<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS SUPPLEMENT DATED AUGUST 9, 1996
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED SEPTEMBER 7, 1995)
3,000,000 SHARES
[LOGO]
DUKE REALTY INVESTMENTS, INC.
DEPOSITARY SHARES
EACH REPRESENTING 1/10 OF A % SERIES A CUMULATIVE REDEEMABLE
PREFERRED SHARE (PAR VALUE $0.01 PER SHARE)
(LIQUIDATION PREFERENCE EQUIVALENT TO $25.00 PER DEPOSITARY SHARE)
-----------------
Each of the 3,000,000 Depositary Shares (the "Depositary Shares") offered
hereby (the "Offering") represents a 1/10 fractional interest in a % Series A
Cumulative Redeemable Preferred Share, par value $0.01 per share (collectively,
the "Series A Preferred Shares"), of Duke Realty Investments, Inc. (the
"Company"), deposited with American Stock Transfer & Trust Company, as
Depositary, and entitles the holder to all proportional rights and preferences
of the Series A Preferred Shares (including distribution, voting, redemption and
liquidation rights and preferences). The liquidation preference of each of the
Series A Preferred Shares is $250.00 (equivalent to $25.00 per Depositary
Share). See "Description of Series A Preferred Shares and Depositary Shares."
Distributions on the Series A Preferred Shares represented by the Depositary
Shares offered hereby will be cumulative from the date of original issue and
will be payable quarterly on or about the last day of February, May, August and
November of each year, commencing on the business day succeeding November 30,
1996, at the rate of % of the liquidation preference per annum (equivalent to
$ per annum per Depositary Share). See "Description of Series A Preferred
Shares and Depositary Shares -- Distributions."
The Series A Preferred Shares and the Depositary Shares representing such
Series A Preferred Shares are not redeemable prior to August 31, 2001. On and
after August 31, 2001, the Series A Preferred Shares may be redeemed at the
option of the Company in whole or in part, at a redemption price of $250.00 per
share (equivalent to $25.00 per Depositary Share), plus accrued and unpaid
distributions, if any, thereon. The redemption price of the Series A Preferred
Shares (other than any portion thereof consisting of accrued and unpaid
distributions) may only be paid from the sale proceeds of other capital shares
of the Company, which may include other classes or series of preferred shares,
and from no other source. The Series A Preferred Shares have no stated maturity
and will not be subject to any sinking fund or mandatory redemption provisions
and will not be convertible into any other securities of the Company. In order
to maintain its qualification as a real estate investment trust for federal
income tax purposes, the Company's Amended and Restated Articles of
Incorporation impose limitations on the number of shares of capital stock,
including Series A Preferred Shares, that may be owned by any single person or
affiliated group. See "Description of Series A Preferred Shares and Depositary
Shares -- Restrictions on Ownership."
Application has been made to list the Depositary Shares on the New York
Stock Exchange ("NYSE"). If such application is approved, trading of the
Depositary Shares on the NYSE is expected to commence within a 30-day period
after the date of initial delivery of the Depositary Shares. While the
Representatives have advised the Company that they intend to make a market in
the Depositary Shares prior to commencement of trading on the NYSE, they are
under no obligation to do so and no assurance can be given that a market for the
Depositary Shares will exist prior to commencement of trading. See
"Underwriting."
------------------------
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>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC (1) DISCOUNT (2) COMPANY (3)
<S> <C> <C> <C>
Per Depositary Share.................................... $25.00 $ $
Total (4)............................................... $75,000,000 $ $
<FN>
(1) Plus accrued distributions, if any, from the date of original issue.
(2) The Company has agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act of
1933, as amended. See "Underwriting."
(3) Before deducting expenses payable by the Company estimated at $175,000.
(4) The Company has granted to the several Underwriters an option for 30 days
to purchase up to an additional 450,000 Depositary Shares, solely to cover
over-allotments, if any. If all of such shares are purchased, the total
Price to Public, Underwriting Discount and Proceeds to Company will be $ ,
$ and $ , respectively. See "Underwriting."
</TABLE>
------------------------
The Depositary Shares are offered by the several Underwriters, subject to
prior sale, when, as and if delivered to and accepted by the Underwriters,
subject 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 Depositary Receipts evidencing the Depositary
Shares will be made in New York, New York on or about , 1996.
------------------------
MERRILL LYNCH & CO.
DEAN WITTER REYNOLDS INC.
A.G. EDWARDS & SONS, INC.
SMITH BARNEY INC.
--------------
The date of this Prospectus Supplement is August ,1996.
<PAGE>
[ MAP ]
IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE DEPOSITARY
SHARES AND THE SERIES A PREFERRED SHARES AT A LEVEL ABOVE THAT WHICH MIGHT
OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE
NEW YORK STOCK EXCHANGE, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
S-2
<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, 1996. ALL REFERENCES TO
THE "COMPANY" IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS
INCLUDE THE COMPANY, THOSE ENTITIES OWNED OR CONTROLLED BY THE COMPANY AND
PREDECESSORS OF THE COMPANY, UNLESS THE CONTEXT INDICATES OTHERWISE.
THE COMPANY
The Company is a self-administered and self-managed real estate investment
trust (a "REIT") that began operations through a related entity in 1972. The
Company owns a diversified portfolio of 220 in-service industrial, office and
retail properties (the "Properties"), encompassing approximately 23.2 million
square feet and located in eight states. The Properties have an aggregate cost
basis of $1.0 billion and were 92.1% leased as of June 30, 1996. The Company
provides leasing, management, construction, development and other tenant-related
services for the Properties and certain properties owned by third parties. The
Company has the largest commercial real estate operations in Indianapolis and
Cincinnati and is one of the largest real estate companies in the Midwest. The
Company believes that the Midwest offers a relatively strong and stable economy
compared to other regions of the United States and provides significant
investment opportunity through its central location, established manufacturing
base, skilled work force and moderate labor costs.
The following tables provide an overview of the Properties.
SUMMARY OF PROPERTIES
(IN THOUSANDS, EXCEPT PERCENTAGES)
<TABLE>
<CAPTION>
PERCENT
ANNUAL OF TOTAL
PERCENT NET NET EFFECTIVE OCCUPANCY
OF TOTAL EFFECTIVE ANNUAL AT
TYPE OF PROPERTY SQUARE FEET SQUARE FEET RENT (1) RENT JUNE 30, 1996
- -------------------------------------------- ----------- --------------- ------------ --------------- -----------------
<S> <C> <C> <C> <C> <C>
Industrial.................................. 15,897 68% $ 57,033 43% 91.1%
Office...................................... 5,716 25 62,038 47 94.8%
Retail...................................... 1,606 7 13,675 10 93.0%
----------- --- ------------ ---
Total....................................... 23,219 100% $ 132,746 100% 92.1%
----------- --- ------------ ---
----------- --- ------------ ---
</TABLE>
- ------------------------
(1) Represents annual net effective rent due from tenants in occupancy as of
June 30, 1996. 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.
S-3
<PAGE>
SQUARE FOOTAGE AND ANNUAL NET EFFECTIVE RENT OF PROPERTIES
(IN THOUSANDS, EXCEPT PERCENTAGES)
<TABLE>
<CAPTION>
SQUARE FEET
----------------------------------------------------------- ANNUAL NET PERCENT OF
PERCENT OF EFFECTIVE ANNUAL NET
PRIMARY MARKET INDUSTRIAL OFFICE RETAIL OVERALL OVERALL RENT (1) EFFECTIVE RENT
- ----------------------------------- ----------- --------- --------- --------- ------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Indianapolis....................... 10,176 1,341 194 11,711 50% $ 49,628 37%
Cincinnati......................... 3,637 2,135 621 6,393 28 40,937 31
Columbus........................... 960 888 293 2,141 9 15,748 12
Cleveland.......................... -- 644 -- 644 3 8,450 6
Nashville.......................... 562 -- -- 562 2 3,632 3
St. Louis.......................... -- 463 -- 463 2 5,161 4
Detroit............................ -- 245 -- 245 1 2,845 2
Other(2)........................... 562 -- 498 1,060 5 6,345 5
----------- --------- --------- --------- --- ------------ ---
Total.......................... 15,897 5,716 1,606 23,219 100% $ 132,746 100%
----------- --------- --------- --------- --- ------------ ---
----------- --------- --------- --------- --- ------------ ---
Percent of Total Square Feet... 68% 25% 7%
----------- --------- ---------
----------- --------- ---------
</TABLE>
- ------------------------
(1) Represents annual Net Effective Rent due from tenants in occupancy as of
June 30, 1996.
(2) Represents properties not located in the Company's primary markets. These
properties are located in other midwestern markets.
THE OFFERING
<TABLE>
<S> <C>
Securities Offered...... 3,000,000 Depositary Shares. Each Depositary Share represents a
1/10 fractional interest in a % Series A Preferred Share.
Application has been made to list the Depositary Shares on the
NYSE, subject to notice of issuance, with trading expected to
commence within a 30-day period after the initial delivery of the
Depositary Shares.
Use of Proceeds......... The net proceeds to the Company from the Offering (approximately
$72.5 million) will be used to repay $59.6 million in mortgage
debt and to fund current development and acquisition costs.
Ranking................. With respect to the payment of distributions and amounts upon
liquidation, the Series A Preferred Shares represented by the
Depositary Shares offered hereby will rank pari passu with any
other preferred shares which are not by their terms subordinated
to the Series A Preferred Shares and will rank senior to the
Common Stock and any other shares of the Company which by their
terms rank junior to the Series A Preferred Shares. See
"Description of Preferred Stock--Rank" in the accompanying
Prospectus.
</TABLE>
S-4
<PAGE>
<TABLE>
<S> <C>
Distributions........... Distributions on the Series A Preferred Shares represented by the
Depositary Shares offered hereby are cumulative from the date of
issue and are payable quarterly on or about the last day of
February, May, August and November of each year, commencing on
the business day succeeding November 30, 1996, at the rate of
% of the liquidation preference per annum (equivalent to
$ per annum per Depositary Share). Distributions on the
Series A Preferred Shares will accrue whether or not the Company
has earnings, whether or not there are funds legally available
for the payment of such distributions and whether or not such
distributions are declared.
Liquidation Rights...... The Series A Preferred Shares will have a liquidation preference
of $250.00 per Series A Preferred Share (equivalent to $25.00 per
Depositary Share), plus an amount equal to accrued and unpaid
distributions. See "Description of Series A Preferred Shares and
Depositary Shares--Liquidation Rights."
Redemption.............. The Series A Preferred Shares are not redeemable prior to August
31, 2001. See "Description of Preferred Stock--Restrictions on
Ownership" in the accompanying Prospectus. On and after August
31, 2001, the Series A Preferred Shares will be redeemable for
cash at the option of the Company, in whole or in part, at
$250.00 per share (equivalent to $25.00 per Depositary Share),
plus distributions accrued and unpaid to the redemption date. The
redemption price (other than the portion thereof consisting of
accrued and unpaid distributions) is payable solely out of the
sale proceeds of other shares of the Company which may include
other series of preferred shares, and from no other source. See
"Description of Series A Preferred Shares and Depositary
Shares--Redemption."
Voting Rights........... If distributions on the Series A Preferred Shares are in arrears
for six or more quarterly periods, whether or not such quarterly
periods are consecutive, holders of the Depositary Shares
representing the Series A Preferred Shares (voting separately as
a class with all other series of preferred shares upon which like
voting rights have been conferred and are exercisable) will be
entitled to vote for the election of two additional Directors to
serve on the Board of Directors of the Company until all
distribution arrearages have been paid. See "Description of
Preferred Stock--Voting Rights" in the accompanying Prospectus.
Conversion.............. The Series A Preferred Shares are not convertible or exchangeable
for any other property or securities of the Company.
</TABLE>
S-5
<PAGE>
THE COMPANY
The Company is a self-administered and self-managed REIT that began
operations through a related entity in 1972. The Company owns a diversified
portfolio of 220 in-service industrial, office and retail Properties,
encompassing approximately 23.2 million square feet and located in eight states.
The Properties have an aggregate cost basis of $1.0 billion and were 92.1%
leased as of June 30, 1996. The Company provides leasing, management,
construction, development and other tenant-related services for the Properties
and certain properties owned by third parties. The Company has the largest
commercial real estate operations in Indianapolis and Cincinnati and is one of
the largest real estate companies in the Midwest. The Company believes that the
Midwest offers a relatively strong and stable economy compared to other regions
of the United States and provides significant investment opportunity through 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, Duke Realty Limited Partnership (the
"Operating Partnership"). Units in the Operating Partnership may be exchanged by
the holders thereof, other than the Company, for common stock of the Company
("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, 1996, of approximately 88.8% of the Units.
The Company has benefited, and expects to continue to benefit, from the
following elements:
EXPERIENCED MANAGEMENT
The Company's six senior executives collectively have over 121 years of
experience in the real estate industry and have been with the Company for an
average of 17 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
Company's primary markets, Development Managers in each of the Company's primary
markets who pursue select development opportunities meeting the Company's
investment criteria, a Construction Management Department which oversees the
construction of the Company'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 to investors and analysts.
BUSINESS STRATEGY
The Company's business objective is to increase its Funds From Operations by
(i) maintaining and increasing property occupancy and rental rates through the
aggressive management of its portfolio of existing properties; (ii) expanding
existing properties; (iii) developing and acquiring new properties; and (iv)
providing a full line of real estate services to the Company's tenants and to
third parties.
The Company believes that the analysis of real estate opportunities and
risks can be done most effectively at regional or local levels. As a result, the
Company intends to continue its emphasis on increasing its market share and
effective rents in its existing markets primarily within the Midwest. The
Company also expects to utilize its approximately 1,175 acres of unencumbered
land (the "Land") and its many business relationships with approximately 2,800
commercial tenants to expand its build-to-suit business (development projects
substantially pre-leased to a single tenant) and to pursue other development and
acquisition opportunities in its existing markets and elsewhere, primarily in
the Midwest. The Company believes that this regional focus will allow it to
assess market supply and demand for real estate more effectively as well as to
capitalize on its strong relationships with its tenant base.
The Company's policy is to seek to develop and acquire substantially
pre-leased Class A commercial properties located in markets with attractive
investment potential for Fortune 500 companies and other
S-6
<PAGE>
quality regional and local firms. The Company's industrial and suburban office
development focuses on business parks and mixed use developments suitable for
development of multiple projects on a single site and where the Company can
create and control the business environment. These business parks and mixed use
developments generally include restaurants and other amenities which the Company
believes create an atmosphere that is particularly efficient and desirable. The
Company's retail development focuses on community, power and neighborhood
centers in its existing markets. As a fully integrated real estate company, the
Company is able to arrange for or provide to its industrial, office and retail
tenants not only well located and well maintained facilities, but also
additional services such as build to suit construction, tenant finish
construction, expansion flexibility and advertising and marketing services.
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 Company.
FINANCING STRATEGY
The Company 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; (v) maintaining conservative debt service and fixed
charge coverage ratios; and (vi) maintaining a conservative dividend payout
ratio. Management believes that these strategies have enabled and should
continue to enable the Company to access the debt and equity capital markets for
their long-term requirements such as debt refinancings and financing for
development and acquisitions of additional rental Properties. The Company has
demonstrated its ability to access the equity and debt markets to finance the
activities of the Company through recent public offerings of Common Stock in
October 1993, September 1994, May 1995 and March 1996 and unsecured notes in
September 1995 and July 1996 which generated aggregate net proceeds of $812.7
million. It is the Company's policy that Duke Realty Investments, Inc. shall not
incur indebtedness other than short-term trade, employee compensation, dividends
payable or similar indebtedness that will be paid in the ordinary course of
business, and that indebtedness shall instead be incurred by the Operating
Partnership to the extent necessary to fund the business activities conducted by
the Operating Partnership and its subsidiaries.
DIVERSIFIED PORTFOLIO
The Company owns a diversified portfolio of properties which includes (i)
the in-service Properties, consisting of 220 industrial, office and retail
properties located in Indiana, Ohio, Illinois, Michigan, Tennessee, Kentucky,
Wisconsin and Missouri; (ii) 14 buildings and three building expansions
currently under development; and (iii) the Land, consisting of approximately
1,175 acres of unencumbered land for future development in Indiana, Ohio,
Missouri, Illinois, Kentucky, and Tennessee. The Company owns the entire equity
interest in 168 of the Properties, including property currently under
development, 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 Company 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 23.2 million, consisting of approximately 15.9
million square feet of industrial space, approximately 5.7 million square feet
of office space and approximately 1.6 million square feet of retail space. The
total square footage of the 14 buildings and three building expansions currently
under development is approximately 3.4 million square feet, consisting of
approximately 2.2 million square feet of industrial space, approximately 783,000
square feet of office space and approximately 445,000 square feet of retail
space. The current development projects are 74% leased as of June 30, 1996. The
total annual Net Effective Rental income of
S-7
<PAGE>
the Properties based upon tenants in occupancy as of June 30, 1996 is
approximately $132.7 million, with $57.0 million relating to the industrial
Properties, $62.0 million relating to the office Properties and $13.7 million
relating to the retail Properties. At June 30, 1996, the Properties were 92.1%
leased.
MIDWESTERN FOCUS
The Company believes that the Midwest offers a relatively strong and stable
economy compared to other regions of the United States and provides attractive
new opportunities through its central location, established manufacturing base,
skilled work force and moderate labor costs. In addition, the interstate highway
systems serving Indianapolis, Cincinnati and Columbus, markets in which
approximately 80% and 87% of the Properties, in terms of both dollar value of
Net Effective Rent and square footage, respectively, 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 at March 31, 1996 was 3.7%, 4.3% and
3.3% in the Indianapolis, Cincinnati and Columbus metropolitan areas,
respectively, compared to 5.6% for the United States. Additionally, total
non-farm employment has increased 17.2%, 8.4% and 13.0% from January 1989 to
March 31, 1996 for the Indianapolis, Cincinnati and Columbus metropolitan areas,
respectively, as compared to 8.6% for the United States.
Management believes that the Company's assets are located in strong real
estate markets with good investment potential. The Fall 1995 issue of
MarketScore, a National Real Estate Index and Ernst & Young Kenneth Leventhal
Real Estate Group publication ("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 25.6 million square feet of the
Company's in-service and under-development Properties are in markets considered
by MarketScore to have good or excellent investment potential.
INDIANAPOLIS, INDIANA. With more than 1.5 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. 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
by 1.1% over the 24 months ended March 31, 1996 to 2.9%, less than the national
industrial vacancy rate average of 7.0%. According to the Fall 1995 issue of
MarketScore, Indianapolis is rated as the second best warehouse and distribution
market in the United States. The Indianapolis suburban office market also
strengthened over the 24-month period. According to CB Commercial, at March 31,
1996, Indianapolis had a 9.0% suburban office vacancy rate compared to a
national average of 13.0%.
CINCINNATI, OHIO. Cincinnati is the second largest metropolitan area in
Ohio with a population of 1.6 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
S-8
<PAGE>
corporate relocations in Cincinnati. Indicative of the economic strength in
Cincinnati, the industrial vacancy rate as reported by CB Commercial declined by
1.9% over the 24 months ended March 31, 1996 to 2.9%, less than half the
national average of 7.0%. As reported by CB Commercial, the Cincinnati suburban
office market vacancy rate was 12.8% at March 31, 1996 compared to a national
average of 13.0%, and the Cincinnati downtown office vacancy rate improved 1.0%
over the same period to 14.1% at March 31, 1996 compared to the national average
of 15.0%.
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, 1996 industrial and suburban office vacancy rates in Columbus were 7.4% and
8.7% compared to the national averages of 7.0% and 13.0%, respectively. This
suburban office vacancy rate is the twelfth lowest out of 54 markets surveyed by
CB Commercial.
The following table summarizes important economic and performance statistics
for the Company's principal markets and for the United States.
<TABLE>
<CAPTION>
CENTRAL MARCH 1996 MARCH 1996 MARCH 1996
LOCATION UNEMPLOYMENT JOB GROWTH SINCE INDUSTRIAL PROPERTY SUBURBAN OFFICE
RANKING (1) RATE (2) 1989 (2) VACANCY RATE (3) VACANCY RATE (3)
--------------- ----------------- ----------------- --------------------- -------------------
<S> <C> <C> <C> <C> <C>
Indianapolis, Indiana....... First 3.7% 17.2% 2.9% 9.0%
Cincinnati, Ohio............ Third 4.3% 8.4% 2.9% 12.8%
Columbus, Ohio.............. Fourth 3.3% 13.0% 7.4% 8.7%
United States............... -- 5.6% 8.6% 7.0% 13.0%
</TABLE>
- ------------------------
(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.
Consistent with its business strategy of expanding in attractive Midwestern
markets, in 1995 the Company established a regional office in St. Louis,
Missouri. The Company believes that the St. Louis market offers attractive real
estate investment returns in the industrial and suburban office markets because
of its fragmented competition, strong real estate fundamentals and favorable
economic conditions. To date, the Company has purchased four suburban office
buildings and two industrial buildings, has under construction one industrial
building and owns 131 acres of land for future industrial property development
in the St. Louis market.
In February 1996 the Company continued this strategy through the acquisition
of eight suburban office buildings totaling 782,000 gross square feet in
Cleveland, Ohio. The buildings are 99% leased in the aggregate and are located
primarily in a prime submarket on Cleveland's southside that has a vacancy rate
of less than 5%. The acquisition included the purchase of the operations of an
established Cleveland property management and development company that allowed
the Company to immediately have a presence in the market. In July 1996, the
Company completed the acquisition of two additional suburban office buildings
comprising 204,000 square feet.
DOMINANT MARKET POSITION
The Company manages approximately 36 million square feet of property,
including over 9.5 million square feet owned by third parties. The Company
manages approximately 34% and 24% of all competitive suburban office,
warehousing and light manufacturing space in Indianapolis and Cincinnati,
respectively. In addition to providing services to approximately 1,600 tenants
in the Properties, the Company provides such
S-9
<PAGE>
services to over 1,150 tenants in approximately 125 properties owned by third
parties. Based on market data maintained by the Company, the Company believes
that it was responsible in 1995 for approximately 55% and 66% of the net
absorption (gross space leased minus lease terminations and expirations) of
competitive suburban office, warehousing and light manufacturing space in
Indianapolis and Cincinnati, respectively. The Company believes that its
dominant position in the primary markets in which it operates gives it a
competitive advantage in its real estate activities.
QUALITY TENANT BASE
The Company's Properties have a diverse and stable base of approximately
1,600 tenants. Many of the tenants are Fortune 500 companies and engage in a
wide variety of businesses, including manufacturing, retailing, wholesale trade,
distribution, and professional services. Approximately 50% of the square footage
of the Properties is occupied by tenants with a net worth based on book value of
$100 million or greater. Approximately 70% of the gross leasable area of the
Properties is occupied by tenants who have been in business for more than 10
years. The Company renewed 70% of the square feet of tenants up for renewal in
the first six months of 1996 on approximately 904,000 square feet up for
renewal. No single tenant accounts for more than 3% of the Company'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
OPERATING PERFORMANCE AND DIVIDEND INCREASE. For the six months ended June
30, 1996, the Company reported net income of $21.9 million on revenues of $83.7
millon, as compared to $15.7 million and $60.4 million, respectively, for the
same period in 1995. Funds From Operations for the same period were $34.9
million as compared to $25.0 million in 1995. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Funds From
Operations."
On July 25, 1996, the Company's Board of Directors declared a regular
quarterly dividend of $.51 per share, payable on August 30, 1996 to shareholders
of record on August 16, 1996. This dividend represents an annual increase of 4.1
percent over the most recent quarterly dividend and equals $2.04 on an
annualized basis. This increase represents the third consecutive annual increase
in the Company's dividend payment since the Company's reorganization in October
1993.
FINANCING. In March 1996, the Company issued 4.4 million shares of Common
Stock raising net proceeds of $125.2 million. In July 1996, the Company issued
$40.0 million of investment-grade Medium-Term Notes maturing in July 2000 with
an interest rate of 7.28%. The proceeds of these financings have been used to
reduce the balance on the Company's unsecured line of credit and to fund the
development and acquisition of additional rental properties.
The Company is currently in negotiations with its lenders to reduce the
interest rate on its $150.0 million unsecured line of credit from the 30-day
London Interbank Offered Rate ("LIBOR") plus 1.50% to LIBOR plus 1.25%.
DEVELOPMENT AND ACQUISITIONS: During the first six months of 1996, the
Company placed in-service 1.6 million square feet of newly developed properties
which are 81% leased. The total cost of these properties is $49.6 million and
the combined weighted average unleveraged stabilized return on cost for these
properties is expected to be 11.6%. Also during the first six months of 1996,
the Company acquired 1.6 million square feet of properties which are 72% leased.
The total cost of these properties is $101.9 million and the combined weighted
average unleveraged stabilized return on cost for these properties is expected
to be 11.3%. The Company currently has 3.4 million square feet of properties
under development which are 74% pre-leased. These properties consist of 64%
industrial, 23% office and 13% retail properties (based on square footage) and
will have a total cost upon completion of $153.6 million. The combined weighted
S-10
<PAGE>
average unleveraged stabilized return on cost for these properties is expected
to be 11.6%. The cost of the properties under development to be placed
in-service in the third quarter of 1996 is $87.0 million, in the fourth quarter
of 1996 is $33.2 million and in 1997 is $33.4 million.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Depositary Shares
offered hereby are expected to be approximately $72.5 million (approximately
$83.4 million if the Underwriters' over-allotment option is exercised in full).
