<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
--- SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995
-------------
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
--- SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to ___________.
--------------------------------------------------------------------------
Commission File Number: 1-9044
------
DUKE REALTY INVESTMENTS, INC.
State of Incorporation: IRS Employer ID Number:
Indiana 35-1740409
----------------------- -----------------------
Address of principal executive offices:
8888 Keystone Crossing, Suite 1200
----------------------------------
Indianapolis, Indiana 46240
-----------------------------
Telephone: (317) 846-4700
--------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------- ------
The number of shares outstanding as of August 9, 1995 was 24,135,945 Common
Shares ($.01 par value).
<PAGE>
DUKE REALTY INVESTMENTS, INC.
INDEX
PART I - FINANCIAL INFORMATION
PAGE
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets as of June 30, 1995
(Unaudited) and December 31, 1994 2
Consolidated Statements of Operations for the three and
six months ended June 30, 1995 and 1994 (Unaudited) 3
Consolidated Statements of Cash Flows for the six months
ended June 30, 1995 and 1994 (Unaudited) 4
Consolidated Statement of Shareholders' Equity for the six
months ended June 30, 1995 (Unaudited) 5
Notes to Consolidated Financial Statements (Unaudited) 6-7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 7-13
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Changes in Securities 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports of Form 8-K 14-15
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DUKE REALTY INVESTMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
----------- -------------
(Unaudited)
ASSETS
------
<S> <C> <C>
Real estate investments:
Land and improvements $ 83,452 $ 72,758
Buildings and tenant improvements 656,937 580,794
Construction in progress 53,423 22,967
Land held for development 46,602 47,194
----------- ---------
840,414 723,713
Accumulated depreciation (47,251) (38,058)
----------- ---------
Net real estate investments 793,163 685,655
Cash and cash equivalents 35,412 40,433
Accounts receivable, net of allowance of $429 and $450 3,691 4,257
Accrued straight-line rents, net of allowance of $841 6,294 5,030
Receivables on construction contracts 9,504 7,478
Investments in unconsolidated companies 11,317 8,418
Deferred financing costs, net of accumulated amortization of $1,441 and $1,755 7,196 6,390
Deferred leasing and other costs, net of accumulated amortization of $3,856 and $2,702 14,873 11,856
Escrow deposits and other assets 5,411 5,384
----------- ---------
$ 886,861 $ 774,901
----------- ---------
----------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Property indebtedness:
Mortgage loans $ 300,233 $ 298,640
Construction payables and amounts due subcontractors 22,933 9,464
Accounts payable 831 869
Accrued real estate taxes 8,234 8,983
Other accrued expenses 2,842 3,191
Other liabilities 3,570 3,564
Tenant security deposits and prepaid rents 3,896 3,472
----------- ---------
Total liabilities 342,539 328,183
----------- ---------
Minority interest 5,703 1,334
----------- ---------
Common shares ($.01 Par value); 45,000 authorized; 24,135
and 20,391 issued and outstanding 241 204
Additional paid-in capital 577,769 481,101
Distributions in excess of net income (39,391) (5,921)
----------- ---------
Total shareholders' equity 538,619 445,384
----------- ---------
$ 886,861 $ 774,901
----------- ---------
----------- ---------
</TABLE>
See accompanying Notes To Consolidated Financial Statements
- 2 -
<PAGE>
DUKE REALTY INVESTMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
--------------------------- ------------------------
1995 1994 1995 1994
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
RENTAL OPERATIONS
Revenues:
Rental income $ 26,581 $21,509 $ 51,510 $41,843
Interest and other income 509 175 1,166 405
------ ------ ------ ------
27,090 21,684 52,676 42,248
------ ------ ------ ------
Operating expenses:
Rental expenses 4,789 4,204 9,786 8,579
Real estate taxes 2,365 2,259 4,290 4,201
Interest expense 4,908 4,492 10,053 8,723
Depreciation and amortization 5,511 4,119 11,103 8,138
General and administrative 442 482 969 922
------ ------ ------ ------
18,015 15,556 36,201 30,563
------ ------ ------ ------
Earnings from rental operations 9,075 6,128 16,475 11,685
------ ------ ------ ------
SERVICE OPERATIONS
Revenues:
Property management, maintenance and leasing fees 2,780 2,941 5,256 5,393
