive Officer of PSI Energy, Inc.
since 1988. Mr. Rogers also serves as Chairman and Chief Executive Officer of
PSI Resources, Inc. (holding company of PSI Energy, Inc.). Upon the completion
of the merger of PSI Resources, Inc. and Cincinnati Gas and Electric, Mr. Rogers
will become the Vice Chairman of the merged company (CIN Energy) which will be
the thirteenth largest electric generating system in the United States. Mr.
Rogers is a Director of NBD Indiana, Inc. and Bankers Life Holding Corporation.
</TABLE>
S-42
<PAGE>
<TABLE>
<CAPTION>
NAME AGE PRINCIPAL OCCUPATIONS AND OTHER DIRECTORSHIPS
- ------------------------- --- ---------------------------------------------------------------------------------
<S> <C> <C>
Lee Stanfield 87 Director; Currently an independent real estate developer, investor and
consultant. Formerly President of Eastern Shopping Centers, Inc., which
converted to Mortgage Growth Investors, a publicly traded REIT. Prior to that
time, Mr. Stanfield was Senior Vice President and Chief Financial Officer of
Winston-Muss Corp., a housing and shopping center developer.
Jay J. Strauss 58 Director; Chairman and Chief Executive Officer of Regent Realty Group, Inc., a
general real estate and mortgage banking firm. Mr. Strauss served from 1984 to
1988 as Chairman and Chief Executive Officer of Focus Financial Group, a
mortgage banking firm. From 1978 to 1984, Mr. Strauss served as President and
Chief Executive Officer of the Abacus Group, another mortgage banking firm, and
was Chairman of the real estate division of Walter E. Heller & Company
(presently known as Heller Financial, Inc.), a commercial finance company.
David R. Mennel (1) 40 General Manager of Services Operations. Mr. Mennel was with the accounting firm
of Peat Marwick Mitchell and Company and the property development firm of Melvin
Simon & Associates before joining the Company in 1978. He was previously the
Treasurer of the Company.
Gary A. Burk (1) 42 President of Construction Services. Mr. Burk joined the Company in 1979, and has
been responsible for the Company's construction management operations since
1986.
Michael Coletta (1) 43 Vice President of Asset and Property Management. Mr. Coletta joined the Company
in 1981 and was awarded the Certified Property Manager designation by the
Institute of Real Estate Management in 1989.
Dayle M. Eby 42 Vice President, General Counsel and Secretary. Ms. Eby joined the Company in
1989. Prior to that time, Ms. Eby was with the law firm of Bose McKinney &
Evans.
Dennis D. Oklak 40 Vice President and Treasurer. Mr. Oklak joined the Company in 1986 and has served
as the Tax Manager and Controller of Development. Prior to joining the Company,
Mr. Oklak was a Senior Manager with the public accounting firm of Deloitte
Haskins + Sells.
Steven R. Kennedy 37 Vice President of Construction Services. Mr. Kennedy joined the Company in 1986.
Prior to that time, Mr. Kennedy was a Project Manager for Charles Pankow
Builders, Inc.
Richard Horn 36 Vice President of Acquisitions. Mr. Horn joined the Company in 1984. He has
served in leasing and development for the Company and has overseen the Nashville
and Michigan operations of the Company since 1988 and 1990, respectively.
<FN>
- ------------------------
(1) One of the seven senior officers of the Company
</TABLE>
S-43
<PAGE>
<TABLE>
<CAPTION>
NAME AGE PRINCIPAL OCCUPATIONS AND OTHER DIRECTORSHIPS
- ------------------------- --- ---------------------------------------------------------------------------------
<S> <C> <C>
Robert Fessler 36 Vice President, Ohio Industrial Group. Mr. Fessler joined the Company in 1987. He
has been in his current position since 1989 and has overseen the development of
approximately 3,000,000 square feet of industrial property. Prior to joining the
Company, Mr. Fessler was a leasing representative with Trammel Crow.
Donald Hunter 35 Vice President, Columbus Group. Mr. Hunter joined the Company in 1989 and is
responsible for the Columbus development and management activities of the
Company. Prior to joining the Company, Mr. Hunter was with Cushman and
Wakefield, a national real estate firm.
Wayne Lingafelter 36 Vice President, Indiana Office Group. Mr. Lingafelter joined the Company in 1987
and assumed his current duties in 1992. Prior to that time, Mr. Lingafelter was
with the management consulting firm of DRI, Inc.