The Company intends to contribute or otherwise transfer the net proceeds of the
sale of the Depositary Shares to the Operating Partnership in exchange for %
Series A Cumulative Redeemable Preference Units in the Operating Partnership,
the economic terms of which will be substantially identical to the Series A
Preferred Shares. The Operating Partnership will be required to make all
required distributions on the % Series A Cumulative Redeemable Preference
Units (which will mirror the payments of dividends, including accrued and unpaid
dividends upon redemption, and the liquidation preference amount on the Series A
Preferred Shares) prior to any distribution of cash or assets to the holders of
the Units. See "Description of Series A Preferred Shares and Depositary Shares
- -- Distributions." The Operating Partnership presently intends to immediately
use $59.6 million of the net proceeds to retire outstanding mortgage
indebtedness which was scheduled to mature between October 31 and December 15,
1996 and bears interest at an average rate of approximately 6.25%. The remaining
proceeds will be used to fund development and acquisition of additional rental
properties. 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 Company and its
subsidiaries as of June 30, 1996 and as adjusted to give effect to issuance of
the 300,000 Series A Preferred Shares offered hereby and the application of the
net proceeds thereof. The table should be read in conjunction with the Company's
consolidated financial statements incorporated herein by reference.
<TABLE>
<CAPTION>
JUNE 30, 1996
--------------------------
HISTORICAL AS ADJUSTED
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Debt:
Mortgage Debt............................................................. $ 281,856 $ 222,237
7.25% Notes due 2002...................................................... 50,000 50,000
7.28% Notes due 2000...................................................... -- 40,000(1)
7.375% Notes due 2005..................................................... 100,000 100,000
Lines of Credit........................................................... -- --
------------ ------------
Total Debt................................................................ $ 431,856 $ 412,237
------------ ------------
Minority Interest........................................................... 12,780 12,780
------------ ------------
Shareholders' Equity:
Preferred Stock ($.01 par value), 5,000 shares authorized: % Series A
Cumulative Redeemable Preferred Shares, liquidation preference $250 per
share, no shares issued and outstanding (300 as adjusted)................ -- 72,463
Common Stock ($.01 par value), 45,000 shares authorized; 29,320 issued and
outstanding (2).......................................................... 725,830 725,830
Distributions in excess of net income..................................... (47,984) (47,984)
------------ ------------
Total Shareholders' Equity................................................ $ 677,846 $ 750,309
------------ ------------
Total Capitalization........................................................ $ 1,122,482 $ 1,175,326
------------ ------------
------------ ------------
</TABLE>
- ------------------------
(1) In July 1996, the Company issued $40 million of 7.28% unsecured notes which
mature in July 2000.
(2) Does not include 3,697 shares reserved for issuance upon exchange of issued
and outstanding Units.
S-12
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected financial and operating information
for the Company on a historical basis. The information was derived from the
Company's financial statements, which are incorporated by reference in the
accompanying Prospectus.
The following selected financial information should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" for the Company and the financial statements incorporated by
reference in the accompanying Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
-------------------- YEAR ENDED DECEMBER 31,
JUNE 30, JUNE 30, -------------------------------
1996 1995 1995 1994 1993 (1)
--------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
RENTAL OPERATIONS:
Revenues:
Rental income....................................................... $ 71,714 $ 51,775 $ 112,931 $ 88,243 $ 33,351
Equity in earnings of unconsolidated companies...................... 2,547 470 710 1,056 297
--------- --------- --------- --------- ---------
74,261 52,245 113,641 89,299 33,648
--------- --------- --------- --------- ---------
Operating expenses:
Rental expenses..................................................... 13,881 9,544 20,953 17,158 7,059
Real estate taxes................................................... 6,507 4,290 9,683 8,256 3,403
Interest expense.................................................... 14,617 10,053 21,424 18,920 10,334
Depreciation and amortization....................................... 16,157 11,103 24,337 18,036 7,369
--------- --------- --------- --------- ---------
51,162 34,990 76,397 62,370 28,165
--------- --------- --------- --------- ---------
Earnings from rental operations..................................... 23,099 17,255 37,244 26,929 5,483
--------- --------- --------- --------- ---------
SERVICE OPERATIONS:
Revenues:
Property management, maintenance and leasing fees................... 5,662 5,256 11,138 11,084 3,000
Construction management and development fees........................ 3,153 2,455 5,582 6,107 2,501
Other income........................................................ 668 444 1,057 1,282 153
--------- --------- --------- --------- ---------
9,483 8,155 17,777 18,473 5,654
--------- --------- --------- --------- ---------
Operating expenses:
Payroll............................................................. 4,617 3,644 7,606 8,141 2,688
Maintenance......................................................... 717 546 1,344 1,069 473
Office and other.................................................... 1,339 968 2,258 2,188 957
--------- --------- --------- --------- ---------
6,673 5,158 11,208 11,398 4,118
--------- --------- --------- --------- ---------
Earnings from service operations.................................... 2,810 2,997 6,569 7,075 1,536
--------- --------- --------- --------- ---------
General and administrative expense.................................... (2,263) (1,643) (3,536) (3,261) (737)
--------- --------- --------- --------- ---------
Operating income...................................................... 23,646 18,609 40,277 30,743 6,282
--------- --------- --------- --------- ---------
OTHER INCOME (EXPENSE):
Interest income....................................................... 613 901 1,900 1,115 164
Earnings from property sales.......................................... 1,604 -- 283 2,198 517
Minority interest in earnings of subsidiaries......................... (3,916) (3,804) (7,441) (7,840) (1,950)
--------- --------- --------- --------- ---------
Net income.............................................................. $ 21,947 $ 15,706 $ 35,019 $ 26,216 $ 5,013
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
S-13
<PAGE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
JUNE 30, ---------------------------------
1996 1995 1994 1993 (1)
----------- ----------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Real estate investments.................................................... $ 1,110,108 $ 963,499 $ 723,713 $ 592,843
Accumulated depreciation................................................... (69,250) (56,335) (38,058) (23,725)
----------- ----------- --------- ---------
Net real estate investments.............................................. 1,040,858 907,164 685,655 569,118
Cash....................................................................... 286 5,727 40,433 10,065
Investments in unconsolidated companies.................................... 73,164 67,771 8,418 14,270
Other assets............................................................... 63,484 64,926 40,395 39,432
----------- ----------- --------- ---------
Total assets........................................................... 1,177,792 1,045,588 774,901 632,885
----------- ----------- --------- ---------
----------- ----------- --------- ---------
Mortgage debt.............................................................. $ 281,856 $ 259,820 $ 298,640 $ 249,034
7.25% Notes due 2002....................................................... 50,000 50,000 -- --
7.375% Notes due 2005...................................................... 100,000 100,000 -- --
Lines of credit............................................................ -- 45,000 -- --
----------- ----------- --------- ---------
Total debt............................................................. 431,856 454,820 298,640 249,034
Other liabilities.......................................................... 55,310 51,243 29,543 34,863
----------- ----------- --------- ---------
Total liabilities...................................................... 487,166 506,063 328,183 283,897
----------- ----------- --------- ---------
Minority interest.......................................................... 12,780 4,736 1,334 1,950
----------- ----------- --------- ---------
Shareholders' equity....................................................... 677,846 534,789 445,384 347,038
----------- ----------- --------- ---------
Total liabilities and shareholders' equity............................. $ 1,177,792 $ 1,045,588 $ 774,901 $ 632,885
----------- ----------- --------- ---------
----------- ----------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
------------------------ YEAR ENDED DECEMBER 31,
JUNE 30, JUNE 30, ---------------------------------
1996 1995 1995 1994 1993 (1)
----------- ----------- ----------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
OTHER DATA:
Funds from Operations Available to Common
Shareholders (2)........................................... $ 34,911 $ 24,957 $ 54,746 $ 38,198 $ 11,064
Cash flow provided by (used in):
Operating activities...................................... 39,102 40,797 78,620 51,873 14,363
Investing activities...................................... (93,584) (114,421) (289,569) (116,238) (315,025)
Financing activities...................................... 49,041 68,603 176,243 94,733 310,717
Ratio of earnings to debt service (3)....................... 2.52 2.77 2.79 2.51 1.57
Ratio of earnings to fixed charges (4)...................... 2.07 2.48 2.38 2.33 1.58
Ratio of Funds from Operations before debt service to debt
service (2)(5)............................................. 3.23 3.32 3.37 2.87 2.03
Ratio of Funds from Operations before fixed charges to fixed
charges (2)(6)............................................. 2.85 3.08 3.04 2.75 2.04
Weighted average shares outstanding......................... 26,714 21,190 22,679 17,139 5,459
Number of in-service Properties at end of period............ 220 144 202 128 113
Square feet available at end of period...................... 23,219 15,169 20,073 12,896 10,850
</TABLE>
- --------------------------
(1) On October 4, 1993, 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, 1993 to October 4, 1993 and the
accounts and operations of the Company and its majority-owned or controlled
subsidiaries for the period from October 4, 1993 to December 31, 1993 and
subsequent periods.
(2) Funds from Operations ("FFO"), is defined by the National Association of
Real Estate Investment Trusts ("NAREIT") as net income or loss excluding
gains or losses from debt restructuring and sales of property plus
depreciation and amortization, and after adjustments for minority interest,
unconsolidated partnerships and joint ventures (adjustments for minority
interests, unconsolidated partnerships and joint ventures are calculated to
reflect FFO on the same basis).
S-14
<PAGE>
FFO does not represent cash flow from operations as defined by generally
accepted accounting principles, should not be considered as an alternative
to net income as an indicator of the Company'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. The Company adopted these changes effective January 1,
1996, and the calculations of FFO for all periods presented in the table
have been revised accordingly. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Funds From Operations."
(3) In computing the ratios of earnings to debt service, earnings have been
calculated by adding debt service to income before gains or losses on
property sales and minority interest in earnings of the Operating
Partnership. Debt service consists of interest and recurring principal
amortization (excluding maturities) and excludes amortization of debt
issuance costs.
(4) In computing the ratios of earnings to fixed charges, earnings have been
calculated by adding fixed charges, excluding capitalized interest, to
income before gains or losses on property sales and minority interest in
earnings of the Operating Partnership. Fixed charges consist (if applicable)
of interest costs, whether expensed or capitalized, the interest component
of rental expense, amortization of debt issuance costs and preferred stock
distributions.
(5) The ratios of FFO before debt service to debt service represent the sum of
FFO before minority interest in earnings of the Operating Partnership and
minority interest share of FFO adjustments and debt service compared to debt
service.
(6) The ratios of FFO before fixed charges to fixed charges represent the sum of
FFO before minority interest in earnings of the Operating Partnership and
minority interest share of FFO adjustments and fixed charges compared to
fixed charges.
S-15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
The Company's operating results depend primarily upon income from the rental
operation of its industrial, office and retail properties located in its primary
markets. This income from rental operations is substantially influenced by the
supply and demand for the Company's rental space in its primary markets.
In addition, the Company's continued growth is dependent upon its ability to
maintain occupancy rates and increase rental rates on its in-service portfolio
and to continue development and acquisition of additional rental properties. The
Company's primary markets in the Midwest have continued to offer strong and
stable local economies compared to other regions of the United States and have
provided attractive new development opportunities because of their central
location, established manufacturing base, skilled work force and moderate labor
costs. Consequently, the Company's overall occupancy rate of its in-service
portfolio has exceeded 93% the last two years and was at 92% at June 30, 1996.
The Company expects to continue to maintain its overall occupancy levels at
comparable levels and also expects to be able to increase rental rates as leases
are renewed or new leases are executed. This stable occupancy as well as
increasing rental rates should improve the Company's results of operations from
its in-service properties. The Company's strategy for continued growth also
includes developing and acquiring additional rental properties in its primary
markets and expanding into other attractive Midwestern markets.
The following table sets forth information regarding the Company's
in-service portfolio of rental properties as of June 30, 1996 and 1995 (in
thousands, except percentages):
<TABLE>
<CAPTION>
PERCENT OF
TOTAL SQUARE FEET TOTAL SQUARE FEET PERCENT OCCUPIED
-------------------- ------------------------ ------------------------
TYPE 1996 1995 1996 1995 1996 1995
- ------------------------------------------------ --------- --------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Industrial
Service Centers............................... 2,971 2,167 12.80% 14.28% 93.62% 94.02%
Bulk.......................................... 12,926 7,151 55.67 47.14 90.50% 96.82%
Office
Suburban...................................... 4,684 3,588 20.17 23.65 97.12% 93.92%
CBD........................................... 699 699 3.01 4.61 81.29% 90.49%
Medical....................................... 333 198 1.43 1.31 90.26% 98.71%
Retail.......................................... 1,606 1,366 6.92 9.01 92.98% 95.14%
--------- --------- ----------- -----------
Total....................................... 23,219 15,169 100.00% 100.00% 92.13% 95.32%
--------- --------- ----------- -----------
--------- --------- ----------- -----------
</TABLE>
The decrease in occupancy from 1995 to 1996 is attributed to the scheduled
lease expiration of a 90,000 square foot tenant in a downtown Cincinnati office
building and a recently acquired 358,000 square foot industrial facility that
was unoccupied at June 30, 1996. In July 1996, the Company re-leased
approximately 204,000 square feet of such industrial facility.
Management expects occupancy of the in-service property portfolio to remain
stable because (i) only 5.1% and 8.5% of the Company's occupied square footage
is subject to leases expiring in the remainder of 1996 and in 1997,
respectively, and (ii) the Company's renewal percentage averaged 65%, 73% and
65% in 1995, 1994 and 1993, respectively.
S-16
<PAGE>
The following table reflects the Company's lease expiration schedule as of
June 30, 1996, including properties under development, by product type
indicating square footage and annualized net effective rents under expiring
leases (in thousands, except per square foot amounts):
<TABLE>
<CAPTION>
INDUSTRIAL OFFICE RETAIL TOTAL
--------------- ---------------- ---------------- ----------------
SQUARE SQUARE SQUARE SQUARE
YEARS OF EXPIRATION FEET DOLLARS FEET DOLLARS FEET DOLLARS FEET DOLLARS
- ------------------------------ ------ ------- ------ ------- ------ ------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1996........................ 1,005 $ 4,279 196 $ 1,836 26 $ 250 1,227 $ 6,365
1997........................ 1,311 5,889 638 6,877 77 843 2,026 13,609
1998........................ 2,270 8,544 651 6,894 111 1,162 3,032 16,600
1999........................ 1,953 8,213 737 7,998 115 1,159 2,805 17,370
2000........................ 1,871 7,320 654 8,193 119 1,359 2,644 16,872
2001........................ 2,335 8,961 556 5,869 92 1,026 2,983 15,856
2002........................ 321 1,379 651 6,896 88 784 1,060 9,059
2003........................ 105 814 150 1,815 36 328 291 2,957
2004........................ 865 3,322 89 1,043 13 126 967 4,491
2005........................ 703 2,557 496 6,313 173 1,479 1,372 10,349
Thereafter.................... 3,247 10,398 1,211 15,808 1,036 7,708 5,494 33,914
------ ------- ------ ------- ------ ------- ------ --------
Total Leased.................. 15,986 $61,676 6,029 $69,542 1,886 $16,224 23,901 $147,442
------ ------- ------ ------- ------ ------- ------ --------
------ ------- ------ ------- ------ ------- ------ --------
Total Portfolio............... 18,069 6,498 2,051 26,618
------ ------ ------ ------
------ ------ ------ ------
Annualized net effective rent
per square foot.............. $ 3.86 $ 11.53 $ 8.60 $ 6.17
------- ------- ------- --------
------- ------- ------- --------
</TABLE>
This stable occupancy, along with stable rental rates in each of the
Company's markets, will allow the in-service portfolio to continue to provide a
comparable or increasing level of earnings from rental operations. The Company
also expects to realize growth in earnings from rental operations through (i)
the completion of the 3.4 million square feet of properties under development at
June 30, 1996 over the next five quarters; (ii) the development and acquisition
of additional rental properties in its primary markets; and (iii) the expansion
into other attractive Midwestern markets.
RESULTS OF OPERATIONS
Following is a summary of the Company's operating results and property
statistics for the six months ended June 30, 1996 and 1995 (in thousands, except
number of properties and per share amounts):
<TABLE>
<CAPTION>
1996 1995
---------- -----------
<S> <C> <C>
Rental Operations revenue............................................ $ 74,261 $ 52,245
Service Operations revenue........................................... 9,483 8,155
Earnings from Rental Operations...................................... 23,099 17,255
Earnings from Service Operations..................................... 2,810 2,997
Operating income..................................................... 23,646 18,609
Net income........................................................... $ 21,947 $ 15,706
Weighted average shares outstanding.................................. 26,714 21,190
Net income per share................................................. $ 0.82 $ 0.74
Number of in-service properties at end of period..................... 220 144
In-service square footage at end of period........................... 23,219 15,169
Under development square footage at end of period.................... 3,400 3,382
</TABLE>
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1996 TO SIX MONTHS ENDED JUNE 30, 1995
RENTAL OPERATIONS. The expansion of the in-service rental property
portfolio by 76 additional rental properties from June 30, 1995 to June 30, 1996
primarily accounts for the $22.1 million increase in revenues from Rental
Operations from 1995 to 1996. The increase from 1995 to 1996 in rental expenses,
real estate taxes and depreciation and amortization expense is also a result of
the additional 76 in-service rental properties.
S-17
<PAGE>
The increase in equity in earnings of unconsolidated companies is due to the
effect of the formation of a joint venture (Dugan Realty L.L.C.) on December 28,
1995. The Company formed Dugan Realty L.L.C. with an institutional real estate
investor and purchased 25 industrial buildings totaling approximately 2.3
million square feet. Upon formation of the venture, the Company contributed
approximately 1.4 million square feet of recently developed and acquired
industrial properties, 113 acres of recently acquired land held for future
development and approximately $16.7 million of cash for a 50.1% interest in the
joint venture with a total initial recorded investment of approximately $59.4
million. In May 1996, the Company contributed a 600,000 square foot industrial
building to the joint venture at an agreed value of $13.9 million and received a
distribution of $6.9 million. The Company accounts for its investment in this
joint venture on the equity method because the joint venture partner's approval
is required for all major decisions and the joint venture partner has equal
control regarding the primary day-to-day operations of the venture.
Interest expense increased by approximately $4.5 million. This increase was
primarily because of the interest expense on the $150 million of unsecured notes
which the Company issued in September 1995. These notes bear interest at an
effective rate of 7.46%.
As a result of the above-mentioned items, earnings from rental operations
increased $5.8 million from $17.3 million for the six months ended June 30, 1995
to $23.1 million for the six months ended June 30, 1996.
SERVICE OPERATIONS. Service Operation revenues increased from $8.2 million
to $9.5 million for the six months ended June 30, 1996 as compared to the six
months ended June 30, 1995 primarily as a result of increases in maintenance fee
revenue because of winter weather conditions and construction management fee
revenue because of an increase in construction volume.
Service Operation expenses increased from $5.2 million to $6.7 million for
the six months ended June 30, 1996 as compared to the six months ended June 30,
1995 primarily as a result of (i) an increase in operating expenses resulting
from the overall growth of the Company and (ii) a decrease in costs allocated to
the Rental Operations segment because of a reduction in development and leasing
activity in the Company's owned properties for the six months ended June 30,
1996.
As a result of the above-mentioned items, earnings from Service Operations
decreased slightly from $3.0 million to $2.8 million for the six months ended
June 30, 1995 and 1996, respectively.
OTHER INCOME (EXPENSE). Interest income decreased from $901,000 for the six
months ended June 30, 1995 to $613,000 for the six months ended June 30, 1996
primarily as a result of the temporary short-term investment of excess proceeds
from an equity offering in May 1995 which resulted in approximately $35 million
of excess cash being invested through June 30, 1995.
During the six months ended June 30, 1996, the Company sold a 251,000 square
foot corporate headquarters facility that it recently completed for John Alden
Life Insurance Company in Miami, Florida. The project was sold for approximately
$32.9 million pursuant to the purchase option contained in John Alden's lease
agreement. The Company recognized a gain of approximately $1.6 million on the
sale.
NET INCOME. Net income for the six months ended June 30, 1996 was $21.9
million compared to net income of $15.7 million for the six months ended June
30, 1995. This increase results primarily from the operating result fluctuations
in rental and service operations and earnings from property sales explained
above.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities totaling $39.1 million and $40.8
million for the six months ended June 30, 1996 and 1995, respectively,
represents the primary source of liquidity to fund distributions to shareholders
(including holders of the Depository Shares and the Series A Preferred Shares),
unitholders and the other minority interests and to fund recurring costs
associated with the renovation and re-letting of the Company's properties. The
primary reason for the decrease in net cash provided by operating activities is
the timing of cash receipts and payments related to the Company's third-party
construction contracts.
S-18
<PAGE>
Excluding the impact of these construction contracts, net cash provided by
operating activities increased from $29.4 million for the six months ended June
30, 1995 to $42.4 million for the six months ended June 30, 1996. This increase
is primarily a result, as discussed above under "Results of Operations," of the
increase in net income resulting from the expansion of the in-service portfolio
through development and acquisitions of additional rental properties.
Net cash used by investing activities totaling $93.6 million and $114.4
million for the six months ended June 30, 1996 and 1995, respectively,
represents the investment of funds by the Company to expand its portfolio of
rental properties through the development and acquisition of additional rental
properties net of proceeds received from earnings from property sales. During
the six months ended June 30, 1996, the Company sold two properties and a small
parcel of land for net proceeds of $35.5 million. The sale of the John Alden
Miami building accounted for $32.9 million of these proceeds. In 1995, $98.2
million was invested in the development and acquisition of additional rental
properties. In 1996, the investment in the development and acquisition of
additional rental properties increased to $125.9 million. Included in the $125.9
million of net cash used by investing activities for the development and
acquisition of rental properties for the six months ended June 30, 1996 is $53.3
million related to the acquisition of eight suburban office buildings totaling
782,000 gross square feet in Cleveland, Ohio. The purchase price of these eight
buildings was approximately $76 million which included the assumption of $23.1
million of mortgage debt. The buildings were 99% leased in the aggregate and are
primarily located in a prime submarket on Cleveland's southside which has a
vacancy rate of less than 5%. The acquisition included the purchase of the
operations of an established Cleveland property management and development
company that allowed the Company to immediately have a presence in the market.
This acquisition positions the Company to immediately pursue additional
industrial and suburban office development and acquisition opportunities in
Cleveland. Also included in net cash provided by investing activities for the
six months ended June 30, 1996 is the receipt of approximately $4.9 million of
escrow deposits related to one of the Company's mortgage loans classified as net
cash provided from other deferred costs and other assets.
Net cash provided by financing activities totaling $68.6 million for the six
months ended June 30, 1995 is comprised mainly of proceeds from an offering of
Common Stock in May 1995 net of distributions to shareholders and unitholders.
In 1996, the Company received $126.1 million from an offering of Common Stock
and the dividend reinvestment plan which was used to pay down amounts
outstanding on the unsecured line of credit.
In March 1994, the Company obtained a $60 million secured credit facility
which was available to fund development and acquisition of additional rental
properties and to provide working capital as needed. In April 1995, the Company
replaced the secured line of credit with a $100 million unsecured line of credit
which matures in April 1998. In January 1996, the Company increased the
unsecured line of credit to $150 million and reduced the borrowing rate to LIBOR
plus 1.625%. In July 1996, the borrowing rate was further reduced to LIBOR plus
1.50% as a result of an increase in the Company's investment grade debt rating
from Moody's Rating Agency. The Company also has a demand $7 million secured
revolving credit facility which is available to provide working capital. This
facility bears interest payable at the 30-day LIBOR rate plus .75%.
The Company currently has on file two Form S-3 Registration Statements with
the Securities and Exchange Commission (the "Shelf Registrations") which, after
completion of the Offering, will have remaining availability of approximately
$520 million to issue additional common stock, preferred stock or unsecured debt
securities. The Company intends to issue additional securities under these Shelf
Registrations as capital needs arise to fund the development and acquisition of
additional rental properties. It is the Company's policy to incur indebtedness
only at the Operating Partnership level. See "The Company -- Financing
Strategy."
The Company intends to maintain a conservative capital structure. The
Company's debt to total market capitalization ratio at June 30, 1996 was 30.3%,
compared to 33.9% at December 31, 1995. Following the
S-19
<PAGE>
Offering, the Company's debt to total market capitalization ratio will be 27.6%
based on a market price of the Company's Common Stock of $30.50 per share and a
market price of the Series A Preferred Shares of $250.00 per share (equivalent
to $25.00 per Depositary Share). Assuming completion of the Offering and the
repayment of the $59.6 million of mortgage debt, the pro forma ratio of earnings
to combined fixed charges and preferred stock dividends for the six months ended
June 30, 1996 would have been 1.95 to one and the pro forma ratio of EBIDA to
combined fixed charges and preferred stock dividends would have been 2.75 to one
for the six months ended June 30, 1996.