Construction management and development fees 1,300 1,324 2,455 2,963
Interest and other income 240 346 444 663
------ ------ ------ ------
4,320 4,611 8,155 9,019
------ ------ ------ ------
Operating expenses:
Payroll 2,084 2,079 3,982 4,202
Maintenance 310 262 546 487
Office and other 589 612 1,062 1,209
------ ------ ------ ------
2,983 2,953 5,590 5,898
------ ------ ------ ------
Earnings from service operations 1,337 1,658 2,565 3,121
------ ------ ------ ------
Operating income 10,412 7,786 19,040 14,806
------ ------ ------ ------
Earnings (loss) from property sales - (46) - 135
Equity in earnings of unconsolidated companies 31 32 470 593
Minority interest in earnings of subsidiaries (2,153) (1,951) (3,804) (4,114)
------ ------ ------ ------
Net income $ 8,290 $ 5,821 $15,706 $11,420
------ ------ ------ ------
------ ------ ------ ------
Net income per share $ .38 $ .36 $ .74 $ .71
------ ------ ------ ------
------ ------ ------ ------
Weighted average number of shares outstanding 21,979 16,046 21,190 16,046
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
See accompanying Notes to Consolidated Financial Statements
- 3 -
<PAGE>
DUKE REALTY INVESTMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Six months ended June 30,
------------------------------
1995 1994
---------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income $15,706 $11,420
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation of buildings and tenant improvements 9,337 7,102
Amortization of deferred financing fees 584 222
Amortization of deferred leasing and other costs 1,182 814
Minority interest in earnings of subsidiaries 3,804 4,114
Straight-line rent adjustment (1,264) (1,466)
Allowance for straight-line rents receivable - 748
Earnings from property sales, net - (135)
Construction contracts, net 11,443 4,409
Other accrued revenues and expenses, net 78 (1,326)
Equity in earnings of unconsolidated companies (73) (123)
------ ------
NET CASH PROVIDED BY OPERATING ACTIVITIES 40,797 25,779
------ ------
Cash flows from investing activities:
Proceeds from property sales 38 1,155
Building, development and acquisition costs (103,541) (54,521)
Tenant improvements (4,180) (1,957)
Deferred costs and other assets (4,199) (3,733)
Net advances to unconsolidated companies (2,539) -
------ ------
NET CASH USED BY INVESTING ACTIVITIES (114,421) (59,056)
------ ------
Cash flows from financing activities:
Proceeds from issuance of common shares, net 96,273 -
Proceeds from property indebtedness 51 60,100
Payments on property indebtedness (2,699) (11,980)
Distributions to shareholders and unitholders (23,009) (18,430)
Distributions to minority interest (458) (487)
Deferred financing costs (1,555) (961)
------ ------
NET CASH PROVIDED BY FINANCING ACTIVITIES 68,603 28,242
------ ------
NET DECREASE IN CASH AND CASH EQUIVALENTS (5,021) (5,035)
------ ------
Cash and cash equivalents at beginning of period 40,433 10,065
------ ------
Cash and cash equivalents at end of period $35,412 $ 5,030
------ ------
------ ------
</TABLE>
See accompanying Notes To Consolidated Financial Statements
- 4 -
<PAGE>
DUKE REALTY INVESTMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Additional Distributions
Common Paid-in in Excess of
Shares Capital Net Income
--------- --------- -----------
<S> <C> <C> <C>
Balance at December 31, 1994 $ 204 $481,101 $(35,921)
Proceeds from issuance of common shares, net of
underwriting discounts and offering costs of $5,767 37 96,296 -
Acquisition of minority interest - 372 -
Net income - - 15,706
Distributions to shareholders ($.94 per share) - - (19,176)
--------- --------- ---------
Balance at June 30, 1995 $ 241 $577,769 $(39,391)
--------- --------- ---------
--------- --------- ---------
</TABLE>
See accompanying Notes To Consolidated Financial Statements
- 5 -
<PAGE>
DUKE REALTY INVESTMENTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. FINANCIAL STATEMENTS
The interim condensed consolidated financial statements included herein
have been prepared by Duke Realty Investments, Inc. (the "Company") without
audit. The statements have been prepared in accordance with generally
accepted accounting principles for interim financial information and with
the instructions for Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of
normal recurring adjustments) considered necessary for a fair presentation
have been included. These financial statements should be read in
conjunction with the financial statements and notes thereto included in the
Company's Annual Report to Shareholders.