William E. Linville 39 Vice President, Indiana Industrial Group. Mr. Linville joined the Company in
1987. Prior to that time, Mr. Linville was Vice President and Regional Manager
of the CB Commercial Brokerage Office in Indianapolis.
Francis B. Quinn 40 Vice President, Retail Group. Mr. Quinn joined the Company in 1982. Prior to that
time, Mr. Quinn was with F.C. Tucker, an Indiana real estate firm.
</TABLE>
FEDERAL INCOME TAX CONSIDERATIONS
GENERAL
The following discussion summarizes certain Federal income tax consequences
to an investor in shares of Common Stock. Such discussion is based upon current
law. The discussion is focused on the classification of the Company as a REIT
and does not address all tax considerations applicable to prospective investors,
nor does the discussion give a detailed description of any state, local, or
foreign tax considerations. This discussion does not describe all of the aspects
of Federal income taxation that may be relevant to a prospective shareholder in
light of his or her particular circumstances or to certain types of shareholders
(including insurance companies, tax-exempt entities, financial institutions or
broker-dealers, foreign corporations and persons who are not citizens or
residents of the United States) subject to special treatment under the Federal
income tax laws. As used in this section, the term "Company" refers solely to
Duke Realty Investments, Inc.
EACH PROSPECTIVE PURCHASER IS ADVISED TO CONSULT WITH HIS OR HER OWN TAX
ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER OF THE PURCHASE,
OWNERSHIP AND SALE OF COMMON STOCK IN AN ENTITY ELECTING TO BE TAXED AS A REAL
ESTATE INVESTMENT TRUST, INCLUDING THE FEDERAL, STATE AND LOCAL TAX CONSEQUENCES
OF SUCH PURCHASE, OWNERSHIP, SALE AND ELECTION AND OF POTENTIAL CHANGES IN
APPLICABLE TAX LAWS.
TAXATION OF THE COMPANY
GENERAL. The Company expects to continue to be taxed as a REIT for Federal
income tax purposes. Management believes that the Company was organized and has
operated in such a manner as to meet the requirements for qualification and
taxation as a REIT under the Internal Revenue Code of 1986, as amended (the
"Code"), and that the Company intends to continue to operate in such a manner.
No assurance, however, can be given that the Company will continue to operate in
a manner so as to remain qualified as a REIT.
In the opinion of Rogers & Wells, which has acted as special tax counsel to
the Company ("Special Counsel"), assuming the Company was organized in
conformity with and has satisfied the requirements for qualification and
taxation as a REIT under the Code for each of its taxable years from and
including the first
S-44
<PAGE>
year for which the Company made the election to be taxed as a REIT, and the
assumptions and representations referred to below are true, the proposed methods
of operation of the Company, the Operating Partnership and Duke Realty Services
Limited Partnership (the "Services Partnership") will permit the Company to
continue to qualify to be taxed as a REIT for its current and subsequent taxable
years. This opinion is based upon certain assumptions relating to the
organization and operation of Duke Services, Inc. ("DSI"), the Operating
Partnership and the Services Partnership and is conditioned upon certain
representations made by Company personnel and affiliates as to certain factual
matters relating to the Company's past operations and the intended manner of
future operation of the Company, the Operating Partnership, and the Services
Partnership. The opinion is further conditioned upon either the Company's
receipt of a favorable ruling from the IRS as to the Operating Partnership's and
DSI's shares of gross income of the Services Partnership or the Operating
Partnership and DSI not otherwise being allocated more non-qualifying income
than is consistent with the 95% income test. See "Taxation of the Company --
Income Tests." Special Counsel is not aware of any facts or circumstances which
are inconsistent with these assumptions and representations other than as stated
in "Taxation of the Company -- Income Tests." Unlike a tax ruling, an opinion of
counsel is not binding upon the IRS, and no assurance can be given that the IRS
will not challenge the status of the Company as a REIT for Federal income tax
purposes. The Company's qualification and taxation as a REIT has depended and
will depend upon, among other things, the Company's ability to meet on a
continuing basis, through ownership of assets, actual annual operating results,
receipt of qualifying real estate income, distribution levels and diversity of
stock ownership, the various qualification tests imposed under the Code
discussed below. Special Counsel has not reviewed past compliance with these
tests and will not review compliance with these tests on a periodic or
continuing basis. Accordingly, no assurance can be given respecting the
satisfaction of such tests. See "Taxation of the Company -- Failure to Qualify."