The total debt outstanding at June 30, 1996 consists of notes totaling
$431.9 million with a weighted average interest rate of 7.55% maturing at
various dates through 2018. The Company has $150 million of unsecured debt and
$281.9 million of secured debt outstanding at June 30, 1996. Scheduled principal
amortization of such debt totaled $1.0 million for the six months ended June 30,
1996.
Following is a summary of the scheduled future amortization and maturities
of the Company's indebtedness after reflecting the use of proceeds of the
Offering and the issuance of $40.0 million of investment-grade Medium-Term Notes
in July 1996 (in thousands):
<TABLE>
<CAPTION>
REPAYMENTS
------------------------------------ WEIGHTED AVERAGE
SCHEDULED INTEREST RATE OF
YEAR AMORTIZATION MATURITIES TOTAL FUTURE REPAYMENTS
- -------------- ------------ ---------- ---------- -------------------
<S> <C> <C> <C> <C>
1996 $ 1,116 $ -- $ 1,116 7.92%
1997 2,282 22,841 25,123 9.14%
1998 2,478 45,216 47,694 7.13%
1999 2,698 -- 2,698 8.26%
2000 2,717 44,854 47,571 7.37%
2001 2,378 59,954 62,332 8.72%
2002 2,590 50,000 52,590 7.37%
2003 252 68,216 68,468 8.48%
2004 273 -- 273 5.20%
2005 300 100,000 100,300 7.51%
Thereafter.. 4,072 -- 4,072 5.20%
------------ ---------- ----------
Total $ 21,156 $ 391,081 $ 412,237
------------ ---------- ----------
------------ ---------- ----------
</TABLE>
The Company intends to continue to pay regular quarterly distributions from
net cash provided by operating activities. A quarterly dividend of $.51 per
Common Share was declared on July 25, 1996 which represents an annualized
dividend of $2.04 per share.
FUNDS FROM OPERATIONS
Management believes that FFO, which is defined by the National Association
of Real Estate Investment Trusts as net income or loss excluding gains or losses
from debt restructuring and sales of property plus depreciation and
amortization, and after adjustments for minority interest, unconsolidated
partnerships and joint ventures (adjustments for minority interest,
unconsolidated partnerships and joint ventures are calculated to reflect FFO on
the same basis), is the industry standard for reporting the operations of real
estate investment trusts.
S-20
<PAGE>
The following table reflects the calculation of the Company's FFO for the
six months ended June 30 as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
---------- -----------
<S> <C> <C>
Net income........................................................... $ 21,947 $ 15,706
Add back:
Depreciation and amortization...................................... 15,554 10,518
Share of joint venture depreciation and amortization............... 883 144
Earnings from property sales....................................... (1,604) --
Minority interest share of add-backs............................... (1,869) (1,411)
---------- -----------
Funds From Operations................................................ $ 34,911 $ 24,957
---------- -----------
---------- -----------
Cash flow provided by (used by):
Operating activities............................................... $ 39,102 $ 40,797
Investing activities............................................... (93,584) (114,421)
Financing activities............................................... 49,041 68,603
</TABLE>
The increase in FFO for the six months ended June 30, 1996 compared to the
six months ended June 30, 1995 results primarily from the increased in-service
rental property portfolio as discussed above under "Results of Operations." The
following table indicates components of such growth for each of the six months
ended June 30 as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Rental operations:
Original portfolio.................................................. $ 30,547 $ 29,816
Development......................................................... 8,539 4,128
Acquisitions........................................................ 12,653 4,144
Investments in unconsolidated companies............................. 3,430 613
Interest expense.................................................... (14,617) (10,053)
Amortization of deferred financing fees............................. (603) (585)
---------- ----------
Net rental operations............................................. 39,949 28,063
Service operations, net of minority interest.......................... 2,349 2,537
Minority interest of unitholders...................................... (3,486) (3,374)
Other, net............................................................ (2,032) (858)
Minority interest share of add-backs.................................. (1,869) (1,411)
---------- ----------
Funds From Operations............................................... $ 34,911 $ 24,957
---------- ----------
---------- ----------
</TABLE>
In March 1995, NAREIT issued a clarification of its definition of FFO
effective for years beginning after December 31, 1995. 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. The Company adopted these changes effective January 1, 1996,
and the calculation of FFO for the six months ended June 30, 1995 has been
revised accordingly.
The calculation of FFO for the six months ended June 30, 1995 has also been
revised to conform with the presentation of FFO for the six months ended June
30, 1996 which excludes amounts attributable to minority interests.
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.
S-21
<PAGE>
PROPERTIES
GENERAL
The Company owns a diversified portfolio of properties which includes (i)
the in-service Properties, consisting of 220 industrial, office and retail
properties located in Indiana, Ohio, Illinois, Michigan, Tennessee, Kentucky,
Wisconsin and Missouri; (ii) 14 buildings and three building expansions
currently under development; and (iii) the Land, consisting of approximately
1,175 acres of unencumbered land for future development in Indiana, Ohio,
Missouri, Illinois, Kentucky, and Tennessee. The Company owns the entire equity
interest in 168 of the Properties, including property under development, 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 Company
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 23.2 million, consisting of approximately 15.9 million square feet
of industrial space, approximately 5.7 million square feet of office space and
approximately 1.6 million square feet of retail space. The total square footage
of the 14 buildings and three building expansions currently under development is
approximately 3.4 million square feet, consisting of approximately 2.2 million
square feet of industrial space, approximately 783,000 square feet of office
space and approximately 445,000 square feet of retail space. The current
development projects are 74% leased as of June 30, 1996. The total annual Net
Effective Rental income of the Properties based upon tenants in occupancy as of
June 30, 1996 is approximately $132.7 million, with $57.0 million relating to
the industrial Properties, $62.0 million relating to the office Properties and
$13.7 million relating to the retail Properties. At June 30, 1996, the
Properties were 92.1% 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 ANNUAL
PERCENT OF NET EFFECTIVE NET EFFECTIVE
PRIMARY MARKET INDUSTRIAL OFFICE RETAIL OVERALL OVERALL RENT (1) RENT
- ----------------------------------- ---------- ------ ------ ------ ---------- ------------- -------------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C> <C>
Indianapolis....................... 10,176 1,341 194 11,711 50% $ 49,628 37%
Cincinnati......................... 3,637 2,135 621 6,393 28 40,937 31
Columbus........................... 960 888 293 2,141 9 15,748 12
Cleveland.......................... -- 644 -- 644 3 8,450 6
Nashville.......................... 562 -- -- 562 2 3,632 3
St. Louis.......................... -- 463 -- 463 2 5,161 4
Detroit............................ -- 245 -- 245 1 2,845 2
Other (2).......................... 562 -- 498 1,060 5 6,345 5
---------- ------ ------ ------ ----- ------------- ---
Total.......................... 15,897 5,716 1,606 23,219 100% $132,746 100%
---------- ------ ------ ------ ----- ------------- ---
---------- ------ ------ ------ ----- ------------- ---
Percent of total square feet... 68% 25% 7%
---------- ------ ------
---------- ------ ------
</TABLE>
- ------------------------
(1) Represents annual Net Effective Rent due from tenants in occupancy as of
June 30, 1996.
(2) Represents properties not located in the Company's primary markets. These
properties are located in other midwestern markets
S-22
<PAGE>
SUMMARY OF PROPERTIES
(IN THOUSANDS, EXCEPT PERCENTAGES)
<TABLE>
<CAPTION>
PERCENT
ANNUAL OF TOTAL
PERCENT NET NET EFFECTIVE OCCUPANCY
SQUARE OF TOTAL EFFECTIVE ANNUAL AT
TYPE OF PROPERTY FEET SQUARE FEET RENT (1) RENT (1) JUNE 30, 1996
- ----------------------------------------------- --------- ------------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Industrial..................................... 15,897 68% $ 57,033 43% 91.1%
Office......................................... 5,716 25 62,038 47 94.8%
Retail......................................... 1,606 7 13,675 10 93.0%
--------- ----- ------------ -----
Total...................................... 23,219 100% $ 132,746 100% 92.1%
--------- ----- ------------ -----
--------- ----- ------------ -----
</TABLE>
- ------------------------
(1) Represents annual Net Effective Rent due from tenants in occupancy as of
June 30, 1996.
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, 1996......................................................... 23,218,884 93.7%
1995.......................................................................... 20,072,666 95.1%
1994.......................................................................... 12,894,603 93.8%
1993.......................................................................... 10,864,245 92.1%
</TABLE>
S-23
<PAGE>
The following table shows lease expirations for leases in place as of June
30, 1996 for each of the ten years beginning with the remainder of 1996 for the
Properties, assuming none of the tenants exercises early termination or renewal
options.
LEASE EXPIRATIONS
(ALL PROPERTIES)
<TABLE>
<CAPTION>
NET
RENTABLE ANNUAL NET PERCENT OF
AREA (IN ANNUAL NET EFFECTIVE ANNUAL NET PERCENT OF
SQ. EFFECTIVE RENT PER EFFECTIVE TOTAL LEASED
FT.) RENT SQ. FT. RENT SQ. FT.
YEAR OF NUMBER OF SUBJECT UNDER UNDER REPRESENTED REPRESENTED
LEASE LEASES TO EXPIRING EXPIRING EXPIRING BY EXPIRING BY EXPIRING
EXPIRATION EXPIRING LEASES LEASES (1) LEASES (1) LEASES LEASES
- --------- --------- ----------- ----------- ----------- ------------ ------------
(IN (IN
THOUSANDS) THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
1996 184 1,163 $ 6,104 $ 5.25 4.60% 5.44%
1997 280 2,082 13,790 $ 6.62 10.39 9.73
1998 292 3,031 16,549 $ 5.46 12.47 14.17
1999 256 2,804 17,392 $ 6.20 13.10 13.11
2000 202 2,646 17,109 $ 6.47 12.89 12.37
2001 172 2,645 14,496 $ 5.48 10.92 12.37
2002 47 839 6,993 $ 8.33 5.27 3.92
2003 23 257 2,826 $ 11.00 2.13 1.20
2004 18 968 4,522 $ 4.67 3.41 4.53
2005 40 1,372 10,323 $ 7.52 7.78 6.41
2006 and 52 3,584 22,642 $ 6.32 17.04 16.75
thereafter
--------- ----------- ----------- ------ ------
TOTAL 1,566 21,391 $ 132,746 $ 6.21 100.00% 100.00%
--------- ----------- ----------- ------ ------
--------- ----------- ----------- ------ ------
</TABLE>
- ------------------------
(1) Represents annual Net Effective Rent due from tenants in occupancy as of
June 30, 1996.
INDUSTRIAL PROPERTIES
The 132 industrial Properties are primarily located in industrial or
business parks that have been developed by the Company and consist of 87 bulk
distribution facilities and 45 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 which generally have 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 Company to cater to many
segments of the industrial market and renders the Company less dependent upon
any specific market segment. Over 90% of the industrial Properties are in the
Company's primary markets of Indianapolis, Cincinnati and Columbus. Over 80% of
the square footage of the industrial Properties was constructed or acquired and
renovated by the Company in the last 10 years.
S-24
<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, 1996....................................... 15,897,189 93.4% $3.86(2),(3)
1995........................................................ 13,692,461 96.2% $3.93(3)
1994........................................................ 7,622,627 95.5% $4.05
1993........................................................ 6,235,835 93.2% $4.06
</TABLE>
- ------------------------
(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 1996, the Company has renewed 81% of its industrial leases up for
renewal. The rental rate of the 493,000 square feet renewed during this
period increased 12.0% for the renewal period as compared to the prior lease
term. During this same period, the Company leased an additional 502,000
square feet in the in-service Properties at a Net Effective Rental rate of
$4.61 per square foot.
(3) The average Net Effective Rent per leased square foot decreased in 1996 and
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.
The following table shows lease expirations for leases in place as of June
30, 1996 for each of the ten years beginning with the remainder of 1996 for the
industrial Properties, assuming none of the tenants exercises early termination
or renewal options.
LEASE EXPIRATIONS
(INDUSTRIAL PROPERTIES)
<TABLE>
<CAPTION>
NET
RENTABLE ANNUAL NET PERCENT OF PERCENT OF
AREA (IN EFFECTIVE ANNUAL NET TOTAL
SQ. FT.) ANNUAL NET RENT PER EFFECTIVE LEASED
NUMBER SUBJECT EFFECTIVE SQ. FT. RENT SQ. FT.
YEAR OF OF TO RENT UNDER UNDER REPRESENTED REPRESENTED
LEASE LEASES EXPIRING EXPIRING EXPIRING BY EXPIRING BY EXPIRING
EXPIRATION EXPIRING LEASES LEASES (1) LEASES (1) LEASES LEASES
- ---------- -------- --------- ----------- ---------- ----------- -----------
(IN (IN
THOUSANDS) THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
1996 83 941 $ 4,024 $ 4.28 7.06% 6.50%
1997 111 1,374 6,051 $ 4.40 10.61 9.49
1998 121 2,270 8,507 $ 3.75 14.92 15.68
1999 115 1,952 8,290 $ 4.25 14.54 13.48
2000 86 1,872 7,305 $ 3.90 12.81 12.93
2001 77 2,047 8,091 $ 3.95 14.19 14.14
2002 14 321 1,418 $ 4.42 2.49 2.22
2003 8 73 657 $ 9.00 1.15 0.50
2004 11 865 3,344 $ 3.87 5.86 5.97
2005 11 703 2,555 $ 3.63 4.48 4.85
2006 and 15 2,062 6,791 $ 3.29 11.89 14.24
thereafter
--- --------- ----------- ----------- -----------
TOTAL 652 14,480 $ 57,033 $ 3.94 100.00% 100.00%
--- --------- ----------- ----------- -----------
--- --------- ----------- ----------- -----------
</TABLE>
- ------------------------
(1) Represents annual Net Effective Rent due from tenants in occupancy as of
June 30, 1996.
S-25
<PAGE>
OFFICE PROPERTIES
The Company owns a portfolio of 64 office Properties, including 56 suburban
office buildings which range from single-story to mid-rise and are located in
developed business parks and mixed use developments with excellent interstate
access and visibility. Five of the suburban office buildings are medical
buildings, including a single tenant facility with a 20 year lease and three
multi-tenant properties attached to hospitals. In addition, the Company owns
three downtown office buildings consisting of two new high-rise buildings and
one rehabilitated building. The office Properties are a collection of modern
facilities with over 85% constructed or renovated within the last ten years. The
Company 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.
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 RENT
(OFFICE PROPERTIES)
<TABLE>
<CAPTION>
NET EFFECTIVE
SQUARE FEET AVERAGE RENT PER LEASED
YEAR AVAILABLE OCCUPANCY SQUARE FOOT (1)
- ------------------------------------------------------------------------ ----------- ------------- ---------------
<S> <C> <C> <C>
Through June 30, 1996................................................... 5,716,007 94.5% $ 11.23(2)
1995.................................................................... 4,904,692 92.4% $ 11.02
1994.................................................................... 3,986,629 90.7% $ 10.86
1993.................................................................... 3,811,904 90.5% $ 10.91
</TABLE>
- ------------------------
(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 1996, the Company has renewed 47% of its office leases up for
renewal. The rental rate of the 109,000 square feet renewed during this
period increased 10.1% for the renewal period as compared to the prior lease
term.
S-26
<PAGE>
The following table shows lease expirations for leases in place as of June
30, 1996 for each of the ten years beginning with the remainder of 1996 for the
office Properties, assuming none of the tenants exercises early termination or
renewal options.
LEASE EXPIRATIONS
(OFFICE PROPERTIES)
<TABLE>
<CAPTION>
ANNUAL NET PERCENT OF PERCENT OF
EFFECTIVE ANNUAL NET TOTAL
NET RENTABLE RENT PER EFFECTIVE LEASED SQ.
NUMBER AREA (IN SQ. ANNUAL NET SQ. FT. RENT FT.
YEAR OF OF FT.) SUBJECT EFFECTIVE RENT UNDER REPRESENTED REPRESENTED
LEASE LEASES TO EXPIRING UNDER EXPIRING EXPIRING BY EXPIRING BY EXPIRING
EXPIRATION EXPIRING LEASES LEASES (1) LEASES (1) LEASES LEASES
- ---------- -------- -------------- -------------- ---------- ----------- -----------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
1996 89 196 $ 1,825 $ 9.31 2.94% 3.62%
1997 137 631 6,884 $10.91 11.10 11.65
1998 134 651 6,860 $10.54 11.06 12.02
1999 109 737 7,924 $10.75 12.77 13.60
2000 81 654 8,429 $12.89 13.59 12.07
2001 69 507 5,373 $10.60 8.66 9.36
2002 26 431 4,783 $11.10 7.71 7.95
2003 11 147 1,839 $12.51 2.96 2.71
2004 5 89 1,042 $11.71 1.68 1.64
2005 20 496 6,281 $12.66 10.12 9.15
2006 and 22 879 10,798 $12.28 17.41 16.23
thereafter
--- ----- ------- ----------- -----------
TOTAL 703 5,418 $62,038 $11.45 100.00% 100.00%
--- ----- ------- ----------- -----------
--- ----- ------- ----------- -----------
</TABLE>
- ------------------------
(1) Represents annual Net Effective Rent due from tenants in occupancy as of
June 30, 1996.
RETAIL PROPERTIES
The retail Properties, which cater to a variety of retail markets, include
one regional shopping center, 13 neighborhood shopping centers, three shopping
centers designed primarily to serve the business parks in which they are located
and seven 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 RENT
(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, 1996................................................... 1,605,688 93.4% $ 9.12(2)
1995.................................................................... 1,475,513 94.7% $ 9.09
1994.................................................................... 1,285,347 93.6% $ 8.96
1993.................................................................... 816,506 91.2% $ 9.04
</TABLE>
- ------------------------
(1) Calculated as the Net Effective Rent for the indicated period divided by the
average total square feet under lease during the same period.
S-27
<PAGE>
(2) During 1996, the Company renewed 54% of its retail leases up for renewal.
The rental rate of the 31,000 square feet renewed during this period
increased 12.2% for the renewal period as compared to the prior lease term.
During this same period, the Company leased an additional 32,000 square feet
in the in-service Properties at a Net Effective Rental rate of $11.14 per
square foot.
The following table shows lease expirations for leases in place as of June
30, 1996 for each of the ten years beginning with the remainder of 1996 for the
retail Properties, assuming none of the tenants exercises early termination or
renewal options.
LEASE EXPIRATIONS
(RETAIL PROPERTIES)
<TABLE>
<CAPTION>
ANNUAL NET PERCENT OF PERCENT OF
NET RENTABLE EFFECTIVE ANNUAL NET TOTAL
AREA (IN SQ. RENT PER EFFECTIVE LEASED SQ.
NUMBER FT.) SUBJECT ANNUAL NET SQ. FT. RENT FT.
YEAR OF OF TO EFFECTIVE RENT UNDER REPRESENTED REPRESENTED
LEASE LEASES EXPIRING UNDER EXPIRING EXPIRING BY EXPIRING BY EXPIRING
EXPIRATION EXPIRING LEASES LEASES (1) LEASES (1) LEASES LEASES
- ---------- -------- -------------- -------------- ---------- ----------- -----------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
1996 12 26 $ 255 $ 9.81 1.86% 1.74%
1997 32 77 855 $11.10 6.25 5.16
1998 37 111 1,183 $10.66 8.65 7.43
1999 32 115 1,177 $10.23 8.61 7.70
2000 35 119 1,375 $11.55 10.05 7.97
2001 26 92 1,033 $11.23 7.55 6.16
2002 7 88 792 $ 9.00 5.79 5.89
2003 4 36 329 $ 9.14 2.41 2.41
2004 2 13 136 $10.46 0.99 0.87
2005 9 173 1,487 $ 8.60 10.87 11.59
2006 and 15 643 5,053 $ 7.86 36.97 43.08
thereafter
--- ----- ------- ----------- -----------
TOTAL 211 1,493 $13,675 $ 9.16 100.00% 100.00%
--- ----- ------- ----------- -----------
--- ----- ------- ----------- -----------
</TABLE>
- ------------------------
(1) Represents annual Net Effective Rent due from tenants in occupancy as of
June 30, 1996.
LAND
Substantially all of the approximately 1,175 acres of unencumbered Land is
located adjacent to the Properties in industrial or business parks that have
been developed by the Company. Approximately 80% of the Land is zoned for
industrial use, with the remainder zoned for either office or retail use. All of
the Land is unencumbered, has available to it appropriate utilities and is ready
for immediate development. The Company believes that approximately 15 million
square feet of commercial development can be constructed on the Land. The
Company believes that the Land gives it a competitive advantage over other real
estate companies operating in its markets.
S-28
<PAGE>
MANAGEMENT
The directors and senior officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE PRINCIPAL OCCUPATIONS AND POSITIONS
- ------------------------- --- --------------------------------------------------------------------------------
<S> <C> <C>
John W. Wynne 63 Director and Chairman of the Board.
Thomas L. Hefner 49 Director and President and Chief Executive Officer.
Daniel C. Staton 43 Director and Executive Vice President and Chief Operating Officer.
Darell E. Zink, Jr. 50 Director and Executive Vice President, Chief Financial Officer.
Geoffrey Button 47 Director; Independent real estate consultant.
Ngaire E. Cuneo 45 Director; Executive Vice President, Corporate Development, Conseco, Inc.
Howard L. Feinsand 48 Director; Managing Director, Citicorp North America, Inc.
L. Ben Lytle 49 Director; President and Chief Executive Officer of Associated Insurance
Companies, Inc.
John D. Peterson 63 Director; Chairman and Chief Executive Officer of City Securities Corporation.
James E. Rogers 48 Director; Vice Chairman, President and Chief Executive Officer of CINergy.
Jay J. Strauss 60 Director; Chairman and Chief Executive Officer of Regent Realty Group, Inc.
Gary A. Burk 44 President of Construction Services and Executive Vice President of Duke
Services, Inc.
Ross C. Farro 52 Vice President, Cleveland Group.
Robert D. Fessler 38 Vice President, Ohio Industrial Group.
John R. Gaskin 35 Vice President, General Counsel and Secretary.
Richard W. Horn 38 Vice President of Acquisitions.
Donald J. Hunter 37 Vice President, Columbus Group.
Steven R. Kennedy 39 Vice President of Construction Services.
Wayne H. Lingafelter 37 Vice President, Indiana Office Group.
William E. Linville, III 41 Vice President, Indiana Industrial Group.
David R. Mennel 42 General Manager of Services Operations and President of Duke Services, Inc.
David P. Minton 38 Vice President, St. Louis Group.
Michael L. Myrvold 40 Vice President, Retail Group.
John M. Nemecek 41 President of Asset and Property Management.
Dennis D. Oklak 42 Vice President and Treasurer.
Jeffrey G. Tulloch 51 Vice President and General Manager, Cincinnati Group.
</TABLE>
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DESCRIPTION OF SERIES A PREFERRED SHARES AND DEPOSITARY SHARES
This description of the particular terms of the Series A Preferred Shares
and the Depositary Shares offered hereby supplements, and to the extent
inconsistent therewith replaces, the description of the general terms and
provisions of the Preferred Shares and Depositary Shares set forth in the
accompanying Prospectus, to which description reference is hereby made.
GENERAL
The Company is authorized to issue up to 5,000,000 preferred shares, $.01
par value per share ("Preferred Shares"), in one or more series, with such
designations, powers, preferences and rights of the shares of such series and
the qualifications, limitations or restrictions thereon, including, but not
limited to, the fixing of the distribution rights, distribution rate or rates,
conversion rights, voting rights and terms of redemption (including sinking fund
provisions), the redemption price or prices, and the liquidation preferences, in
each case, if any, as the Board of Directors of the Company may determine by
adoption of an applicable amendment (a "Designating Amendment") to the Company's
Amended and Restated Articles of Incorporation (the "Articles of
Incorporation"), without any further vote or action by the shareholders. See
"Description of Preferred Stock -- Terms" in the accompanying Prospectus.
On August 8, 1996, a form of Designating Amendment was adopted determining
the terms of a series of preferred shares consisting of up to 460,000 shares,
designated % Series A Cumulative Redeemable Preferred Shares. The following
summary of the terms and provisions of the Series A Preferred Shares does not
purport to be complete and is qualified in its entirety by reference to the
pertinent sections of the Articles of Incorporation and the Designating
Amendment designating the Series A Preferred Shares, each of which is available
from the Company.
The registrar, transfer agent and distributions disbursing agent for the
Series A Preferred Shares will be American Stock Transfer & Trust Company.
Each Depositary Share represents a 1/10 fractional interest in a Series A
Preferred Share. The Series A Preferred Shares will be deposited with American
Stock Transfer & Trust Company, as Depositary (the "Preferred Share
Depositary"), under a Deposit Agreement (the "Depositary Agreement") among the
Company, the Preferred Share Depositary and the holders from time to time of the
depositary receipts (the "Depositary Receipts") issued by the Preferred Share
Depositary thereunder. The Depositary Receipts will evidence the Depositary
Shares. Subject to the terms of the Deposit Agreement, each holder of a
Depositary Receipt evidencing a Depositary Share will be entitled to all the
rights and preferences of a 1/10 fractional interest in a Series A Preferred
Share (including distribution, voting, redemption and liquidation rights and
preferences). See "Description of Depositary Shares" in the accompanying
Prospectus.
