UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
--------------
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
----- ------
------------------------------------------------------------------------
Commission File Number: 1-9044
------
DUKE REALTY INVESTMENTS, INC.
State of Incorporation: IRS Employer ID Number:
Indiana 35-1740409
- ----------------------- -----------------------
Address of principal executive offices:
8888 Keystone Crossing, Suite 1200
----------------------------------
Indianapolis, Indiana 46240
-----------------------------
Telephone: (317) 846-4700
--------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
--- ---
The number of Common Shares outstanding as of May 8, 1997 was 31,576,674
($.01 par value).
<PAGE>
DUKE REALTY INVESTMENTS, INC.
INDEX
PART I - FINANCIAL INFORMATION PAGE
- ------------------------------ ----
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets as of
March 31, 1997 (Unaudited) and December 31, 1996 2
Condensed Consolidated Statements of Operations for the
three months ended March 31, 1997 and 1996 (Unaudited) 3
Condensed Consolidated Statements of Cash Flows for the
three months ended March 31, 1997 and 1996 (Unaudited) 4
Condensed Consolidated Statement of Shareholders' Equity
for the three months ended March 31, 1997 (Unaudited) 5
Notes to Condensed Consolidated Financial Statements
(Unaudited) 6-7
Independent Accountants' Review Report 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-14
Part II - Other Information
- ---------------------------
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of
Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DUKE REALTY INVESTMENTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
March 31, December 31,
ASSETS 1997 1996
------ --------- -----------
(Unaudited)
<S> <C> <C>
Real estate investments:
Land and improvements $ 144,208 $ 140,391
Buildings and tenant improvements 1,061,084 1,041,040
Construction in progress 75,814 44,060
Land held for development 63,454 65,185
--------- ---------
1,344,560 1,290,676
Accumulated depreciation (90,075) (82,207)
--------- ---------
Net real estate investments 1,254,485 1,208,469
Cash 12,997 5,334
Accounts receivable from tenants, net of
allowance of $536 and $709 4,124 5,260
Straight-line rent receivable, net of
allowance of $841 11,721 10,956
Receivables on construction contracts 10,843 12,859
Investments in unconsolidated companies 79,294 79,362
Deferred financing costs, net of accumulated
amortization of $3,952 and $3,529 7,747 8,127
Deferred leasing and other costs, net of
accumulated amortization of $9,425 and $8,276 28,681 24,404
Escrow deposits and other assets 7,686 6,371
--------- ---------
$1,417,578 $1,361,142
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Indebtedness:
Secured debt $ 261,056 $ 261,815
Unsecured debt 240,000 240,000
Unsecured line of credit 5,000 24,000
--------- ---------
506,056 525,815
Construction payables and amounts due
subcontractors 24,270 23,167
Accounts payable 1,683 1,585
Accrued real estate taxes 14,800 14,888
Accrued interest 3,089 4,437
Other accrued expenses 6,334 7,312
Other liabilities 7,691 8,312
Tenant security deposits and prepaid rents 9,188 7,611
--------- ---------
Total liabilities 573,111 593,127
--------- ---------
Minority interest 15,407 13,083
--------- ---------
Shareholders' equity:
Series A preferred shares and paid-in
capital ($.01 par value); 5,000 shares
authorized; 300 shares issued and
outstanding 72,288 72,288
Common shares and paid-in capital ($.01
par value); 45,000 shares authorized;
31,442 and 29,486 shares issued and
outstanding 806,056 731,107
Distributions in excess of net income (49,284) (48,463)
--------- ---------
Total shareholders' equity 829,060 754,932
--------- ---------
$1,417,578 $1,361,142
========= =========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
- 2 -
<PAGE>
DUKE REALTY INVESTMENTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31,
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
RENTAL OPERATIONS:
Revenues:
Rental income $49,058 $35,335
Equity in earnings of unconsolidated companies 1,860 1,202
------ ------
50,918 36,537
------ ------
Operating expenses:
Rental expenses 9,272 7,144
Real estate taxes 4,442 3,208
Interest expense 8,602 7,967
Depreciation and amortization 9,843 7,046
------ ------
32,159 25,365
------ ------
Earnings from rental operations 18,759 11,172
------ ------
SERVICE OPERATIONS:
Revenues:
Property management, maintenance and leasing fees 2,641 2,714
Construction management and development fees 1,066 1,317
Other income 232 315
------ ------
3,939 4,346
------ ------
Operating expenses:
Payroll 2,340 2,235
Maintenance 388 296
Office and other 749 632
------ ------
3,477 3,163
------ ------
Earnings from service operations 462 1,183
------ ------
General and administrative expense (1,316) (1,067)
------ ------
Operating income 17,905 11,288
OTHER INCOME (EXPENSE):
Interest income 250 346
Earnings (loss) from property sales 280 (14)
Minority interest in earnings of unitholders (1,758) (1,785)
Other minority interest in earnings of subsidiaries 15 (187)
------ ------
Net income 16,692 9,648
Dividends on preferred shares (1,706) -
------ ------
Net income available for common shares $14,986 $ 9,648
====== ======
Net income per common share $ .49 $ .40
====== ======
Weighted average number of common shares outstanding 30,812 24,284
====== ======
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
- 3 -
<PAGE>
DUKE REALTY INVESTMENTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31,
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Cash flows from operating activities:
Net income $16,692 $ 9,648
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation of buildings and tenant
improvements 8,386 5,936
Amortization of deferred financing costs 344 285
Amortization of deferred leasing and other
costs 1,113 825
Minority interest in earnings 1,743 1,972
Straight-line rental income (765) (831)
(Earnings) loss from property sales (280) 14
Construction contracts, net 3,119 (1,624)
Other accrued revenues and expenses, net 161 (1,571)
Equity in earnings in excess of
distributions received from
unconsolidated companies (1,540) (185)
------ ------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 28,973 14,469
------ ------
Cash flows from investing activities:
Rental property development costs (29,168) (28,752)
Acquisition of rental properties - (55,038)
Acquisition of land held for development
and infrastructure costs (5,634) (408)
Recurring costs:
Tenant improvements (2,168) (1,762)
Leasing commissions (1,295) (632)
Building improvements (116) (32)
Other deferred costs and other assets (5,431) 4,048
Proceeds from property sales, net 1,280 2,926
Net investment in and advances to
unconsolidated companies 1,369 (215)
------- -------
NET CASH USED BY INVESTING ACTIVITIES (41,163) (79,865)
------- -------
Cash flows from financing activities:
Proceeds from issuance of common
shares, net 59,390 113,835
Payments on indebtedness including
principal amortization (759) (532)
Borrowings (repayments) on lines
of credit, net (19,000) (27,000)
Distributions to common shareholders (15,807) (11,835)
Distributions to preferred shareholders (1,706) -
Distributions to minority interest (2,221) (2,427)
Deferred financing costs (44) (282)
------- -------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 19,853 71,759
------- -------
NET INCREASE IN CASH 7,663 6,363
------- -------
Cash at beginning of period 5,334 5,727
------- -------
Cash at end of period $ 12,997 $ 12,090
======= =======
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
- 4 -
<PAGE>
DUKE REALTY INVESTMENTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Series A
Preferred Shares Common Shares Distributions
and Paid-in and Paid-in in Excess of
Capital Capital Net Income Total
-------------- ------------- ------------- ---------
<S> <C> <C> <C> <C>
BALANCE AT
DECEMBER 31,
1996 $72,288 $731,107 $(48,463) $754,932
Proceeds from
issuance of
common shares,
net of under-
writing discounts
and offering costs
of $3,283 - 59,435 - 59,435
Acquisition of
minority interest - 15,514 - 15,514
Net income - - 16,692 16,692
Distributions to
common shareholders
($.51 per common
share) - - (15,807) (15,807)
Distributions to
preferred
shareholders - - (1,706) (1,706)
------ ------- -------- --------
BALANCE AT
MARCH 31, 1997 $72,288 $806,056 $(49,284) $829,060
====== ======= ======= =======
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
- 5 -
<PAGE>
DUKE REALTY INVESTMENTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. FINANCIAL STATEMENTS
The interim condensed consolidated financial statements included
herein have been prepared by Duke Realty Investments, Inc. (the
"Company") without audit. The statements have been prepared in
accordance with generally accepted accounting principles for
interim financial information and the instructions for Form 10-Q
and Rule 10-01 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by
generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments
(consisting of normal recurring adjustments) considered necessary
for a fair presentation have been included. These financial
statements should be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's
Annual Report to Shareholders.