The following is a general summary of the Code sections which govern the
Federal income tax treatment of a REIT and its shareholders. These sections of
the Code are highly technical and complex. This summary is qualified in its
entirety by the applicable Code provisions, Treasury Regulations, and
administrative and judicial interpretations thereof as currently in effect.
If the Company qualifies for taxation as a REIT and distributes to its
shareholders at least 95% of its REIT taxable income, it generally is not
subject to Federal corporate income taxes on net income that it currently
distributes to shareholders. This treatment substantially eliminates the "double
taxation" (at the corporate and shareholder levels) that generally results from
investment in a corporation. However, the Company will be subject to Federal
income tax as follows: (i) the Company will be taxed at regular corporate rates
on any undistributed REIT taxable income, including undistributed net capital
gains; (ii) under certain circumstances, the Company may be subject to the
"alternative minimum tax" on its items of tax preference, if any; (iii) if the
Company has net income from prohibited transactions (which are, in general,
certain sales or other dispositions of property other than foreclosure property
held primarily for sale to customers in the ordinary course of business), such
income will be subject to a 100% tax; (iv) if the Company should fail to satisfy
the 75% gross income test or the 95% gross income test (as discussed below), and
has nonetheless maintained its qualification as a REIT because certain other
requirements have been met, it will be subject to a 100% tax on the gross income
attributable to the greater of the amount by which the Company fails the 75% or
95% test, multiplied by a fraction intended to reflect the Company's
profitability; (v) if the Company should fail to distribute during each calendar
year at least the sum of (1) 85% of its REIT ordinary income for such year; (2)
95% of its REIT capital gain net income for such year; and (3) any undistributed
taxable income from prior years, it would be subject to a 4% excise tax on the
excess of such required distribution over the amounts actually distributed; (vi)
if the Company has (1) net income from the sale or other disposition of
"foreclosure property" (which is, in general, property acquired by the Company
by foreclosure or otherwise on default on a loan secured by the property) which
is held primarily for sale to customers in the ordinary course of business; or
(2) other non-qualifying income from foreclosure property, it will be subject to
tax on such income at the highest corporate level; and (vii) if the Company
acquires any asset from a C corporation (I.E., generally a corporation subject
to tax at the corporate level) in a transaction in which the
S-45
<PAGE>
basis of the asset in the Company's hands is determined by reference to the
basis of the asset (or any other property) in the hands of the C corporation,
and the Company recognizes gain on the disposition of such asset during the
10-year period (the "Restriction Period") beginning on the date on which such
asset was acquired by the Company, then, pursuant to guidelines issued by the
IRS, the excess of the fair market value of such property at the beginning of
the applicable Restriction Period over the Company's adjusted basis in such
asset as of the beginning of such Restriction Period will be subject to a tax at
the highest regular corporate rate. The results described above with respect to
the recognition of built-in gain assume that the Company will make an election
pursuant to IRS Notice 88-19 or applicable future administrative rules or
Treasury Regulations.
REQUIREMENTS FOR QUALIFICATION. The Code defines a REIT as a corporation,
trust or association: (1) which is managed by one or more trustees or directors;
(2) the beneficial ownership of which is evidenced by transferable shares or by
transferable certificates of beneficial interest; (3) which would be taxable as
a domestic corporation but for Sections 856 through 859 of the Code; (4) which
is neither a financial institution nor an insurance company subject to certain
provisions of the Code; (5) which has the calendar year as its taxable year; (6)
the beneficial ownership of which is held by 100 or more persons; (7) during the
last half of each taxable year not more than 50% in value of the outstanding
stock of which is owned, directly or indirectly, by five or fewer individuals
(as defined in the Code to include certain entities); and (8) which meets
certain income and assets tests, described below. The Company believes it
currently satisfies requirements (1) through (7).