Application has been made to list the Depositary Shares on the NYSE, subject
to official notice of issuance. If so approved, trading of the Depositary Shares
on the NYSE is expected to commence within a 30-day period after the date of
initial delivery of the Depositary Shares. See "Underwriting." The Series A
Preferred Shares will not be so listed, and the Company does not expect that
there will be any trading market for the Series A Preferred Shares except as
represented by Depositary Shares.
DISTRIBUTIONS
Holders of the Series A Preferred Shares shall be entitled to receive, when
and as authorized by the Board of Directors, out of funds legally available for
the payment of distributions, cumulative cash distributions at the rate of %
of the liquidation preference per annum (equivalent to $ per annum per
Depositary Share). Distributions on the Series A Preferred Shares represented by
the Depositary Shares offered hereby shall accrue and be cumulative from the
date of original issue and shall be payable quarterly in arrears on or about the
last day of each February, May, August and November or, if not a business day,
the succeeding business day (each, a "Distribution Payment Date"). The first
distribution on the Series A Preferred Shares represented by the Depositary
Shares offered hereby will be paid on the business day succeeding November 30,
1996. Any distribution payable on the Series A Preferred Shares for any partial
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distribution period will be computed on the basis of a 360-day year consisting
of twelve 30-day months. Distributions will be payable to holders of record as
they appear in the share records of the Company at the close of business on the
applicable record date, which shall be the first day of the calendar month in
which the applicable Distribution Payment Date falls or such other date
designated by the Board of Directors of the Company for the payment of
distributions that is not more than 30 nor less than 10 days prior to such
Distribution Payment Date (each, a "Distribution Record Date").
No distributions on the Series A Preferred Shares shall be authorized by the
Board of Directors of the Company or be paid or set apart for payment by the
Company at such time as the terms and provisions of any agreement of the
Company, including any agreement relating to its indebtedness, prohibits such
authorization, payment or setting apart for payment or provides that such
authorization, payment or setting apart for payment would constitute a breach
thereof or a default thereunder, or if such authorization or payment shall be
restricted or prohibited by law. Covenants in its line of credit agreement
provide generally that the Company may not pay distributions in excess of 90% of
FFO in any Fiscal Year, all as defined in the particular agreement, but such
covenant permits the Company, upon certain circumstances, to pay distributions
in an amount necessary to maintain its qualification as a REIT. The Company does
not believe that this provision has had or will have any adverse impact on the
Company's ability to pay distributions in respect of the Series A Preferred
Shares or in the normal course of business to its shareholders in amounts
necessary to maintain its qualification as a REIT.
Notwithstanding the foregoing, distributions on the Series A Preferred
Shares will accrue whether or not the Company has earnings, whether or not there
are funds legally available for the payment of such distributions and whether or
not such distributions are authorized. Accrued but unpaid distributions on the
Series A Preferred Shares will not bear interest and holders of the Series A
Preferred Shares will not be entitled to any distributions in excess of full
cumulative distributions as described above. See "Description of Preferred Stock
- -- Dividends" in the accompanying Prospectus.
The Operating Partnership will be required to make all required
distributions on the % Series A Preference Units (which will mirror the
payments of distributions, including accrued and unpaid distributions upon
redemption, and of the liquidation preference amount on the Series A Preferred
Shares) prior to any distribution of cash or assets to the holders of the Units
or to the holders of any other interests in the Operating Partnership, except
for any other series of preference units ranking on a parity with the %
Series A Preference Units as to dividends and/or liquidation rights and except
for distributions required to enable the Company to maintain its qualification
as a REIT.
Any distribution payment made on the Series A Preferred Shares shall first
be credited against the earliest accrued but unpaid distribution due with
respect to such shares which remains payable.
If, for any taxable year, the Company elects to designate as "capital gain
dividends" (as defined in Section 857 of the Code), any portion (the "Capital
Gains Amount") of the dividends paid or made available for the year to holders
of all classes of shares (the "Total Dividends"), then the portion of the
Capital Gains Amount that shall be allocable to the holders of Series A
Preferred Shares shall be the amount that the total dividends paid or made
available to the holders of the Series A Preferred Shares for the year bears to
the Total Dividends.
LIQUIDATION RIGHTS
In the event of any liquidation, dissolution or winding up of the affairs of
the Company, the holders of the Series A Preferred Shares are entitled to be
paid out of the assets of the Company legally available for distribution to its
shareholders liquidating distributions in cash or property at its fair market
value as determined by the Company's Board of Directors in the amount of a
liquidation preference of $250.00 per share (equivalent to $25.00 per Depositary
Share), plus an amount equal to any accrued and unpaid distributions to the date
of such liquidation, dissolution or winding up, before any distribution of
assets is made to holders of Common Stock or any other capital shares that rank
junior to the Series A Preferred
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Shares as to liquidation rights. After payment of the full amount of the
liquidating distributions to which they are entitled, the holders of Series A
Preferred Shares will have no right or claim to any of the remaining assets of
the Company. The consolidation or merger of the Company with or into any other
entity or the sale, lease, transfer or conveyance of all or substantially all of
the property or business of the Company shall not be deemed to constitute a
liquidation, dissolution or winding up of the Company. For further information
regarding the rights of the holders of the Series A Preferred Shares and related
Depositary Shares upon the liquidation, dissolution or winding up of the
Company, see "Description of Preferred Stock -- Liquidation Preference" and
"Description of Depositary Shares -- Liquidation Preference" in the accompanying
Prospectus.
REDEMPTION
The Series A Preferred Shares are not redeemable prior to August 31, 2001.
On and after August 31, 2001, the Company, at its option upon not less than 30
nor more than 60 days' written notice, may redeem the Series A Preferred Shares
(and the Preferred Share Depositary will redeem the number of Depositary Shares
representing the Series A Preferred Shares so redeemed upon not less than 30
days' written notice to the holders thereof), in whole or in part, at any time
or from time to time, at a redemption price of $250.00 per share (equivalent to
$25.00 per Depositary Share), plus all accrued and unpaid distributions thereon
to the date fixed for redemption (except as provided below), without interest,
to the extent the Company will have funds legally available therefor. The
redemption price of the Series A Preferred Shares (other than any portion
thereof consisting of accrued and unpaid distributions) may be paid solely from
the sale proceeds of other capital stock of the Company and not from any other
source. For purposes of the preceding sentence, "capital stock" means any common
stock, preferred stock, depositary shares, interests, participation, or other
ownership interests (however designated) and any rights (other than debt
securities convertible into or exchangeable for equity securities) or options to
purchase any of the foregoing. Holders of Depositary Receipts evidencing
Depositary Shares to be redeemed shall surrender such Depositary Receipts at the
place designated in such notice and shall be entitled to the redemption price
and any accrued and unpaid distributions payable upon such redemption following
such surrender. If notice of redemption of any Depositary Shares has been given
and if the funds necessary for such redemption have been set aside by the
Company in trust for the benefit of the holders of any Depositary Shares so
called for redemption, then from and after the redemption date distributions
will cease to accrue on such Depositary Shares, such Depositary Shares shall no
longer be deemed outstanding and all rights of the holders of such shares will
terminate, except the right to receive the redemption price. If fewer than all
of the outstanding Depositary Shares are to be redeemed, the Depositary Shares
to be redeemed shall be selected pro rata (as nearly as may be practicable
without creating fractional Depositary Shares) or by any other equitable method
determined by the Company. See "Description of Preferred Stock -- Redemption" in
the accompanying Prospectus.
Notice of redemption will be given by publication in a newspaper of general
circulation in the City of New York, such publication to be made once a week for
two successive weeks commencing not less than 30 nor more than 60 days prior to
the redemption date. A similar notice furnished by the Company will be mailed by
the Preferred Share Depositary, postage prepaid, not less than 30 nor more than
60 days prior to the redemption date, addressed to the respective holders of
record of the Depositary Receipts evidencing the Depositary Shares to be
redeemed at their respective addresses as they appear on the share transfer
records of the Preferred Share Depositary. No failure to give such notice or any
defect thereto or in the mailing thereof shall affect the validity of the
proceedings for the redemption of any Series A Preferred Shares or Depositary
Shares except as to the holder to whom notice was defective or not given. Each
notice shall state: (i) the redemption date; (ii) the redemption price; (iii)
the number of Series A Preferred Shares to be redeemed (and the corresponding
number of Depositary Shares); (iv) the place or places where the Depositary
Receipts evidencing the Depositary Shares are to be surrendered for payment of
the redemption
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price; and (v) that distributions on the shares to be redeemed will cease to
accrue on such redemption date. If fewer than all the Depositary Shares held by
any holder are to be redeemed, the notice mailed to such holder shall also
specify the number of Depositary Shares to be redeemed from such holder.
The holders of Depositary Receipts at the close of business on a
Distribution Record Date will be entitled to receive the distribution payable
with respect to the Depositary Shares evidenced by such Depositary Receipts on
the corresponding Distribution Payment Date notwithstanding the redemption
thereof between such Distribution Record Date and the corresponding Distribution
Payment Date or the Company's default in the payment of the distribution due.
Except as provided above, the Company will make no payment or allowance for
unpaid distributions, whether or not in arrears, on Series A Preferred Shares or
Depositary Shares to be redeemed.
The Series A Preferred Shares have no stated maturity and will not be
subject to any sinking fund or mandatory redemption provisions (except as
provided under "-- Restrictions on Transfer" below).
VOTING RIGHTS
In any matter in which the Series A Preferred Shares are entitled to vote
(as expressly provided herein or as may be required by law), including any
action by written consent, each Series A Preferred Share shall be entitled to 10
votes, each of which 10 votes may be directed separately by the holder thereof
(or by any proxy or proxies of such holder). With respect to each Series A
Preferred Share, the holder thereof may designate up to 10 proxies, with each
such proxy having the right to vote a whole number of votes (totaling 10 votes
per Series A Preferred Share). As a result, each Depositary Share will be
entitled to one vote.
If distributions on the Series A Preferred Shares are in arrears for six or
more quarterly periods, whether or not such quarterly periods are consecutive,
holders of the Depositary Shares representing the Series A Preferred Shares
(voting separately as a class with all other series of preferred shares upon
which like voting rights have been conferred and are exercisable) will be
entitled to vote for the election of two additional Directors to serve on the
Board of Directors of the Company until all distribution arrearages have been
paid. For further information regarding the voting rights of the holders of the
Series A Preferred Shares and related Depositary Receipts, see "Description of
Preferred Stock -- Voting Rights" and "Description of Depositary Shares --
Voting of the Preferred Stock" in the accompanying Prospectus.
CONVERSION
The Series A Preferred Shares are not convertible into or exchangeable for
any other property or securities of the Company.
RESTRICTIONS ON TRANSFER
For information regarding restrictions on transfer of the Series A Preferred
Shares and related Depositary Shares, see "Description of Preferred Stock --
Restrictions on Ownership" in the accompanying Prospectus.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
GENERAL
The following discussion summarizes certain Federal income tax consequences
to an investor in Depositary Shares. Such discussion is based upon current law.
The discussion is focused on the classification of the Company as a REIT and
does not address all tax considerations applicable to prospective investors, nor
does the discussion give a detailed description of any state, local, or foreign
tax considerations. This discussion does not describe all of the aspects of
Federal income taxation that may be relevant to a prospective shareholder in
light of his or her particular circumstances or to certain types of shareholders
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(including insurance companies, tax-exempt entities, financial institutions or
broker dealers, foreign corporations and persons who are not citizens or
residents of the United States) subject to special treatment under the Federal
income tax laws. As used in this section, the term "Company" refers solely to
Duke Realty Investments, Inc.
EACH PROSPECTIVE PURCHASER IS ADVISED TO CONSULT WITH HIS OR HER OWN TAX
ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER OF THE PURCHASE,
OWNERSHIP AND SALE OF DEPOSITARY SHARES REPRESENTING PREFERRED STOCK IN AN
ENTITY ELECTING TO BE TAXED AS A REAL ESTATE INVESTMENT TRUST, INCLUDING THE
FEDERAL, STATE AND LOCAL TAX CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP, SALE AND
ELECTION AND OF POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
REDEMPTION OF SERIES A PREFERRED SHARES AND DEPOSITARY SHARES
A redemption of Series A Preferred Shares, and a consequent redemption of
the Depositary Shares representing such Series A Preferred Shares, will be
treated under Section 302 of the Internal Revenue Code of 1986, as amended (the
"Code"), as a distribution taxable as a dividend (to the extent of the Company's
current and accumulated earnings and profits) at ordinary income rates unless
the redemption satisfies one of the tests set forth in Section 302(b) of the
Code and is therefore treated as a sale or exchange of the redeemed shares. None
of these dividend distributions will be eligible for the dividends received
deduction for corporate shareholders. The redemption will be treated as a sale
or exchange if it (i) is "substantially disproportionate" with respect to the
holder, (ii) results in a "complete termination" of the holder's share interest
in the Company, or (iii) is "not essentially equivalent to a dividend" with
respect to the holder, all within the meaning of Section 302(b) of the Code. In
determining whether any of these tests have been met, Depositary Shares
considered to be owned by the holder by reason of certain constructive ownership
rules set forth in the Code, as well as Depositary Shares actually owned by the
holder, must generally be taken into account. If a particular holder of
Depositary Shares owns (actually or constructively) no shares of Common Stock of
the Company, or an insubstantial percentage of the outstanding shares of Common
Stock of the Company, a redemption of Depositary Shares of that holder is likely
to qualify for sale or exchange treatment because the redemption would not be
"essentially equivalent to a dividend." However, because the determination as to
whether any of the alternative tests of Section 302(b) of the Code will be
satisfied with respect to any particular holder of Depositary Shares depends
upon the facts and circumstances at the time that the determination must be
made, prospective holders of Depositary Shares are advised to consult their own
tax advisors to determine such tax treatment.
If a redemption of Depositary Shares is not treated as a distribution
taxable as a dividend to a particular holder, it will be treated as to that
holder as a taxable sale or exchange. As a result, such holder will recognize
gain or loss for Federal income tax purposes in an amount equal to the
difference between (i) the amount of cash and the fair market value of any
property received (less any portion thereof attributable to accumulated and
declared but unpaid dividends, which will be taxable as a dividend to the extent
of the Company's current and accumulated earnings and profits), and (ii) the
holder's adjusted basis in the Depositary Shares for tax purposes. Such gain or
loss will be capital gain or loss if the Depositary Shares have been held as a
capital asset, and will be long-term gain or loss if such Depositary Shares have
been held for more than one year.
If a redemption of Depositary Shares is treated as a distribution taxable as
a dividend, the amount of the distribution will be measured by the amount of
cash and the fair market value of any property received by the holder. The
holder's adjusted basis in the redeemed Depositary Shares for tax purposes will
be transferred to the holder's remaining shares of the Company. If the holder
owns no other shares of the Company, such basis may, under certain
circumstances, be transferred to a related person or it may be lost entirely.
TAXATION OF THE COMPANY
GENERAL. The Company expects to continue to be taxed as a REIT for Federal
income tax purposes. Management believes that the Company was organized and has
operated in such a manner as to meet the
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requirements for qualification and taxation as a REIT under the Code, and that
the Company intends to continue to operate in such a manner. No assurance,
however, can be given that the Company has operated or will continue to operate
in a manner so as to remain qualified as a REIT.
In the opinion of Bose McKinney & Evans which has acted as counsel to the
Company ("Counsel"), assuming the Company was organized in conformity with and
has satisfied the requirements for qualification and taxation as a REIT under
the Code for each of its taxable years from and including the first year for
which the Company made the election to be taxed as a REIT, and the assumptions
and representations referred to below are true, the proposed methods of
operation of the Company, the Operating Partnership and Duke Realty Services
Limited Partnership (the "Services Partnership") will permit the Company to
continue to qualify to be taxed as a REIT for its current and subsequent taxable
years. This opinion is based upon certain assumptions relating to the
organization and operation of Duke Services, Inc. ("DSI"), the Operating
Partnership and the Services Partnership and is conditioned upon certain
representations made by Company personnel and affiliates as to certain factual
matters relating to the Company's past operations and the intended manner of
future operation of the Company, the Operating Partnership, and the Services
Partnership. The opinion is further based upon the Company's receipt of a letter
ruling from the IRS dated September 30, 1994, which concluded that the Company's
and the Operating Partnership's distributive shares of the gross income of the
Services Partnership will be in proportion to their respective percentage shares
of the capital interests of the partners of the Services Partnership. Counsel is
not aware of any facts or circumstances which are inconsistent with these
assumptions and representations. Unlike a tax ruling, an opinion of counsel is
not binding upon the IRS, and no assurance can be given that the IRS will not
challenge the status of the Company as a REIT for Federal income tax purposes.
The Company's qualification and taxation as a REIT has depended and will depend
upon, among other things, the Company's ability to meet on a continuing basis,
through ownership of assets, actual annual operating results, receipt of
qualifying real estate income, distribution levels and diversity of stock
ownership, the various qualification tests imposed under the Code discussed
below. Counsel has not reviewed past compliance with these tests and will not
review compliance with these tests on a periodic or continuing basis.
Accordingly, no assurance can be given respecting the satisfaction of such
tests. See "Taxation of the Company--Failure to Qualify."
The following is a general summary of the Code sections which govern the
Federal income tax treatment of a REIT and its shareholders. These sections of
the Code are highly technical and complex. This summary is qualified in its
entirety by the applicable Code provisions, Treasury Regulations, and
administrative and judicial interpretations thereof as currently in effect.
If the Company qualifies for taxation as a REIT and distributes to its
shareholders at least 95% of its REIT taxable income, it generally is not
subject to Federal corporate income taxes on net income that it currently
distributes to shareholders. This treatment substantially eliminates the "double
taxation" (at the corporate and shareholder levels) that generally results from
investment in a corporation. However, the Company will be subject to Federal
income tax as follows: (i) the Company will be taxed at regular corporate rates
on any undistributed REIT taxable income, including undistributed net capital
gains; (ii) under certain circumstances, the Company may be subject to the
"alternative minimum tax" on its items of tax preference, if any; (iii) if the
Company has net income from prohibited transactions (which are, in general,
certain sales or other dispositions of property other than foreclosure property
held primarily for sale to customers in the ordinary course of business), such
income will be subject to a 100% tax; (iv) if the Company should fail to satisfy
the 75% gross income test or the 95% gross income test (as discussed below), and
has nonetheless maintained its qualification as a REIT because certain other
requirements have been met, it will be subject to a 100% tax on the gross income
attributable to the greater of the amount by which the Company fails the 75% or
95% test, multiplied by a fraction intended to reflect the Company's
profitability; (v) if the Company should fail to distribute during each calendar
year at least the sum of (1) 85% of its REIT ordinary income for such year; (2)
95% of its REIT capital gain net income for such year; and (3) any undistributed
taxable income from prior years, it would be subject to a 4% excise tax on the
excess of such required distribution over the amounts actually distributed; (vi)
if the Company has (1) net income from the sale or other
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disposition of "foreclosure property" (which is, in general, property acquired
by the Company by foreclosure or otherwise on default on a loan secured by the
property) which is held primarily for sale to customers in the ordinary course
of business; or (2) other non-qualifying income from foreclosure property, it
will be subject to tax on such income at the highest corporate rate; and (vii)
if the Company acquires any asset from a C corporation (i.e., generally a
corporation subject to tax at the corporate level) in a transaction in which the
basis of the asset in the Company's hands is determined by reference to the
basis of the asset (or any other property) in the hands of the C corporation,
and the Company recognizes gain on the disposition of such asset during the
10-year period (the "Restriction Period") beginning on the date on which such
asset was acquired by the Company, then, pursuant to guidelines issued by the
IRS, the excess of the fair market value of such property at the beginning of
the applicable Restriction Period over the Company's adjusted basis in such
asset as of the beginning of such Restriction Period will be subject to a tax at
the highest regular corporate rate. The results described above with respect to
the recognition of built-in gain assume that the Company will make an election
pursuant to IRS Notice 88-19 or applicable future administrative rules or
Treasury Regulations.
REQUIREMENTS FOR QUALIFICATION. The Code defines a REIT as a corporation,
trust or association: (1) which is managed by one or more trustees or directors;
(2) the beneficial ownership of which is evidenced by transferable shares or by
transferable certificates of beneficial interest; (3) which would be taxable as
a domestic corporation but for Sections 856 through 859 of the Code; (4) which
is neither a financial institution nor an insurance company subject to certain
provisions of the Code; (5) which has the calendar year as its taxable year; (6)
the beneficial ownership of which is held by 100 or more persons; (7) during the
last half of each taxable year not more than 50% in value of the outstanding
stock of which is owned, directly or indirectly, by five or fewer individuals
(as defined in the Code to include certain entities); and (8) which meets
certain income and assets tests, described below. The Company believes it
currently satisfies requirements (1) through (7).
INCOME TESTS. In order to qualify as a REIT, there are three gross income
tests that must be satisfied annually. First, at least 75% of the Company's
gross income (excluding gross income from prohibited transactions) for each
taxable year must be derived directly or indirectly from investments relating to
real property (including "rents from real property," gain from the sale of real
property and, in certain circumstances, interest) or from qualified types of
temporary investments. Second, at least 95% of the Company's gross income
(excluding gross income from prohibited transactions) for each taxable year must
be derived from the same items which qualify under the 75% income test or from
dividends, interest and gain from the sale or disposition of stock or
securities, or from any combination of the foregoing. Third, less than 30% of
the Company's gross income (including gross income from prohibited transactions)
must be derived from gain in connection with the sale or other disposition of
stock or securities held for less than one year, property in a prohibited
transaction, and real property held for less than four years (other than
involuntary conversions and foreclosure property).
Rents received by the Company will qualify as "rents from real property" in
satisfying the gross income tests for a REIT described above only if several
conditions (related to the relationship of the tenant to the Company, the method
of determining the rent payable and nature of the property leased) are met. The
Company does not anticipate receiving rents in excess of a de minimis amount
that fail to meet these conditions. Finally, for rents received to qualify as
"rents from real property," the Company generally must not operate or manage the
property or furnish or render services to tenants, other than through an
"independent contractor" that is adequately compensated and from whom the
Company derives no income; provided, however, that the Company may perform
services "usually or customarily rendered" in connection with the rental of
space for occupancy only and not otherwise considered "rendered to the occupant"
("Permissible Services").
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The Company provides certain management, development, construction and other
tenant-related services (collectively, "Real Estate Services") with respect to
the Properties through the Operating Partnership, which is not an independent
contractor. Management believes that the services provided to tenants by the
Operating Partnership are Permissible Services. To the extent services to
tenants do not constitute Permissible Services, such services are performed by
an independent contractor.
The Company derives a portion of its income from the Operating Partnership's
interest as a limited partner in the Services Partnership and its ownership of
DSI which is a general partner of the Services Partnership. The Services
Partnership receives fees for Real Estate Services with respect to properties
that are not owned directly by the Operating Partnership, which fees will not
qualify as rents from real property. In addition, the Services Partnership
receives fees in consideration for the performance of management and
administrative services with respect to Properties not entirely owned by the
Operating Partnership. All or a portion of such management and administrative
fees will also not qualify as "rents from real property" for purposes of the 75%
or 95% gross income tests. Pursuant to Treasury Regulations, a partner's capital
interest in a partnership determines its proportionate interest in the
partnership's gross income from partnership assets for purposes of the 75% and
95% gross income tests. For this purpose, the capital interest of a partner is
determined by dividing its capital account by the sum of all partners' capital
accounts. Presently, the Operating Partnership's capital interest in the
Services Partnership is 9% and DSI's capital interest in the Services
Partnership is 1%. The partnership agreement of the Services Partnership
provides, however, for varying allocations of income which differ from capital
interests, subject to certain limitations on the aggregate amount of gross
income which may be allocated to the Operating Partnership and DSI. The Company
has obtained a letter ruling from the IRS that allocations according to capital
interests are proper for applying the 75% and 95% gross income tests. Thus, for
purposes of these gross income tests, at present the Services Partnership
allocates 9% of its gross income to the Operating Partnership and 1% to DSI.
Although certain of the Real Estate Services fees allocated from the Services
Partnership do not qualify under the 75% or 95% gross income tests as "rents
from real property," the Company believes that, at least presently and in the
near term, the aggregate amount of such fees (and any other non-qualifying
income) allocated to the Company in any taxable year will not cause the Company
to exceed the limits on non-qualifying income under the 75% or 95% gross income
tests described above.
If the Company fails to satisfy one or both of the 75% or 95% gross income
tests for any taxable year, it may nevertheless qualify as a REIT for such year
if it is entitled to relief under certain provisions of the Code. It is not
possible, however, to state whether in all circumstances the Company would be
entitled to the benefit of these relief provisions. Even if these relief
provisions apply, a tax would be imposed on certain excess net income.
