<PAGE>
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED SEPTEMBER 7, 1995)
[LOGO]
DUKE REALTY LIMITED PARTNERSHIP
$50,000,000 7 1/4% NOTES DUE SEPTEMBER 22, 2002
$100,000,000 7 3/8% NOTES DUE SEPTEMBER 22, 2005
--------------
The 7 1/4% Notes due September 22, 2002 (the "2002 Notes") and the 7 3/8%
Notes due September 22, 2005 (the "2005 Notes," and together with the 2002
Notes, the "Notes") offered hereby (the "Offering") are being issued by Duke
Realty Limited Partnership, an Indiana limited partnership (the "Operating
Partnership"), in aggregate principal amounts of $50,000,000 and $100,000,000,
respectively. The 2002 Notes will mature on September 22, 2002 and may not be
redeemed by the Operating Partnership prior to maturity. The 2005 Notes will
mature on September 22, 2005 and are redeemable at any time after September 22,
2002 at the option of the Operating Partnership, in whole or in part, at a
redemption price equal to the sum of (i) the principal amount of the 2005 Notes
being redeemed plus accrued interest to the redemption date and (ii) the
Make-Whole Amount (as defined in "Description of the Notes -- Optional
Redemption"), if any. The Notes are not subject to any mandatory sinking fund.
Interest on the Notes is payable semi-annually in arrears on each March 22 and
September 22, commencing March 22, 1996. See "Description of the Notes."
Each series of Notes will be represented by a single fully-registered global
note in book-entry form, without coupons (each a "Global Note"), registered in
the name of the nominee of The Depository Trust Company ("DTC"). Beneficial
interests in the Global Notes will be shown on, and transfers thereof will be
effected only through, records maintained by DTC (with respect to beneficial
interests of participants) or by participants or persons that hold interests
through participants (with respect to beneficial interests of beneficial
owners). Owners of beneficial interests in the Global Notes will be entitled to
physical delivery of Notes in definitive form equal in principal amount to their
respective beneficial interest only under the limited circumstances described
under "Description of the Notes -- Book-Entry System." Settlement for the Notes
will be made in immediately available funds. The Notes will trade in DTC's
Same-Day Funds Settlement System until maturity or until the Notes are issued in
definitive form, and secondary market trading activity in the Notes will
therefore settle in immediately available funds. All payments of principal and
interest in respect of the Notes will be made by the Operating Partnership in
immediately available funds. See "Description of the Notes -- Same-Day
Settlement and Payment."
---------------------
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.
---------------------
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.
<TABLE>
<CAPTION>
PROCEEDS TO THE
UNDERWRITING OPERATING
PRICE TO PUBLIC (1) DISCOUNT (2) PARTNERSHIP (1)(3)
<S> <C> <C> <C>
Per 2002 Note......................................... 99.578% .7% 98.878%
Total................................................. $49,789,000 $350,000 $49,439,000
Per 2005 Note......................................... 99.152% .75% 98.402%
Total................................................. $99,152,000 $750,000 $98,402,000
<FN>
(1) Plus accrued interest, if any, from September 22, 1995.
(2) The Operating Partnership has agreed to indemnify the Underwriters against
certain liabilities, including liabilities under the Securities Act of
1933, as amended. See "Underwriting."
(3) Before deducting expenses payable by the Operating Partnership estimated at
$175,000.
</TABLE>
---------------------
The Notes are offered by the Underwriters, subject to prior sale, when, as
and if issued by the Operating Partnership and delivered to and accepted by the
Underwriters, to approval of certain legal matters by counsel for the
Underwriters and to certain other conditions. 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 Notes will be made in New York, New
York on or about September 22, 1995.
---------------------
MERRILL LYNCH & CO.
J.P. MORGAN SECURITIES INC.
FIRST CHICAGO CAPITAL MARKETS, INC.
------------
The date of this Prospectus Supplement is September 19, 1995.
<PAGE>
[Map graphic entitled "Duke Realty Investments Principal Markets" and 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, St. Louis, Missouri, 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.]
IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY EFFECT TRANSACTIONS
WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES OFFERED HEREBY AT
LEVELS ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. 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, THE INFORMATION CONTAINED IN
THIS PROSPECTUS SUPPLEMENT IS PRESENTED AS OF JUNE 30, 1995. ALL REFERENCES TO
THE "OPERATING PARTNERSHIP" IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING
PROSPECTUS INCLUDE THE OPERATING PARTNERSHIP, THOSE ENTITIES OWNED OR CONTROLLED
BY THE OPERATING PARTNERSHIP AND PREDECESSORS OF THE OPERATING PARTNERSHIP,
UNLESS THE CONTEXT INDICATES OTHERWISE.
THE OPERATING PARTNERSHIP
The Operating Partnership is managed by its general partner, Duke Realty
Investments, Inc. (the "Company"), a self-administered and self-managed real
estate investment trust (a "REIT") that began operations through a predecessor
in 1972. The Operating Partnership owns a diversified portfolio of 144 in-
service industrial, office and retail properties (the "Properties"),
encompassing approximately 15.2 million square feet and located in eight states.
The Properties have an aggregate cost basis of $740.4 million and were 95.3%
leased as of June 30, 1995. The Operating Partnership provides leasing,
management, construction, development and other tenant-related services for the
Properties and certain properties owned by third parties. The Operating
Partnership has the largest commercial real estate operations in Indianapolis
and Cincinnati and is one of the largest real estate companies in the Midwest.
The Operating Partnership believes that the Midwest offers a relatively strong
and stable economy compared to other regions of the United States and provides
significant investment opportunity due to its central location, established
manufacturing base, skilled work force and moderate labor costs.
All of the Company's interests in the Properties are held directly or
indirectly by, and substantially all of its operations relating to the
Properties are conducted through, the Operating Partnership. Partnership
interests in the Operating Partnership (the "Units") may be exchanged by the
holders thereof, other than the Company, for common stock of the Company (the
"Common Stock") on a one for one basis. Upon an exchange of Units for Common
Stock, the Company's percentage interest in the Operating Partnership will
increase. The Company controls the Operating Partnership as the sole general
partner and owner, as of June 30, 1995, of approximately 85.3% of the Units. The
six senior officers of the Company, who collectively have over 115 years of
experience in the real estate industry and have been with the Company for an
average of over 16 years, beneficially own shares of Common Stock and Units that
represent approximately 14% of the Company's Common Stock on a fully diluted
basis. The following chart illustrates the ownership interests in the Operating
Partnership.
[Ownership structure graphic consisting of (1) a box containing the words "Duke
Realty Investments, Inc. (Company)"; (2) a box containing the words "Limited
Partners"; (3) a box containing the words "Duke Realty Limited Partnership
(Operating Partnership)"; (4) a line connecting the box described in (1) and the
box described in (3) and labeled "85.3% General Partner"; and (5) a line
connecting the box described in (2) and the box described in (3) and labeled
"14.7% Limited Partners."]
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<PAGE>
The following tables provide an overview of the Properties.
SUMMARY OF PROPERTIES
(IN THOUSANDS, EXCEPT PERCENTAGES)
<TABLE>
<CAPTION>
PERCENT OF OCCUPANCY
PERCENT OF ANNUAL NET TOTAL NET AT
SQUARE TOTAL SQUARE EFFECTIVE EFFECTIVE JUNE 30,
TYPE OF PROPERTY FEET FEET RENT (1) ANNUAL RENT 1995
----------------------------------------------- --------- ------------- ------------ --------------- -----------
<S> <C> <C> <C> <C> <C>
Industrial..................................... 9,317 61% $ 35,621 38% 96.2%
Office......................................... 4,486 30 47,047 49 93.6%
Retail......................................... 1,366 9 12,216 13 95.1%
--------- ----- ------------ ---
Total.......................................... 15,169 100% $ 94,884 100% 95.3%
--------- ----- ------------ ---
--------- ----- ------------ ---
<FN>
------------------------
(1) Represents annual net effective rent due from tenants in occupancy as of
June 30, 1995. Net effective rent ("Net Effective Rent") equals the average
annual rental property revenue over the terms of the respective leases,
excluding additional rent due as operating expense reimbursements, landlord
allowances for operating expenses and percentage rents.
</TABLE>
SQUARE FOOTAGE AND ANNUAL NET EFFECTIVE RENT OF PROPERTIES
(IN THOUSANDS, EXCEPT PERCENTAGES)
<TABLE>
<CAPTION>
SQUARE FEET PERCENT OF
------------------------------------------------------- ANNUAL NET ANNUAL NET
PERCENT EFFECTIVE EFFECTIVE
STATE INDUSTRIAL OFFICE RETAIL TOTAL OF TOTAL RENT (1) RENT
--------------------------------- ----------- --------- --------- --------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Indiana.......................... 5,493 1,085 440 7,018 46.3% $ 32,332 34.1%
Ohio............................. 2,380 2,817 722 5,919 39.0 48,438 51.0
Missouri......................... -- 339 33 372 2.4 3,886 4.1
Illinois......................... 126 -- 171 297 2.0 2,165 2.3
Tennessee........................ 495 -- -- 495 3.3 3,079 3.2
Kentucky......................... 669 -- -- 669 4.4 1,759 1.9
Michigan......................... -- 245 -- 245 1.6 2,734 2.9
Wisconsin........................ 154 -- -- 154 1.0 491 0.5
----- --------- --------- --------- --------- ------------ ------------
Total.......................... 9,317 4,486 1,366 15,169 100.0% $ 94,884 100.0%
----- --------- --------- --------- --------- ------------ ------------
----- --------- --------- --------- --------- ------------ ------------
<FN>
------------------------
(1) Represents annual Net Effective Rent due from tenants in occupancy as of
June 30, 1995.
</TABLE>
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<PAGE>
THE OFFERING
All capitalized terms used herein and not defined herein have the meanings
provided in "Description of the Notes." For a more complete description of the
terms of the Notes specified in the following summary, see "Description of the
Notes."
<TABLE>
<S> <C>
Securities Offered................ $50,000,000 aggregate principal amount of 7 1/4% Notes
due September 22, 2002 and $100,000,000 aggregate
principal amount of 7 3/8% Notes due September 22, 2005.
Maturity.......................... The 2002 Notes will mature on September 22, 2002 and the
2005 Notes will mature on September 22, 2005.
Interest Payment Dates............ Interest on the Notes is payable semi-annually on each
March 22 and September 22, commencing March 22, 1996,
and at maturity.
Ranking........................... The Notes will rank pari passu with each other and with
all other unsecured and unsubordinated indebtedness of
the Operating Partnership except that the Notes will be
effectively subordinated to the prior claims of each
secured mortgage lender to any specific Property which
secures such lender's mortgage. As of June 30, 1995,
such mortgages aggregated approximately $300.2 million
(approximately $260.7 million on a pro forma basis). See
"Capitalization."
Use of Proceeds................... The net proceeds to the Operating Partnership from the
Offering (approximately $147.7 million) will be used to
reduce amounts outstanding under the Operating
Partnership's Credit Line (as defined herein) and other
mortgage debt and to fund current development and
acquisition costs expected to be incurred during the
remainder of 1995.
Limitations on Incurrence of The Notes contain various covenants, including the
Debt.............................. following:
(1) The Operating Partnership will not incur any Debt,
if, after giving effect thereto, the aggregate
principal amount of all outstanding Debt of the
Operating Partnership is greater than 55% of the sum
of (i) the Operating Partnership's Total Assets as of
the end of the most recent calendar quarter and (ii)
the increase in the Operating Partnership's Total
Assets since the end of such quarter including any
increase in the Operating Partnership's Total Assets
resulting from the incurrence of such additional Debt
(such increase together with the Operating
Partnership's Total Assets is referred to as
"Adjusted Total Assets").
(2) The Operating Partnership will not incur any Secured
Debt if, after giving effect thereto, the aggregate
amount of all outstanding Secured Debt of the
Operating Partnership is greater than 40% of the
Operating Partnership's Adjusted Total Assets.
</TABLE>
S-5
<PAGE>
<TABLE>
<S> <C>
(3) The Operating Partnership will not incur any Debt if
the ratio of Consolidated Income Available for Debt
Service for the four consecutive fiscal quarters most
recently ended prior to the date of the incurrence of
such Debt, on a pro forma basis, shall be less than
2.0 times the Annual Service Charge on all Debt
outstanding immediately after the incurrence of such
additional Debt.
(4) The Operating Partnership is required to maintain
Total Unencumbered Assets of not less than 185% of
the aggregate outstanding principal amount of the
Unsecured Debt of the Operating Partnership.
Optional Redemption............... The 2002 Notes may not be redeemed by the Operating
Partnership prior to maturity. The 2005 Notes are
redeemable at any time after September 22, 2002 at the
option of the Operating Partnership, in whole or in
part, at a redemption price equal to the sum of (i) the
principal amount of the 2005 Notes being redeemed plus
accrued interest to the redemption date and (ii) the
Make-Whole Amount, if any. See "Description of the Notes
-- Optional Redemption."