THE COMPANY
On October 4, 1993, the Company acquired substantially all of the
properties and businesses of Duke Associates, a full-service
commercial real estate firm operating primarily in the Midwest. In
connection with the acquisition, the Company effected a 1 for 4.2
reverse stock split of its existing shares and issued an additional
14,000,833 shares of Common Stock through an offering (the "1993
Offering").
On September 29, 1994, the Company issued an additional 3,887,300
shares of Common Stock through an additional offering (the "1994
Offering") and received net proceeds of approximately $92.1 million.
The proceeds of the 1994 Offering were used to pay down the Company's
revolving line of credit and to fund current development and
acquisition costs.
On May 23, 1995, the Company issued an additional 3,727,500 shares of
Common Stock through an additional offering (the "1995 Offering") and
received net proceeds of approximately $96.3 million. The proceeds of
the 1995 Offering are being used to fund development commitments and
acquisition costs.
2. PROPERTY INDEBTEDNESS
The Company has a $100 million unsecured revolving credit facility
which is available to fund current development costs and provide
working capital. The revolving line of credit matures in April 1998
and bears interest payable monthly at the 30-day London Interbank
Offered Rate ("LIBOR") plus 2%.
- 6 -
<PAGE>
3. RELATED PARTY TRANSACTIONS
The Company provides management, leasing, construction, and other
tenant related services to properties in which certain executive
officers have continuing ownership interests. The Company was paid
fees totaling $927,000 and $908,000 for such services for the six
months ended June 30, 1995 and 1994. Management believes the terms
for such services are equivalent to those available in the market.
The Company has an option to purchase the executive officers' interest
in each of the properties.
4. FORWARD TREASURY LOCK AGREEMENT
In May 1995, the Company entered into a Forward Treasury Lock
Agreement in order to hedge its exposure to interest rate fluctuations
on an anticipated $100 million debt financing expected to close by
December 31, 1995. Any gain or loss under the agreement will be
amortized to interest expense over the term of the financing.
5. SUBSEQUENT EVENTS
On July 27, 1995, the Board of Directors declared a dividend of $.49
per share of Common Stock payable on August 31, 1995, to shareholders
of record on August 17, 1995.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THE COMPANY
The Company was formed in 1985 and qualifies as a real estate
investment trust ("REIT") under the provisions of the Internal Revenue
Code. The Company is an open-ended, perpetual-life REIT which owns
and operates a portfolio of commercial properties primarily in the
Midwest.
REORGANIZATION AND OFFERINGS
In October 1993, the Company acquired substantially all of the
properties and businesses of Duke Associates, a related full-service
commercial real estate firm operating primarily in the Midwest (the
"Reorganization"). In connection with the Reorganization, the Company
effected a 1 for 4.2 reverse stock split relating to its existing
shares of Common Stock and subsequently issued additional shares of
Common Stock through the 1993 Offering. Substantially all of the
$309.3 million of net proceeds of the 1993 Offering were used to repay
indebtedness of the reorganized
- 7 -
<PAGE>
company. As a result of the Reorganization, the Company's properties
are owned through Duke Realty Limited Partnership, an Indiana limited
partnership ("DRLP"), of which the Company is the sole general partner
and was the owner of 78% of the partnership interests ("Units") as of
October 1993.
In September 1994, the Company completed the 1994 Offering and
received net proceeds of approximately $92.1 million. The proceeds of
the 1994 Offering were contributed to DRLP in exchange for additional
Units and were used by DRLP to fund current development and
acquisition costs.
In 1994, as a result of Unitholders exchanging their Units for shares
of Common Stock of the Company pursuant to the DRLP Partnership
Agreement, the Company also acquired an additional interest in DRLP
through the issuance of 456,375 shares of Common Stock for a like
number of Units. The acquired additional interest in DRLP was
recorded at the fair market value of the Company's common stock on the
date of acquisition. The acquisition amount of $11.5 million was
allocated to rental property, undeveloped land and investments in
unconsolidated companies based on their estimated fair values.