ASSET TESTS. In order for the Company to maintain its qualification as a
REIT, at the close of each quarter of its taxable year, it must also satisfy
three tests relating to the nature of its assets. First, at least 75% of the
value of the Company's total assets must be represented by "real estate assets,"
cash, cash items, and government securities. Second, not more than 25% of the
Company's total assets may be represented by securities other than those in the
75% assets class. Third, of the assets held in securities other than those in
the 75% assets class, the value of any one issuer's securities owned by the
Company may not exceed 5% of the value of the Company's total assets, and the
Company may not own more than 10% of any one issuer's outstanding voting
securities (excluding securities of a qualified REIT subsidiary [as defined in
the Code] or another REIT).
The Company is deemed to directly hold its proportionate share of all real
estate and other assets of the Operating Partnership and should be considered to
hold its proportionate share of all assets deemed owned by the Operating
Partnership and DSI through their ownership of partnership interests in the
Services Partnership and other partnerships. As a result, management believes
that more than 75% of the Company's assets are real estate assets. In addition,
management does not expect the Company to hold (1) any securities
S-37
<PAGE>
representing more than 10% of any one issuer's voting securities other than DSI,
which is a qualified REIT subsidiary, nor (2) securities of any one issuer
exceeding 5% of the value of the Company's gross assets (determined in
accordance with generally accepted accounting principles).
ANNUAL DISTRIBUTION REQUIREMENTS. The Company, in order to qualify as a
REIT, generally must distribute dividends (other than capital gain dividends) to
its shareholders in an amount at least equal to (A) the sum of (i) 95% of the
Company's "REIT taxable income" (computed without regard to the dividends paid
deduction and the Company's net capital gain), and (ii) 95% of the net income
(after tax), if any, from foreclosure property, minus (B) the sum of certain
items of non-cash income. In addition, if the Company disposes of any asset
during its Restriction Period, the Company will be required to distribute at
least 95% of the built-in gain (after tax), if any, recognized on the
disposition of such asset. Such distributions must be paid in the taxable year
to which they relate, or in the following taxable year if declared before the
Company timely files its tax return for such year and if paid on or before the
first regular dividend payment after such declaration. To the extent that the
Company does not distribute all of its net capital gain or distributes at least
95%, but less than 100%, of its "REIT taxable income," as adjusted, it will be
subject to tax on the undistributed amount at regular capital gains and ordinary
corporate tax rates. Furthermore, if the Company should fail to distribute
during each calendar year at least the sum of (i) 85% of its REIT ordinary
income for such year, (ii) 95% of its REIT net capital gain income for such
year, and (iii) any undistributed taxable income from prior periods, the Company
will be subject to regular capital gains and ordinary corporate tax rates on
undistributed income and also may be subject to a 4% excise tax on undistributed
income in certain events. The Company believes that it has made and intends to
continue to make timely distributions sufficient to satisfy the annual
distribution requirements. In this regard, the partnership agreement of the
Operating Partnership authorizes the Company, as general partner, to take such
steps as may be necessary to cause the Operating Partnership to distribute to
its partners an amount sufficient to permit the Company to meet these
distribution requirements. It is possible, however, that the Company, from time
to time, may not have sufficient cash or other liquid assets to meet the 95%
distribution requirement due primarily to the expenditure of cash for
nondeductible expenses such as principal amortization or capital expenditures.
In such event, the Company may borrow or may cause the Operating Partnership to
arrange for short-term or other borrowing to permit the payment of required
dividends or pay dividends in the form of taxable stock dividends. If the amount
of nondeductible expenses exceeds non-cash deductions, the Operating Partnership
may refinance its indebtedness to reduce principal payments and borrow funds for
capital expenditures.
FAILURE TO QUALIFY. If the Company fails to qualify for taxation as a REIT
in any taxable year, the Company will be subject to tax (including any
applicable corporate alternative minimum tax) on its taxable income at regular
corporate rates. Unless entitled to relief under specific statutory provisions,
the Company also will be disqualified from taxation as a REIT for the four
taxable years following the year during which qualification was lost. It is not
possible to state whether in all circumstances the Company would be entitled to
such statutory relief.
OTHER TAX CONSIDERATIONS
EFFECT OF TAX STATUS OF OPERATING PARTNERSHIP AND SERVICES PARTNERSHIP AND
OTHER PARTNERSHIPS ON REIT QUALIFICATION. All of the Company's investments are
through DSI and the Operating Partnership, which in turn hold interests in other
partnerships, including the Services Partnership. The Company believes that the
Operating Partnership, and each other partnership in which it holds an interest,
is properly treated as a partnership for tax purposes (and not as an association
taxable as a corporation). If, however, the Operating Partnership were treated
as an association taxable as a corporation, the Company would cease to qualify
as a REIT. If the Services Partnership or any of the other partnerships were
treated as an association taxable as a corporation and the Operating
Partnership's interest in such partnership exceeded 10% of the partnership's
voting interests or the value of such interest exceeded 5% of the value of the
Company's assets, the Company would cease to qualify as a REIT. Furthermore, in
such a situation, any partnerships treated as a corporation would be subject to
corporate income taxes, and distributions from any such partnership to the
Company
S-38
<PAGE>
would be treated as dividends, which are not taken into account in satisfying
the 75% gross income test described above and which therefore could make it more
difficult for the Company to meet the 75% asset test described above.
TAX ALLOCATIONS WITH RESPECT TO THE PROPERTIES. The Operating Partnership
was formed by way of contributions of appreciated property (including certain of
the Properties) to the Operating Partnership. When property is contributed to a
partnership in exchange for an interest in the partnership, the partnership
generally takes a carryover basis in that property for tax purposes equal to the
adjusted basis of the contributing partner in the property, rather than a basis
equal to the fair market value of the property at the time of contribution (this
difference is referred to as "Book-Tax Difference"). The partnership agreement
of the Operating Partnership requires allocations of income, gain, loss and
deduction with respect to a contributed Property be made in a manner consistent
with the special rules of Section 704(c) of the Code and the regulations
thereunder, which will tend to eliminate the Book-Tax Differences with respect
to the contributed Properties over the life of the Operating Partnership.
However, because of certain technical limitations, the special allocation rules
of Section 704(c) may not always entirely eliminate the Book-Tax Differences on
an annual basis or with respect to a specific taxable transaction such as a
sale. Thus, the carryover basis of the contributed Properties in the hands of
the Operating Partnership could cause the Company (i) to be allocated lower
amounts of depreciation and other deductions for tax purposes than would be
allocated to the Company if all Properties were to have a tax basis equal to
their fair market value at the time of contribution, and (ii) possibly to be
allocated taxable gain in the event of a sale of such contributed Properties in
excess of the economic or book income allocated to the Company as a result of
such sale. The foregoing principles also apply in determining the earnings and
profits of the Company for purposes of determining the portion of distributions
taxable as dividend income. The application of these rules over time may result
in a higher portion of distributions being taxed as dividends than would have
occurred had the Company purchased its interests in the Properties at their
agreed values.
STATE AND LOCAL TAXES. The Company or its shareholders or both may be
subject to state, local or other taxation in various state, local or other
jurisdictions, including those in which they transact business or reside. The
tax treatment in such jurisdictions may differ from the Federal income tax
consequences discussed above.
FOREIGN SHAREHOLDERS. The rules governing United States income taxation of
nonresident alien individuals, foreign corporations, foreign partnerships, and
foreign trusts and estates (collectively, "Non-U.S. Shareholders") are quite
complex. Certain distributions paid by the Company to Non-U.S. Shareholders will
be subject to U.S. tax withholding. Prospective Non-U.S. Shareholders should
consult with their own tax advisors to determine the impact of Federal, state
and local income tax laws on an investment in the Company, and to determine
their reporting requirements, if any.
S-39
<PAGE>
UNDERWRITING
Subject to the terms and conditions contained in the terms agreement and
related underwriting agreement (collectively, the "Underwriting Agreement"), the
Company has agreed to sell to each of the Underwriters named below, and each of
the Underwriters for whom Merrill Lynch, Pierce, Fenner & Smith Incorporated
("Merrill Lynch"), Dean Witter Reynolds Inc., A.G. Edwards & Sons, Inc. and
Smith Barney Inc. are acting as representatives (the "Representatives") has
severally agreed to purchase from the Company, the number of Depositary Shares
set forth after its name 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 Depositary Shares
if any are purchased.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER DEPOSITARY SHARES
- --------------------------------------------------------------------------- -----------------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.....................................................
Dean Witter Reynolds Inc...................................................
A.G. Edwards & Sons, Inc...................................................
Smith Barney Inc...........................................................
-----------------
Total............................................................ 3,000,000
-----------------
-----------------
</TABLE>
The Representatives have advised the Company that they propose initially to
offer the Depositary Shares 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 $ per share. The Underwriters
may allow, and such dealers may reallow, a discount not in excess of $ to
certain other dealers. After the initial public offering, the public offering
price, concession and discount may be changed.
The Company has granted an option to the Underwriters, exercisable during
the 30-day period after the date of this Prospectus Supplement, to purchase up
to 450,000 additional Depositary Shares at the price to the public set forth on
the cover page of this Prospectus Supplement, less the underwriting discount. If
the Underwriters exercise this option, each of the Underwriters will have a firm
commitment, subject to certain conditions, to purchase approximately the same
percentage thereof which the number of Depositary Shares to be purchased by it
shown in the foregoing table bears to the 3,000,000 Depositary Shares offered
hereby.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as amended,
or to contribute to payments the Underwriters may be required to make in respect
thereof.
Application has been made to list the Depositary Shares on the NYSE. If so
approved, trading of the Depositary Shares on the NYSE is expected to commence
within a 30-day period after the initial delivery of the Depositary Shares. The
Representatives have advised the Company that they intend to make a market in
the Depositary Shares prior to the commencement of trading on the NYSE. The
Representatives will have no obligation to make a market in the Depositary
Shares, however, and may cease market making activities if commenced at any
time.
Merrill Lynch from time to time provides investment banking and financial
advisory services to the Company. Merrill Lynch has also acted as representative
of various underwriters in connection with public offerings of the Company's
Common Stock and debt securities.
LEGAL MATTERS
In addition to the legal opinions referred to under "Legal Opinions" in the
accompanying Prospectus, the description of Federal income tax matters contained
in this Prospectus Supplement entitled "Certain Federal Income Tax
Considerations" is based upon the opinion of Bose McKinney and Evans.
S-40
<PAGE>
PROSPECTUS
$360,000,000
DUKE REALTY INVESTMENTS, INC.
COMMON STOCK, PREFERRED STOCK AND DEPOSITARY SHARES
DUKE REALTY LIMITED PARTNERSHIP
DEBT SECURITIES
Duke Realty Investments, Inc. (the "Company") may from time to time offer in
one or more series (i) shares of Common Stock, $.01 par value ("Common Stock"),
(ii) shares of preferred stock, $.01 par value ("Preferred Stock") and (iii)
shares of Preferred Stock represented by depositary shares (the "Depositary
Shares"), with an aggregate public offering price of up to $100,000,000 (or its
equivalent in another currency based on the exchange rate at the time of sale)
in amounts, at prices and on terms to be determined at the time of offering.
Duke Realty Limited Partnership (the "Operating Partnership") may from time to
time offer in one or more series unsecured non-convertible investment grade debt
securities ("Debt Securities"), with an aggregate public offering price of up to
$260,000,000 (or its equivalent in another currency based on the exchange rate
at the time of sale) in amounts, at prices and on terms to be determined at the
time of offering. The Common Stock, Preferred Stock, Depositary Shares and Debt
Securities, (collectively, the "Securities") may be offered, separately or
together, in separate series in amounts, at prices and on terms to be set forth
in one or more supplements to this Prospectus (each a "Prospectus Supplement").
The specific terms of the Securities in respect of which this Prospectus is
being delivered will be set forth in the applicable Prospectus Supplement and
will include, where applicable: (i) in the case of Common Stock, any initial
public offering price; (ii) in the case of Preferred Stock, the specific title
and stated value, any dividend, liquidation, redemption, conversion, voting and
other rights, and any initial public offering price; (iii) in the case of
Depositary Shares, the fractional share of Preferred Stock represented by each
such Depositary Share; and (iv) in the case of Debt Securities, the specific
title, aggregate principal amount, currency, form (which may be registered or
bearer, or certificated or global), authorized denominations, maturity, rate (or
manner of calculation thereof) and time of payment of interest, terms for
redemption at the option of the Operating Partnership or repayment at the option
of the holder, terms for sinking fund payments, covenants and any initial public
offering price. In addition, such specific terms may include limitations on
direct or beneficial ownership and restrictions on transfer of the Securities,
in each case as may be appropriate to preserve the status of the Company as a
real estate investment trust ("REIT") for federal income tax purposes.
The applicable Prospectus Supplement will also contain information, where
applicable, about certain United States federal income tax considerations
relating to, and any listing on a securities exchange of, the Securities covered
by such Prospectus Supplement.
The Securities may be offered directly, through agents designated from time
to time by the Company or the Operating Partnership, or to or through
underwriters or dealers. If any agents or underwriters are involved in the sale
of any of the Securities, their names, and any applicable purchase price, fee,
commission or discount arrangement between or among them, will be set forth, or
will be calculable from the information set forth, in an accompanying Prospectus
Supplement. See "Plan of Distribution." No Securities may be sold without
delivery of a Prospectus Supplement describing the method and terms of the
offering of such series of Securities.
-------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. 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.
The date of this Prospectus is September 7, 1995.
<PAGE>
AVAILABLE INFORMATION
The Company and the Operating Partnership are subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and, in accordance therewith, the Company files reports, proxy statements
and other information with the Securities and Exchange Commission (the
"Commission"), and the Operating Partnership files reports with the Commission.
Such reports, proxy statements and other information can be inspected and copied
at the Public Reference Section maintained by the Commission at Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549; Chicago Regional Office, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661; and New York Regional
Office, 7 World Trade Center, New York, New York 10048. Such reports, proxy
statements and other information concerning the Company can also be inspected at
the offices of the New York Stock Exchange, 20 Broad Street, New York, New York
10005. The Commission maintains a Web site (http:// www.sec.gov) that contains
reports, proxy and information statements and other information regarding the
Company and the Operating Partnership.
The Company and the Operating Partnership will provide without charge to
each person to whom a copy of this Prospectus is delivered, upon their written
or oral request, a copy of any or all of the documents incorporated herein by
reference (other than exhibits to such documents). Written requests for such
copies should be addressed to 8888 Keystone Crossing, Suite 1200, Indianapolis,
Indiana 46240, Attn: Investor Relations, telephone number (317) 574-3531.
The Company and the Operating Partnership have filed with the Commission a
registration statement on Form S-3 (the "Registration Statement") under the
Securities Act of 1933 as amended (the "Securities Act"), with respect to the
Securities offered hereby. For further information with respect to the Company,
the Operating Partnership and the Securities offered hereby, reference is made
to the Registration Statement and exhibits thereto. Statements contained in this
Prospectus as to the contents of any contract or other documents are not
necessarily complete, and in each instance, reference is made to the copy of
such contract or documents filed as an exhibit to the Registration Statement,
each such statement being qualified in all respects by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company under the Exchange Act with the
Commission are incorporated in this Prospectus by reference and are made a part
hereof:
1. The Company's Annual Report on Form 10-K for the year ended December 31,
1994.
2. The Company's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1995 and June 30, 1995.
3. The Company's Current Reports on Form 8-K dated May 15, 1995, June 6,
1995, July 27, 1995 and September 5, 1995.
Each document filed by the Company or the Operating Partnership subsequent
to the date of this Prospectus pursuant to Section 13(a), 13(c), 14 or 15(d) of
the Exchange Act and prior to termination of the offering of all Securities to
which this Prospectus relates shall be deemed to be incorporated by reference in
this Prospectus and shall be part hereof from the date of filing of such
document. Any statement contained herein or in a document incorporated or deemed
to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained in this Prospectus (in the case of a statement in a previously-filed
document incorporated or deemed to be incorporated by reference herein), in any
accompanying Prospectus Supplement relating to a specific offering of Securities
or in any other subsequently filed document that is also incorporated or deemed
to be incorporated by reference herein, modifies or supersedes such statement.
Any such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus or any
accompanying Prospectus Supplement. Subject to the foregoing, all information
appearing in this Prospectus and each accompanying Prospectus Supplement is
qualified in its entirety by the information appearing in the documents
incorporated by reference.
2
<PAGE>
THE COMPANY AND THE OPERATING PARTNERSHIP
The Company is a self-administered and self-managed real estate investment
trust that began operations through a predecessor in 1972. At June 30, 1995, the
Company owned direct or indirect interests in a portfolio of 144 in-service
industrial, office and retail properties (the "Properties"), together with
approximately 900 acres of land (the "Land") for future development. The
Properties consist of industrial, office and retail properties, located in
Indiana, Ohio, Illinois, Kentucky, Michigan, Missouri, Tennessee and Wisconsin.
As of June 30, 1995, the Properties consisted of approximately 15.2 million
square feet, which were approximately 95.3% leased to approximately 1,200
tenants.
All of the Company's interests in the Properties and Land are held by, and
substantially all of its operations relating to the Properties and Land are
conducted through, the Operating Partnership. The Operating Partnership holds a
100% interest in all but 21 of the Properties and substantially all of the Land.
The Company controls the Operating Partnership as the sole general partner and
owner, as of June 30, 1995, of approximately 85.29% of the outstanding units of
partnership interest of the Operating Partnership ("Units"). Each Unit, other
than those held by the Company, may be exchanged by the holder thereof for one
share (subject to certain adjustments) of the Common Stock. With each such
exchange, the number of Units owned by the Company and, therefore, the Company's
percentage interest in the Operating Partnership, will increase.
In addition to owning the Properties and the Land, the Operating Partnership
also provides services associated with leasing, property management, real estate
development, construction and miscellaneous tenant services (the "Related
Businesses") for the Properties. The Company also provides services associated
with the Related Businesses to third parties and owners of indirectly owned
Properties through Duke Realty Services Limited Partnership on a fee basis.
The Company's experienced staff provides a full range of real estate
services from executive offices headquartered in Indianapolis, and from six
regional offices located in the Cincinnati, Columbus, Decatur, Detroit,
Nashville and St. Louis metropolitan areas.
The Company is an Indiana corporation that was originally incorporated in
the State of Delaware in 1985, and reincorporated in the State of Indiana in
1992. The Operating Partnership is an Indiana limited partnership that was
formed in 1993. The Company's and the Operating Partnership's executive offices
are located at 8888 Keystone Crossing, Suite 1200, Indianapolis, Indiana 46240,
and their telephone number is (317) 574-3531.
USE OF PROCEEDS
The Company is required, by the terms of the partnership agreement of the
Operating Partnership, to invest the net proceeds of any sale of Common Stock,
Preferred Stock or Depositary Shares in the Operating Partnership in exchange
for additional Units or preferred Units, as the case may be. Unless otherwise
specified in the applicable Prospectus Supplement, the Company and the Operating
Partnership intend to use the net proceeds from the sale of Securities for
general corporate purposes, including the development and acquisition of
additional properties and other acquisition transactions, the payment of certain
outstanding debt, and improvements to certain properties in the Company's
portfolio.
RATIOS OF EARNINGS TO FIXED CHARGES
The Company's and the Operating Partnership's ratios of earnings to fixed
charges for the six months ended June 30, 1995 were 2.48 and for the year ended
December 31, 1994 were 2.33. The ratio of earnings to fixed charges for the
Company for the year ended December 31, 1993 was 1.58, and for the Operating
Partnership from its formation on October 4, 1993 to December 31, 1993 was 2.51.
3
<PAGE>
For purposes of computing these ratios, earnings have been calculated by
adding fixed charges, excluding capitalized interest, to income (loss) before
gains or losses on property sales and (if applicable) minority interest in the
Operating Partnership. Fixed charges consist (if applicable) of interest costs,
whether expensed or capitalized, the interest component of rental expense and
amortization of debt issuance costs.
Prior to completion of the Company's 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
financial statements of the Company show net losses for the fiscal years ended
December 31, 1992, 1991 and 1990. Consequently, the computation of the ratio of
earnings to fixed charges for such periods indicates that earnings were
inadequate to cover fixed charges by approximately $0.7 million, $1.8 million
and $1.7 million for the fiscal years ended December 31, 1992, 1991 and 1990,
respectively.
The recapitalization of the Company effected in connection with the
reorganization permitted the Company to significantly deleverage, resulting in
an improved ratio of earnings to fixed charges for periods subsequent to the
reorganization.
DESCRIPTION OF DEBT SECURITIES
The Debt Securities will be issued under an Indenture (the "Indenture"),
between the Operating Partnership and The First National Bank of Chicago, as
trustee. The Indenture has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part and is available for inspection at
the corporate trust office of the trustee at 14 Wall Street, Eighth Floor, New
York, New York 10005 or as described above under "Available Information." The
Indenture is subject to, and governed by, the Trust Indenture Act of 1939, as
amended (the "TIA"). The statements made hereunder relating to the Indenture and
the Debt Securities to be issued thereunder are summaries of certain provisions
thereof and do not purport to be complete and are subject to, and are qualified
in their entirety by reference to, all provisions of the Indenture and such Debt
Securities. All section references appearing herein are to sections of the
Indenture, and capitalized terms used but not defined herein shall have the
respective meanings set forth in the Indenture.
GENERAL
The Debt Securities will be direct, unsecured obligations of the Operating
Partnership and will rank equally with all other unsecured and unsubordinated
indebtedness of the Operating Partnership. At June 30, 1995, the total
outstanding debt of the Operating Partnership was $300.2 million, all of which
was secured debt. The Debt Securities may be issued without limit as to
aggregate principal amount, in one or more series, in each case as established
from time to time in or pursuant to authority granted by a resolution of the
Board of Directors of the Company as sole general partner of the Operating
Partnership or as established in one or more indentures supplemental to the
Indenture. All Debt Securities of one series need not be issued at the same time
and, unless otherwise provided, a series may be reopened, without the consent of
the holders of the Debt Securities of such series, for issuances of additional
Debt Securities of such series (Section 301).
The Indenture provides that there may be more than one trustee (the
"Trustee") thereunder, each with respect to one or more series of Debt
Securities. Any Trustee under the Indenture may resign or be removed with
respect to one or more series of Debt Securities, and a successor Trustee may be
appointed to act with respect to such series (Section 608). In the event that
two or more persons are acting as Trustee with respect to different series of
Debt Securities, each such Trustee shall be a trustee of a trust under the
Indenture separate and apart from the trust administered by any other Trustee
(Section 609), and, except as otherwise indicated herein, any action described
herein to be taken by a Trustee may be taken by each such Trustee with respect
to, and only with respect to, the one or more series of Debt Securities for
which it is Trustee under the Indenture.
4
<PAGE>
Reference is made to the Prospectus Supplement relating to the series of
Debt Securities being offered for the specific terms thereof, including:
(1) the title of such Debt Securities;
(2) the aggregate principal amount of such Debt Securities and any limit on
such aggregate principal amount;
(3) the percentage of the principal amount at which such Debt Securities
will be issued and, if other than the principal amount thereof, the
portion of the principal amount thereof payable upon declaration of
acceleration of the maturity thereof;
(4) the date or dates, or the method for determining such date or dates, on
which the principal of such Debt Securities will be payable;
(5) the rate or rates (which may be fixed or variable), or the method by
which such rate or rates shall be determined, at which such Debt
Securities will bear interest, if any;
(6) the date or dates, or the method for determining such date or dates,
from which any interest will accrue, the dates on which any such
interest will be payable, the record dates for such interest payment
dates, or the method by which any such date shall be determined, the
person to whom such interest shall be payable, and the basis upon which
interest shall be calculated if other than that of a 360-day year of
twelve 30-day months;
(7) the place or places where the principal of (and premium, if any) and
interest, if any, on such Debt Securities will be payable, such Debt
Securities may be surrendered for registration of transfer or exchange
and notices or demands to or upon the Operating Partnership in respect
of such Debt Securities and the Indenture may be served;
(8) the period or periods within which, the price or prices at which and the
terms and conditions upon which such Debt Securities may be redeemed, as
a whole or in part, at the option of the Operating Partnership, if the
Operating Partnership is to have such an option;
(9) the obligation, if any, of the Operating Partnership to redeem, repay or
purchase such Debt Securities pursuant to any sinking fund or analogous
provision or at the option of a holder thereof, and the period or
periods within which, the price or prices at which and the terms and
conditions upon which such Debt Securities will be redeemed, repaid or
purchased, as a whole or in part, pursuant to such obligation;
(10) if other than U.S. dollars, the currency or currencies in which such
Debt Securities are denominated and payable, which may be a foreign
currency or units of two or more foreign currencies or a composite
currency or currencies, and the terms and conditions relating thereto;
(11) whether the amount of payments of principal of (and premium, if any) or
interest, if any, on such Debt Securities may be determined with
reference to an index, formula or other method (which index, formula or
method may, but need not be, based on a currency, currencies, currency
unit or units or composite currency or currencies) and the manner in
which such amounts shall be determined;
(12) the events of default or covenants of such Debt Securities, to the
extent different from or in addition to those described herein;
(13) whether such Debt Securities will be issued in certificated and/or
book-entry form;
(14) whether such Debt Securities will be in registered or bearer form and,
if in registered form, the denominations thereof if other than $1,000
and any integral multiple thereof and, if in bearer form, the
denominations thereof if other than $5,000 and terms and conditions
relating thereto;
5
<PAGE>
(15) the applicability, if any, of the defeasance and covenant defeasance
provisions described herein, or any modification thereof;
(16) if such Debt Securities are to be issued upon the exercise of debt
warrants, the time, manner and place for such Debt Securities to be
authenticated and delivered;
(17) whether and under what circumstances the Operating Partnership will pay
additional amounts on such Debt Securities in respect of any tax,
assessment or governmental charge and, if so, whether the Operating
Partnership will have the option to redeem such Debt Securities in lieu
of making such payment;
(18) with respect to any Debt Securities that provide for optional redemption
or prepayment upon the occurrence of certain events (such as a change of
control of the Operating Partnership), (i) the possible effects of such
provisions on the market price of the Operating Partnership's or the
Company's securities or in deterring certain mergers, tender offers or
other takeover attempts, and the intention of the Operating Partnership
to comply with the requirements of Rule 14e-1 under the Exchange Act and
any other applicable securities laws in connection with such provisions;
(ii) whether the occurrence of the specified events may give rise to
cross-defaults on other indebtedness such that payment on such Debt
Securities may be effectively subordinated; and (iii) the existence of
any limitation on the Operating Partnership's financial or legal ability
to repurchase such Debt Securities upon the occurrence of such an event
(including, if true, the lack of assurance that such a repurchase can be
effected) and the impact, if any, under the Indenture of such a failure,
including whether and under what circumstances such a failure may
constitute an Event of Default; and
(19) any other terms of such Debt Securities.