</TABLE>
S-6
<PAGE>
THE OPERATING PARTNERSHIP
The Operating Partnership is managed by its general partner, the Company, a
self-administered and self-managed REIT that began operations through a
predecessor in 1972. The Operating Partnership owns a diversified portfolio of
144 in-service industrial, office and retail Properties, encompassing
approximately 15.2 million square feet and located in eight states. The
Properties have an aggregate cost basis of $740.4 million and were 95.3% leased
as of June 30, 1995. The Operating Partnership provides leasing, management,
construction, development and other tenant-related services for the Properties
and certain properties owned by third parties. The Operating Partnership has the
largest commercial real estate operations in Indianapolis and Cincinnati and is
one of the largest real estate companies in the Midwest. The Operating
Partnership believes that the Midwest offers a relatively strong and stable
economy compared to other regions of the United States and provides significant
investment opportunity due to its central location, established manufacturing
base, skilled work force and moderate labor costs. The Operating Partnership has
benefited, and expects to continue to benefit, from the following elements:
EXPERIENCED MANAGEMENT
The Company's six senior executives collectively have over 115 years of
experience in the real estate industry and have been with the Company for an
average of 16 years. The Company is a fully integrated real estate company which
includes a Property Management Department which aggressively manages the
property portfolio through significant interaction with existing tenants, an
Acquisitions Department dedicated to locating strategic acquisitions in the
Operating Partnership's primary markets, Development Managers in each of the
Operating Partnership's primary markets who pursue select development
opportunities meeting the Operating Partnership's investment criteria, a
Construction Management Department which oversees the construction of the
Operating Partnership's development to assure quality construction at the lowest
possible cost, an Accounting and Finance Department which monitors property
performance and evaluates the financial impact of development and acquisition
opportunities and an Investor Relations Department which coordinates the
dissemination of information about the Company and the Operating Partnership to
investors and analysts.
BUSINESS STRATEGY
The Operating Partnership's business objective is to maximize long-term
profitability for its partners and the Company's shareholders 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 Operating Partnership's tenants and to
third parties.
The Operating Partnership believes that the analysis of real estate
opportunities and risks can be done most effectively at regional or local
levels. As a result, the Operating Partnership intends to continue its emphasis
on increasing its market share and effective rents in its existing markets
primarily within the Midwest. The Operating Partnership also expects to utilize
its approximately 900 acres of unencumbered land (the "Land") and its many
business relationships with more than 2,400 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 Operating
Partnership 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 Operating Partnership
develops and acquires properties that it believes are functional and have a
flexible design for long-term ownership and optimal re-leasing.
The Operating Partnership's policy is to develop and seek to acquire
substantially pre-leased Class A commercial properties located in markets with
attractive investment potential for Fortune 500 companies and other quality
regional and local firms. The Operating Partnership's industrial and suburban
office development focuses on business parks and mixed use developments suitable
for development of multiple
S-7
<PAGE>
projects on a single site and where the Operating Partnership can create and
control the business environment. These business parks and mixed use
developments generally include restaurants and other amenities which the
Operating Partnership believes create an atmosphere that is particularly
efficient and desirable. The Operating Partnership's retail development focuses
on community, power and neighborhood centers in its existing markets. As a fully
integrated real estate company, the Operating Partnership 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.
Development projects and property acquisitions with investment values
exceeding established guidelines are subject to the review and approval of the
Asset Committee, which is comprised of a majority of unaffiliated directors of
the Company. All other development projects and property acquisitions are
subject to the review and approval of the Credit Committee, which is comprised
of members of executive management of the Operating Partnership.
The Operating Partnership seeks to maintain a well-balanced, conservative
and flexible capital structure by: (i) currently targeting a ratio of long-term
debt to total market capitalization in the range of 25% to 40%; (ii) extending
and sequencing the maturity dates of its debt; (iii) borrowing primarily at
fixed rates; (iv) generally pursuing current and future long-term debt
financings and refinancings on an unsecured basis; and (v) maintaining
conservative debt service and fixed charge coverage ratios. Management believes
that these strategies have enabled and should continue to enable the Operating
Partnership and the Company to access the debt and equity capital markets for
their long-term requirements such as debt refinancings and financings for
development and acquisitions. The Company has demonstrated its ability to access
the equity markets to finance the activities of the Operating Partnership
through recent public offerings of Common Stock in October 1993, September 1994
and May 1995 which generated aggregate net proceeds of $497.7 million.
DIVERSIFIED PORTFOLIO
The Operating Partnership owns a diversified portfolio of properties which
includes (i) the in-service Properties, consisting of 144 industrial, office and
retail properties located in Indiana, Ohio, Illinois, Michigan, Tennessee,
Kentucky, Wisconsin and Missouri; (ii) 19 buildings and one building expansion
currently under development; and (iii) the Land, consisting of approximately 900
acres of unencumbered land for future development in Indiana, Ohio, Illinois,
Kentucky, and Tennessee. The Operating Partnership owns the entire equity
interest in 125 of the Properties and a partial interest in the remainder of the
Properties. 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. The Operating Partnership believes that its Properties are of
the highest quality available to tenants in its markets. The total square
footage of the in-service Properties is approximately 15.2 million, consisting
of approximately 9.3 million square feet of industrial space, approximately 4.5
million square feet of office space and approximately 1.4 million square feet of
retail space. The total square footage of the 19 buildings and one building
expansion currently under development is approximately 3.4 million square feet,
consisting of approximately 2.0 million square feet of industrial space,
approximately 1.1 million square feet of office space and approximately 270,000
square feet of retail space. The current development projects are 85% leased as
of June 30, 1995. The total annual Net Effective Rental income of the Properties
based upon tenants in occupancy as of June 30, 1995 is approximately $94.9
million, with $35.6 million relating to the industrial Properties, $47.1 million
relating to the office Properties and $12.2 million relating to the retail
Properties. At June 30, 1995, the Properties were approximately 95% leased.
MIDWESTERN FOCUS
The Operating Partnership believes that the Midwest offers a relatively
strong and stable economy compared to other regions of the United States and
provides attractive new opportunities due to its central
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<PAGE>
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 industrial and office property 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 industrial and office space
in a geographic area is usually linked to the levels of business activity and
disposable income. According to the United States Department of Labor's Bureau
of Labor Statistics, the unemployment rate for June 1, 1995 was 4.07%, 4.13% and
3.52% in the Indianapolis, Cincinnati and Columbus metropolitan areas,
respectively, compared to 5.6% for the United States. Additionally, total
non-farm employment has increased 16.96%, 9.04% and 13.17% from January 1989 to
April 1995 for the Indianapolis, Cincinnati and Columbus metropolitan areas,
respectively, as compared to 8.65% for the United States.
Management believes that the Operating Partnership's assets are located in
strong real estate markets with good investment potential. The Winter 1995 issue
of Ernst & Young's MarketScore ("MarketScore") rated 63 metropolitan areas in
the United States in terms of their real estate investment potential for the
succeeding two years. The study segmented each metropolitan area by property
type and considered real estate, economic and demographic variables such as
vacancy rates, construction, rental trends, job growth, population and household
growth, and household income. Approximately 15.9 million square feet of the
Operating Partnership's in-service and under-development Properties are in
markets considered by Ernst & Young to have good or excellent investment
potential. The March 1995 issue of Lehman Brothers Metroview ("Metroview") ranks
Cincinnati, Columbus and Indianapolis among the ten best industrial markets in
the United States.
INDIANAPOLIS, INDIANA. With more than 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 work force 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 have recently
established major new facilities in Indianapolis which are expected to create
20,000 new jobs. The Indianapolis industrial market continues to have a
declining vacancy rate. According to CB Commercial Real Estate Group, Inc. ("CB
Commercial"), the industrial vacancy rate decreased 0.2% over the 15 months
ended March 31, 1995 to 4.8%, less than the national industrial vacancy rate
average of 7.3%. According to Landauer Real Estate Counselor's 1994 Real Estate
Market Forecast and the Winter 1995 issue of MarketScore, Indianapolis is rated
as the first and second best warehouse and distribution market, respectively, in
the United States. The Indianapolis suburban office market also strengthened
over the 15-month period. According to CB Commercial, at March 31, 1995,
Indianapolis had a 12.7% suburban office vacancy rate compared to a national
average of 14.9%. Moreover, from 1992 to 1994, Indianapolis was the fifth most
improved suburban office market in the country in terms of vacancy rate change
as reported by CB Commercial.
CINCINNATI, OHIO. Cincinnati is the second largest metropolitan area in
Ohio with a population of more than 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 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. Indicative of the
economic strength in Cincinnati, the industrial vacancy rate as reported by CB
Commercial declined by 2.3% to 2.6% over the 15 months ended March 31, 1995,
less than half the national average of 7.3%. As reported by CB Commercial, the
Cincinnati suburban
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<PAGE>
office market vacancy rate was 14.5% at March 31, 1995 compared to a national
average of 14.9%, and the Cincinnati downtown office vacancy rate improved 1.4%
to 14.9% at March 31, 1995 compared to the national average of 15.6%.
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 work force and high quality of life
have established Columbus as a major transportation and distribution center.
Columbus' economic base includes distribution, government, manufacturing, retail
trade and service-related industries. As reported by CB Commercial as of March
31, 1995, the industrial and suburban office vacancy rates in Columbus were 6.0%
and 8.1% compared to the national averages of 7.3% and 14.9%, respectively. This
suburban office vacancy rate is the eleventh lowest out of 53 markets surveyed
by CB Commercial. Additionally, the Company believes that the Class A suburban
office submarket in which it operates has a vacancy rate below 5%. Metroview
rated Columbus as the second best office market in the United States.
The following table summarizes important economic and performance statistics
for the Operating Partnership's principal markets and for the United States.
<TABLE>
<CAPTION>
CENTRAL JUNE 1995 JOB GROWTH MARCH 1995 MARCH 1995 SUBURBAN
LOCATION UNEMPLOYMENT SINCE INDUSTRIAL PROPERTY OFFICE VACANCY
RANKING (1) RATE (2) 1989 (2) VACANCY RATE (3) RATE (3)
------------ --------------- ----------- ------------------- -------------------
<S> <C> <C> <C> <C> <C>
Indianapolis, Indiana............. First 4.1% 17.0% 4.8% 12.7%
Cincinnati, Ohio.................. Third 4.1% 9.0% 2.6% 14.5%
Columbus, Ohio.................... Fourth 3.5% 13.2% 6.0% 8.1%
United States..................... -- 5.6% 8.7% 7.3% 14.9%
<FN>
------------------------
(1) Source: Chicago Association of Commerce and Industry. A ranking based on
proximity to the largest 100 metropolitan areas in the United States.
(2) Source: United States Department of Labor's Bureau of Labor Statistics.
(3) Source: CB Commercial.
</TABLE>
MARKET POSITION
The Operating Partnership manages approximately 30 million square feet of
property, including over 12 million square feet owned by third parties. The
Operating Partnership manages approximately 30% of all competitive suburban
office, warehousing and light manufacturing space in Indianapolis, and
approximately 20% of all competitive office, warehousing and light manufacturing
space in Cincinnati. In addition to providing services to approximately 1,100
tenants in the Properties, the Operating Partnership provides such services to
over 1,300 tenants in approximately 150 properties owned by third parties. Based
on market data maintained by the Operating Partnership, the Operating
Partnership believes that it was responsible in 1994 for approximately 66% of
the net absorption (gross space leased minus lease terminations and expirations)
of warehousing and light manufacturing space in Indianapolis and approximately
29% of the net absorption of warehousing and light manufacturing space in
Cincinnati. The Operating Partnership believes that its dominant position in the
markets in which it operates gives it a competitive advantage in its real estate
activities.
QUALITY TENANT BASE
The Operating Partnership's Properties have a diverse and stable base of
approximately 1,100 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 60% of
the square footage of the Properties is occupied by tenants with a net worth
based on book value of $100 million or greater. Approximately 75% of the gross
leasable area of the Properties is occupied by tenants who have been in business
for more than 10 years. The Operating Partnership renewed 73% of the square feet
of tenants up for renewal in 1994 on approximately 1.4 million square feet up
for renewal. No single tenant
S-10
<PAGE>
accounts for more than 3% of the Operating Partnership's Total Gross Effective
Rent (computed using the average annual rental property revenue over the terms
of the respective leases including landlord operating expense allowances but
excluding additional rent due as operating expense reimbursements).
RECENT DEVELOPMENTS
FINANCING. In April 1995, the Operating Partnership replaced its existing
$60 million secured revolving line of credit with a $100 million unsecured
revolving line of credit (the "Credit Line"). The Credit Line bears interest at
the 30-day London Interbank Offered Rate ("LIBOR") plus 200 basis points and
matures in April 1998. The Operating Partnership intends to use the Credit Line
to fund property development and acquisitions.
In May 1995, the Company issued an additional 3,727,500 shares of Common
Stock through an offering (the "1995 Offering") and received net proceeds of
approximately $96.3 million. The net proceeds of the 1995 Offering were
contributed by the Company to the Operating Partnership in exchange for Units
and were used to fund current development and acquisition costs and to repay the
outstanding balance on the Credit Line.