INCOME TESTS. In order to qualify as a REIT, there are three gross income
tests that must be satisfied annually. First, at least 75% of the Company's
gross income (excluding gross income from prohibited transactions) for each
taxable year must be derived directly or indirectly from investments relating to
real property (including "rents from real property", gain from the sale of real
property and, in certain circumstances, interest) or from qualified types of
temporary investments. Second, at least 95% of the Company's gross income
(excluding gross income from prohibited transactions) for each taxable year must
be derived from the same items which qualify under the 75% income test or from
dividends, interest and gain from the sale or disposition of stock or
securities, or from any combination of the foregoing. Third, less than 30% of
the Company's gross income (including gross income from prohibited transactions)
must be derived from gain in connection with the sale or other disposition of
stock or securities held for less than one year, property in a prohibited
transaction, and real property held for less than four years (other than
involuntary conversions and foreclosure property).
Rents received by the Company will qualify as "rents from real property" in
satisfying the gross income tests for a REIT described above only if several
conditions (related to the relationship of the tenant to the Company, the method
of determining the rent payable and nature of the property leased) are met. The
Company does not anticipate receiving rents in excess of a de minimis amount
that fail to meet these conditions. Finally, for rents received to qualify as
"rents from real property," the Company generally must not operate or manage the
property or furnish or render services to tenants, other than through an
"independent contractor" that is adequately compensated and from whom the
Company derives no income; provided, however, that the Company may perform
services "usually or customarily rendered" in connection with the rental of
space for occupancy only and not otherwise considered "rendered to the
occupant."
The Company provides certain management, development, construction and other
tenant-related services (collectively, "Real Estate Services") with respect to
the Properties through the Operating Partnership, which is not an independent
contractor. However, with the possible exception of certain services to one or
more relatively minor tenants, the services provided to tenants by the Operating
Partnership are believed to constitute services usually or customarily furnished
or rendered in the geographic market of the Properties in connection with rental
of space for occupancy. To the extent services to tenants do not constitute
services which are usually or customarily furnished, such services are performed
by an independent contractor.
S-46
<PAGE>
The Company derives a portion of its income from the Operating Partnership's
interest as a limited partner in the Services Partnership and its ownership of
DSI which is a general partner of the Services Partnership. The Services
Partnership receives fees for Real Estate Services with respect to properties
that are not owned directly by the Operating Partnership, which fees will not
qualify as rents from real property. In addition, the Services Partnership
receives fees in consideration for the performance of management and
administrative services with respect to Properties not entirely owned by the
Operating Partnership. All or a portion of such management and administrative
fees will also not qualify as "rents from real property" for purposes of the 75%
or 95% gross income tests. Although certain of the Real Estate Services fees
allocated from the Services Partnership do not qualify under the 75% or 95%
gross income tests as "rents from real property," the Company believes that, at
least presently and in the near term, the aggregate amount of such fees (and any
other non-qualifying income) allocated to the Company in any taxable year will
not cause the Company to exceed the limits on non-qualifying income under the
75% or 95% gross income tests described above.
Pursuant to Treasury Regulations, a partner's capital interest in a
partnership determines its proportionate interest in the partnership's gross
income from partnership assets for purposes of the 75% and 95% gross income
tests. The Operating Partnership's capital interest in the Services Partnership
is 9% and DSI's capital interest in the Services Partnership is 1%. The
partnership agreement of the Services Partnership provides, however, for varying
allocations of gross income which differ from capital interests, subject to
certain limitations on the aggregate amount of gross income which may be
allocated to the Operating Partnership and DSI. The Company has requested a
ruling from the IRS that allocations according to capital interests are proper
for applying the 75% and 95% gross income tests. Although the Company
anticipates a favorable ruling from the IRS, if the Company's ruling request is
denied, the Company may be required to return a portion of income and cash
distributions received from the Services Partnership to DMI Partnership.
Should the potential amount of non-qualifying income in the future create a
risk as to the qualification of the Company as a REIT, the Company intends to
take action to avoid non-qualification as a REIT. In lieu of the Services
Partnership, the Company may elect to have certain Real Estate Services
performed through a services corporation in which the Company holds nonvoting
stock interests. If this should occur, the Company would be entitled to receive
dividends as a shareholder of the services corporation which should be
qualifying income for the purposes of the 95% gross income test. However, the
Company would not have voting control of this services corporation and the
amount of dividends available for distribution to the Company would be reduced
below comparable distributions from the Services Partnership because such a
services corporation would be subject to a corporate level tax on its taxable
income, thereby reducing the amount of cash available for distribution.
Furthermore, the Company would need to monitor the value of its stock in a
services corporation to ensure that the various asset tests described below are
not violated.