The Debt Securities may provide for less than the entire principal amount
thereof to be payable upon declaration of acceleration of the maturity thereof
("Original Issue Discount Securities"). If material or applicable, special U.S.
federal income tax, accounting and other considerations applicable to Original
Issue Discount Securities will be described in the applicable Prospectus
Supplement.
Except as described under "Merger, Consolidation or Sale" or as may be set
forth in any Prospectus Supplement, 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 Debt Securities protection in
the event of (i) a highly leveraged or similar transaction involving the
Operating Partnership, the management of the Operating Partnership or the
Company, or any affiliate of any 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 Debt
Securities. In addition, subject to the limitations set forth under "Merger,
Consolidation or Sale," 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 Debt Securities. In addition, restrictions on ownership and
transfers of the Company's common stock and preferred stock are designed to
preserve its status as a REIT and, therefore, may act to prevent or hinder a
change of control. See "Description of Common Stock -- Certain Provisions
Affecting Change of Control" and "Description of Preferred Stock -- Restrictions
on Ownership." Reference is made to the applicable Prospectus Supplement for
information with respect to any deletions from, modifications of or additions to
the events of default or covenants that are described below, including any
addition of a covenant or other provision providing event risk or similar
protection.
Reference is made to "-- Certain Covenants" below and to the description of
any additional covenants with respect to a series of Debt Securities in the
applicable Prospectus Supplement. Except as otherwise
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described in the applicable Prospectus Supplement, compliance with such
covenants generally may not be waived with respect to a series of Debt
Securities by the Board of Directors of the Company as sole general partner of
the Operating Partnership or by the Trustee unless the Holders of at least a
majority in principal amount of all outstanding Debt Securities of such series
consent to such waiver, except to the extent that the defeasance and covenant
defeasance provisions of the Indenture described under "-- Discharge, Defeasance
and Covenant Defeasance" below apply to such series of Debt Securities. See "--
Modification of the Indenture."
DENOMINATIONS, INTEREST, REGISTRATION AND TRANSFER
Unless otherwise described in the applicable Prospectus Supplement, the Debt
Securities of any series which are registered securities, other than registered
securities issued in global form (which may be of any denomination), shall be
issuable in denominations of $1,000 and any integral multiple thereof and the
Debt Securities which are bearer securities, other than bearer securities issued
in global form (which may be of any denomination), shall be issuable in
denominations of $5,000 (Section 302).
Unless otherwise specified in the applicable Prospectus Supplement, the
principal of (and premium, if any) and interest on any series of Debt Securities
will be payable at the corporate trust office of the Trustee, initially located
at 14 Wall Street, Eighth Floor, New York, New York, 10005, provided that, at
the option of the Operating Partnership, payment of interest may be made by
check mailed to the address of the Person entitled thereto as it appears in the
applicable Security Register or by wire transfer of funds to such Person at an
account maintained within the United States (Sections 301, 307 and 1002).
Any interest not punctually paid or duly provided for on any Interest
Payment Date with respect to a Debt Security ("Defaulted Interest") will
forthwith cease to be payable to the Holder on the applicable Regular Record
Date and may either be paid to the Person in whose name such Debt Security is
registered at the close of business on a special record date (the "Special
Record Date") for the payment of such Defaulted Interest to be fixed by the
Trustee, notice whereof shall be given to the Holder of such Debt Security not
less than 10 days prior to such Special Record Date, or may be paid at any time
in any other lawful manner, all as more completely described in the Indenture.
Subject to certain limitations imposed upon Debt Securities issued in
book-entry form, the Debt Securities of any series will be exchangeable for
other Debt Securities of the same series and of a like aggregate principal
amount and tenor of different authorized denominations upon surrender of such
Debt Securities at the corporate trust office of the Trustee referred to above.
In addition, subject to certain limitations imposed upon Debt Securities issued
in book-entry form, the Debt Securities of any series may be surrendered for
registration of transfer thereof at the corporate trust office of the Trustee
referred to above. Every Debt Security surrendered for registration of transfer
or exchange shall be duly endorsed or accompanied by a written instrument of
transfer. No service charge will be made for any registration of transfer or
exchange of any Debt Securities, but the Trustee or the Operating Partnership
may require payment of a sum sufficient to cover any tax or other governmental
charge payable in connection therewith (Section 305). If the applicable
Prospectus Supplement refers to any transfer agent (in addition to the Trustee)
initially designated by the Operating Partnership with respect to any series of
Debt Securities, the Operating Partnership may at any time rescind the
designation of any such transfer agent or approve a change in the location
through which any such transfer agent acts, except that Operating Partnership
will be required to maintain a transfer agent in each place of payment for such
series. The Operating Partnership may at any time designate additional transfer
agents with respect to any series of Debt Securities (Section 1002).
Neither the Operating Partnership nor the Trustee shall be required (i) to
issue, register the transfer of or exchange any Debt Security if such Debt
Security may be among those selected for redemption during a period beginning at
the opening of business 15 days before selection of the Debt Securities to be
redeemed and ending at the close of business on (A) if such Debt Securities are
issuable only as Registered Securities, the day of the mailing of the relevant
notice of redemption and (B) if such Debt Securities are issuable as Bearer
Securities, the day of the first publication of the relevant notice of
redemption or, if such Debt
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Securities are also issuable as Registered Securities and there is no
publication, the mailing of the relevant notice of redemption, or (ii) to
register the transfer of or exchange any Registered Security so selected for
redemption in whole or in part, except, in the case of any Registered Security
to be redeemed in part, the portion thereof not to be redeemed, or (iii) to
exchange any Bearer Security so selected for redemption except that such a
Bearer Security may be exchanged for a Registered Security of that series and
like tenor, PROVIDED that such Registered Security shall be simultaneously
surrendered for redemption, or (iv) to issue, register the transfer of or
exchange any Security which has been surrendered for repayment at the option of
the Holder, except the portion, if any, of such Debt Security not to be so
repaid (Section 305).
MERGER, CONSOLIDATION OR SALE
The Operating Partnership may consolidate with, or sell, lease or convey all
or substantially all of its assets to, or merge with or into, any other entity,
provided that (a) the Operating Partnership shall be the continuing entity, or
the successor entity (if other than the Operating Partnership) formed by or
resulting from any such consolidation or merger or which shall have received the
transfer of such assets shall expressly assume payment of the principal of (and
premium, if any) and interest on all the Debt Securities and the due and
punctual performance and observance of all of the covenants and conditions
contained in the Indenture; (b) immediately after giving effect to such
transaction and treating any indebtedness which becomes an obligation of the
Operating Partnership or any Subsidiary as a result thereof as having been
incurred by the Operating Partnership or such Subsidiary at the time of such
transaction, no Event of Default under the Indenture, and no event which, after
notice or the lapse of time, or both, would become such an Event of Default,
shall have occurred and be continuing; and (c) an officer's certificate and
legal opinion covering such conditions shall be delivered to the Trustee
(Sections 801 and 803).
CERTAIN COVENANTS
EXISTENCE. Except as permitted under "Merger, Consolidation or Sale," the
Operating Partnership is required to do or cause to be done all things necessary
to preserve and keep in full force and effect its existence, rights and
franchises; PROVIDED, HOWEVER, that the Operating Partnership shall not be
required to preserve any right or franchise if it determines that the
preservation thereof is no longer desirable in the conduct of its business and
that the loss thereof is not disadvantageous in any material respect to the
Holders of the Debt Securities (Section 1007).
MAINTENANCE OF PROPERTIES. The Operating Partnership is required to cause
all of its material properties used or useful in the conduct of its business or
the business of any Subsidiary to be maintained and kept in good condition,
repair and working order and supplied with all necessary equipment and to cause
to be made all necessary repairs, renewals, replacements, betterments and
improvements thereof, all as in the judgment of the Operating Partnership may be
necessary so that the business carried on in connection therewith may be
properly and advantageously conducted at all times; PROVIDED, HOWEVER, that the
Operating Partnership and its Subsidiaries shall not be prevented from selling
or otherwise disposing for value their respective properties in the ordinary
course of business (Section 1008).
INSURANCE. The Operating Partnership is required to, and is required to
cause each of its Subsidiaries to, keep all of its insurable properties insured
against loss or damage at least equal to their then full insurable value with
financially sound and reputable insurance companies (Section 1009).
PAYMENT OF TAXES AND OTHER CLAIMS. The Operating Partnership is required to
pay or discharge or cause to be paid or discharged, before the same shall become
delinquent, (i) all taxes, assessments and governmental charges levied or
imposed upon it or any Subsidiary or upon its income, profits or property or
that of any Subsidiary, and (ii) all lawful claims for labor, materials and
supplies which, if unpaid, might by law become a lien upon the property of the
Operating Partnership or any Subsidiary; PROVIDED, HOWEVER, that the Operating
Partnership shall not be required to pay or discharge or cause to be paid or
discharged any such tax, assessment, charge or claim whose amount, applicability
or validity is being contested in good faith by appropriate proceedings (Section
1010).
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PROVISION OF FINANCIAL INFORMATION. The Holders of Debt Securities will be
provided with copies of the annual reports and quarterly reports of the
Operating Partnership. Whether or not the Operating Partnership is subject to
Section 13 or 15(d) of the Exchange Act and for so long as any Debt Securities
are outstanding, the Operating Partnership will, to the extent permitted under
the Exchange Act, be required to file with the Commission the annual reports,
quarterly reports and other documents which the Operating Partnership would have
been required to file with the Commission pursuant to such Section 13 or 15(d)
(the "Financial Statements") if the Operating Partnership were so subject, such
documents to be filed with the Commission on or prior to the respective dates
(the "Required Filing Dates") by which the Operating Partnership would have been
required so to file such documents if the Operating Partnership were so subject.
The Operating Partnership will also in any event (x) within 15 days of each
Required Filing Date (i) transmit by mail to all Holders of Debt Securities, as
their names and addresses appear in the Security Register, without cost to such
Holders, copies of the annual reports and quarterly reports which the Operating
Partnership would have been required to file with the Commission pursuant to
Section 13 or 15(d) of the Exchange Act if the Operating Partnership were
subject to such Sections and (ii) file with the Trustee copies of the annual
reports, quarterly reports and other documents which the Operating Partnership
would have been required to file with the Commission pursuant to Section 13 or
15(d) of the Exchange Act if the Operating Partnership were subject to such
Sections and (y) if filing such documents by the Operating Partnership with the
Commission is not permitted under the Exchange Act, promptly upon written
request and payment of the reasonable cost of duplication and delivery, supply
copies of such documents to any prospective Holder (Section 1011).
ADDITIONAL COVENANTS. Any additional or different covenants of the
Operating Partnership with respect to any series of Debt Securities will be set
forth in the Prospectus Supplement relating thereto.
EVENTS OF DEFAULT, NOTICE AND WAIVER
The Indenture provides that the following events are "Events of Default"
with respect to any series of Debt Securities issued thereunder: (a) default for
30 days in the payment of any installment of interest on any Debt Security of
such series; (b) default in the payment of the principal of (or premium, if any,
on) any Debt Security of such series at its maturity; (c) default in making any
sinking fund payment as required for any Debt Security of such series; (d)
default in the performance of any other covenant of the Operating Partnership
contained in the Indenture (other than a covenant added to the Indenture solely
for the benefit of a series of Debt Securities issued thereunder other than such
series), such default having continued for 60 days after written notice as
provided in the Indenture; (e) default in the payment of an aggregate principal
amount exceeding $5,000,000 of any evidence of recourse indebtedness of the
Operating Partnership or any mortgage, indenture or other instrument under which
such indebtedness is issued or by which such indebtedness is secured, such
default having occurred after the expiration of any applicable grace period and
having resulted in the acceleration of the maturity of such indebtedness, but
only if such indebtedness is not discharged or such acceleration is not
rescinded or annulled; (f) certain events of bankruptcy, insolvency or
reorganization, or court appointment of a receiver, liquidator or trustee of the
Operating Partnership or any Significant Subsidiary or any of their respective
property; and (g) any other Event of Default provided with respect to a
particular series of Debt Securities. The term "Significant Subsidiary" means
each significant subsidiary (as defined in Regulation S-X promulgated under the
Securities Act) of the Operating Partnership.
If an Event of Default under the Indenture with respect to Debt Securities
of any series at the time Outstanding occurs and is continuing, then in every
such case the Trustee or the Holders of not less than 25% in principal amount of
the Outstanding Debt Securities of that series may declare the principal amount
(or, if the Debt Securities of that series are Original Issue Discount
Securities or Indexed Securities, such portion of the principal amount as may be
specified in the terms thereof) of all of the Debt Securities of that series to
be due and payable immediately by written notice thereof to the Operating
Partnership (and to the Trustee if given by the Holders). However, at any time
after such a declaration of acceleration with respect to Debt Securities of such
series (or of all Debt Securities then Outstanding under the Indenture, as the
case may be)
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has been made, but before a judgment or decree for payment of the money due has
been obtained by the Trustee, the Holders of not less than a majority in
principal amount of Outstanding Debt Securities of such series (or of all Debt
Securities then Outstanding under the Indenture, as the case may be) may rescind
and annul such declaration and its consequences if (a) the Operating Partnership
shall have deposited with the applicable Trustee all required payments of the
principal of (and premium, if any) and interest on the Debt Securities of such
series (or of all Debt Securities then Outstanding under the Indenture, as the
case may be), plus certain fees, expenses, disbursements and advances of the
Trustee and (b) all Events of Default, other than the non-payment of accelerated
principal of (or specified portion thereof), or premium (if any) or interest on
the Debt Securities of such series (or of all Debt Securities then Outstanding
under the Indenture, as the case may be) have been cured or waived as provided
in the Indenture (Section 502). The Indenture also provides that the Holders of
not less than a majority in principal amount of the Outstanding Debt Securities
of any series (or of all Debt Securities then Outstanding under the Indenture,
as the case may be) may waive any past default with respect to such series and
its consequences, except a default (x) in the payment of the principal of (or
premium, if any) or interest on any Debt Security or such series or (y) in
respect of a covenant or provision contained in the Indenture that cannot be
modified or amended without the consent of the Holder of each Outstanding Debt
Security affected thereby (Section 513).
The Trustee will be required to give notice to the Holders of Debt
Securities within 90 days of a default under the Indenture unless such default
has been cured or waived; PROVIDED, HOWEVER, that the Trustee may withhold
notice to the Holders of any series of Debt Securities of any default with
respect to such series (except a default in the payment of the principal of (or
premium, if any) or interest on any Debt Security of such series or in the
payment of any sinking fund installment in respect of any Debt Security of such
series) if specified Responsible Officers of the Trustee consider such
withholding to be in the interest of such Holders (Section 601).
The Indenture provides that no Holders of Debt Securities of any series may
institute any proceedings, judicial or otherwise, with respect to the Indenture
or for any remedy thereunder, except in the case of failure of the Trustee, for
60 days, to act after it has received a written request to institute proceedings
in respect of an Event of Default from the Holders of not less than 25% in
principal amount of the Outstanding Debt Securities of such series, as well as
an offer of indemnity reasonably satisfactory to it (Section 507). This
provision will not prevent, however, any holder of Debt Securities from
instituting suit for the enforcement of payment of the principal of (and
premium, if any) and interest on such Debt Securities at the respective due
dates thereof (Section 508).
Subject to provisions in the Indenture relating to its duties in case of
default, the Trustee is under no obligation to exercise any of its rights or
powers under the Indenture at the request or direction of any Holders of any
series of Debt Securities then Outstanding under the Indenture, unless such
Holders shall have offered to the Trustee thereunder reasonable security or
indemnity (Section 602). The Holders of not less than a majority in principal
amount of the Outstanding Debt Securities of any series (or of all Debt
Securities then Outstanding under the Indenture, as the case may be) shall have
the right to direct the time, method and place of conducting any proceeding for
any remedy available to the Trustee, or of exercising any trust or power
conferred upon the Trustee. However, the Trustee may refuse to follow any
direction which is in conflict with any law or the Indenture, which may involve
the Trustee in personal liability or which may be unduly prejudicial to the
holders of Debt Securities of such series not joining therein (Section 512).
Within 120 days after the close of each fiscal year, the Operating
Partnership must deliver to the Trustee a certificate, signed by one of several
specified officers of the Company, stating whether or not such officer has
knowledge of any default under the Indenture and, if so, specifying each such
default and the nature and status thereof.
MODIFICATION OF THE INDENTURE
Modifications and amendments of the Indenture will be permitted to be made
only with the consent of the Holders of not less than a majority in principal
amount of all Outstanding Debt Securities or series of
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Outstanding Debt Securities which are affected by such modification or
amendment; PROVIDED, HOWEVER, that no such modification or amendment may,
without the consent of the Holder of each such Debt Security affected thereby,
(a) change the Stated Maturity of the principal of, or premium (if any) or any
installment of interest on, any such Debt Security; (b) reduce the principal
amount of, or the rate or amount of interest on, or any premium payable on
redemption of, any such Debt Security, or reduce the amount of principal of an
Original Issue Discount Security that would be due and payable upon declaration
of acceleration of the maturity thereof or would be provable in bankruptcy, or
adversely affect any right of repayment of the holder of any such Debt Security;
(c) change the place of payment, or the coin or currency, for payment of
principal of, premium, if any, or interest on any such Debt Security; (d) impair
the right to institute suit for the enforcement of any payment on or with
respect to any such Debt Security; (e) reduce the above-stated percentage of
outstanding Debt Securities of any series necessary to modify or amend the
Indenture, to waive compliance with certain provisions thereof or certain
defaults and consequences thereunder or to reduce the quorum or voting
requirements set forth in the Indenture; or (f) modify any of the foregoing
provisions or any of the provisions relating to the waiver of certain past
defaults or certain covenants, except to increase the required percentage to
effect such action or to provide that certain other provisions may not be
modified or waived without the consent of the Holder of such Debt Security
(Section 902).
The Indenture provides that the Holders of not less than a majority in
principal amount of a series of Outstanding Debt Securities have the right to
waive compliance by the Operating Partnership with certain covenants relating to
such series of Debt Securities in the Indenture (Section 1014).
Modifications and amendments of the Indenture will be permitted to be made
by the Operating Partnership and the Trustee without the consent of any Holder
of Debt Securities for any of the following purposes: (i) to evidence the
succession of another Person to the Operating Partnership as obligor under the
Indenture; (ii) to add to the covenants of the Operating Partnership for the
benefit of the Holders of all or any series of Debt Securities or to surrender
any right or power conferred upon the Operating Partnership in the Indenture;
(iii) to add Events of Default for the benefit of the Holders of all or any
series of Debt Securities; (iv) to add or change any provisions of the Indenture
to facilitate the issuance of, or to liberalize certain terms of, Debt
Securities in bearer form, or to permit or facilitate the issuance of Debt
Securities in uncertificated form, PROVIDED that such action shall not adversely
affect the interests of the Holders of the Debt Securities of any series in any
material respect; (v) to change or eliminate any provisions of the Indenture,
PROVIDED that any such change or elimination shall become effective only when
there are no Debt Securities Outstanding of any series created prior thereto
which are entitled to the benefit of such provision; (vi) to secure the Debt
Securities; (vii) to establish the form or terms of Debt Securities of any
series; (viii) to provide for the acceptance of appointment by a successor
Trustee or facilitate the administration of the trusts under the Indenture by
more than one Trustee; (ix) to cure any ambiguity, defect or inconsistency in
the Indenture, PROVIDED that such action shall not adversely affect the
interests of Holders of Debt Securities of any series in any material respect;
or (x) to supplement any of the provisions of the Indenture to the extent
necessary to permit or facilitate defeasance and discharge of any series of such
Debt Securities, PROVIDED that such action shall not adversely affect the
interests of the Holders of the Debt Securities of any series in any material
respect (Section 901).
The Indenture provides that in determining whether the Holders of the
requisite principal amount of Outstanding Debt Securities of a series have given
any request, demand, authorization, direction, notice, consent or waiver
thereunder or whether a quorum is present at a meeting of Holders of Debt
Securities, (i) the principal amount of an Original Issue Discount Security that
shall be deemed to be Outstanding shall be the amount of the principal thereof
that would be due and payable as of the date of such determination upon
declaration of acceleration of the maturity thereof, (ii) the principal amount
of a Debt Security denominated in a foreign currency that shall be deemed
Outstanding shall be the U.S. dollar equivalent, determined on the issue date
for such Debt Security, of the principal amount (or, in the case of an Original
Issue Discount Security, the U.S. dollar equivalent on the issue date of such
Debt Security of the amount determined as provided in (i) above), (iii) the
principal amount of an Indexed Security that shall be deemed
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Outstanding shall be the principal face amount of such Indexed Security at
original issuance, unless otherwise provided with respect to such Indexed
Security pursuant to the Indenture, and (iv) Debt Securities owned by the
Operating Partnership or any other obligor upon the Debt Securities or any
affiliate of the Operating Partnership or of such other obligor shall be
disregarded.
The Indenture contains provisions for convening meetings of the Holders of
Debt Securities of a series (Section 1501). A meeting will be permitted to be
called at any time by the Trustee, and also, upon request, by the Operating
Partnership or the holders of at least 10% in principal amount of the
Outstanding Debt Securities of such series, in any such case upon notice given
as provided in the Indenture (Section 1502). Except for any consent that must be
given by the Holder of each Debt Security affected by certain modifications and
amendments of the Indenture, any resolution presented at a meeting or adjourned
meeting duly reconvened at which a quorum is present will be permitted to be
adopted by the affirmative vote of the Holders of a majority in principal amount
of the Outstanding Debt Securities of that series; PROVIDED, HOWEVER, that,
except as referred to above, any resolution with respect to any request, demand,
authorization, direction, notice, consent, waiver or other action that may be
made, given or taken by the Holders of a specified percentage, which is less
than a majority, in principal amount of the Outstanding Debt Securities of a
series may be adopted at a meeting or adjourned meeting duly reconvened at which
a quorum is present by the affirmative vote of the Holders of such specified
percentage in principal amount of the Outstanding Debt Securities of that
series. Any resolution passed or decision taken at any meeting of Holders of
Debt Securities of any series duly held in accordance with the Indenture will be
binding on all Holders of Debt Securities of that series. The quorum at any
meeting called to adopt a resolution, and at any reconvened meeting, will be
Persons holding or representing a majority in principal amount of the
Outstanding Debt Securities of a series; PROVIDED, HOWEVER, that if any action
is to be taken at such meeting with respect to a consent or waiver which may be
given by the Holders of not less than a specified percentage in principal amount
of the Outstanding Debt Securities of a series, the Persons holding or
representing such specified percentage in principal amount of the Outstanding
Debt Securities of such series will constitute a quorum (Section 1504).
Notwithstanding the foregoing provisions, if any action is to be taken at a
meeting of Holders of Debt Securities of any series with respect to any request,
demand, authorization, direction, notice, consent, waiver or other action that
the Indenture expressly provides may be made, given or taken by the Holders of a
specified percentage in principal amount of all Outstanding Debt Securities
affected thereby, or of the Holders of such series and one or more additional
series: (i) there shall be no minimum quorum requirement for such meeting and
(ii) the principal amount of the Outstanding Debt Securities of such series that
vote in favor of such request, demand, authorization, direction, notice,
consent, waiver or other action shall be taken into account in determining
whether such request, demand, authorization, direction, notice, consent, waiver
or other action has been made, given or taken under the Indenture (Section
1504).
DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
The Operating Partnership may discharge certain obligations to Holders of
any series of Debt Securities that have not already been delivered to the
Trustee for cancellation and that either have become due and payable or will
become due and payable within one year (or scheduled for redemption within one
year) by irrevocably depositing with the Trustee, in trust, funds in such
currency or currencies, currency unit or units or composite currency or
currencies in which such Debt Securities are payable in an amount sufficient to
pay the entire indebtedness on such Debt Securities in respect of principal (and
premium, if any) and interest to the date of such deposit (if such Debt
Securities have become due and payable) or to the Stated Maturity or Redemption
Date, as the case may be (Sections 1401 and 1404).