DEVELOPMENT AND ACQUISITIONS. The Operating Partnership currently has
approximately 3.4 million square feet of properties under development which are
85% pre-leased. These properties under development consist of 58% industrial,
34% office and 8% retail properties (based on square footage) and will have a
total estimated cost upon completion of $181.5 million. In addition, during
1995, the Operating Partnership has acquired 831,000 square feet of industrial
property, 339,000 square feet of office property and 81,000 square feet of
retail property at a total cost of approximately $55.6 million. The combined
weighted average unleveraged stabilized return on cost for the current
development and the 1995 acquisitions is expected to be 11.7% with anticipated
leasing activity. Assuming no further leasing activity, the combined weighted
average unleveraged stabilized return on cost would be 10.0%. In September 1995,
the Company completed the acquisition of 16 industrial buildings totaling
approximately 696,000 square feet, 113 acres of undeveloped land and a 50%
interest in a joint venture which owns two industrial buildings totaling
approximately 133,000 square feet. All of the properties and undeveloped land
are located in a business park adjacent to Indianapolis International Airport.
The total acquisition cost was approximately $32 million.
ST. LOUIS. Consistent with its business strategy of expanding in attractive
Midwestern markets, the Operating Partnership carefully analyzed the real estate
investment potential of several major Midwestern metropolitan areas and
concluded that the St. Louis market offers the most attractive real estate
investment returns in the industrial and suburban office markets based on the
following factors: (i) fragmented competition; (ii) strong real estate
fundamentals; and (iii) favorable economic conditions. Based on this conclusion,
the Operating Partnership acquired at a cost of approximately $30.0 million
three suburban office buildings in May 1995 totaling 339,000 square feet which
are 97% leased. In addition, the Operating Partnership acquired 104 acres of
land for future industrial property development in July 1995. The Operating
Partnership has also established a regional office in St. Louis.
USE OF PROCEEDS
The net proceeds to the Operating Partnership from the sale of the Notes
offered hereby are estimated to be approximately $147.7 million after deducting
expenses payable by the Operating Partnership. The net proceeds will be used to
(1) retire outstanding interim financing of $35 million used to fund development
and acquisition costs, (2) retire $39.5 million of mortgage debt with a current
weighted average interest rate of 6.08% and a weighted average maturity of 3.3
years as of June 30, 1995, all of which is scheduled to reset at a market
interest rate during the fourth quarter of 1995 and (3) fund current development
and acquisition costs expected to be incurred during the remainder of 1995. The
interim financing consists of the outstanding balance of $35 million at
September 19, 1995 on the Operating Partnership's Credit Line which bears
interest at LIBOR plus 200 basis points and matures in April 1998. 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-11
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Operating
Partnership and its subsidiaries as of June 30, 1995 and as adjusted (i) to give
effect to issuance of the Notes in the amount of $150 million and application of
the proceeds of the Notes; and (ii) for results of the first six months of
operations of the committed development projects based on the effect of leases
signed through July 31, 1995.
<TABLE>
<CAPTION>
JUNE 30, 1995
-----------------------
PRO FORMA
HISTORICAL AS ADJUSTED
---------- -----------
(IN THOUSANDS)
<S> <C> <C>
Debt:
Mortgage Debt.......................................................................... $ 300,233 $ 260,733
7 1/4% Notes due 2002.................................................................. -- 50,000
7 3/8% Notes due 2005.................................................................. -- 100,000
---------- -----------
Total Debt............................................................................. $ 300,233 $ 410,733
---------- -----------
Partners' Equity......................................................................... $ 530,817 $ 544,604
---------- -----------
Total Capitalization................................................................. $ 831,050 $ 955,337
---------- -----------
---------- -----------
</TABLE>
S-12
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected financial and operating information
for the Operating Partnership and its predecessor, the Company, on a pro forma
and historical basis. The information was derived from the Operating
Partnership'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 Operating Partnership and the financial statements
incorporated by reference in the accompanying Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
------------------------------
PRO
FORMA ACTUAL ACTUAL YEAR ENDED DECEMBER 31,
-------- -------- -------- ----------------------------------------------------
1995 (1) 1995 1994 1994 1993 (2) 1992 (2) 1991 (2) 1990 (2)
-------- -------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Rental Operations:
Revenues:
Rental income............. $63,923 $ 51,510 $ 41,843 $ 87,786 $33,228 $17,657 $16,530 $15,382
Interest and other
income................... 1,730 1,116 405 1,572 287 18 259 365
-------- -------- -------- -------- -------- -------- -------- --------
65,653 52,626 42,248 89,358 33,515 17,675 16,789 15,747
-------- -------- -------- -------- -------- -------- -------- --------
Operating expenses:
Rental expenses........... 10,790 9,786 8,579 17,507 7,059 3,919 4,003 3,602
Real estate taxes......... 4,698 4,290 4,201 8,256 3,403 1,787 1,854 1,873
Interest expense.......... 15,777 10,053 8,723 18,920 10,334 7,582 7,920 7,519
Depreciation and
amortization............. 13,776 11,103 8,138 18,036 7,369 4,483 4,253 3,906
General and
administrative........... 970 969 922 2,145 737 623 592 561
-------- -------- -------- -------- -------- -------- -------- --------
46,011 36,201 30,563 64,864 28,902 18,394 18,622 17,461
-------- -------- -------- -------- -------- -------- -------- --------
Earnings (loss) from
rental operations........ 19,642 16,425 11,685 24,494 4,613 (719) (1,833) (1,714)
-------- -------- -------- -------- -------- -------- -------- --------
Service Operations:
Revenues:
Property management,
maintenance and leasing
fees..................... 5,256 5,256 5,393 11,084 3,000 -- -- --
Construction management
and development
fees..................... 2,455 2,455 2,963 6,107 2,501 -- -- --
Interest and other
income................... 444 444 663 1,282 153 -- -- --
-------- -------- -------- -------- -------- -------- -------- --------
8,155 8,155 9,019 18,473 5,654 -- -- --
-------- -------- -------- -------- -------- -------- -------- --------
Operating expenses:
Payroll................... 3,982 3,982 4,202 8,723 2,688 -- -- --
Maintenance............... 546 546 487 1,069 473 -- -- --
Office and other.......... 1,062 1,062 1,209 2,373 957 -- -- --
-------- -------- -------- -------- -------- -------- -------- --------
5,590 5,590 5,898 12,165 4,118 -- -- --
-------- -------- -------- -------- -------- -------- -------- --------
Earnings from service
operations............... 2,565 2,565 3,121 6,308 1,536 -- -- --
-------- -------- -------- -------- -------- -------- -------- --------
Operating income (loss)..... 22,207 18,990 14,806 30,802 6,149 (719) (1,833) (1,714)
-------- -------- -------- -------- -------- -------- -------- --------
Earnings from property
sales........................ -- -- 135 2,198 517 66 226 1,143
Equity in earnings of
unconsolidated companies..... 543 470 593 1,056 297 -- -- --
Minority interest in earnings
of subsidiaries.............. (431) (431) (605) (1,088) (293) -- -- --
-------- -------- -------- -------- -------- -------- -------- --------
Net income (loss)............. $22,319 $ 19,029 $ 14,929 $ 32,968 $ 6,670 $ (653) $(1,607) $ ( 571)
-------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- --------
</TABLE>
S-13
<PAGE>
<TABLE>
<CAPTION>
AS OF JUNE 30,
-------------------------------
PRO FORMA ACTUAL ACTUAL AS OF DECEMBER 31,
--------- --------- --------- -----------------------------------------------------
1995 (1) 1995 1994 1994 1993 (2) 1992 (2) 1991 (2) 1990 (2)
--------- --------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Real estate investments....... $ 938,372 $ 840,414 $ 654,587 $ 723,713 $ 592,843 $ 132,459 $ 134,129 $ 133,521
Accumulated depreciation...... (49,860) (47,251) (30,795) (38,058) (23,725) (17,508) (14,118) (10,528)
--------- --------- --------- --------- --------- --------- --------- ---------
Net real estate
investments................ 888,512 793,163 623,792 685,655 569,118 114,951 120,011 122,993
Cash (3)...................... 47,541 21,101 5,030 40,427 10,065 10 219 --
Other assets.................. 61,773 59,275 63,665 49,802 54,702 6,920 6,687 6,824
--------- --------- --------- --------- --------- --------- --------- ---------
Total assets................ $ 997,826 $ 873,539 $ 692,487 $ 775,884 $ 633,885 $ 121,881 $ 126,917 $ 129,817
--------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- ---------
Mortgage debt................. $ 260,733 $ 300,233 $ 244,894 $ 298,640 $ 249,034 $ 82,132 $ 83,321 $ 81,249
7 1/4% Notes due 2002......... 50,000 -- -- -- -- -- -- --
7 3/8% Notes due 2005......... 100,000 -- -- -- -- -- -- --
Line of credit................ -- -- 56,500 -- -- -- -- --
--------- --------- --------- --------- --------- --------- --------- ---------
Total debt.................. 410,733 300,233 301,394 298,640 249,034 82,132 83,321 81,249
Other liabilities............. 42,489 42,489 45,897 29,946 35,156 3,620 3,376 3,303
--------- --------- --------- --------- --------- --------- --------- ---------
Total liabilities........... 453,222 342,722 347,291 328,586 284,190 85,752 86,697 84,552
--------- --------- --------- --------- --------- --------- --------- ---------
Partners' equity.............. 544,604 530,817 345,196 447,298 349,695 36,129 40,220 45,265
--------- --------- --------- --------- --------- --------- --------- ---------
Total liabilities and
partners' equity........... $ 997,826 $ 873,539 $ 692,487 $ 775,884 $ 633,885 $ 121,881 $ 126,917 $ 129,817
--------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-------------------------------
PRO FORMA ACTUAL ACTUAL YEAR ENDED DECEMBER 31,
--------- --------- --------- -----------------------------------------------------------
1995 (1) 1995 1994 1994 1993 (2) 1992 (2) 1991 (2) 1990 (2)
--------- --------- --------- --------- --------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PROPERTIES AND RATIO DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
Funds from Operations (4)... $ 36,429 $ 30,417 $ 23,238 $ 49,359 $ 13,615 $ 3,764 $ 2,420 $ 2,192
Cash flow provided by (used
in):
Operating activities...... 46,518 40,554 25,779 51,856 14,363 5,453 2,451 3,357
Investing activities...... (212,379) (114,421) (59,056) (116,227) (315,025) (710) (845) (422)
Financing activities...... 172,976 54,541 28,242 94,733 310,717 (4,952) (1,387) (2,935)
Ratio of earnings to debt
service (5)(7)............. 2.35 2.77 2.56 2.51 1.57 * * *
Ratio of earnings to fixed
charges (6)(7)............. 2.36 2.48 2.48 2.33 1.58 * * *
Ratio of Funds from
Operations before debt
service to debt service
(4)(8)..................... 3.21 3.82 3.44 3.42 2.26 1.49 1.28 1.29
Ratio of Funds from
Operations before fixed
charges to fixed charges
(4)(9)..................... 3.22 3.54 3.43 3.26 2.28 1.48 1.30 1.29
Ratio of Funds from
Operations from
unencumbered assets to
unsecured fixed charges
(4)(10).................... 4.19 N/A N/A N/A N/A N/A N/A N/A
Ratio of Debt to Adjusted
Total Assets (11)......... 40.92% N/A N/A N/A N/A N/A N/A N/A
Ratio of Secured Debt to
Adjusted
Total Assets (12)......... 25.98% N/A N/A N/A N/A N/A N/A N/A
Ratio of Consolidated Income
Available for Debt Service
to Annual Service Charge
(13)....................... 3.29 N/A N/A N/A N/A N/A N/A N/A
Ratio of Total Unencumbered
Assets to Unsecured Debt
(14)....................... 332% N/A N/A N/A N/A N/A N/A N/A
Number of Properties at end
of period.................. 163 144 120 128 114 30 31 32
Square feet available at end
of period.................. 18,551 15,169 11,881 12,895 10,867 1,963 1,986 2,061
<FN>
------------------------------
</TABLE>
* See footnote 7 on next page.
(1) The pro forma financial information includes adjustments to the historical
Consolidated Statement of Operations and Consolidated Balance Sheet as of
and for the six months ended June 30, 1995, related to the effects of the
public sale by the Company of 3,727,500 shares of Common Stock in the 1995
Equity Offering, the issuance by the Operating Partnership of the Notes
pursuant to this Offering with an effective interest rate of 7.328% on the
2002 Notes and an effective interest rate of 7.519% on the 2005 Notes, the
acquisition of 12 properties and commencement of operations of four
development projects which only had a partial period of operations during
the six months ended June 30, 1995, and the estimated first six months of
operations of the 19 properties and one building expansion (including two
properties owned by joint ventures in which the Operating Partnership is a
50% partner) which
S-14
<PAGE>
were under construction at June 30, 1995. The first six months of operations
of the 19 development projects are based only on leases signed as of July
31, 1995. These projects under development were approximately 86% leased as
of July 31, 1995. These transactions are reflected as if they had occurred
on January 1, 1995, utilizing net proceeds from the 1995 Equity Offering and
this Offering. The effective interest rate of 7.519% on the 2005 Notes
considers the settlement of a $100 million Forward Treasury Lock Agreement
the Operating Partnership entered into in order to hedge its exposure to
interest rate fluctuations. The Operating Partnership will amortize
approximately $228,000 incurred upon settlement of the agreement into
interest expense over the term of the 2005 Notes.