On May 23, 1995, the Company issued an additional 3,727,500 shares of
Common Stock through an additional offering (the "1995 Offering") and
received net proceeds of approximately $96.3 million. The proceeds of
the 1995 Offering are being used to fund development commitments and
acquisition costs. As a result of these transactions, the Company owns
an approximate 85.3% interest in DRLP as of June 30, 1995.
RESULTS OF OPERATIONS - THREE MONTHS ENDED JUNE 30, 1995 COMPARED TO
THREE MONTHS ENDED JUNE 30, 1994
Revenues from rental operations increased from $21.7 million for the
three months ended June 30, 1994 to $27.1 million for the three months
ended June 30, 1995. This $5.4 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 $15.6
million for the three months ended June 30, 1994 to $18.0 million for
the three months ended June 30, 1995. The main components of this
increase include (i) $600,000 of additional rental expenses related to
the 24 additional in-service properties; (ii) $400,000 increase in
interest expense on borrowings used to fund the acquisition and
development costs of the additional in-service properties; and (iii)
$1.4 million of additional depreciation and amortization related to
the additional in-service properties.
- 8 -
<PAGE>
Revenues from Service Operations decreased from $4.6 million for the
three months ended June 30, 1994 to $4.3 million for the three 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 remained stable at
approximately $3.0 million for both the three months ended June 30,
1995 and 1994.
Primarily as a result of the fluctuations discussed above, net income
and net income per weighted average share increased from $5.8 million
and $.36 per share, respectively, for the three months ended June 30,
1994 to $8.3 million and $.38 per share for the three months ended
June 30, 1995, respectively.
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 $52.7 million for the six months ended June
30, 1995. This $10.5 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
increase in 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 six months ended June 30, 1994 to $5.6 million for 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.
- 9 -
<PAGE>
Primarily as a result of the fluctuations discussed above, net income
and net income per weighted average share increased from $11.4 million
and $.71 per share, respectively, for the six months ended June 30,
1994 to $15.7 million and $.74 per share for the six months ended June
30, 1995, respectively.
The occupancy at June 30, 1995 for all of the in-service properties in
which the Company 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 occupancy rate of
95.3% (93.0% at June 30, 1994).
The following table sets forth information regarding the Company's
portfolio of rental properties as of June 30, 1995 (in thousands,
except percentages):
<TABLE>
<CAPTION>
IN-SERVICE PROPERTIES UNDER DEVELOPMENT
------------------------------- -------- --------------------
<C> <C> <C> <C> <C> <C>
Total Percent Total Percent
<S> Percent Square of Percent Square of
Type Leased Feet Total Leased Feet Total
---- -------- -------- ------- -------- -------- --------
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 Company's total leased square footage is subject to
leases expiring in the remainder of 1995 and 1996, respectively, and
(ii) the Company's renewal percentage averaged 73% and 65% in 1994 and
1993, respectively. This stable occupancy, along with increasing
rental rates in the Company's markets, should allow the in-service
portfolio to continue to provide a comparable level of earnings from
rental operations in the future. The Company 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 Funds From Operations ("FFO"), which is defined by
the National Association of Real Estate Investment Trusts as net income or
loss excluding gains or losses from debt restructuring and sales of
property plus depreciation and amortization, and after adjustments for
unconsolidated partnerships and joint ventures (adjustments for
unconsolidated partnerships and joint ventures are calculated to reflect
FFO on the same basis), is the industry standard for reporting the
operations of real estate investment trusts. 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.