If the Company fails to satisfy one or both of the 75% or 95% gross income
tests for any taxable year, it may nevertheless qualify as a REIT for such year
if it is entitled to relief under certain provisions of the Code. It is not
possible, however, to state whether in all circumstances the Company would be
entitled to the benefit of these relief provisions. Even if these relief
provisions apply, a tax would be imposed on certain excess net income.
ASSET TESTS. In order for the Company to maintain its qualification as a
REIT, at the close of each quarter of its taxable year, it must also satisfy
three tests relating to the nature of its assets. First, at least 75% of the
value of the Company's total assets must be represented by "real estate assets,"
cash, cash items, and government securities. Second, not more than 25% of the
Company's total assets may be represented by securities other than those in the
75% assets class. Third, of the assets held in securities other than those in
the 75% assets class, the value of any one issuer's securities owned by the
Company may not exceed 5% of the value of the Company's total assets, and the
Company may not own more than 10% of any one issuer's outstanding voting
securities (excluding securities of a qualified REIT subsidiary [as defined in
the Code] or another REIT).
S-47
<PAGE>
The Company is deemed to directly hold its proportionate share of all real
estate and other assets of the Operating Partnership and should be considered to
hold its proportionate share of all assets deemed owned by the Operating
Partnership and DSI through their ownership of partnership interests in the
Services Partnership and other partnerships. As a result, management believes
that more than 75% of the Company's assets are real estate assets. In addition,
management does not expect the Company to hold (1) any securities representing
more than 10% of any one issuer's voting securities other than DSI, which is a
qualified REIT subsidiary, nor (2) securities of any one issuer exceeding 5% of
the value of the Company's gross assets (determined in accordance with generally
accepted accounting principles). In the event that the Company decides, for the
reasons noted above, to conduct Real Estate Services through a services
corporation, the Company would expect to create a structure whereby the value of
its stock holdings in such services corporation (through the stock held by the
Operating Partnership and DSI) would represent less than 5% of the value of the
Company's total assets and would represent less than 10% of the services
corporation's outstanding voting securities.
ANNUAL DISTRIBUTION REQUIREMENTS. The Company, in order to qualify as a
REIT, generally must distribute dividends (other than capital gain dividends) to
its shareholders in an amount at least equal to (A) the sum of (i) 95% of the
Company's "REITs taxable income" (computed without regard to the dividends paid
deduction and the REIT's net capital gain), and (ii) 95% of the net income
(after tax), if any, from foreclosure property, minus (B) the sum of certain
items of non-cash income. In addition, if the Company disposes of any asset
during its Restriction Period, the Company will be required to distribute at
least 95% of the built-in gain (after tax), if any, recognized on the
disposition of such asset. Such distributions must be paid in the taxable year
to which they relate, or in the following taxable year if declared before the
Company timely files its tax return for such year and if paid on or before the
first regular dividend payment after such declaration. To the extent that the
Company does not distribute all of its net capital gain or distributes at least
95%, but less than 100%, of its "REIT taxable income," as adjusted, it will be
subject to tax on the undistributed amount at regular capital gains and ordinary
corporate tax rates. Furthermore, if the Company should fail to distribute
during each calendar year at least the sum of (i) 85% of its REIT ordinary
income for such year, (ii) 95% of its REIT net capital gain income for such
year, and (iii) any undistributed taxable income from prior periods, the Company
will be subject to regular capital gains and ordinary corporate tax rates on
undistributed income and also may be subject to a 4% excise tax on undistributed
income in certain events. The Company believes that it has made and intends to
continue to make timely distributions sufficient to satisfy the annual
distribution requirements. In this regard, the partnership agreement of the
Operating Partnership authorizes the Company, as general partner, to take such
steps as may be necessary to cause the Operating Partnership to distribute to
its partners an amount sufficient to permit the Company to meet these
distribution requirements. It is possible, however, that the Company, from time
to time, may not have sufficient cash or other liquid assets to meet the 95%
distribution requirement due primarily to the expenditure of cash for
nondeductible expenses such as principal amortization or capital expenditures.
In such event, the Company may borrow or may cause the Operating Partnership to
arrange for short-term or other borrowing to permit the payment of required
dividends or pay dividends in the form of taxable stock dividends. If the amount
of nondeductible expenses exceeds non-cash deductions, the Operating Partnership
may refinance its indebtedness to reduce principal payments and borrow funds for
capital expenditures.