(2) The Operating Partnership was formed on October 4, 1993, when the Company
completed the acquisition of substantially all of the properties and
businesses of Duke Associates, a full-service commercial real estate firm
(the "Reorganization"). The selected consolidated financial statements
include the accounts and operations of the Company for the period from
January 1, 1990 to October 4, 1993 and the accounts and operations of the
Operating Partnership and its majority-owned or controlled subsidiaries for
the period from October 4, 1993 to December 31, 1993 and subsequent periods.
(3) The excess cash reflected on the pro forma balance sheet at June 30, 1995
will be used to fund additional development and acquisition costs not
reflected in the pro forma financial statements including $27.3 million of
property acquisition costs and $15.7 million of land acquisition costs
incurred between June 30, 1995 and September 19, 1995. The remaining balance
will be used to fund current development and acquisition costs expected to
be incurred during the remainder of 1995.
(4) Funds from Operations ("FFO"), as defined by the National Association of
Real Estate Investment Trusts ("NAREIT"), means the consolidated net income
of the Operating Partnership and its subsidiaries without giving effect to
depreciation and amortization, gains or losses from extraordinary items,
gains or losses on sales of real estate, gains or losses on investments in
marketable securities and any provision/benefit for income taxes for such
period, plus the allocable portion, based on the Operating Partnership's
ownership interest, of funds from operations of unconsolidated joint
ventures, all determined on a consistent basis in accordance with generally
accepted accounting principles. FFO 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
Operating Partnership's operating performance and is not indicative of cash
available to fund all cash flow needs. In March 1995, NAREIT issued a
clarification of its definition of FFO. The clarification provides that
amortization of deferred financing costs and depreciation of non-rental real
estate assets are no longer to be added back to net income in arriving at
FFO. These changes are to be implemented no later than 1996. The amounts in
this table do not include the effect of the new clarifications. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Funds From Operations."
(5) In computing the ratios of earnings to debt service, earnings have been
calculated by adding debt service to income (loss) before gains or losses on
property sales. Debt service consists of interest and recurring principal
amortization (excluding maturities) and excludes amortization of debt
issuance costs.
(6) In computing the ratios of earnings to fixed charges, earnings have been
calculated by adding fixed charges, excluding capitalized interest, to
income (loss) before gains or losses on property sales. Fixed charges
consist (if applicable) of interest costs, whether expensed or capitalized,
the interest component of rental expense and amortization of debt issuance
costs.
(7) Prior to formation of the Operating Partnership and completion of the
Reorganization in October 1993, the Company maintained a different capital
structure. As a result, although the original properties have historically
generated positive net cash flow, the consolidated financial statements of
the Company show net losses for the fiscal years ended December 31, 1992,
1991 and 1990. Consequently, earnings were inadequate to cover debt service
and fixed charges by approximately $0.7 million, $1.8 million and $1.7
million, respectively, for such fiscal years. The recapitalization of the
Operating Partnership effected in connection with the Reorganization
permitted the Operating Partnership to significantly deleverage its
Properties, resulting in significantly improved ratios of earnings to debt
service and fixed charges subsequent to the Reorganization.
(8) The ratios of FFO before debt service to debt service represent the sum of
FFO and debt service compared to debt service.
(9) The ratios of FFO before fixed charges to fixed charges represent the sum of
FFO and fixed charges compared to fixed charges.
(10) The ratios of FFO from unencumbered assets to unsecured fixed charges
represent FFO from unencumbered assets plus the fixed charges on the
unsecured debt, if any, compared to fixed charges on the unsecured debt, if
any. The Operating Partnership had 69 unencumbered Properties totaling 8.4
million square feet with a gross investment of $432.3 million which will
provide $24.2 million of FFO on a pro forma basis as of June 30, 1995.
(11) As specified in the Indenture, Debt consists of indebtedness of the
Operating Partnership and its consolidated subsidiaries from borrowed money,
secured indebtedness, reimbursement obligations in connection with letters
of credit and capitalized leases. Adjusted Total Assets consist of all
assets of the Operating Partnership and its consolidated subsidiaries, other
than intangibles and accounts receivable and before depreciation and
amortization with respect to real estate assets. See "Description of the
Notes -- Certain Covenants."
(12) As specified in the Indenture, Secured Debt consists of Debt secured by a
mortgage or other encumbrance on any of the property of the Operating
Partnership or its consolidated subsidiaries. See "Description of the Notes
-- Certain Covenants."
(13) As specified in the Indenture, Consolidated Income Available for Debt
Service consists of consolidated income of the Operating Partnership and its
consolidated subsidiaries plus amounts deducted for interest, provisions for
income taxes, amortization of debt discount, provisions for gains and and
losses on properties, depreciation and amortization, noncash charges and
amortization of deferred charges. Annual Service Charge means the amount
expensed in any 12-month peried for interest on Debt. See "Description of
the Notes -- Certain Covenants."
(14) As specified in the Indenture, Total Unencumbered Assets consists of all
assets of the Operating Partnership and its consolidated subsidiaries not
subject to an encumbrance, other than intangibles and accounts receivable
and before depreciation and amortization with respect to real estate assets.
Unsecured Debt means Debt not secured by a mortgage or other encumbrance on
any of the Properties. See "Description of the Notes -- Certain Covenants."
S-15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS -- SIX MONTHS ENDED JUNE 30, 1995 COMPARED TO SIX
MONTHS ENDED
JUNE 30, 1994
Revenues from Rental Operations increased from $42.2 million for the six
months ended June 30, 1994 to $52.6 million for the six months ended June 30,
1995. This $10.4 million increase is attributable to the expansion of the
in-service rental property portfolio through the acquisition and development of
24 properties totaling approximately 3.3 million square feet since June 30,
1994.
Operating expenses related to Rental Operations increased from $30.6 million
for the six months ended June 30, 1994 to $36.2 million for the six months ended
June 30, 1995. The main components of this increase include (i) $1.2 million of
additional rental expenses related to the 24 additional in-service properties;
(ii) $1.4 million of additional interest expense on borrowings used to fund the
acquisition and development costs of the additional in-service properties; and
(iii) $3.0 million of additional depreciation and amortization related to the
additional in-service properties.
Revenues from Service Operations decreased from $9.0 million for the six
months ended June 30, 1994 to $8.2 million for the six months ended June 30,
1995. This decrease was mainly due to decreased construction management and
development fees resulting from decreased third-party construction and
development activity.
Operating expenses related to Service Operations decreased from $5.9 million
for the six months ended June 30, 1994 to $5.6 million for the six months ended
June 30, 1995 due to significant growth and development of Company-owned
properties which resulted in increased allocation of operating costs to such
properties, thereby reducing the proportionate amount of such costs attributable
to third party fee services.
Primarily as a result of the fluctuations discussed above, net income and
net income per weighted average Unit increased from $14.9 million and $.73 per
Unit, respectively, for the six months ended June 30, 1994 to $19.0 million and
$.75 per Unit, respectively, for the six months ended June 30, 1995.
The occupancy at June 30, 1995 for all of the in-service properties in which
the Operating Partnership owns a whole or partial interest was 96.2% for the
industrial properties (94.5% at June 30, 1994), 93.6% for the office properties
(90.3% at June 30, 1994), and 95.1% for the retail properties (92.7% at June 30,
1994), for an overall average occupancy rate of 95.3% (93.0% at June 30, 1994).
The following table sets forth information regarding the Operating
Partnership's portfolio of rental properties as of June 30, 1995:
<TABLE>
<CAPTION>
IN-SERVICE PROPERTIES UNDER DEVELOPMENT
----------------------------------- -----------------------------------
TOTAL TOTAL
PERCENT SQUARE PERCENT OF PERCENT SQUARE PERCENT OF
TYPE LEASED FEET TOTAL LEASED FEET TOTAL
------------------------------------------- ----------- --------- ----------- ----------- --------- -----------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C>
Industrial................................. 96.2% 9,317 61.4% 87.1% 1,974 58.4%
Office..................................... 93.6% 4,486 29.6 78.7% 1,138 33.6
Retail..................................... 95.1% 1,366 9.0 96.3% 270 8.0
--------- ----- --------- -----
Total.................................. 95.3% 15,169 100.0% 85.0% 3,382 100.0%
--------- ----- --------- -----
--------- ----- --------- -----
</TABLE>
Management expects occupancy to remain stable because (i) only 3.3% and
10.0% of the Operating Partnership's total leased square footage are subject to
leases expiring in the remainder of 1995 and 1996, respectively, and (ii) the
Operating Partnership's renewal percentage averaged 73% and 65% in 1994 and
1993, respectively. This stable occupancy, along with increasing rental rates in
the Operating Partnership's markets, should allow the in-service portfolio to
continue to provide a comparable level of earnings from
S-16
<PAGE>
rental operations in the future. The Operating Partnership expects to also
realize growth in earnings from rental operations as the 3.4 million square feet
of properties under development at June 30, 1995 are placed in service.
FUNDS FROM OPERATIONS
Management believes that FFO is the industry standard for reporting the
operations of real estate investment trusts. In March 1995, NAREIT issued a
clarification of its definition of FFO. The clarification provides that
amortization of deferred financing costs and depreciation of non-rental real
estate assets are no longer to be added back to net income in arriving at FFO.
Although the Operating Partnership has not yet adopted the new method, the
following table presents the Operating Partnership's FFO under both methods of
calculation for illustrative purposes:
<TABLE>
<CAPTION>
CURRENT METHOD NEW METHOD
------------------- -------------------
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -------------------
1995 1994 1995 1994
-------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER UNIT AMOUNTS
AND PERCENTAGES)
<S> <C> <C> <C> <C>
Net Income................................................... $19,029 $14,929 $19,029 $14,929
Add back:
Depreciation and amortization.............................. 10,518 7,875 10,518 7,875
Amortization of deferred financing costs and depreciation
of non-rental real estate assets.......................... 726 349 -- --
Depreciation and amortization of joint ventures............ 144 220 144 220
(Gain) loss on property sales.............................. -- (135) -- (135)
-------- -------- -------- --------
Funds From Operations........................................ $30,417 $23,238 $29,691 $22,889
-------- -------- -------- --------
-------- -------- -------- --------
Weighted average Units....................................... 25,255 20,478 25,255 20,478
------ ------ ------ ------
------ ------ ------ ------
FFO per weighted average Unit................................ $1.20 $1.13 $1.18 $1.12
----- ----- ----- -----
----- ----- ----- -----
Distribution paid per Unit................................... $.96 $.92 $.96 $.92
---- ---- ---- ----
---- ---- ---- ----
FFO payout ratio (1)......................................... 80.0% 81.4% 81.4% 82.1%
----- ----- ----- -----
----- ----- ----- -----
<FN>
------------------------
(1) Calculated as the distribution paid per Unit divided by FFO per weighted
average Unit.
</TABLE>
Management anticipates continued growth in FFO through (i) maintaining and
increasing property occupancy and rental rates through aggressive management of
the Operating Partnership's existing portfolio of properties; (ii) expanding
existing properties; (iii) developing and acquiring new properties; and (iv)
providing a full line of real estate services to the Operating Partnership's
tenants and to third parties.
S-17
<PAGE>
The following table indicates the components of the Operating Partnership's
FFO:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
30,
---------------------
1995 1994
---------- ---------
(IN THOUSANDS)
<S> <C> <C>
Rental operations:
Original portfolio (1)......................................................... $ 29,574 $ 28,406
Development (2)................................................................ 4,128 490
Acquisitions (3)............................................................... 4,144 316
Investments in unconsolidated companies.......................................... 613 813
Interest expense................................................................. (10,053) (8,723)
---------- ---------
Net rental operations.......................................................... 28,406 21,302
Service operations, net of minority interest..................................... 2,107 2,638
Other, net....................................................................... (96) (702)
---------- ---------
Funds From Operations -- Current Method.......................................... $ 30,417 $ 23,238
---------- ---------
---------- ---------
<FN>
------------------------
(1) Consists of the component of FFO from the portfolio of Properties
in-service at the date of the Reorganization.
(2) Consists of the component of FFO from all Properties developed and placed
in-service subsequent to the date of the Reorganization.
(3) Consists of the component of FFO from all Properties acquired subsequent to
the date of the Reorganization.
</TABLE>
While management believes that FFO is the most relevant and widely used
measure of the Operating Partnership's operating performance, such amount does
not represent cash flow from operations as defined by generally accepted
accounting principles, should not be considered as an alternative to net income
as an indicator of the Operating Partnership's operating performance, and is not
indicative of cash available to fund all cash flow needs.
LIQUIDITY AND CAPITAL RESOURCES
The Operating Partnership pays regular quarterly distributions with a policy
of distributing no more than 90% of FFO. The distribution declared on July 27,
1995 represented 80.3% of second quarter FFO. Rental and Service Operation
revenue have been the principal sources of capital available to fund the
Operating Partnership's operating expenses, debt service and recurring capital
expenditures. Net cash provided by operating activities, totaling $40.6 million
for the six months ended June 30, 1995, represents the primary source of
liquidity to fund distributions to Unitholders and the minority interests and to
fund recurring costs associated with the renovation and re-letting of the
Operating Partnership's properties. Recurring capital expenditures for the six
months ended June 30, 1995 were $3.2 million. Funds Available for Distribution
(FFO adjusted for straight-line rent and recurring capital expenditures) for the
six months ended June 30, 1995 were $26.0 million, resulting in a payout ratio
for the distributions for such period of 93.2% of Funds Available for
Distribution.