THE COMPANY
The Company's rental operations are conducted through Duke Realty
Limited Partnership ("DRLP"). The Company owns 90.3% of DRLP at
March 31, 1997. The remaining interests in DRLP ("Limited Partner
Units") are exchangeable for shares of the Company's common stock
on a one-for-one basis. The Company periodically acquires a
portion of the minority interest in DRLP through the issuance of
shares of common stock for a like number of Limited Partner
Units. The acquisition of this minority interest is accounted for
under the purchase method with assets acquired recorded at the
fair market value of the Company's common stock on the date of
acquisition. In addition, the Company conducts operations through
Duke Realty Services Limited Partnership and Duke Construction
Limited Partnership, in which the Company's wholly-owned
subsidiary, Duke Services, Inc., is the sole general partner. The
consolidated financial statements include the accounts of the
Company and its majority-owned or controlled subsidiaries. The
equity interests in these majority-owned or controlled
subsidiaries not owned by the Company are reflected as minority
interests in the consolidated financial statements.
2. LINES OF CREDIT
The Company has a $150 million unsecured revolving credit
facility which is available to fund the development and
acquisition of additional rental properties and to provide
working capital. The revolving line of credit matures in April
1998 and bears interest payable monthly at the 30-day London
Interbank Offered Rate ("LIBOR") plus 1.00%. The Company also has
a demand $10 million secured revolving credit facility which is
available to provide working capital. This facility bears
interest payable monthly at the 30-day LIBOR rate plus .75%.
3. RELATED PARTY TRANSACTIONS
The Company provides management, maintenance, leasing,
construction, and other tenant related services to properties in
which certain executive officers have continuing ownership
interests. The Company was paid fees totaling $750,000 and
$681,000 for such services for the three months ended
- 6 -
<PAGE>
March 31, 1997 and 1996, respectively. Management believes the
terms for such services are equivalent to those available in the
market. The Company has an option to purchase the executive
officers' interest in each of these properties which expires
October 2003. The option price of each property was established
at the date the option was granted.
4. FORWARD TREASURY LOCK AGREEMENT
In April 1997, the Company entered into a Forward Treasury Lock
Agreement in order to hedge its exposure to interest rate fluctuations
on an anticipated $100 million unsecured debt financing expected to
close by June 30, 1997. Any gain or loss under the agreement will be
amortized to interest expense over the term of the financing.
5. SUBSEQUENT EVENTS
On April 24, 1997, the Board of Directors declared a dividend of
$.51 per share of common stock which is payable on May 30, 1997,
to common shareholders of record on May 16, 1997.
On April 24, 1997, the Board of Directors declared a dividend of
$.56875 per depositary share of Series A preferred stock which is
payable on May 30, 1997 to preferred shareholders of record on
May 16, 1997. Each depositary share represents one-tenth of a
share of the Company's 9.10 Series A preferred shares.
- 7 -
<PAGE>
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
--------------------------------------
The Board of Directors
DUKE REALTY INVESTMENTS, INC.:
We have reviewed the condensed consolidated balance sheet of Duke
Realty Investments, Inc. and subsidiaries as of March 31, 1997,
the related condensed consolidated statements of operations and
cash flows for the three months ended March 31, 1997 and 1996,
and the related condensed consolidated statement of shareholders'
equity for the three months ended March 31, 1997. These condensed
consolidated financial statements are the responsibility of the
Company's management.