The Indenture provides that, if the provisions of Article Fourteen are made
applicable to the Debt Securities of or within any series pursuant to Section
301 of the Indenture, the Operating Partnership may elect either (a) to defease
and be discharged from any and all obligations with respect to such Debt
Securities (except for the obligation to pay additional amounts, if any, upon
the occurrence of certain events of tax,
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assessment or governmental charge with respect to payments on such Debt
Securities and the obligations to register the transfer or exchange of such Debt
Securities, to replace temporary or mutilated, destroyed, lost or stolen Debt
Securities, to maintain an office or agency in respect of such Debt Securities
and to hold moneys for payment in trust) ("defeasance") (Section 1402) or (b) to
be released from its obligations with respect to such Debt Securities under
Sections 1004 to 1011, inclusive, of the Indenture (including the restrictions
described under "Certain Covenants") and its obligations with respect to any
other covenant, and any omission to comply with such obligations shall not
constitute a default or an Event of Default with respect to such Debt Securities
("covenant defeasance") (Section 1403), in either case upon the irrevocable
deposit by the Operating Partnership with the Trustee, in trust, of an amount,
in such currency or currencies, currency unit or units or composite currency or
currencies in which such Debt Securities are payable at Stated Maturity, or
Government Obligations (as defined below), or both, applicable to such Debt
Securities which through the scheduled payment of principal and interest in
accordance with their terms will provide money in an amount sufficient to pay
the principal of (and premium, if any) and interest on such Debt Securities, and
any mandatory sinking fund or analogous payments thereon, on the scheduled due
dates therefor.
Such a trust will only be permitted to be established if, among other
things, the Operating Partnership has delivered to the Trustee an Opinion of
Counsel (as specified in the Indenture) to the effect that the Holders of such
Debt Securities will not recognize income, gain or loss for U.S. federal income
tax purposes as a result of such defeasance or covenant defeasance and will be
subject to U.S. federal income tax on the same amounts, in the same manner and
at the same times as would have been the case if such defeasance or covenant
defeasance had not occurred, and such Opinion of Counsel, in the case of
defeasance, must refer to and be based upon a ruling of the Internal Revenue
Service or a change in applicable United States federal income tax law occurring
after the date of the Indenture (Section 1404).
"Government Obligations" means securities which are (i) direct obligations
of the United States of America or the government which issued the foreign
currency in which the Debt Securities of a particular series are payable, for
the payment of which its full faith and credit is pledged or (ii) obligations of
a person controlled or supervised by and acting as an agency or instrumentality
of the United States of America or such government which issued the foreign
currency in which the Debt Securities of such series are payable, the payment of
which is unconditionally guaranteed as a full faith and credit obligation by the
United States of America or such other government, which, in either case, are
not callable or redeemable at the option of the issuer thereof, and shall also
include a depository receipt issued by a bank or trust company as custodian with
respect to any such Government Obligation or a specific payment of interest on
or principal of any such Government Obligation held by such custodian for the
account of the holder of a depository receipt, PROVIDED that (except as required
by law) such custodian is not authorized to make any deduction from the amount
payable to the holder of such depository receipt from any amount received by the
custodian in respect of the Government Obligation or the specific payment of
interest on or principal of the Government Obligation evidenced by such
depository receipt.
Unless otherwise provided in the applicable Prospectus Supplement, if after
the Operating Partnership has deposited funds and/or Government Obligations to
effect defeasance or covenant defeasance with respect to Debt Securities of any
series, (a) the Holder of a Debt Security of such series is entitled to, and
does, elect pursuant to the Indenture or the terms of such Debt Security to
receive payment in a currency, currency unit or composite currency other than
that in which such deposit has been made in respect of such Debt Security, or
(b) a Conversion Event (as defined below) occurs in respect of the currency,
currency unit or composite currency in which such deposit has been made, the
indebtedness represented by such Debt Security shall be deemed to have been, and
will be, fully discharged and satisfied through the payment of the principal of
(and premium, if any) and interest on such Debt Security as they become due out
of the proceeds yielded by converting the amount so deposited in respect of such
Debt Security into the currency, currency unit or composite currency in which
such Debt Security becomes payable as a result of such election or such
Conversion Event based on the applicable market exchange rate. "Conversion
Event" means the cessation
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of use of (i) a currency, currency unit or composite currency both by the
government of the country which issued such currency and for the settlement of
transactions by a central bank or other public institutions of or within the
international banking community, (ii) the ECU both within the European Monetary
System and for the settlement of transactions by public institutions of or
within the European Community or (iii) any currency unit or composite currency
other than the ECU for the purposes for which it was established. Unless
otherwise provided in the applicable Prospectus Supplement, all payments of
principal of (and premium, if any) and interest on any Debt Security that is
payable in a foreign currency that ceases to be used by its government of
issuance shall be made in U.S. dollars.
In the event the Operating Partnership effects covenant defeasance with
respect to any Debt Securities and such Debt Securities are declared due and
payable because of the occurrence of any Event of Default other than the Event
of Default described in clause (d) under "Events of Default, Notice and Waiver"
with respect to Sections 1004 to 1011, inclusive, of the Indenture (which
sections would no longer be applicable to such Debt Securities) or described in
clause (g) under "Events of Default, Notice and Waiver" with respect to any
other covenant as to which there has been covenant defeasance, the amount in
such currency, currency unit or composite currency in which such Debt Securities
are payable, and Government Obligations on deposit with the Trustee, will be
sufficient to pay amounts due on such Debt Securities at the time of their
Stated Maturity but may not be sufficient to pay amounts due on such Debt
Securities at the time of the acceleration resulting from such Event of Default.
However, the Operating Partnership would remain liable to make payment of such
amounts due at the time of acceleration.
The applicable Prospectus Supplement may further describe the provisions, if
any, permitting such defeasance or covenant defeasance, including any
modifications to the provisions described above, with respect to the Debt
Securities of or within a particular series.
NO CONVERSION RIGHTS
The Debt Securities will not be convertible into or exchangeable for any
capital stock of the Company or equity interest in the Operating Partnership.
GLOBAL SECURITIES
The Debt Securities of a series may be issued in whole or in part in the
form of one or more global securities (the "Global Securities") that will be
deposited with, or on behalf of, a depositary (the "Depositary") identified in
the applicable Prospectus Supplement relating to such series. Global Securities
may be issued in either registered or bearer form and in either temporary or
permanent form. The specific terms of the depositary arrangement with respect to
a series of Debt Securities will be described in the applicable Prospectus
Supplement relating to such series.
DESCRIPTION OF PREFERRED STOCK
GENERAL
The Company is authorized to issue 5,000,000 shares of preferred stock, $.01
par value per share, of which no Preferred Stock was outstanding at June 30,
1995.
The following description of the Preferred Stock sets forth certain general
terms and provisions of the Preferred Stock to which any Prospectus Supplement
may relate. The statements below describing the Preferred Stock are in all
respects subject to and qualified in their entirety by reference to the
applicable provisions of the Company's Amended and Restated Articles of
Incorporation (the "Articles of Incorporation") and Bylaws and any applicable
amendment to the Articles of Incorporation designating terms of a series of
Preferred Stock (a "Designating Amendment").
TERMS
Subject to the limitations prescribed by the Articles of Incorporation, the
board of directors is authorized to fix the number of shares constituting each
series of Preferred Stock and the designations and powers,
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preferences and relative, participating, optional or other special rights and
qualifications, limitations or restrictions thereof, including such provisions
as may be desired concerning voting, redemption, dividends, dissolution or the
distribution of assets, conversion or exchange, and such other subjects or
matters as may be fixed by resolution of the board of directors. The Preferred
Stock will, when issued, be fully paid and nonassessable by the Company (except
as described under "-- Shareholder Liability" below) and will have no preemptive
rights.
Reference is made to the Prospectus Supplement relating to the Preferred
Stock offered thereby for specific terms, including:
(1) The title and stated value of such Preferred Stock;
(2) The number of shares of such Preferred Stock offered, the liquidation
preference per share and the offering price of such Preferred Stock;
(3) The dividend rate(s), period(s) and/or payment date(s) or method(s) of
calculation thereof applicable to such Preferred Stock;
(4) The date from which dividends on such Preferred Stock shall accumulate,
if applicable;
(5) The procedures for any auction and remarketing, if any, for such
Preferred Stock;
(6) The provision for a sinking fund, if any, for such Preferred Stock;
(7) The provision for redemption, if applicable, of such Preferred Stock;
(8) Any listing of such Preferred Stock on any securities exchange;
(9) The terms and conditions, if applicable, upon which such Preferred Stock
will be convertible into Common Stock of the Company, including the
conversion price (or manner of calculation thereof);
(10) Whether interests in such Preferred Stock will be represented by
Depositary Shares;
(11) Any other specific terms, preferences, rights, limitations or
restrictions of such Preferred Stock;
(12) A discussion of federal income tax considerations applicable to such
Preferred Stock;
(13) The relative ranking and preferences of such Preferred Stock as to
dividend rights and rights upon liquidation, dissolution or winding up
of the affairs of the Company;
(14) Any limitations on issuance of any series of Preferred Stock ranking
senior to or on a parity with such series of Preferred Stock as to
dividend rights and rights upon liquidation, dissolution or winding up
of the affairs of the Company; and
(15) Any limitations on direct or beneficial ownership and restrictions on
transfer, in each case as may be appropriate to preserve the status of
the Company as a REIT.
RANK
Unless otherwise specified in the Prospectus Supplement, the Preferred Stock
will, with respect to dividend rights and rights upon liquidation, dissolution
or winding up of the Company, rank (i) senior to all classes or series of Common
Stock of the Company, and to all equity securities ranking junior to such
Preferred Stock; (ii) on a parity with all equity securities issued by the
Company the terms of which specifically provide that such equity securities rank
on a parity with the Preferred Stock; and (iii) junior to all equity securities
issued by the Company the terms of which specifically provide that such equity
securities rank senior to the Preferred Stock. The term "equity securities" does
not include convertible debt securities.
DIVIDENDS
Holders of the Preferred Stock of each series will be entitled to receive,
when, as and if declared by the board of directors of the Company, out of assets
of the Company legally available for payment, cash
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dividends at such rates and on such dates as will be set forth in the applicable
Prospectus Supplement. Each such dividend shall be payable to holders of record
as they appear on the share transfer books of the Company on such record dates
as shall be fixed by the board of directors of the Company.
Dividends on any series of the Preferred Stock may be cumulative or
non-cumulative, as provided in the applicable Prospectus Supplement. Dividends,
if cumulative, will be cumulative from and after the date set forth in the
applicable Prospectus Supplement. If the board of directors of the Company fails
to declare a dividend payable on a dividend payment date on any series of the
Preferred Stock for which dividends are non-cumulative, then the holders of such
series of the Preferred Stock will have no right to receive a dividend in
respect of the dividend period ending on such dividend payment date, and the
Company will have no obligation to pay the dividend accrued for such period,
whether or not dividends on such series are declared payable on any future
dividend payment date.
If Preferred Stock of any series is outstanding, no dividends will be
declared or paid or set apart for payment on any capital stock of the Company of
any other series ranking, as to dividends, on a parity with or junior to the
Preferred Stock of such series for any period unless (i) if such series of
Preferred Stock has a cumulative dividend, full cumulative dividends have been
or contemporaneously are declared and paid or declared and a sum sufficient for
the payment thereof set apart for such payment on the Preferred Stock of such
series for all past dividend periods and the then current dividend period or
(ii) if such series of Preferred Stock does not have a cumulative dividend, full
dividends for the then current dividend period have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
set apart for such payment on the Preferred Stock of such series. When dividends
are not paid in full (or a sum sufficient for such full payment is not so set
apart) upon Preferred Stock of any series and the shares of any other series of
Preferred Stock ranking on a parity as to dividends with the Preferred Stock of
such series, all dividends declared upon Preferred Stock of such series and any
other series of Preferred Stock ranking on a parity as to dividends with such
Preferred Stock shall be declared pro rata so that the amount of dividends
declared per share of Preferred Stock of such series and such other series of
Preferred Stock shall in all cases bear to each other the same ratio that
accrued dividends per share on the Preferred Stock of such series (which shall
not include any accumulation in respect of unpaid dividends for prior dividend
periods if such Preferred Stock does not have a cumulative dividend) and such
other series of Preferred Stock bear to each other. No interest, or sum of money
in lieu of interest, shall be payable in respect of any dividend payment or
payments on Preferred Stock of such series which may be in arrears.
Except as provided in the immediately preceding paragraph, unless (i) if
such series of Preferred Stock has a cumulative dividend, full cumulative
dividends on the Preferred Stock of such series have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
set apart for payment for all past dividend periods and the then current
dividend period, and (ii) if such series of Preferred Stock does not have a
cumulative dividend, full dividends on the Preferred Stock of such series have
been or contemporaneously are declared and paid or declared and a sum sufficient
for the payment thereof set apart for payment for the then current dividend
period, no dividends (other than in shares of Common Stock or other capital
shares ranking junior to the Preferred Stock of such series as to dividends and
upon liquidation) shall be declared or paid or set aside for payment or other
distribution shall be declared or made upon the Common Stock, or any other
capital shares of the Company ranking junior to or on a parity with the
Preferred Stock of such series as to dividends or upon liquidation, nor shall
any shares of Common Stock, or any other capital shares of the Company ranking
junior to or on a parity with the Preferred Stock of such series as to dividends
or upon liquidation be redeemed, purchased or otherwise acquired for any
consideration (or any moneys be paid to or made available for a sinking fund for
the redemption of any such shares) by the Company (except by conversion into or
exchange for other capital shares of the Company ranking junior to the Preferred
Stock of such series as to dividends and upon liquidation).
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REDEMPTION
If so provided in the applicable Prospectus Supplement, the Preferred Stock
will be subject to mandatory redemption or redemption at the option of the
Company, as a whole or in part, in each case upon the terms, at the times and at
the redemption prices set forth in such Prospectus Supplement.
The Prospectus Supplement relating to a series of Preferred Stock that is
subject to mandatory redemption will specify the number of shares of such
Preferred Stock that shall be redeemed by the Company in each year commencing
after a date to be specified, at a redemption price per share to be specified,
together with an amount equal to all accrued and unpaid dividends thereon (which
shall not, if such Preferred Stock does not have a cumulative dividend, include
any accumulation in respect of unpaid dividends for prior dividend periods) to
the date of redemption. The redemption price may be payable in cash or other
property, as specified in the applicable Prospectus Supplement. If the
redemption price for Preferred Stock of any series is payable only from the net
proceeds of the issuance of capital shares of the Company, the terms of such
Preferred Stock may provide that, if no such capital shares shall have been
issued or to the extent the net proceeds from any issuance are insufficient to
pay in full the aggregate redemption price then due, such Preferred Stock shall
automatically and mandatorily be converted into the applicable capital shares of
the Company pursuant to conversion provisions specified in the applicable
Prospectus Supplement.
Notwithstanding the foregoing, unless (i) if such series of Preferred Stock
has a cumulative dividend, full cumulative dividends on all shares of any series
of Preferred Stock shall have been or contemporane-
ously are declared and paid or declared and a sum sufficient for the payment
thereof set apart for payment for all past dividend periods and the then current
dividend period, and (ii) if such series of Preferred Stock does not have a
cumulative dividend, full dividends of the Preferred Stock of any series have
been or contemporaneously are declared and paid or declared and a sum sufficient
for the payment thereof set apart for payment for the then current dividend
period, no shares of any series of Preferred Stock shall be redeemed unless all
outstanding Preferred Stock of such series is simultaneously redeemed; PROVIDED,
HOWEVER, that the foregoing shall not prevent the purchase or acquisition of
Preferred Stock of such series to preserve the REIT status of the Company or
pursuant to a purchase or exchange offer made on the same terms to holders of
all outstanding Preferred Stock of such series. In addition, unless (i) if such
series of Preferred Stock has a cumulative dividend, full cumulative dividends
on all outstanding shares of any series of Preferred Stock have been or
contemporaneously are declared and paid or declared and a sum sufficient for the
payment thereof set apart for payment for all past dividends periods and the
then current dividend period, and (ii) if such series of Preferred Stock does
not have a cumulative dividend, full dividends on the Preferred Stock of any
series have been or contemporaneously are declared and paid or declared and a
sum sufficient for the payment thereof set apart for payment for the then
current dividend period, the Company shall not purchase or otherwise acquire
directly or indirectly any shares of Preferred Stock of such series (except by
conversion into or exchange for capital shares of the Company ranking junior to
the Preferred Stock of such series as to dividends and upon liquidation);
PROVIDED, HOWEVER, that the foregoing shall not prevent the purchase or
acquisition of Preferred Stock of such series to preserve the REIT status of the
Company or pursuant to a purchase or exchange offer made on the same terms to
holders of all outstanding Preferred Stock of such series.
If fewer than all of the outstanding shares of Preferred Stock of any series
are to be redeemed, the number of shares to be redeemed will be determined by
the Company and such shares may be redeemed pro rata from the holders of record
of such shares in proportion to the number of such shares held or for which
redemption is requested by such holder (with adjustments to avoid redemption of
fractional shares) or by lot in a manner determined by the Company.
Notice of redemption will be mailed at least 30 days but not more than 60
days before the redemption date to each holder of record of Preferred Stock of
any series to be redeemed at the address shown on the share transfer books of
the Company. Each notice shall state: (i) the redemption date; (ii) the number
of
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shares and series of the Preferred Stock to be redeemed; (iii) the redemption
price; (iv) the place or places where certificates for such Preferred Stock are
to be surrendered for payment of the redemption price; (v) that dividends on the
shares to be redeemed will cease to accrue on such redemption date; and (vi) the
date upon which the holder's conversion rights, if any, as to such shares shall
terminate. If fewer than all the shares of Preferred Stock of any series are to
be redeemed, the notice mailed to each such holder thereof shall also specify
the number of shares of Preferred Stock to be redeemed from each such holder. If
notice of redemption of any Preferred Stock has been given and if the funds
necessary for such redemption have been set aside by the Company in trust for
the benefit of the holders of any Preferred Stock so called for redemption, then
from and after the redemption date dividends will cease to accrue on such
Preferred Stock, and all rights of the holders of such shares will terminate,
except the right to receive the redemption price.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding up of
the affairs of the Company, then, before any distribution or payment shall be
made to the holders of any Common Stock or any other class or series of capital
shares of the Company ranking junior to the Preferred Stock in the distribution
of assets upon any liquidation, dissolution or winding up of the Company, the
holders of each series of Preferred Stock shall be entitled to receive out of
assets of the Company legally available for distribution to shareholders
liquidating distributions in the amount of the liquidation preference per share
(set forth in the applicable Prospectus Supplement), plus an amount equal to all
dividends accrued and unpaid thereon (which shall not include any accumulation
in respect of unpaid dividends for prior dividend periods if such Preferred
Stock does not have a cumulative dividend). After payment of the full amount of
the liquidating distributions to which they are entitled, the holders of
Preferred Stock will have no right or claim to any of the remaining assets of
the Company. In the event that, upon any such voluntary or involuntary
liquidation, dissolution or winding up, the available assets of the Company are
insufficient to pay the amount of the liquidating distributions on all
outstanding Preferred Stock and the corresponding amounts payable on all shares
of other classes or series of capital shares of the Company ranking on a parity
with the Preferred Stock in the distribution of assets, then the holders of the
Preferred Stock and all other such classes or series of capital shares shall
share ratably in any such distribution of assets in proportion to the full
liquidating distributions to which they would otherwise be respectively
entitled.
If liquidating distributions shall have been made in full to all holders of
Preferred Stock, the remaining assets of the Company shall be distributed among
the holders of any other classes or series of capital shares ranking junior to
the Preferred Stock upon liquidation, dissolution or winding up, according to
their respective rights and preferences and in each case according to their
respective number of shares. For such purposes, the consolidation or merger of
the Company with or into any other corporation, trust or entity, or the sale,
lease or conveyance of all or substantially all of the property or business of
the Company, shall not be deemed to constitute a liquidation, dissolution or
winding up of the Company.
VOTING RIGHTS
Holders of the Preferred Stock will not have any voting rights, except as
set forth below or as otherwise from time to time required by law or as
indicated in the applicable Prospectus Supplement.
Whenever dividends on any shares of Preferred Stock shall be in arrears for
six or more consecutive quarterly periods, the holders of such shares of
Preferred Stock (voting separately as a class with all other series of preferred
stock upon which like voting rights have been conferred and are exercisable)
will be entitled to vote for the election of two additional directors of the
Company at a special meeting called by the holders of record of at least ten
percent (10%) of any series of Preferred stock so in arrears (unless such
request is received less than 90 days before the date fixed for the next annual
or special meeting of the stockholders) or at the next annual meeting of
stockholders, and at each subsequent annual meeting until (i) if such series of
Preferred Stock has a cumulative dividend, all dividends accumulated on such
shares of Preferred Stock for the past dividend periods and the then current
dividend period shall have been fully paid or declared and a sum sufficient for
the payment thereof set aside for payment or (ii) if such series of
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Preferred Stock does not have a cumulative dividend, four consecutive quarterly
dividends shall have been fully paid or declared and a sum sufficient for the
payment thereof set aside for payment. In such case, the entire board of
directors of the Company will be increased by two directors.
Unless provided otherwise for any series of Preferred Stock, so long as any
shares of Preferred Stock remain outstanding, the Company will not, without the
affirmative vote or consent of the holders of at least two-thirds of the shares
of each series of Preferred Stock outstanding at the time, given in person or by
proxy, either in writing or at a meeting (such series voting separately as a
class), (i) authorize or create, or increase the authorized or issued amount of,
any class or series of capital stock ranking prior to such series of Preferred
Stock with respect to payment of dividends or the distribution of assets upon
liquidation, dissolution or winding up or reclassify any authorized capital
stock of the Company into such shares, or create, authorize or issue any
obligation or security convertible into or evidencing the right to purchase any
such shares; or (ii) amend, alter or repeal the provisions of the Company's
Articles of Incorporation or the Designating Amendment for such series of
Preferred Stock, whether by merger, consolidation or otherwise (an "Event"), so
as to materially and adversely affect any right, preference, privilege or voting
power of such series of Preferred Stock or the holders thereof; PROVIDED,
HOWEVER, with respect to the occurrence of any of the Events set forth in (ii)
above, so long as the Preferred Stock remains outstanding with the terms thereof
materially unchanged, taking into account that upon the occurrence of an Event,
the Company may not be the surviving entity, the occurrence of any such Event
shall not be deemed to materially and adversely affect such rights, preferences,
privileges or voting power of holders of Preferred Stock and provided further
that (x) any increase in the amount of the authorized Preferred Stock or the
creation or issuance of any other series of Preferred Stock, or (y) any increase
in the amount of authorized shares of such series or any other series of
Preferred Stock, in each case ranking on a parity with or junior to the
Preferred Stock of such series with respect to payment of dividends or the
distribution of assets upon liquidation, dissolution or winding up, shall not be
deemed to materially and adversely affect such rights, preferences, privileges
or voting powers.
The foregoing voting provisions will not apply if, at or prior to the time
when the act with respect to which such vote would otherwise be required shall
be effected, all outstanding shares of such series of Preferred Stock shall have
been redeemed or called for redemption and sufficient funds shall have been
deposited in trust to effect such redemption.
Under Indiana law, notwithstanding anything to the contrary set forth above,
holders of each series of Preferred Stock will be entitled to vote as a class
upon any proposed amendment to the Articles of Incorporation, whether or not
entitled to vote thereon by the Articles of Incorporation, if the amendment
would (i) increase or decrease the aggregate number of authorized shares of such
series; (ii) effect an exchange or reclassification of all or part of the shares
of the series into shares of another series; (iii) effect an exchange or
reclassification, or create the right of exchange, of all or part of the shares
of another class or series into shares of the series; (iv) change the
designation, rights, preferences or limitations of all or a part of the shares
of the series; (v) change the shares of all or part of the series into a
different number of shares of the same series; (vi) create a new series having
rights or preferences with respect to distributions or dissolution that are
prior, superior or substantially equal to the shares of the series; (vii)
increase the rights, preferences or number of authorized shares of any class or
series that, after giving effect to the amendment, have rights or preferences
with respect to distributions or to dissolution that are prior, superior or
substantially equal to the shares of the series; (viii) limit or deny an
existing preemptive right of all or part of the shares of the series; or (ix)
cancel or otherwise affect rights to distributions or dividends that have
accumulated but have not yet been declared on all or part of the shares of the
series.
CONVERSION RIGHTS
The terms and conditions, if any, upon which any series of Preferred Stock
is convertible into shares of Common Stock will be set forth in the applicable
Prospectus Supplement relating thereto. Such terms will include the number of
shares of Common Stock into which the shares of Preferred Stock are convertible,
the conversion price (or manner of calculation thereof), the conversion period,
provisions as to whether
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conversion will be at the option of the holders of the Preferred Stock or the
Company, the events requiring an adjustment of the conversion price and
provisions affecting conversion in the event of the redemption of such series of
Preferred Stock.