FAILURE TO QUALIFY. If the Company fails to qualify for taxation as a REIT
in any taxable year, the Company will be subject to tax (including any
applicable corporate alternative minimum tax) on its taxable income at regular
corporate rates. Unless entitled to relief under specific statutory provisions,
the Company also will be disqualified from taxation as a REIT for the four
taxable years following the year during which qualification was lost. It is not
possible to state whether in all circumstances the Company would be entitled to
such statutory relief.
S-48
<PAGE>
OTHER TAX CONSIDERATIONS
EFFECT OF TAX STATUS OF OPERATING PARTNERSHIP AND SERVICES PARTNERSHIP AND
OTHER PARTNERSHIPS ON REIT QUALIFICATION. All of the Company's investments are
through DSI and the Operating Partnership, which in turn hold interests in other
partnerships, including the Services Partnership. The Company believes that the
Operating Partnership, and each other partnership in which it holds an interest,
is properly treated as a partnership for tax purposes (and not as an association
taxable as a corporation). If, however, the Operating Partnership were treated
as an association taxable as a corporation, the Company would cease to qualify
as a REIT. If the Services Partnership or any of the other partnerships were
treated as an association taxable as a corporation and the Operating
Partnership's interest in such partnership exceeded 10% of the partnership's
voting interests or the value of such interest exceeded 5% of the value of the
Company's assets, the Company would cease to qualify as a REIT. Furthermore, in
such a situation, any partnerships treated as a corporation would be subject to
corporate income taxes, and distributions from any such partnership to the
Company would be treated as dividends, which are not taken into account in
satisfying the 75% gross income test described above and which therefore could
make it more difficult for the Company to meet the 75% asset test described
above.
TAX ALLOCATIONS WITH RESPECT TO THE PROPERTIES. The Operating Partnership
was formed by way of contributions of appreciated property (including certain of
the Properties) to the Operating Partnership. When property is contributed to a
partnership in exchange for an interest in the partnership, the partnership
generally takes a carryover basis in that property for tax purposes equal to the
adjusted basis of the contributing partner in the property, rather than a basis
equal to the fair market value of the property at the time of contribution (this
difference is referred to as "Book-Tax Difference"). The partnership agreement
of the Operating Partnership requires allocations of income, gain, loss and
deduction with respect to a contributed Property be made in a manner consistent
with the special rules of Section 704(c) of the Code and the regulations
thereunder, which will tend to eliminate the Book-Tax Differences with respect
to the contributed Properties over the life of the Operating Partnership.
However, because of certain technical limitations, the special allocation rules
of Section 704(c) may not always entirely eliminate the Book-Tax Differences on
an annual basis or with respect to a specific taxable transaction such as a
sale. Thus, the carryover basis of the contributed Properties in the hands of
the Operating Partnership could cause the Company (i) to be allocated lower
amounts of depreciation and other deductions for tax purposes than would be
allocated to the Company if all Properties were to have a tax basis equal to
their fair market value at the time of contribution, and (ii) possibly to be
allocated taxable gain in the event of a sale of such contributed Properties in
excess of the economic or book income allocated to the Company as a result of
such sale. The foregoing principles also apply in determining the earnings and
profits of the Company for purposes of determining the portion of distributions
taxable as dividend income. The application of these rules over time may result
in a higher portion of distributions being taxed as dividends than would have
occurred had the Company purchased its interests in the Properties at their
agreed values.
STATE AND LOCAL TAXES. The Company or its shareholders or both may be
subject to state, local or other taxation in various state, local or other
jurisdictions, including those in which they transact business or reside. The
tax treatment in such jurisdictions may differ from the Federal income tax
consequences discussed above.
S-49
<PAGE>
UNDERWRITING
Subject to the terms and conditions contained in the underwriting agreement
(the "Underwriting Agreement"), the Company has agreed to sell to each of the
Underwriters named below, and each of the Underwriters for whom Merrill Lynch,
Pierce, Fenner & Smith Incorporated, Alex. Brown & Sons Incorporated, Dean
Witter Reynolds Inc., A.G. Edwards & Sons, Inc. and Legg Mason Wood Walker,
Incorporated are acting as representatives (the "Representatives") has severally
agreed to purchase, the respective number of shares of Common Stock set forth
below opposite their respective names. The Underwriting Agreement provides that
the obligations of the Underwriters are subject to certain conditions precedent
and that the Underwriters will be obligated to purchase all of the shares of
Common Stock if any are purchased.