The investing activities of the Operating Partnership for the six months
ended June 30, 1995 of $114.4 million represent primarily the costs incurred for
the development and acquisition of 18 properties placed in service during the
six months and 19 properties and one building expansion under development as of
June 30, 1995. The estimated remaining development costs for these properties as
of June 30, 1995 is $110 million. These development costs will be funded by cash
on hand as of June 30, 1995, the Credit Line and the net proceeds of the
Offering. The investing activities for the $114.4 million of property
development and acquisitions were substantially funded with the proceeds of the
1995 Equity Offering. The Operating Partnership has a $100 million unsecured
Credit Line which bears interest at LIBOR plus 200 basis points
S-18
<PAGE>
and matures in April 1998. The Credit Line is available to fund the remaining
development costs of the properties under construction at June 30, 1995 as well
as future development and acquisition activities. Also, the Operating
Partnership has obtained implied investment grade ratings for its unsecured debt
from Standard & Poor's, Moody's and Duff & Phelps.
The Operating Partnership intends to maintain a conservative capital
structure. The Operating Partnership's debt to total market capitalization ratio
at June 30, 1995 was 27.3% compared to 30.2% at December 31, 1994. Following the
issuance of the Notes, the Operating Partnership's debt to total market
capitalization ratio will be 33.9%, based on a market price of $28.25 per Unit,
which reflects the market price of the Common Stock on June 30, 1995.
The mortgage debt outstanding at June 30, 1995 consists of notes totaling
$300.2 million with a weighted average interest rate of 7.31% maturing at
various dates through 2018, of which only 1.5% is currently floating rate debt.
Scheduled principal amortization of mortgage debt totaled $723,000 for the six
months ended June 30, 1995. A portion of the proceeds from the issuance of the
Notes will be used to retire the $35 million outstanding on the Operating
Partnership's Credit Line at September 19, 1995, making it fully available for
future acquisitions and development. Approximately $39.5 million of the proceeds
will be used to retire existing mortgage debt with a current weighted average
interest rate of 6.08% and a weighted average maturity of 3.3 years as of June
30, 1995, all of which is scheduled to reset at a market interest rate during
the fourth quarter of 1995. The total debt in unconsolidated subsidiaries at
June 30, 1995 is $49.6 million of which the Operating Partnership's percentage
share is $10.8 million. The unconsolidated subsidiary debt has a weighted
average interest rate of 7.11%, and only 15.9% is currently floating rate debt.
Following is a summary of the scheduled future amortization and maturities
of the Operating Partnership's debt as of June 30, 1995:
<TABLE>
<CAPTION>
FUTURE
SCHEDULED FUTURE OFFERING PRO FORMA
YEAR AMORTIZATION MATURITIES TOTAL (1) TOTAL
----------------------------- ------------ ---------- ---------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
1995......................... $ 1,096 $ -- $ 1,096 $ (240 ) $ 856
1996......................... 3,191 62,325 65,516 (1,398 ) 64,118
1997......................... 3,963 -- 3,963 (1,874 ) 2,089
1998......................... 2,916 80,627 83,543 (35,988 ) 47,555
1999......................... 2,548 -- 2,548 -- 2,548
2000......................... 2,637 2,423 5,060 -- 5,060
2001......................... 2,291 59,954 62,245 -- 62,245
2002......................... 2,494 -- 2,494 50,000 52,494
2003......................... 252 68,814 69,066 -- 69,066
2004......................... 273 -- 273 -- 273
2005......................... 300 -- 300 100,000 100,300
Thereafter................... 4,129 -- 4,129 -- 4,129
------------ ---------- ---------- ----------- -----------
Total.................... $ 26,090 $ 274,143 $ 300,233 $ 110,500 $ 410,733
------------ ---------- ---------- ----------- -----------
------------ ---------- ---------- ----------- -----------
<FN>
------------------------
(1) Assumes maturity in 2002 of the 2002 Notes and in 2005 of the 2005 Notes
offered hereby and the use of $39.5 million of the proceeds to retire
existing mortgage debt.
</TABLE>
S-19
<PAGE>
PROPERTIES
GENERAL
The Operating Partnership owns a diversified portfolio of properties which
includes (i) the in-service Properties, consisting of 144 industrial, office and
retail properties located in Indiana, Ohio, Illinois, Michigan, Tennessee,
Kentucky, Wisconsin and Missouri; (ii) 19 buildings and one building expansion
currently under development; and (iii) the Land, consisting of approximately 900
acres of unencumbered land for future development in Indiana, Ohio, Illinois,
Kentucky, and Tennessee. The Operating Partnership owns the entire equity
interest in 125 of the Properties and a partial interest in the remainder of the
Properties. 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. The Operating Partnership believes that its Properties are of
the highest quality available to tenants in its markets. The total square
footage of the in-service Properties is approximately 15.2 million, consisting
of approximately 9.3 million square feet of industrial space, approximately 4.5
million square feet of office space and approximately 1.4 million square feet of
retail space. The total square footage of the 19 buildings and one building
expansion currently under development is approximately 3.4 million square feet,
consisting of approximately 2.0 million square feet of industrial space,
approximately 1.1 million square feet of office space and approximately 270,000
square feet of retail space. The current development projects are 85% leased as
of June 30, 1995. The total annual Net Effective Rental income of the Properties
based upon tenants in occupancy as of June 30, 1995 is approximately $94.9
million, with $35.6 million relating to the industrial Properties, $47.1 million
relating to the office Properties and $12.2 million relating to the retail
Properties. At June 30, 1995, the Properties were approximately 95% leased.
The following tables provide an overview of the Properties.
SQUARE FOOTAGE AND ANNUAL NET EFFECTIVE RENT OF PROPERTIES
(IN THOUSANDS, EXCEPT PERCENTAGES)
<TABLE>
<CAPTION>
SQUARE FEET PERCENT OF
--------------------------------------------------------- ANNUAL NET ANNUAL NET
PERCENT OF EFFECTIVE EFFECTIVE
STATE INDUSTRIAL OFFICE RETAIL TOTAL TOTAL RENT(1) RENT
------------------------------------ ----------- --------- --------- --------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Indiana............................. 5,493 1,085 440 7,018 46.3% $ 32,332 34.1%
Ohio................................ 2,380 2,817 722 5,919 39.0 48,438 51.0
Missouri............................ -- 339 33 372 2.4 3,886 4.1
Illinois............................ 126 -- 171 297 2.0 2,165 2.3
Tennessee........................... 495 -- -- 495 3.3 3,079 3.2
Kentucky............................ 669 -- -- 669 4.4 1,759 1.9
Michigan............................ -- 245 -- 245 1.6 2,734 2.9
Wisconsin........................... 154 -- -- 154 1.0 491 0.5
----- --------- --------- --------- ----- ------------ -----
Total........................... 9,317 4,486 1,366 15,169 100.0% $ 94,884 100.0%
----- --------- --------- --------- ----- ------------ -----
----- --------- --------- --------- ----- ------------ -----
Percent of total square feet........ 61.4% 29.6% 9.0% 100.0%
----- --------- --------- ---------
----- --------- --------- ---------
<FN>
------------------------
(1) Represents annual Net Effective Rent due from tenants in occupancy as of
June 30, 1995.
</TABLE>
S-20
<PAGE>
SUMMARY OF PROPERTIES
(IN THOUSANDS, EXCEPT PERCENTAGES)
<TABLE>
<CAPTION>
PERCENT OF
PERCENT OF ANNUAL NET TOTAL NET
SQUARE TOTAL SQUARE EFFECTIVE EFFECTIVE OCCUPANCY AT
TYPE OF PROPERTY FEET FEET RENT(1) ANNUAL RENT JUNE 30, 1995
-------------------------------------------------- --------- --------------- ------------ --------------- -------------
<S> <C> <C> <C> <C> <C>
Industrial........................................ 9,317 61% $ 35,621 38% 96.2%
Office............................................ 4,486 30 47,047 49 93.6%
Retail............................................ 1,366 9 12,216 13 95.1%
--------- --- ------------ ---
Total......................................... 15,169 100% $ 94,884 100% 95.3%
--------- --- ------------ ---
--------- --- ------------ ---
<FN>
------------------------
(1) Represents annual net effective rent due from tenants in occupancy as of
June 30, 1995. 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>
The following table sets forth the aggregate average percent leased for all
of the Properties during the indicated periods.
AVERAGE OCCUPANCY
(ALL PROPERTIES)
<TABLE>
<CAPTION>
SQUARE FEET AVERAGE
YEAR AVAILABLE OCCUPANCY
---------------------------------------------------------------------- ------------ -------------
<S> <C> <C>
Through June 30, 1995................................................. 15,169,339 94.9%
1994.................................................................. 12,894,603 93.8%
1993.................................................................. 10,864,245 92.1%
1992.................................................................. 10,572,874 89.3%
</TABLE>
S-21
<PAGE>
The following table shows lease expirations for leases in place as of June
30, 1995 for each of the ten years beginning with the remainder of 1995 for the
Properties, assuming none of the tenants exercises early termination or renewal
options.
LEASE EXPIRATIONS
(ALL PROPERTIES)
<TABLE>
<CAPTION>
PERCENT OF PERCENT OF
NET RENTABLE ANNUAL NET ANNUAL NET ANNUAL NET TOTAL LEASED
NUMBER OF AREA (IN SQ. EFFECTIVE RENT EFFECTIVE RENT PER EFFECTIVE RENT SQ. FT.
YEAR OF LEASE LEASES FT.) SUBJECT TO UNDER SQ. FT. UNDER REPRESENTED BY REPRESENTED BY
EXPIRATION EXPIRING EXPIRING LEASES EXPIRING LEASES(1) EXPIRING LEASES (1) EXPIRING LEASES EXPIRING LEASES
-------------------- ----------- --------------- ------------------ ------------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
1995................ 128 562,583 $ 3,769,815 $ 6.70 3.97% 3.89%
1996................ 227 1,739,084 10,241,972 $ 5.89 10.79 12.03
1997................ 186 1,090,507 9,531,255 $ 8.74 10.05 7.54
1998................ 189 2,281,391 12,454,347 $ 5.46 13.13 15.78
1999................ 155 2,024,738 11,412,590 $ 5.64 12.03 14.00
2000................ 105 1,532,538 10,025,034 $ 6.54 10.57 10.60
2001................ 41 1,496,817 7,394,935 $ 4.94 7.79 10.35
2002................ 19 394,405 3,404,411 $ 8.63 3.59 2.73
2003................ 12 194,570 2,258,777 $ 11.61 2.37 1.35
2004................ 12 779,547 3,414,639 $ 4.38 3.60 5.39
2005................ 20 787,672 6,583,552 $ 8.36 6.94 5.45
2006................ -- -- -- -- -- --
2007 and
thereafter......... 27 1,575,076 14,392,059 $ 9.14 15.17 10.89
----- --------------- ------------------ ------ ------
Total........... 1,121 14,458,928 $ 94,883,386 $ 6.56 100.00% 100.00%
----- --------------- ------------------ ------ ------
----- --------------- ------------------ ------ ------
<FN>
------------------------
(1) Represents annual Net Effective Rent due from tenants in occupancy as of
June 30, 1995.
</TABLE>
INDUSTRIAL PROPERTIES
The 74 industrial Properties are primarily located in industrial or business
parks that have been developed by the Operating Partnership or the Company and
consist of 44 bulk distribution facilities and 30 service center facilities.
Approximately 80% of the square footage of the industrial Properties is
contained in bulk distribution facilities. The bulk distribution facilities
accommodate the needs of large warehouse and distribution users with ceiling
clear heights of 20 feet and more while providing leased space to many large
tenants including users of more than 500,000 square feet. The service center
facilities are also known as flex buildings or light industrial properties with
12 to 18 foot ceiling heights and a combination of drive-up and dock loading
access. These service center facilities accommodate users of 1,200 square feet
and up. The diversity of the industrial buildings allows the Operating
Partnership to cater to many segments of the industrial market and renders the
Operating Partnership less dependent upon any specific market segment. Over 90%
of the industrial Properties are in the primary markets of the Operating
Partnership of Indianapolis, Cincinnati and Columbus. Over 90% of the square
footage of the industrial Properties was constructed or acquired and renovated
by the Operating Partnership in the last 10 years.
S-22
<PAGE>
The following table sets forth the aggregate average percent leased and Net
Effective Rent per leased square foot for the industrial Properties during the
indicated periods.