- 10 -
<PAGE>
Although the Company has not yet adopted the new method, the following
table presents the Company's FFO under both methods of calculation for
illustrative purposes:
<TABLE>
<CAPTION>
CURRENT METHOD NEW METHOD
--------------------------- ----------------------
THREE MONTHS ENDED THREE MONTHS ENDED
JUNE 30, JUNE 30,
----------------------------- ----------------------
<S> <C> <C> <C> <C>
1995 1994 1995 1994
---- ---- ---- ----
(in thousands, except per share
amounts and percentages)
Net Income $ 8,290 $ 5,821 $ 8,290 $ 5,821
Add back:
Depreciation and amortization 5,305 3,997 5,305 3,997
Amortization of deferred financing costs and
depreciation of non-rental real estate assets 282 167 - -
Depreciation and amortization of joint ventures 71 95 71 95
(Gain) loss on property sales - 46 - 46
Minority interest of unitholders 1,916 1,702 1,916 1,702
----- ----- ----- -----
FUNDS FROM OPERATIONS $15,864 $11,828 $15,582 $11,661
------- ------- ------- -------
------- ------- ------- -------
Weighted average shares/units 26,113 20,478 26,113 20,478
------- ------- ------- -------
------- ------- ------- -------
FFO per weighted average share/unit $ .61 $ .58 $ .60 $ .57
------- ------- ------- -------
------- ------- ------- -------
Dividends declared per share/unit $ .49 $ .47 $ .49 $ .47
-------- ------- ------- -------
-------- ------- ------- -------
FFO payout ratio (1) 80.3% 81.0% 81.7% 82.5%
------- ------- ------- -------
------- ------- ------- -------
CURRENT METHOD NEW METHOD
----------------------------- --------------------
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------------- ---------------------
1995 1994 1995 1994
---- ---- ---- ----
(in thousands, except per share
amounts and percentages)
Net Income $15,706 $11,420 $15,706 $11,420
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)
Minority interest of unitholders 3,374 3,509 3,374 3,509
------ ------ ------- -------
FUNDS FROM OPERATIONS $30,468 $23,238 $29,742 $22,889
------- ------- ------- -------
------- ------- ------- -------
Weighted average shares/units 25,255 20,478 25,255 20,478
------- ------- ------- -------
------- ------- ------- -------
FFO per weighted average share/unit $ 1.21 $ 1.13 $ 1.18 $ 1.12
------- ------- ------- -------
------- ------- ------- -------
Dividends declared per share/unit $ .96 $ .92 $ .96 $ .92
------- ------- ------- -------
------- ------- ------- -------
FFO payout ratio (1) 79.3% 81.4% 81.4% 82.1%
------- ------- ------- -------
------- ------- ------- -------
-----------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) Calculated as the dividends declared per share/unit divided by FFO per
weighted average share/unit.
</TABLE>
Management anticipates continued growth in FFO through (i) maintaining and
increasing property occupancy and rental rates through aggressive management of
the Company'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 Company's tenants and to third parties.
- 11 -
<PAGE>
<TABLE>
<CAPTION>
The following table indicates the components of the Company's FFO:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- --------------------
<S> <C> <C> <C> <C>
1995 1994 1995 1994
---- ---- ---- ----
(in thousands, except per share amounts)
Rental operations:
Original portfolio (1) $14,658 $14,377 $29,574 $28,406
Development (2) 2,371 294 4,128 490
Acquisitions (3) 2,576 316 4,144 316
Investments in unconsolidated companies 102 128 613 813
Interest expense (4,908) (4,492) (10,053) (8,723)
-------- -------- -------- -------
Net rental operations 14,799 10,623 28,406 21,302
Service operations, net of minority interest 1,086 1,531 2,107 2,638
Other, net (21) (326) (45) (702)
-------- -------- -------- --------
FUNDS FROM OPERATIONS-CURRENT METHOD $15,864 $11,828 $30,468 $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 Company'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 Company's operating performance, and is not
indicative of cash available to fund all cash flow needs.
LIQUIDITY AND CAPITAL RESOURCES
The Company pays regular quarterly dividends with a policy of distributing
no more than 90% of FFO. The dividend 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 Company's
operating expenses, debt service and recurring capital expenditures. Net
cash provided by operating activities, totaling $40.8 million for the six
months ended June 30, 1995, represents the primary source of liquidity to
fund distributions to shareholders, unitholders and the minority interests
and to fund recurring costs associated with the renovation and re-letting
of the Company's properties. Recurring capital expenditures for the six
months ended June 30, 1995 were $3.2 million. Funds Available for
Distribution (Funds From Operations adjusted for straight-line rent and
recurring capital expenditures) for the six months ended June 30, 1995 were
$26.0 million, resulting in a payout ratio for the dividends for such
period of 93.2% of Funds Available for Distribution.
The investing activities of the Company for the six months ended June 30,
1995 of $114.4 million were primarily the result of costs incurred for the
development and acquisition of 16 properties placed in service during the
six months and 19 properties
- 12 -
<PAGE>
under development as of June 30, 1995. The estimated remaining development
costs for these properties as of June 30, 1995 is $110 million. These
investing activities for new property development and acquisitions are
funded through a combination of debt and equity proceeds. The Company has
a $100 million unsecured revolving credit facility which bears interest at
LIBOR plus 200 basis points and matures in April 1998. The line of credit
is available to fund these investing activities. Also, DRLP has obtained
implied investment grade ratings for its senior unsecured debt from
Standard & Poor's, Moody's and Duff & Phelps. These ratings should provide
DRLP with access to the public unsecured debt market to fund future
investing activities.