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERWRITER OF COMMON STOCK
- --------------------------------------------------------------------------- -----------------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated..................................................... 418,000
Alex. Brown & Sons Incorporated............................................ 418,000
Dean Witter Reynolds Inc................................................... 418,000
A.G. Edwards & Sons, Inc................................................... 418,000
Legg Mason Wood Walker, Incorporated....................................... 418,000
Bear, Stearns & Co. Inc.................................................... 60,000
Dillon, Read & Co. Inc..................................................... 60,000
Kidder, Peabody & Co. Incorporated......................................... 60,000
Lehman Brothers Inc........................................................ 60,000
Oppenheimer & Co., Inc..................................................... 60,000
PaineWebber Incorporated................................................... 60,000
Smith Barney Inc........................................................... 60,000
Wertheim Schroder & Co. Incorporated....................................... 60,000
Advest, Inc................................................................ 30,000
Robert W. Baird & Co. Incorporated......................................... 30,000
J.C. Bradford & Co......................................................... 30,000
City Securities Corporation................................................ 30,000
Cowen & Company............................................................ 30,000
Dain Bosworth Incorporated................................................. 30,000
Doft & Co., Inc............................................................ 30,000
Fahnestock & Co. Inc....................................................... 30,000
First Albany Corporation................................................... 30,000
First of Michigan Corporation.............................................. 30,000
Gruntal & Co., Incorporated................................................ 30,000
Interstate/Johnson Lane Corporation........................................ 30,000
Janney Montgomery Scott Inc................................................ 30,000
Edward D. Jones & Co....................................................... 30,000
Kemper Securities, Inc..................................................... 30,000
McDonald & Company Securities, Inc......................................... 30,000
Morgan Keegan & Company, Inc............................................... 30,000
The Ohio Company........................................................... 30,000
</TABLE>
S-50
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERWRITER OF COMMON STOCK
- --------------------------------------------------------------------------- -----------------
<S> <C>
Piper Jaffray Inc.......................................................... 30,000
Principal Financial Securities, Inc........................................ 30,000
Raffensperger, Hughes & Co., Inc........................................... 30,000
Ragen MacKenzie Incorporated............................................... 30,000
Rauscher Pierce Refsnes, Inc............................................... 30,000
The Robinson-Humphrey Company, Inc......................................... 30,000
Roney & Co................................................................. 30,000
Stephens Inc............................................................... 30,000
Sutro & Co. Incorporated................................................... 30,000
Traub and Company, Inc..................................................... 30,000
Tucker Anthony Incorporated................................................ 30,000
Utendahl Capital Partners, L.P............................................. 30,000
Wheat, First Securities, Inc............................................... 30,000
-----------------
Total.......................................................... 3,500,000
-----------------
-----------------
</TABLE>
John D. Peterson, a Director of the Company, is Chairman of the Board and
Chief Executive Officer of City Securities Corporation, which is acting as one
of the Underwriters in the Offering.
The Representatives have advised the Company that the Underwriters propose
initially to offer the Common Stock to the public at the public offering price
set forth on the cover page of this Prospectus Supplement, and to certain
dealers at such price less a concession not in excess of $.80 per share. The
Underwriters may allow, and such dealers may reallow, a discount not in excess
of $.10 per share on sales to certain other dealers. After the Offering, the
public offering price, concession and discounts may be changed.
The Company has granted an option to the Underwriters, exercisable during
the 30-day period after the date of this Prospectus Supplement, to purchase up
to an aggregate of 525,000 additional shares of Common Stock at the price to the
public set forth on the cover page to this Prospectus Supplement, less the
underwriting discount. The Underwriters may exercise this option only to cover
over-allotments, if any. To the extent that the Underwriters exercise this
option, each Underwriter will be obligated, subject to certain conditions, to
purchase the number of additional shares of Common Stock proportionate to such
Underwriter's initial amount reflected in the foregoing table.
The Company and the executive officers of the Company and the Directors have
agreed that for a period of 90 days from the date of this Prospectus Supplement
they will not, without prior and written consent of the Representatives, offer,
sell or otherwise dispose of any shares of Common Stock or any security
convertible into or exercisable for shares of Common Stock (except for issuances
by the Company pursuant to the Stock Option or Dividend Reinvestment Plans and
certain other agreements).