AVERAGE OCCUPANCY AND AVERAGE RENTALS
(INDUSTRIAL PROPERTIES)
<TABLE>
<CAPTION>
NET EFFECTIVE
SQUARE FEET AVERAGE RENT PER LEASED
YEAR AVAILABLE OCCUPANCY SQUARE FOOT(1)
------------------------------------------------------ ----------- ------------- ----------------
<S> <C> <C> <C>
Through June 30, 1995................................. 9,317,431 96.3% $ 4.00(2)(3)
1994.................................................. 7,622,627 95.5% $ 4.05(2)
1993.................................................. 6,235,835 93.2% $ 4.06
1992.................................................. 5,962,235 89.7% $ 3.91
<FN>
------------------------
(1) Calculated as the Net Effective Rent for the indicated period divided by
the average total square feet under lease during the same period.
(2) During 1994 and the first six months of 1995, the Operating Partnership
renewed 62% of its industrial leases up for renewal. The rental rate of the
726,000 square feet renewed during this period increased 10.4% for the
renewal period as compared to the prior lease term. During this same
period, the Operating Partnership leased an additional 1,063,000 square
feet in the in-service Properties at a Net Effective Rental rate of $4.28
per square foot.
(3) The average Net Effective Rent per leased square foot decreased in the
first six months of 1995 because the increase in square footage available
relates primarily to bulk warehouse space which provides a lower average
Net Effective Rent per leased square foot.
</TABLE>
S-23
<PAGE>
The following table shows lease expirations for leases in place as of June
30, 1995, for each of the ten years beginning with the remainder of 1995, for
the industrial Properties, assuming none of the tenants exercises early
termination or renewal options.
LEASE EXPIRATIONS
(INDUSTRIAL PROPERTIES)
<TABLE>
<CAPTION>
PERCENT OF PERCENT OF
NET RENTABLE ANNUAL NET ANNUAL NET ANNUAL NET TOTAL LEASED
NUMBER OF AREA (IN SQ. EFFECTIVE RENT EFFECTIVE RENT PER EFFECTIVE RENT SQ. FT.
YEAR OF LEASE LEASES FT.) SUBJECT TO UNDER SQ. FT. UNDER REPRESENTED BY REPRESENTED BY
EXPIRATION EXPIRING EXPIRING LEASES EXPIRING LEASES(1) EXPIRING LEASES (1) EXPIRING LEASES EXPIRING LEASES
-------------------- ------------- --------------- ------------------ ------------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
1995................ 33 308,469 $ 1,158,836 $ 3.76 3.25% 3.44%
1996................ 88 1,164,640 4,403,329 $ 3.78 12.36 13.00
1997................ 51 397,536 2,240,280 $ 5.64 6.29 4.44
1998................ 66 1,675,433 6,365,518 $ 3.80 17.87 18.70
1999................ 60 1,500,280 6,076,989 $ 4.05 17.06 16.74
2000................ 44 1,093,512 4,577,947 $ 4.19 12.85 12.20
2001................ 16 1,211,872 4,352,625 $ 3.59 12.22 13.52
2002................ 7 124,980 499,681 $ 4.00 1.40 1.39
2003................ 3 40,378 441,951 $ 10.95 1.24 0.45
2004................ 7 703,033 2,552,673 $ 3.63 7.17 7.85
2005................ 4 313,120 1,040,080 $ 3.32 2.92 3.49
2006................ -- -- -- -- -- --
2007 and
thereafter......... 4 427,486 1,911,229 $ 4.47 5.37 4.78
--- --------------- ------------------ ------ ------
Total........... 383 8,960,739 $ 35,621,138 $ 3.98 100.00% 100.00%
--- --------------- ------------------ ------ ------
--- --------------- ------------------ ------ ------
<FN>
------------------------
(1) Represents annual Net Effective Rent due from tenants in occupancy as of
June 30, 1995.
</TABLE>
OFFICE PROPERTIES
The Operating Partnership owns a portfolio of 49 office Properties. The
Operating Partnership has 46 suburban office buildings ranging from one-story
buildings to five-story or mid-rise office buildings located in developed
business parks and mixed use developments with excellent interstate access and
visibility. Three of the suburban office buildings are medical buildings,
including a single tenant facility with a 20 year lease and two multi-tenant
properties attached to a hospital. In addition, the Operating Partnership owns
three downtown buildings consisting of two new high-rise office buildings and
one rehabilitated office building. The office Properties are a collection of
modern facilities with over 95% constructed or renovated within the last ten
years. The Operating Partnership believes that these primarily Class A office
Properties are among the highest quality available to tenants in its markets.
This diverse mix of office buildings is occupied by tenants spanning all
segments of the office market.
S-24
<PAGE>
The following table sets forth the aggregate average percent leased and Net
Effective Rent per leased square foot for the office Properties during the
indicated periods.
AVERAGE OCCUPANCY AND AVERAGE RENTALS
(OFFICE PROPERTIES)
<TABLE>
<CAPTION>
NET EFFECTIVE
RENT PER
SQUARE FEET AVERAGE LEASED SQUARE
YEAR AVAILABLE OCCUPANCY FOOT (1)
------------------------------------------------------ ----------- ------------- --------------
<S> <C> <C> <C>
Through June 30, 1995................................. 4,485,879 92.1% $ 10.88(2)
1994.................................................. 3,986,629 90.7% $ 10.86(2)
1993.................................................. 3,811,904 90.5% $ 10.91
1992.................................................. 3,811,904 88.9% $ 10.89
<FN>
------------------------
(1) Calculated as the Net Effective Rent for the indicated period, divided by
the average total square feet under lease during the same period.
(2) During 1994 and the first six months of 1995, the Operating Partnership
renewed 65% of its office leases up for renewal. The rental rate of the
430,000 square feet renewed during this period increased 4.5% for the
renewal period as compared to the prior lease term. During this same
period, the Operating Partnership leased an additional 429,000 square feet
in the in-service Properties at a Net Effective Rental rate of $10.08 per
square foot.
</TABLE>
The following table shows lease expirations for leases in place as of June
30, 1995, for each of the ten years beginning with the remainder of 1995, for
the office Properties, assuming none of the tenants exercises early termination
or renewal options.
LEASE EXPIRATIONS
(OFFICE PROPERTIES)
<TABLE>
<CAPTION>
ANNUAL NET ANNUAL NET PERCENT OF PERCENT OF
NET RENTABLE EFFECTIVE RENT EFFECTIVE RENT ANNUAL NET TOTAL LEASED
NUMBER OF AREA (IN SQ. UNDER PER SQ. FT. UNDER EFFECTIVE RENT SQ. FT.
YEAR OF LEASE LEASES FT.) SUBJECT TO EXPIRING EXPIRING REPRESENTED BY REPRESENTED BY
EXPIRATION EXPIRING EXPIRING LEASES LEASES(1) LEASES(1) EXPIRING LEASES EXPIRING LEASES
--------------------- ------------- --------------- ----------------- ----------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
1995................. 83 232,368 $ 2,369,596 $ 10.20 5.04% 5.53%
1996................. 97 472,030 4,750,587 $ 10.06 10.10 11.24
1997................. 94 588,409 6,126,540 $ 10.41 13.02 14.01
1998................. 88 498,378 4,951,133 $ 9.93 10.52 11.87
1999................. 65 402,267 4,091,057 $ 10.17 8.70 9.58
2000................. 32 326,451 4,205,490 $ 12.88 8.94 7.78
2001................. 21 252,045 2,730,998 $ 10.84 5.80 6.00
2002................. 5 174,580 2,043,187 $ 11.70 4.34 4.16
2003................. 5 117,696 1,487,327 $ 12.64 3.16 2.80
2004................. 3 63,326 726,258 $ 11.47 1.54 1.51
2005................. 9 329,797 4,367,990 $ 13.24 9.28 7.86
2006................. -- -- -- -- -- --
2007 and
thereafter.......... 12 741,265 9,196,356 $ 12.41 19.56 17.66
--- --------------- ----------------- ------ ------
Total............ 514 4,198,612 $ 47,046,519 $ 11.21 100.00% 100.00%
--- --------------- ----------------- ------ ------
--- --------------- ----------------- ------ ------
<FN>
------------------------
(1) Represents annual Net Effective Rent due from tenants in occupancy as of
June 30, 1995.
</TABLE>
S-25
<PAGE>
RETAIL PROPERTIES
The retail Properties, which cater to a variety of retail markets, include
one regional shopping center, 12 neighborhood shopping centers, three shopping
centers designed primarily to serve the business parks in which they are located
and five free-standing single-tenant buildings. The regional and neighborhood
shopping centers either have well known anchor tenants such as Wal-Mart and Pet
Food Supermarket, or are located adjacent to major retailers such as Kroger or
in areas where other large commercial facilities draw consumers. The retail
Properties are generally located in upscale suburban and high growth areas.
The following table sets forth the aggregate average percent leased and Net
Effective Rent per leased square foot for the retail Properties during the
indicated periods.
AVERAGE OCCUPANCY AND AVERAGE RENTALS
(RETAIL PROPERTIES)
<TABLE>
<CAPTION>
NET EFFECTIVE
SQUARE FEET AVERAGE RENT PER LEASED
YEAR AVAILABLE OCCUPANCY SQUARE FOOT (1)
------------------------------------------------------ ----------- ------------- ----------------
<S> <C> <C> <C>
Through June 30, 1995................................. 1,366,029 95.4% $ 9.05(2)
1994.................................................. 1,285,347 93.6% $ 8.96(2)
1993.................................................. 816,506 91.2% $ 9.04
1992.................................................. 795,506 87.2% $ 8.85
<FN>
------------------------
(1) Calculated as the Net Effective Rent for the indicated period divided by
the average total square feet under lease during the same period.
(2) During 1994 and the first six months of 1995, the Operating Partnership
renewed 83% of its retail leases up for renewal. The rental rate of the
105,000 square feet renewed during this period increased 11.2% for the
renewal period as compared to the prior lease term. During this same
period, the Operating Partnership leased an additional 114,000 square feet
in the in-service Properties at a Net Effective Rental rate of $10.61 per
square foot.
</TABLE>
S-26
<PAGE>
The following table shows lease expirations for leases in place as of June
30, 1995, for each of the ten years beginning with the remainder of 1995, for
the retail Properties, assuming none of the tenants exercises early termination
or renewal options.
LEASE EXPIRATIONS
(RETAIL PROPERTIES)
<TABLE>
<CAPTION>
ANNUAL NET ANNUAL NET PERCENT OF PERCENT OF
NET RENTABLE EFFECTIVE RENT EFFECTIVE RENT ANNUAL NET TOTAL LEASED
NUMBER OF AREA (IN SQ. UNDER PER SQ. FT. UNDER EFFECTIVE RENT SQ. FT.
YEAR OF LEASE LEASES FT.) SUBJECT TO EXPIRING EXPIRING REPRESENTED BY REPRESENTED BY
EXPIRATION EXPIRING EXPIRING LEASES LEASES (1) LEASES (1) EXPIRING LEASES EXPIRING LEASES
--------------------- ------------- --------------- ----------------- ----------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
1995................. 12 21,746 $ 241,383 $ 11.10 1.98% 1.67%
1996................. 42 102,414 1,088,056 $ 10.62 8.91 7.88
1997................. 41 104,562 1,164,435 $ 11.14 9.53 8.05
1998................. 35 107,580 1,137,696 $ 10.58 9.31 8.28
1999................. 30 122,191 1,244,544 $ 10.19 10.19 9.40
2000................. 29 112,575 1,241,597 $ 11.03 10.16 8.66
2001................. 4 32,900 311,312 $ 9.46 2.55 2.53
2002................. 7 94,845 861,543 $ 9.08 7.05 7.30
2003................. 4 36,496 329,499 $ 9.03 2.70 2.81
2004................. 2 13,188 135,708 $ 10.29 1.11 1.01
2005................. 7 144,755 1,175,482 $ 8.12 9.62 11.16
2006................. -- -- -- -- -- --
2007 and
thereafter.......... 11 406,325 3,284,474 $ 8.08 26.89 31.25
--- --------------- ----------------- ------ ------
Total............ 224 1,299,577 $ 12,215,729 $ 9.40 100.00% 100.00%
--- --------------- ----------------- ------ ------
--- --------------- ----------------- ------ ------
<FN>
------------------------
(1) Represents annual Net Effective Rent due from tenants in occupancy as of
June 30, 1995.
</TABLE>
LAND
Substantially all the approximately 900 acres of unencumbered Land is
located adjacent to the Properties in industrial or business parks that have
been developed by the Operating Partnership or 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 Operating Partnership
believes that approximately 120 buildings containing approximately 11 million
square feet of commercial development can be constructed on the Land. The
Operating Partnership believes that the Land gives it a competitive advantage
over other real estate companies operating in its markets.
S-27
<PAGE>
DESCRIPTION OF THE NOTES
GENERAL
The 2002 Notes and 2005 Notes constitute separate series of securities
(which are more fully described in the accompanying Prospectus), each to be
issued pursuant to an indenture dated as of September 19, 1995, as amended or
supplemented (the "Indenture"), between the Operating Partnership and The First
National Bank of Chicago, as trustee (the "Trustee"), and will be limited to
aggregate principal amounts of $50,000,000 and $100,000,000, respectively. The
terms of the Notes include those provisions contained in the Indenture and those
made part of the Indenture by reference to the Trust Indenture Act of 1939, as
amended (the "Trust Indenture Act"). The Notes are subject to all such terms,
and holders of Notes are referred to the Indenture and the Trust Indenture Act
for a statement thereof. The following summary of certain provisions of the
Indenture does not purport to be complete and is subject to and qualified in its
entirety by reference to the Indenture, including the definitions therein of
certain terms used below.