SHAREHOLDER LIABILITY
As discussed below under "Description of Common Stock -- General,"
applicable Indiana law provides that no shareholder, including holders of
Preferred Stock, shall be personally liable for the acts and obligations of the
Company and that the funds and property of the Company shall be the only
recourse for such acts or obligations.
RESTRICTIONS ON OWNERSHIP
As discussed below under "Description of Common Stock -- Certain Provisions
Affecting Change of Control," for the Company to qualify as a REIT under the
Internal Revenue Code of 1986, as amended (the "Code"), not more than 50% in
value of its outstanding capital shares may be owned, directly or indirectly, by
five or fewer individuals (as defined in the Code to include certain entities)
during the last half of a taxable year. To assist the Company in meeting this
requirement, the Company may take certain actions to limit the beneficial
ownership, directly or indirectly, by a single person of the Company's
outstanding equity securities, including any Preferred Stock of the Company.
Therefore, the Designating Amendment for each series of Preferred Stock may
contain provisions restricting the ownership and transfer of the Preferred
Stock. The applicable Prospectus Supplement will specify any additional
ownership limitation relating to a series of Preferred Stock.
REGISTRAR AND TRANSFER AGENT
The Registrar and Transfer Agent for the Preferred Stock will be set forth
in the applicable Prospectus Supplement.
DESCRIPTION OF DEPOSITARY SHARES
GENERAL
The Company may issue receipts ("Depositary Receipts") for Depositary
Shares, each of which will represent a fractional interest of a share of a
particular series of Preferred Stock, as specified in the applicable Prospectus
Supplement. Shares of Preferred Stock of each series represented by Depositary
Shares will be deposited under a separate deposit agreement (each, a "Deposit
Agreement") among the Company, the depositary named therein (a "Preferred Stock
Depositary") and the holders from time to time of the Depositary Receipts.
Subject to the terms of the applicable Deposit Agreement, each owner of a
Depositary Receipt will be entitled, in proportion to the fractional interest of
a share of a particular series of Preferred Stock represented by the Depositary
Shares evidenced by such Depositary Receipt, to all the rights and preferences
of the Preferred Stock represented by such Depositary Shares (including
dividend, voting, conversion, redemption and liquidation rights).
The Depositary Shares will be evidenced by Depositary Receipts issued
pursuant to the applicable Deposit Agreement. Immediately following the issuance
and delivery of the Preferred Stock by the Company to a Preferred Stock
Depositary, the Company will cause such Preferred Stock Depositary to issue, on
behalf of the Company, the Depositary Receipts. Copies of the applicable form of
Deposit Agreement and Depositary Receipt may be obtained from the Company upon
request, and the statements made hereunder relating to Deposit Agreements and
the Depositary Receipts to be issued thereunder are summaries of certain
anticipated provisions thereof and do not purport to be complete and are subject
to, and qualified in their entirety by reference to, all of the provisions of
the applicable Deposit Agreement and related Depositary Receipts.
DIVIDENDS AND OTHER DISTRIBUTIONS
A Preferred Stock Depositary will be required to distribute all cash
dividends or other cash distributions received in respect of the applicable
Preferred Stock to the record holders of Depositary Receipts evidencing
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the related Depositary Shares in proportion to the number of such Depositary
Receipts owned by such holders, subject to certain obligations of holders to
file proofs, certificates and other information and to pay certain charges and
expenses to such Preferred Stock Depositary.
In the event of a distribution other than in cash, a Preferred Stock
Depositary will be required to distribute property received by it to the record
holders of Depositary Receipts entitled thereto, subject to certain obligations
of holders to file proofs, certificates and other information and to pay certain
charges and expenses to such Preferred Stock Depositary, unless such Preferred
Stock Depositary determines that it is not feasible to make such distribution,
in which case such Preferred Stock Depositary may, with the approval of the
Company, sell such property and distribute the net proceeds from such sale to
such holders.
No distribution will be made in respect of any Depositary Share to the
extent that it represents any Preferred Stock which has been converted or
exchanged.
WITHDRAWAL OF STOCK
Upon surrender of the Depositary Receipts at the corporate trust office of
the applicable Preferred Stock Depositary (unless the related Depositary Shares
have previously been called for redemption or converted), the holders thereof
will be entitled to delivery at such office, to or upon each such holder's
order, of the number of whole or fractional shares of the applicable Preferred
Stock and any money or other property represented by the Depositary Shares
evidenced by such Depositary Receipts. Holders of Depositary Receipts will be
entitled to receive whole or fractional shares of the related Preferred Stock on
the basis of the proportion of Preferred Stock represented by each Depositary
Share as specified in the applicable Prospectus Supplement, but holders of such
shares of Preferred Stock will not thereafter be entitled to receive Depositary
Shares therefor. If the Depositary Receipts delivered by the holder evidence a
number of Depositary Shares in excess of the number of Depositary Shares
representing the number of shares of Preferred Stock to be withdrawn, the
applicable Preferred Stock Depositary will be required to deliver to such holder
at the same time a new Depositary Receipt evidencing such excess number of
Depositary Shares.
REDEMPTION OF DEPOSITARY SHARES
Whenever the Company redeems shares of Preferred Stock held by a Preferred
Stock Depositary, such Preferred Stock Depositary will be required to redeem as
of the same redemption date the number of Depositary Shares representing shares
of the Preferred Stock so redeemed, provided the Company shall have paid in full
to such Preferred Stock Depositary the redemption price of the Preferred Stock
to be redeemed plus an amount equal to any accrued and unpaid dividends thereon
to the date fixed for redemption. The redemption price per Depositary Share will
be equal to the redemption price and any other amounts per share payable with
respect to the Preferred Stock. If fewer than all the Depositary Shares are to
be redeemed, the Depositary Shares to be redeemed will be selected pro rata (as
nearly as may be practicable without creating fractional Depositary Shares) or
by any other equitable method determined by the Company that preserves the REIT
status of the Company.
From and after the date fixed for redemption, all dividends in respect of
the shares of Preferred Stock so called for redemption will cease to accrue, the
Depositary Shares so called for redemption will no longer be deemed to be
outstanding and all rights of the holders of the Depositary Receipts evidencing
the Depositary Shares so called for redemption will cease, except the right to
receive any moneys payable upon such redemption and any money or other property
to which the holders of such Depositary Receipts were entitled upon such
redemption upon surrender thereof to the applicable Preferred Stock Depositary.
VOTING OF THE PREFERRED STOCK
Upon receipt of notice of any meeting at which the holders of the applicable
Preferred Stock are entitled to vote, a Preferred Stock Depositary will be
required to mail the information contained in such notice of meeting to the
record holders of the Depositary Receipts evidencing the Depositary Shares which
represent such Preferred Stock. Each record holder of Depositary Receipts
evidencing Depositary Shares on the record date (which will be the same date as
the record date for the Preferred Stock) will be entitled to
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<PAGE>
instruct such Preferred Stock Depositary as to the exercise of the voting rights
pertaining to the amount of Preferred Stock represented by such holder's
Depositary Shares. Such Preferred Stock Depositary will be required to vote the
amount of Preferred Stock represented by such Depositary Shares in accordance
with such instructions, and the Company will agree to take all reasonable action
which may be deemed necessary by such Preferred Stock Depositary in order to
enable such Preferred Stock Depositary to do so. Such Preferred Stock Depositary
will be required to abstain from voting the amount of Preferred Stock
represented by such Depositary Shares to the extent it does not receive specific
instructions from the holders of Depositary Receipts evidencing such Depositary
Shares. A Preferred Stock Depositary will not be responsible for any failure to
carry out any instruction to vote, or for the manner or effect of any such vote
made, as long as any such action or non-action is in good faith and does not
result from negligence or willful misconduct of such Preferred Stock Depositary.
LIQUIDATION PREFERENCE
In the event of the liquidation, dissolution or winding up of the Company,
whether voluntary or involuntary, the holders of each Depositary Receipt will be
entitled to the fraction of the liquidation preference accorded each share of
Preferred Stock represented by the Depositary Share evidenced by such Depositary
Receipt, as set forth in the applicable Prospectus Supplement.
CONVERSION OF PREFERRED STOCK
The Depositary Shares, as such, will not be convertible into Common Stock or
any other securities or property of the Company. Nevertheless, if so specified
in the applicable Prospectus Supplement relating to an offering of Depositary
Shares, the Depositary Receipts may be surrendered by holders thereof to the
applicable Preferred Stock Depositary with written instructions to such
Preferred Stock Depositary to instruct the Company to cause conversion of the
Preferred Stock represented by the Depositary Shares evidenced by such
Depositary Receipts into whole shares of Common Stock, other shares of Preferred
Stock of the Company or other shares of stock, and the Company will agree that
upon receipt of such instructions and any amounts payable in respect thereof, it
will cause the conversion thereof utilizing the same procedures as those
provided for delivery of Preferred Stock to effect such conversion. If the
Depositary Shares evidenced by a Depositary Receipt are to be converted in part
only, a new Depositary Receipt or Receipts will be issued for any Depositary
Shares not to be converted. No fractional shares of Common Stock will be issued
upon conversion, and if such conversion will result in a fractional share being
issued, an amount will be paid in cash by the Company equal to the value of the
fractional interest based upon the closing price of the Common Stock on the last
business day prior to the conversion.
AMENDMENT AND TERMINATION OF A DEPOSIT AGREEMENT
Any form of Depositary Receipt evidencing Depositary Shares which will
represent Preferred Stock and any provision of a Deposit Agreement will be
permitted at any time to be amended by agreement between the Company and the
applicable Preferred Stock Depositary. However, any amendment that materially
and adversely alters the rights of the holders of Depositary Receipts or that
would be materially and adversely inconsistent with the rights granted to the
holders of the related Preferred Stock will not be effective unless such
amendment has been approved by the existing holders of at least two-thirds of
the applicable Depositary Shares evidenced by the applicable Depositary Receipts
then outstanding. No amendment shall impair the right, subject to certain
anticipated exceptions in the Deposit Agreements, of any holder of Depositary
Receipts to surrender any Depositary Receipt with instructions to deliver to the
holder the related Preferred Stock and all money and other property, if any,
represented thereby, except in order to comply with law. Every holder of an
outstanding Depositary Receipt at the time any such amendment becomes effective
shall be deemed, by continuing to hold such Depositary Receipt, to consent and
agree to such amendment and to be bound by the applicable Deposit Agreement as
amended thereby.
A Deposit Agreement will be permitted to be terminated by the Company upon
not less than 30 days' prior written notice to the applicable Preferred Stock
Depositary if (i) such termination is necessary to preserve the Company's status
as a REIT or (ii) a majority of each series of Preferred Stock affected by such
22
<PAGE>
termination consents to such termination, whereupon such Preferred Stock
Depositary will be required to deliver or make available to each holder of
Depositary Receipts, upon surrender of the Depositary Receipts held by such
holder, such number of whole or fractional shares of Preferred Stock as are
represented by the Depositary Shares evidenced by such Depositary Receipts
together with any other property held by such Preferred Stock Depositary with
respect to such Depositary Receipts. The Company will agree that if a Deposit
Agreement is terminated to preserve the Company's status as a REIT, then the
Company will use its best efforts to list the Preferred Stock issued upon
surrender of the related Depositary Shares on a national securities exchange. In
addition, a Deposit Agreement will automatically terminate if (i) all
outstanding Depositary Shares thereunder shall have been redeemed, (ii) there
shall have been a final distribution in respect of the related Preferred Stock
in connection with any liquidation, dissolution or winding up of the Company and
such distribution shall have been distributed to the holders of Depositary
Receipts evidencing the Depositary Shares representing such Preferred Stock or
(iii) each share of the related Preferred Stock shall have been converted into
stock of the Company not so represented by Depositary Shares.
CHARGES OF A PREFERRED STOCK DEPOSITARY
The Company will pay all transfer and other taxes and governmental charges
arising solely from the existence of a Deposit Agreement. In addition, the
Company will pay the fees and expenses of a Preferred Stock Depositary in
connection with the performance of its duties under a Deposit Agreement.
However, holders of Depositary Receipts will pay the fees and expenses of a
Preferred Stock Depositary for any duties requested by such holders to be
performed which are outside of those expressly provided for in the applicable
Deposit Agreement.
RESIGNATION AND REMOVAL OF DEPOSITARY
A Preferred Stock Depositary will be permitted to resign at any time by
delivering to the Company notice of its election to do so, and the Company will
be permitted at any time to remove a Preferred Stock Depositary, any such
resignation or removal to take effect upon the appointment of a successor
Preferred Stock Depositary. A successor Preferred Stock Depositary will be
required to be appointed within 60 days after delivery of the notice of
resignation or removal and will be required to be a bank or trust company having
its principal office in the United States and having a combined capital and
surplus of at least $50,000,000.
MISCELLANEOUS
A Preferred Stock Depositary will be required to forward to holders of
Depositary Receipts any reports and communications from the Company which are
received by such Preferred Stock Depositary with respect to the related
Preferred Stock.
Neither a Preferred Stock Depositary nor the Company will be liable if it is
prevented from or delayed in, by law or any circumstances beyond its control,
performing its obligations under a Deposit Agreement. The obligations of the
Company and a Preferred Stock Depositary under a Deposit Agreement will be
limited to performing their duties thereunder in good faith and without
negligence (in the case of any action or inaction in the voting of Preferred
Stock represented by the applicable Depositary Shares), gross negligence or
willful misconduct, and neither the Company nor any applicable Preferred Stock
Depositary will be obligated to prosecute or defend any legal proceeding in
respect of any Depositary Receipts. Depositary Shares or shares of Preferred
Stock represented thereby unless satisfactory indemnity is furnished. The
Company and any Preferred Stock Depositary will be permitted to rely on written
advice of counsel or accountants, or information provided by persons presenting
shares of Preferred Stock represented thereby for deposit, holders of Depositary
Receipts or other persons believed in good faith to be competent to give such
information, and on documents believed in good faith to be genuine and signed by
a proper party.
In the event a Preferred Stock Depositary shall receive conflicting claims,
requests or instructions from any holders of Depositary Receipts, on the one
hand, and the Company, on the other hand, such Preferred Stock Depositary shall
be entitled to act on such claims, requests or instructions received from the
Company.
23
<PAGE>
DESCRIPTION OF COMMON STOCK
GENERAL
The authorized capital stock of the Company includes 45,000,000 shares of
Common Stock, $.01 par value per share. Each outstanding share of Common Stock
entitles the holder to one vote on all matters presented to shareholders for a
vote. Holders of Common Stock have no preemptive rights. At June 30, 1995, there
were 24,134,745 shares of Common Stock outstanding and 4,163,459 shares reserved
for issuance upon exchange of outstanding Units.
Shares of Common Stock currently outstanding are listed for trading on the
New York Stock Exchange (the "NYSE"). The Company will apply to the NYSE to list
the additional shares of Common Stock to be sold pursuant to any Prospectus
Supplement, and the Company anticipates that such shares will be so listed.
The Articles of Incorporation of the Company provide for the board of
directors to be divided into three classes of directors, each class to consist
as nearly as possible of one-third of the directors. At each annual meeting of
shareholders, the class of directors to be elected at such meeting will be
elected for a three-year term and the directors in the other two classes will
continue in office. The overall effect of the provisions in the Articles of
Incorporation with respect to the classified board may be to render more
difficult a change of control of the Company or removal of incumbent management.
Holders of Common Stock have no right to cumulative voting for the election of
directors. Consequently, at each annual meeting of shareholders, the holders of
a plurality of the shares of Common Stock are able to elect all of the
successors of the class of directors whose term expires at that meeting.
Directors may be removed only for cause and only with the affirmative vote of
the holders of a majority of the shares of Common Stock entitled to vote in the
election of directors.
All shares of Common Stock issued will be duly authorized, fully paid, and
non-assessable. Distributions may be paid to the holders of Common Stock if and
when declared by the board of directors of the Company out of funds legally
available therefor. The Company intends to continue to pay quarterly dividends.
Under Indiana law, shareholders are generally not liable for the Company's
debts or obligations. If the Company is liquidated, subject to the right of any
holders of preferred stock, if any, to receive preferential distributions, each
outstanding share of Common Stock will be entitled to participate pro rata in
the assets remaining after payment of, or adequate provision for, all known
debts and liabilities of the Company.
CERTAIN PROVISIONS AFFECTING CHANGE OF CONTROL
GENERAL. Pursuant to Indiana law, the Company cannot merge with or sell all
or substantially all of the assets of the Company, except pursuant to a
resolution approved by shareholders holding a majority of the shares voting on
the resolution. The Company's Articles of Incorporation also contain provisions
which may discourage certain types of transactions involving an actual or
threatened change of control of the Company, including: (i) a requirement that,
in the case of certain mergers, sales of assets, liquidations or dissolutions,
or reclassifications or recapitalizations involving persons owning 10% or more
of the capital stock of the Company, such transactions be approved by a vote of
the holders of 80% of the issued and outstanding shares of capital stock of the
Company or three-fourths of the continuing directors, or provide for payment of
a price to affected shareholders for their shares not less than as specified in
the Articles of Incorporation; (ii) a requirement that any amendment or
alteration of certain provisions of the Articles of Incorporation affecting
change of control be approved by the holders of 80% of the issued and
outstanding capital stock of the Company; and (iii) a staggered board of
directors and a limitation on removal of directors to removal for cause as
described above.
The partnership agreement for the Operating Partnership also contains
provisions which could discourage transactions involving an actual or threatened
change of control of the Company, including (i) a requirement that holders of at
least 90% of the outstanding Units held by the Company and other Unit holders
approve any voluntary sale, exchange or other disposition, including merger or
consolidation (other than a disposition occurring upon a financing or
refinancing of the Operating Partnership), of all or
24
<PAGE>
substantially all of the assets of the Operating Partnership in a single
transaction or a series of related transactions; (ii) a restriction against any
assignment or transfer by the Company of its interest in the Operating
Partnership; and (iii) a requirement that holders of more than 90% of the Units
approve any merger, consolidation or other combination of the Company with or
into another entity, or sale of all or substantially all of the Company's
assets, or any reclassification or recapitalization or change of outstanding
shares of Common Stock (other than certain changes in par value, stock splits,
stock dividends or combinations) unless after the transaction substantially all
of the assets of the surviving entity are contributed to the Operating
Partnership in exchange for Units. On these matters, the Company's Units will be
voted at the discretion of the directors of the Company who are not officers or
employees of the Company and do not hold Units.
OWNERSHIP LIMITS. For the Company to qualify as a REIT under the Code, no
more than 50% in value of its outstanding capital shares may be owned, directly
or indirectly, by five or fewer individuals (as defined in the Code to include
certain entities) during the last half of a taxable year or during a
proportionate part of a shorter taxable year. The Common Stock must also be
beneficially owned by 100 or more persons during at least 335 days of a taxable
year or during a proportionate part of a shorter taxable year. Because the
Company expects to continue to qualify as a REIT, the Articles of Incorporation
of the Company contain restrictions on the acquisition of Common Stock intended
to ensure compliance with these requirements.
The Articles of Incorporation contain a restriction which authorizes, but
does not require, the board of directors to refuse to give effect to a transfer
of Common Stock which, in its opinion, might jeopardize the status of the
Company as a REIT. This provision also renders null and void any purported
acquisition of shares which would result in the disqualification of the Company
as a REIT. The provision also gives the board of directors the authority to take
such actions as it deems advisable to enforce the provision. Such actions might
include, but are not limited to, refusing to give effect to, or seeking to
enjoin, a transfer which might jeopardize the Company's status as a REIT. The
provision also requires any shareholder to provide the Company such information
regarding his direct and indirect ownership of Common Stock as the Company may
reasonably require.
REGISTRAR AND TRANSFER AGENT
The Registrar and Transfer Agent for the Common Stock is American Stock
Transfer & Trust Company, New York, New York.
PLAN OF DISTRIBUTION
The Company and the Operating Partnership may sell Securities to or through
underwriters, and also may sell Securities directly to other purchasers or
through agents.
The distribution of the Securities may be effected from time to time in one
or more transactions at a fixed price or prices, which may be changed, or at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices.
In connection with the sale of Securities, underwriters may receive
compensation from the Company, from the Operating Partnership or from purchasers
of Securities, for whom they may act as agents, in the form of discounts,
concessions, or commissions. Underwriters may sell Securities to or through
dealers, and such dealers may receive compensation in the form of discounts,
concessions, or commissions from the underwriters and/or commissions from the
purchasers for whom they may act as agents. Underwriters, dealers, and agents
that participate in the distribution of Securities may be deemed to be
underwriters, and any discounts or commissions they receive from the Company or
the Operating Partnership, and any profit on the resale of Securities they
realize may be deemed to be underwriting discounts and commissions, under the
Securities Act. Any such underwriter or agent will be identified, and any such
compensation received from the Company or the Operating Partnership will be
described, in the Prospectus Supplement.
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<PAGE>
Unless otherwise specified in the related Prospectus Supplement, each series
of Securities will be a new issue with no established trading market, other than
the Common Stock which is listed on the NYSE. Any shares of Common Stock sold
pursuant to a Prospectus Supplement will be listed on such exchange, subject to
official notice of issuance. The Company or the Operating Partnership may elect
to list any series of Debt Securities, Preferred Stock or Depositary Shares on
an exchange, but neither is obligated to do so. It is possible that one or more
underwriters may make a market in a series of Securities, but will not be
obligated to do so and may discontinue any market making at any time without
notice. Therefore, no assurance can be given as to the liquidity of the trading
market for the Securities.
Under agreements the Company and the Operating Partnership may enter into,
underwriters, dealers, and agents who participate in the distribution of
Securities may be entitled to indemnification by the Company or the Operating
Partnership against certain liabilities, including liabilities under the
Securities Act.
Underwriters, dealers and agents may engage in transactions with, or perform
services for, or be customers of, the Company or the Operating Partnership in
the ordinary course of business.
If so indicated in the applicable Prospectus Supplement, the Company or the
Operating Partnership, as the case may be, will authorize underwriters or other
persons acting as the Company's or the Operating Partnership's agents to solicit
offers by certain institutions to purchase Securities from the Company or the
Operating Partnership pursuant to contracts providing for payment and delivery
on a future date. Institutions with which such contracts may be made include
commercial and savings banks, insurance companies, pension funds, investment
companies, educational and charitable institutions and others, but in all cases
such institutions must be approved by the Company or the Operating Partnership,
as the case may be. The obligations of any purchaser under any such contract
will be subject to the condition that the purchase of the Securities shall not
at the time of delivery be prohibited under the laws of the jurisdiction to
which such purchaser is subject. The underwriters and such other agents will not
have any responsibility in respect of the validity or performance of such
contracts.
LEGAL OPINIONS
The legality of the Securities offered hereby is being passed upon for the
Company by Bose McKinney & Evans, Indianapolis, Indiana. John W. Wynne and
Darell E. Zink, Jr., officers and directors of the Company, were partners in
Bose McKinney & Evans through 1987 and 1982, respectively, and were of counsel
to that firm until December, 1990. The spouse of Dayle M. Eby, an officer and
shareholder of the Company, is a partner in Bose McKinney & Evans. Rogers &
Wells, New York, New York will act as counsel to any underwriters, dealers or
agents.
EXPERTS
The Consolidated Financial Statements and Schedules 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, and the Consolidated Financial Statements of the
Operating Partnership as of December 31, 1994 and 1993, and for each of the
years in the three-year period ended December 31, 1994, each incorporated herein
by reference have been incorporated herein in reliance on the reports of KPMG
Peat Marwick LLP, independent auditors, also incorporated by reference herein,
and upon the authority of said firm as experts in accounting and auditing.
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<PAGE>
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NO DEALER, SALESMAN OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS IN
CONNECTION WITH THE OFFERING MADE BY THIS PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS.
NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS NOR ANY
SALE MADE HEREUNDER AND THEREUNDER SHALL, UNDER ANY CIRCUMSTANCE, CREATE AN
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE FACTS SET FORTH IN THIS
PROSPECTUS SUPPLEMENT OR IN THE PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY
SINCE THE DATE HEREOF. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT
CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY STATE IN WHICH SUCH OFFER
OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION.
-------------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Supplement Summary..................... S-3
The Company....................................... S-6
Recent Developments............................... S-10
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-22
Management........................................ S-29
Description of Series A Preferred Shares and
Depositary Shares................................ S-30
Certain Federal Income Tax Considerations......... S-33
Underwriting...................................... S-40
Legal Matters..................................... S-40
PROSPECTUS
Available Information............................. 2
Incorporation of Certain Documents by Reference... 2
The Company and the Operating Partnership......... 3
Use of Proceeds................................... 3
Ratios of Earnings to Fixed Charges............... 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>
3,000,000 SHARES
[LOGO]
DEPOSITARY SHARES
EACH
REPRESENTING 1/10 OF A
% SERIES A CUMULATIVE
REDEEMABLE PREFERRED SHARE
(PAR VALUE $0.01 PER SHARE)
(LIQUIDATION PREFERENCE
EQUIVALENT TO
$25.00 PER DEPOSITARY SHARE)
-------------------
PROSPECTUS SUPPLEMENT
-------------------
MERRILL LYNCH & CO.
DEAN WITTER REYNOLDS INC.
A.G. EDWARDS & SONS, INC.
SMITH BARNEY INC.
AUGUST , 1996
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