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as amended,
or to contribute to payments the Underwriters may be required to make in respect
thereof.
LEGAL MATTERS
In addition to the legal opinions referred to under "Legal Opinions" in the
accompanying Prospectus, the description of Federal income tax matters contained
in this Prospectus Supplement entitled "Federal Income Tax Considerations" is
based upon the opinion of Rogers & Wells.
S-51
<PAGE>
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- --------------------------------------------------------------------------------
NO DEALER, SALESMAN OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS IN
CONNECTION WITH THE OFFERING MADE BY THIS PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS.
NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS NOR ANY
SALE MADE HEREUNDER AND THEREUNDER SHALL, UNDER ANY CIRCUMSTANCE, CREATE AN
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE FACTS SET FORTH IN THIS
PROSPECTUS SUPPLEMENT OR IN THE PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY
SINCE THE DATE HEREOF. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT
CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY STATE IN WHICH SUCH OFFER
OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION.
-------------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Supplement Summary..................... S-3
The Company....................................... S-8
Recent Developments............................... S-10
Use of Proceeds................................... S-12
Price Range of Common Stock and Dividend
History.......................................... S-13
Capitalization.................................... S-14
Selected Consolidated Financial Data.............. S-15
Management's Discussion and Analysis of Financial
Condition and Results of Operations.............. S-16
Properties........................................ S-18
Management........................................ S-42
Federal Income Tax Considerations................. S-44
Underwriting...................................... S-50
Legal Matters..................................... S-51
PROSPECTUS
Available Information............................. 2
Incorporation of Certain Documents by Reference... 2
The Company....................................... 3
Use of Proceeds................................... 3
Ratios of Earnings to Fixed Charges............... 3
Description of Debt Securities.................... 4
Description of Preferred Stock.................... 14
Description of Common Stock....................... 20
Plan of Distribution.............................. 21
Legal Opinions.................................... 22
Experts........................................... 22
</TABLE>
3,500,000 SHARES
[LOGO]
COMMON STOCK
-------------------
PROSPECTUS SUPPLEMENT
-------------------
MERRILL LYNCH & CO.
ALEX. BROWN & SONS
INCORPORATED
DEAN WITTER REYNOLDS INC.
A.G. EDWARDS & SONS, INC.
LEGG MASON WOOD WALKER
INCORPORATED
SEPTEMBER 21, 1994
- --------------------------------------------------------------------------------
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<PAGE>
APPENDIX
Inside front cover page of Prospectus Supplement:
On the inside front cover page of the Prospectus Supplement is graphic
material entitled "Duke Realty Investments Portfolio Location Map" consisting of
(1) a map of the continental United States on which the states of Missouri,
Wisconsin, Illinois, Michigan, Indiana, Kentucky, Tennessee and Ohio are shaded
and (2) a larger map of such states on which the city of Indianapolis, Indiana
is shown as the Corporate Headquarters; the cities of Decatur, Illinois,
Detroit, Michigan, Columbus, Ohio, Cincinnati, Ohio and Nashville, Tennessee are
shown as Regional Office locations; and the cities of Milwaukee, Wisconsin,
St. Louis, Missouri, Bloomington, Illinois, Champaign, Illinois, Decatur,
Illinois, Indianapolis, Indiana, Nashville, Tennessee, Detroit, Michigan,
Fort Wayne, Indiana, Columbus, Ohio, Dayton, Ohio, Cincinnati, Ohio and
Covington, Kentucky are shown as Duke Markets.
Inside back cover page of Prospectus Supplement:
On the inside back cover page of the Prospectus Supplement are five
photographs, as follows:
(1) An aerial photograph of a business park, captioned "Park 100
Business Park - Indianapolis IN."
(2) A photograph of a building captioned "The Corporate Park at
Tuttle Crossing, Xerox (5555 Parkcenter) (Acquired April 1994) -
Columbus, OH."
(3) A photograph of a building captioned "Park 100 Business Park,
Caterpillar Logistics (Building 95) (Completed January 1994) -
Indianapolis, IN."
(4) A photograph of a building captioned "Southpark Business Center,
Redken Laboratories (Completed May 1994) - Covington, KY (Greater
Cincinnati Airport Area)."
(5) A photograph of a building captioned "Sports Unlimited (Partially
Completed July 1994) - Cincinnati, OH."