The Notes will be direct, unsecured obligations of the Operating Partnership
and will rank pari passu with each other and with all other unsecured and
unsubordinated indebtedness of the Operating Partnership from time to time
outstanding. The Notes will be effectively subordinated to the prior claims of
each secured mortgage lender to any specific Property which secures such
lender's mortgage. As of June 30, 1995, such mortgages aggregated approximately
$300.2 million (approximately $260.7 million on a pro forma basis). See
"Capitalization." Subject to certain limitations set forth in the Indenture, and
as described under "-- Certain Covenants -- Limitations on Incurrence of Debt"
below, the Indenture will permit the Operating Partnership to incur additional
secured and unsecured indebtedness.
The 2002 Notes will mature on September 22, 2002 and the 2005 Notes will
mature on September 22, 2005 (each a "Maturity Date"). The Notes are not subject
to any sinking fund provisions. The Notes will be issued only in fully
registered, book-entry form without coupons, in denominations of $1,000 and
integral multiples thereof, except under the limited circumstances described
below under "Description of the Notes -- Book-Entry System."
Except as described under "-- Certain Covenants -- Limitations on Incurrence
of Debt" below and under "Description of Debt Securities -- Merger,
Consolidation or Sale" in the accompanying Prospectus, the Indenture does not
contain any other provisions that would limit the ability of the Operating
Partnership to incur indebtedness or that would afford holders of the Notes
protection in the event of (i) a highly leveraged or similar transaction
involving the Operating Partnership, the Company as general partner of the
Operating Partnership, or any Affiliate of either such party, (ii) a change of
control, or (iii) a reorganization, restructuring, merger or similar transaction
involving the Operating Partnership that may adversely affect the holders of the
Notes. In addition, subject to the limitations set forth under "Description of
Debt Securities -- Merger, Consolidation or Sale" in the accompanying
Prospectus, the Operating Partnership may, in the future, enter into certain
transactions such as the sale of all or substantially all of its assets or the
merger or consolidation of the Operating Partnership that would increase the
amount of the Operating Partnership's indebtedness or substantially reduce or
eliminate the Operating Partnership's assets, which may have an adverse effect
on the Operating Partnership's ability to service its indebtedness, including
the Notes. The Operating Partnership and its management have no present
intention of engaging in a highly leveraged or similar transaction involving the
Operating Partnership.
PRINCIPAL AND INTEREST
The 2002 Notes will bear interest at 7 1/4% per annum and the 2005 Notes
will bear interest at 7 3/8% per annum, in each case from September 22, 1995 or
from the immediately preceding Interest Payment Date (as defined below) to which
interest has been paid, payable semi-annually in arrears on each March 22 and
September 22, commencing March 22, 1996 (each, an "Interest Payment Date"), and
on the applicable Maturity Date, to the persons (the "Holders") in whose names
the applicable Notes are registered in the
S-28
<PAGE>
security register applicable to the Notes at the close of business 15 calendar
days prior to such payment date regardless of whether such day is a Business
Day, as defined below (each, a "Regular Record Date"). Interest on the Notes
will be computed on the basis of a 360-day year of twelve 30-day months.
The principal of each Note payable on the applicable Maturity Date will be
paid against presentation and surrender of such Note at the corporate trust
office of the Trustee, located initially at 14 Wall Street, Eighth Floor, New
York, New York, in such coin or currency of the United States of America as at
the time of payment is legal tender for payment of public and private debts.
If any Interest Payment Date or a Maturity Date falls on a day that is not a
Business Day, the required payment shall be made on the next Business Day as if
it were made on the date such payment was due and no interest shall accrue on
the amount so payable for the period from and after such Interest Payment Date
or such Maturity Date, as the case may be. "Business Day" means any day, other
than a Saturday or Sunday, on which banking institutions in The City of New York
are open for business.
CERTAIN COVENANTS
LIMITATIONS ON INCURRENCE OF DEBT. The Operating Partnership will not, and
will not permit any Subsidiary to, incur any Debt (as defined below), other than
intercompany debt (representing Debt to which the only parties are the Company,
the Operating Partnership and any of their Subsidiaries (but only so long as
such Debt is held solely by any of the Company, the Operating Partnership and
any Subsidiary) that is subordinate in right of payment to the Notes) if,
immediately after giving effect to the incurrence of such additional Debt, the
aggregate principal amount of all outstanding Debt of the Operating Partnership
and its Subsidiaries on a consolidated basis determined in accordance with
generally accepted accounting principles is greater than 55% of the sum of (i)
the Operating Partnership's Total Assets (as defined below) as of the end of the
calendar quarter covered in the Operating Partnership's Annual Report on Form
10-K or Quarterly Report on Form 10-Q, as the case may be, most recently filed
with the Commission (or, if such filing is not permitted under the Exchange Act,
with the Trustee) prior to the incurrence of such additional Debt and (ii) the
increase in Total Assets from the end of such quarter including, without
limitation, any increase in Total Assets resulting from the incurrence of such
additional Debt (such increase together with the Operating Partnership's Total
Assets shall be referred to as the "Adjusted Total Assets").
In addition to the foregoing limitation on the incurrence of Debt, the
Operating Partnership will not, and will not permit any Subsidiary to, incur any
Debt if the ratio of Consolidated Income Available for Debt Service to the
Annual Service Charge (in each case as defined below) for the four consecutive
fiscal quarters most recently ended prior to the date on which such additional
Debt is to be incurred shall have been less than 2.0 to 1, on a pro forma basis
after giving effect to the incurrence of such Debt and to the application of the
proceeds therefrom, and calculated on the assumption that (i) such Debt and any
other Debt incurred by the Operating Partnership or its Subsidiaries since the
first day of such four-quarter period and the application of the proceeds
therefrom, including to refinance other Debt, had occurred at the beginning of
such period, (ii) the repayment or retirement of any other Debt by the Operating
Partnership or its Subsidiaries since the first day of such four-quarter period
had been incurred, repaid or retired at the beginning of such period (except
that, in making such computation, the amount of Debt under any revolving credit
facility shall be computed based upon the average daily balance of such Debt
during such period), (iii) the income earned on any increase in Adjusted Total
Assets since the end of such four-quarter period had been earned, on an
annualized basis, during such period, and (iv) in the case of any acquisition or
disposition by the Operating Partnership or any Subsidiary of any asset or group
of assets since the first day of such four-quarter period, including, without
limitation, by merger, stock purchase or sale, or asset purchase or sale, such
acquisition or disposition or any related repayment of Debt had occurred as of
the first day of such period with the appropriate adjustments with respect to
such acquisition or disposition being included in such pro forma calculation.
In addition to the foregoing limitations on the incurrence of Debt, the
Operating Partnership will not, and will not permit any Subsidiary to, incur any
Debt secured by any mortgage, lien, charge, pledge,
S-29
<PAGE>
encumbrance or security interest of any kind upon any of the property of the
Operating Partnership or any Subsidiary ("Secured Debt"), whether owned at the
date of the Indenture or thereafter acquired, if, immediately after giving
effect to the incurrence of such additional Secured Debt, the aggregate
principal amount of all outstanding Secured Debt of the Operating Partnership
and its Subsidiaries on a consolidated basis is greater than 40% of the
Operating Partnership's Adjusted Total Assets.
For purposes of the foregoing provisions regarding the limitation on the
incurrence of Debt, Debt shall be deemed to be "incurred" by the Operating
Partnership and its Subsidiaries on a consolidated basis whenever the Operating
Partnership and its Subsidiaries on a consolidated basis shall create, assume,
guarantee or otherwise become liable in respect thereof.
MAINTENANCE OF TOTAL UNENCUMBERED ASSETS. The Operating Partnership is
required to maintain Total Unencumbered Assets of not less than 185% of the
aggregate outstanding principal amount of the Unsecured Debt of the Operating
Partnership.
As used herein:
"ANNUAL SERVICE CHARGE" as of any date means the amount which is expensed in
any 12-month period for interest on Debt.
"CONSOLIDATED INCOME AVAILABLE FOR DEBT SERVICE" for any period means
Consolidated Net Income (as defined below) of the Operating Partnership and its
Subsidiaries (i) plus amounts which have been deducted for (a) interest on Debt
of the Operating Partnership and its Subsidiaries, (b) provision for taxes of
the Operating Partnership and its Subsidiaries based on income, (c) amortization
of debt discount, (d) depreciation and amortization, (e) the effect of any
noncash charge resulting from a change in accounting principles in determining
Consolidated Net Income for such period, (f) amortization of deferred charges
and (g) provisions for or realized losses on properties and (ii) less amounts
which have been included for gains on properties.
"CONSOLIDATED NET INCOME" for any period means the amount of consolidated
net income (or loss) of the Operating Partnership and its Subsidiaries for such
period determined on a consolidated basis in accordance with generally accepted
accounting principles.
"DEBT" of the Operating Partnership or any Subsidiary means any indebtedness
of the Operating Partnership and its Subsidiaries, whether or not contingent, in
respect of (i) borrowed money evidenced by bonds, notes, debentures or similar
instruments, (ii) indebtedness secured by any mortgage, pledge, lien, charge,
encumbrance or any security interest existing on property owned by the Operating
Partnership and its Subsidiaries, (iii) the reimbursement obligations,
contingent or otherwise, in connection with any letters of credit actually
issued or amounts representing the balance deferred and unpaid of the purchase
price of any property except any such balance that constitutes an accrued
expense or trade payable or (iv) any lease of property by the Operating
Partnership and its Subsidiaries as lessee which is reflected in the Operating
Partnership's consolidated balance sheet as a capitalized lease in accordance
with generally accepted accounting principles, in the case of items of
indebtedness under (i) through (iii) above to the extent that any such items
(other than letters of credit) would appear as a liability on the Operating
Partnership's consolidated balance sheet in accordance with generally accepted
accounting principles, and also includes, to the extent not otherwise included,
any obligation by the Operating Partnership or any Subsidiary to be liable for,
or to pay, as obligor, guarantor or otherwise (other than for purposes of
collection in the ordinary course of business), indebtedness of another person
(other than the Operating Partnership or any Subsidiary) (it being understood
that Debt shall be deemed to be incurred by the Operating Partnership and its
Subsidiaries on a consolidated basis whenever the Operating Partnership and its
Subsidiaries on a consolidated basis shall create, assume, guarantee or
otherwise become liable in respect thereof).
"FUNDS FROM OPERATIONS" for any period means the Consolidated Net Income of
the Operating Partnership and its Subsidiaries for such period without giving
effect to depreciation and amortization, gains or losses from extraordinary
items, gains or losses on sales of real estate, gains or losses on investments
in
S-30
<PAGE>
marketable securities and any provision/benefit for income taxes for such
period, plus the allocable portion, based on the Operating Partnership's
ownership interest, of funds from operations of unconsolidated joint ventures,
all determined on a consistent basis in accordance with generally accepted
accounting principles.
"SUBSIDIARY" means a corporation, partnership or limited liability company,
a majority of the outstanding voting stock, partnership interests or membership
interests, as the case may be, of which is owned or controlled, directly or
indirectly, by the Operating Partnership or by one or more other Subsidiaries of
the Operating Partnership. For the purposes of this definition, "voting stock"
means stock having voting power for the election of directors, or trustees, as
the case may be, whether at all times or only so long as no senior class of
stock has such voting power by reason of any contingency.
"TOTAL ASSETS" as of any date means the sum of (i) the Operating
Partnership's and its Subsidiaries' Undepreciated Real Estate Assets and (ii)
all other assets of the Operating Partnership and its Subsidiaries on a
consolidated basis determined in accordance with generally accepted accounting
principles (but excluding intangibles and accounts receivable).
"TOTAL UNENCUMBERED ASSETS" means the sum of (i) those Undepreciated Real
Estate Assets not subject to an encumbrance and (ii) all other assets of the
Operating Partnership and its Subsidiaries not subject to an encumbrance
determined in accordance with generally accepted accounting principles (but
excluding accounts receivable and intangibles).
"UNDEPRECIATED REAL ESTATE ASSETS" as of any date means the cost (original
cost plus capital improvements) of real estate assets of the Operating
Partnership and its Subsidiaries on such date, before depreciation and
amortization, determined on a consolidated basis in accordance with generally
accepted accounting principles.
"UNSECURED DEBT" means Debt of the Operating Partnership or any Subsidiary
which is not secured by any mortgage, lien, charge, pledge or security interest
of any kind upon any of the Properties.
Reference is made to the section entitled "Description of Debt Securities --
Certain Covenants" in the accompanying Prospectus for a description of
additional covenants applicable to the Notes. Compliance with the covenants
described herein and such additional covenants with respect to the Notes
generally may not be waived by the Board of Directors of the Company, as general
partner of the Operating Partnership, or by the Trustee unless the Holders of at
least a majority in principal amount of all outstanding Notes consent to such
waiver; PROVIDED, HOWEVER, that the defeasance and covenant defeasance
provisions of the Indenture described under "Description of Debt Securities --
Discharge, Defeasance and Covenant Defeasance" in the accompanying Prospectus
will apply to the Notes, including with respect to the covenants described in
this Prospectus Supplement.