The Company intends to limit its debt to no more than 50% of its total
market capitalization (defined as the total market value of all shares and
units outstanding plus the outstanding property indebtedness). The
Company's debt to total market capitalization ratio at June 30, 1995 was
27.3% compared to 30.2% at December 31, 1994. As of June 30, 1995, the
Company could incur up to $499.2 million of additional debt and remain
within its 50% of debt to total market capitalization guideline.
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.
Following is a summary of the scheduled future amortization and maturities
of the Company's mortgage debt (in thousands):
<TABLE>
<CAPTION>
Future
Scheduled Future
Year Amortization Maturities Total
--- ------------ ---------- ------
<S> <C> <C> <C>
1995 $ 1,096 $ - $ 1,096
1996 3,191 62,325 65,516
1997 3,963 - 3,963
1998 2,916 80,627 83,543
1999 2,548 - 2,548
2000 2,637 2,423 5,060
2001 2,291 59,954 62,245
2002 2,494 - 2,494
2003 252 68,814 69,066
Thereafter 4,702 - 4,702
-------- -------- --------
Total $26,090 $274,143 $300,233
-------- -------- --------
-------- -------- --------
</TABLE>
The Company currently has on file two Form S-3 Registration Statements with
the Securities and Exchange Commission which have remaining availability as
of July 31, 1995 of approximately $479.8 million to issue additional common
stock, preferred stock or senior unsecured debt.
- 13 -
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A report on Form 8-K dated May 15, 1995 was filed with the Commission to put on
file the following:
- Terms Agreement dated May 15, 1995, which was filed pursuant to Regulation
S-K, Item 601(b)(1) in lieu of filing the otherwise required exhibit to the
Registrant's registration statement on Form S-3, file no. 33-54997, under
the Securities Act of 1933 as amended.
- Tax opinion of Bose McKinney & Evans, including consent, which was filed
pursuant to Regulation S-K, Item 601(b)(8) in lieu of filing the otherwise
required exhibit to the Registrant's registration statement on Form S-3,
file no. 33-54997, under the Securities Act of 1933, as amended.
A report on Form 8-K dated June 6, 1995 was filed with the Commission to put on
file the audited financial statements of Duke Realty Limited Partnership (a
majority-owned subsidiary of the Company) as of December 31, 1994 and 1993 and
for each of the years in the three year period ended December 31, 1994.
- 14 -
<PAGE>
A report on Form 8-K dated July 27, 1995 was filed with the Commission to
put on file the unaudited financial statements of Duke Realty Limited
Partnership as of March 31, 1995 and 1994.
Exhibit 27. Financial Data Schedule (EDGAR Filing Only)
-15 -
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DUKE REALTY INVESTMENTS, INC.
Registrant
Date: August 9, 1995 /s/ Thomas L. Hefner
------------------------- ----------------------------------
President and
Chief Executive Officer
/s/ Darell E. Zink, Jr.
----------------------------------
Executive Vice President and
Chief Financial Officer
/s/ Dennis D. Oklak
----------------------------------
Vice President and Treasurer
(Chief Accounting Officer)
- 16 -
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 35,412
<SECURITIES> 0
<RECEIVABLES> 20,759
<ALLOWANCES> (1,270)
<INVENTORY> 0
<CURRENT-ASSETS> 54,018
<PP&E> 840,414
<DEPRECIATION> (47,251)
<TOTAL-ASSETS> 886,861
<CURRENT-LIABILITIES> 42,306
<BONDS> 300,233
<COMMON> 241
0
0
<OTHER-SE> 538,378
<TOTAL-LIABILITY-AND-EQUITY> 886,861
<SALES> 0
<TOTAL-REVENUES> 61,301
<CGS> 31,738
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,804
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,053
<INCOME-PRETAX> 15,706
<INCOME-TAX> 0
<INCOME-CONTINUING> 15,706
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,706
<EPS-PRIMARY> .74
<EPS-DILUTED> 0
</TABLE>