OPTIONAL REDEMPTION
The 2002 Notes may not be redeemed by the Operating Partnership prior to
maturity. The 2005 Notes may be redeemed at any time after September 22, 2002 at
the option of the Operating Partnership, in whole or from time to time in part,
at a redemption price equal to the sum of (i) the principal amount of the 2005
Notes being redeemed plus accrued interest thereon to the redemption date and
(ii) the Make-Whole Amount (as defined below), if any, with respect to such
Notes (the "Redemption Price").
If notice has been given as provided in the Indenture and funds for the
redemption of any 2005 Notes called for redemption shall have been made
available on the redemption date referred to in such notice, such Notes will
cease to bear interest on the date fixed for such redemption specified in such
notice and the only right of the Holders of the 2005 Notes will be to receive
payment of the Redemption Price.
Notice of any optional redemption of any 2005 Notes will be given to Holders
at their addresses, as shown in the security register for the 2005 Notes, not
more than 60 nor less than 30 days prior to the date fixed for redemption. The
notice of redemption will specify, among other items, the Redemption Price and
the principal amount of the 2005 Notes held by such Holder to be redeemed.
S-31
<PAGE>
If less than all the 2005 Notes are to be redeemed at the option of the
Operating Partnership, the Operating Partnership will notify the Trustee at
least 45 days prior to giving notice of redemption (or such shorter period as is
satisfactory to the Trustee) of the aggregate principal amount of 2005 Notes to
be redeemed and their redemption date. The Trustee shall select, in such manner
as it shall deem fair and appropriate, 2005 Notes to be redeemed in whole or in
part.
As used herein:
"MAKE-WHOLE AMOUNT" means, in connection with any optional redemption or
accelerated payment of any 2005 Note, the excess, if any, of (i) the aggregate
present value as of the date of such redemption or accelerated payment of each
dollar of principal being redeemed or paid and the amount of interest (exclusive
of interest accrued to the date of redemption or accelerated payment) that would
have been payable in respect of each such dollar if such redemption or
accelerated payment had not been made, determined by discounting, on a
semi-annual basis, such principal and interest at the Reinvestment Rate
(determined on the third Business Day preceding the date such notice of
redemption is given or declaration of acceleration is made) from the respective
dates on which such principal and interest would have been payable if such
redemption or accelerated payment had not been made, over (ii) the aggregate
principal amount of the 2005 Notes being redeemed or paid.
"REINVESTMENT RATE" means .25% plus the arithmetic mean of the yields under
the respective heading "Week Ending" published in the most recent Statistical
Release under the caption "Treasury Constant Maturities" for the maturity
(rounded to the nearest month) corresponding to the remaining life to maturity,
as of the payment date of the principal being redeemed or paid. If no maturity
exactly corresponds to such maturity, yields for the two published maturities
most closely corresponding to such maturity shall be calculated pursuant to the
immediately preceding sentence and the Reinvestment Rate shall be interpolated
or extrapolated from such yields on a straight-line basis, rounding in each of
such relevant periods to the nearest month. For the purposes of calculating the
Reinvestment Rate, the most recent Statistical Release published prior to the
date of determination of the Make-Whole Amount shall be used.
"STATISTICAL RELEASE" means the statistical release designated "H.15(519)"
or any successor publication which is published weekly by the Federal Reserve
System and which establishes yields on actively traded United States government
securities adjusted to constant maturities, or, if such statistical release is
not published at the time of any determination under the Indenture, then such
other reasonably comparable index which shall be designated by the Operating
Partnership.
BOOK-ENTRY SYSTEM
The following are summaries of certain rules and operating procedures of DTC
that affect the payment of principal and interest and transfers of interests in
the Global Notes. Upon issuance, each series of Notes will only be issued in the
form of a Global Note which will be deposited with, or on behalf of, DTC and
registered in the name of Cede & Co., as nominee of DTC. Unless and until it is
exchanged in whole or in part for Notes in definitive form under the limited
circumstances described below, a Global Note may not be transferred except as a
whole (i) by DTC to a nominee of DTC, (ii) by a nominee of DTC to DTC or another
nominee of DTC or (iii) by DTC or any such nominee to a successor of DTC or a
nominee of such successor.
Ownership of beneficial interests in a Global Note will be limited to
persons that have accounts with DTC for such Global Note ("participants") or
persons that may hold interests through participants. Upon the issuance of a
Global Note, DTC will credit, on its book-entry registration and transfer
system, the participants' accounts with the respective principal amounts of the
Notes represented by such Global Note beneficially owned by such participants.
Ownership of beneficial interests in the Global Notes will be shown on, and the
transfer of such ownership interests will be effected only through, records
maintained by DTC (with respect to interests of participants) and on the records
of participants (with respect to interests of persons holding through
participants). The laws of some states may require that certain purchasers of
securities take physical delivery of such securities in definitive form. Such
laws may limit or impair the ability to own, transfer or pledge beneficial
interests in the Global Notes.
S-32
<PAGE>
So long as DTC or its nominee is the registered owner of a Global Note, DTC
or its nominee, as the case may be, will be considered the sole owner or Holder
of the Notes represented by such Global Note for all purposes under the
Indenture. Except as set forth below, owners of beneficial interests in a Global
Note will not be entitled to have Notes represented by such Global Note
registered in their names, will not receive or be entitled to receive physical
delivery of such Notes in certificated form and will not be considered the
registered owners or Holders thereof under the Indenture. Accordingly, each
person owning a beneficial interest in a Global Note must rely on the procedures
of DTC and, if such person in not a participant, on the procedures of the
participant through which such person owns its interest, to exercise any rights
of a Holder under the Indenture. The Operating Partnership understands that
under existing industry practices, if the Operating Partnership requests any
action of Holders or if an owner of a beneficial interest in a Global Note
desires to give or take any action that a Holder is entitled to give or take
under the Indenture, DTC would authorize the participants holding the relevant
beneficial interests to give or take such action, and such participants would
authorize beneficial owners owning through such participants to give or take
such action or would otherwise act upon the instructions of beneficial owners
holding through them.
Principal and interest payments on interests represented by a Global Note
will be made to DTC or its nominee, as the case may be, as the registered owner
of such Global Note. None of the Operating Partnership, the Trustee or any other
agent of the Operating Partnership or agent of the Trustee will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership of interests in the Global
Notes or for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests.
The Operating Partnership expects that DTC, upon receipt of any payment of
principal or interest in respect of a Global Note, will immediately credit
participants' accounts with payments in amounts proportionate to their
respective beneficial interests in such Global Note as shown on the records of
DTC. The Operating Partnership also expects that payments by participants to
owners of beneficial interests in the Global Notes held through such
participants will be governed by standing customer instructions and customary
practice, as is now the case with securities held for the accounts of customers
in bearer form or registered in "street name," and will be the responsibility of
such participants.
If DTC is at any time unwilling or unable to continue as depository for the
Notes and the Operating Partnership fails to appoint a successor depository
registered as a clearing agency under the Exchange Act within 90 days, the
Operating Partnership will issue the Notes in definitive form in exchange for
the respective Global Notes. Any Notes issued in definitive form in exchange for
the Global Notes will be registered in such name or names, and will be issued in
denominations of $1,000 and such integral multiples thereof, as DTC shall
instruct the Trustee. It is expected that such instructions will be based upon
directions received by DTC from participants with respect to ownership of
beneficial interests in the Global Notes.
DTC has advised the Operating Partnership of the following information
regarding DTC. DTC is a limited-purpose trust company organized under the
Banking Law of the State of New York, a member of the Federal Reserve System, a
"clearing corporation" within the meaning of the New York Uniform Commercial
Code, and a "clearing agency" registered pursuant to the provisions of Section
17A of the Exchange Act. DTC was created to hold securities of its participants
and to facilitate the clearance and settlement of transactions among its
participants in such securities through electronic book-entry changes in
accounts of the participants, thereby eliminating the need for physical movement
of securities certificates. DTC's participants include securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations, some of which (and/or their representatives) own DTC. Access to
the DTC book-entry system is also available to others, such as banks, brokers
and dealers and trust companies that clear through or maintain a custodial
relationship with a participant, either directly or indirectly.
S-33
<PAGE>
SAME-DAY SETTLEMENT AND PAYMENT
Settlement for the Notes will be made by the Underwriters (as defined
herein) in immediately available funds. All payments of principal and interest
in respect of the Notes will be made by the Operating Partnership in immediately
available funds.
Secondary trading in long-term notes and debentures of corporate issuers is
generally settled in clearing house or next-day funds. In contrast, the Notes
will trade in DTC's Same-Day Funds Settlement System until maturity or until the
Notes are issued in certificated form, and secondary market trading activity in
the Notes will therefore be required by DTC to settle in immediately available
funds. No assurance can be given as to the effect, if any, of settlement in
immediately available funds on trading activity in the Notes.
S-34
<PAGE>
UNDERWRITING
Subject to the terms and conditions contained in the terms agreement and
related purchase agreement basic provisions (collectively, the "Underwriting
Agreement"), the Operating Partnership has agreed to sell to Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), J.P. Morgan Securities
Inc. and First Chicago Capital Markets, Inc. (the "Underwriters"), and the
Underwriters have severally agreed to purchase, the respective principal amount
of the Notes set forth after their names below. 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 Notes if any are purchased.
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT PRINCIPAL AMOUNT
UNDERWRITER OF 2002 NOTES OF 2005 NOTES
-------------------------------------------- ---------------- ----------------
<S> <C> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...................... $ 30,000,000 $ 50,000,000
J.P. Morgan Securities Inc.................. 15,000,000 40,000,000
First Chicago Capital Markets, Inc.......... 5,000,000 10,000,000
---------------- ----------------
Total............................. $ 50,000,000 $ 100,000,000
---------------- ----------------
---------------- ----------------
</TABLE>
The Underwriters have advised the Operating Partnership that they propose
initially to offer each series of Notes 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 .425% (in the case of
2002 Notes) and .45% (in the case of 2005 Notes) of the principal amount
thereof. The Underwriters may allow, and such dealers may reallow, a discount
not in excess of .25% of principal amount to certain other dealers. After the
initial public offering, the public offering price, concession and discount may
be changed.
Each series of Notes is a new issue of securities with no established
trading market. The Operating Partnership does not intend to apply for listing
of the Notes on a national securities exchange. The Operating Partnership has
been advised by the Underwriters that the Underwriters intend to make a market
in the Notes as permitted by applicable laws and regulations, but the
Underwriters are not obligated to do so and may discontinue market-making at any
time without notice. No assurance can be given as to the liquidity of the
trading market for the Notes.
The Operating Partnership and the Company have 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.
Merrill Lynch from time to time provides investment banking and financial
advisory services to the Company and the Operating Partnership. Merrill Lynch
also acted as representative of various underwriters in connection with public
offerings of the Company's Common Stock in 1993, 1994 and 1995. J.P. Morgan
Securities Inc. and the Operating Partnership have entered into a Forward
Treasury Lock Agreement pursuant to which the Operating Partnership has paid a
fee to J.P. Morgan Securities Inc. The First National Bank of Chicago, an
affiliate of First Chicago Capital Markets, Inc., is serving as Trustee for the
Notes and is also an agent bank for the Operating Partnership's Credit Line.
S-35
<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 OPERATING PARTNERSHIP 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 OPERATING PARTNERSHIP 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
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUPPLEMENT
Prospectus Supplement Summary............................................. S-3
The Operating Partnership................................................. S-7
Recent Developments....................................................... S-11
Use of Proceeds........................................................... S-11
Capitalization............................................................ S-12
Selected Consolidated Financial Data...................................... S-13
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... S-16
Properties................................................................ S-20
Description of the Notes.................................................. S-28
Underwriting.............................................................. S-35
<CAPTION>
PROSPECTUS
<S> <C>
Available Information..................................................... 2
Incorporation of Certain Documents by Reference........................... 2
The Company and the Operating Partnership................................. 3
Use of Proceeds........................................................... 3
Ratios of Earnings to Fixed Charges....................................... 3
Description of Debt Securities............................................ 4
Description of Preferred Stock............................................ 14
Description of Depositary Shares.......................................... 20
Description of Common Stock............................................... 24
Plan of Distribution...................................................... 25
Legal Opinions............................................................ 26
Experts................................................................... 26
</TABLE>
UNTIL DECEMBER 18, 1995 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS
SUPPLEMENT), ALL DEALERS EFFECTING TRANSACTIONS IN THE NOTES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS
SUPPLEMENT AND PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS WHEN ACTING AS UNDERWRITERS AND
WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
[LOGO]
DUKE REALTY
LIMITED PARTNERSHIP
$50,000,000
7 1/4% NOTES
DUE SEPTEMBER 22, 2002
$100,000,000
7 3/8% NOTES
DUE SEPTEMBER 22, 2005
------------------------
PROSPECTUS SUPPLEMENT
------------------------
MERRILL LYNCH & CO.
J.P. MORGAN SECURITIES INC.
FIRST CHICAGO
CAPITAL MARKETS, INC.
SEPTEMBER 19, 1995
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