We conducted our review in accordance with standards established
by the American Institute of Certified Public Accountants. A
review of interim financial information consists principally of
applying analytical procedures to financial data and making
inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing
standards, the objective of which is the expression of an opinion
regarding the financial statements taken as a whole. Accordingly,
we do not express such an opinion.
Based on our review, we are not aware of any material
modifications that should be made to the condensed consolidated
financial statements referred to above for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet of Duke Realty
Investments, Inc. and subsidiaries as of December 31, 1996, and
the related consolidated statements of operations, shareholders'
equity and cash flows for the year then ended (not presented
herein); and in our report dated January 29, 1997, we expressed
an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the
accompanying condensed consolidated balance sheet as of December
31, 1996 is fairly presented, in all material respects, in
relation to the consolidated balance sheet from which it has been
derived.
KPMG Peat Marwick LLP
Indianapolis, Indiana
May 5, 1997
- 8 -
<PAGE>
ITEM 2. 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 operations of its industrial, office and retail
properties located in its primary markets. This income from
rental operations is substantially influenced by the supply and
demand for the 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 of
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 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 occupancy rate
of its in-service portfolio has exceeded 92% the last two years
and was at 95.5% at March 31, 1997. 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 March
31, 1997 and 1996 (in thousands, except percentages):
<TABLE>
<CAPTION>
Total Percent of
Square Feet Total Square Feet Percent Occupied
------------- ----------------- ----------------
Type 1997 1996 1997 1996 1997 1996
---- ---- ----- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
INDUSTRIAL
Service Centers 3,051 2,970 11.03% 13.32% 93.04% 94.60%
Bulk 15,531 12,155 56.15% 54.51% 95.95% 92.33%
OFFICE
Suburban 6,319 4,684 22.84% 21.01% 96.53% 96.26%
CBD 699 699 2.53% 3.14% 87.55% 93.62%
Medical 369 333 1.34% 1.49% 95.18% 89.64%
RETAIL 1,690 1,456 6.11% 6.53% 94.52% 93.73%
------ ------ ------- -------
Total 27,659 22,297 100.00% 100.00% 95.45% 93.55%
====== ====== ======= =======
</TABLE>
Management expects occupancy of the in-service property portfolio
to remain stable because (i) only 8.1% and 12.1% of the Company's
occupied square footage is subject to leases expiring in the remainder
of 1997 and in 1998, respectively, and (ii) the Company's renewal
percentage averaged 80%, 65% and 73% in 1996, 1995 and 1994, respectively.
- 9 -
<PAGE>
The following table reflects the Company's in-service portfolio
lease expiration schedule as of March 31, 1997 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 Portfolio
--------------- ------------ -------------- -----------------
Contrac- Contrac- Contrac- Contrac-
Year of Sq. tual Sq. tual Sq. tual Sq. tual
Expir. Feet Rent Feet Rent Feet Rent Feet Rent
------- ----- ------ ----- ------ ----- ----- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1997 1,605 $ 6,435 495 $ 5,003 48 $ 528 2,148 $ 11,966
1998 2,332 8,740 750 8,123 107 1,115 3,189 17,978
1999 2,218 9,619 908 9,798 120 1,233 3,246 20,650
2000 2,165 8,841 840 10,200 103 1,244 3,108 20,285
2001 2,512 9,891 865 9,546 88 1,062 3,465 20,499
2002 1,023 4,032 848 9,071 134 1,401 2,005 14,504
2003 292 1,766 217 2,489 35 317 544 4,572
2004 865 3,221 195 2,386 13 126 1,073 5,733
2005 1,256 4,069 535 6,770 177 1,505 1,968 12,344
2006 2,038 6,457 352 4,359 5 67 2,395 10,883
2007 and
There-
after 1,435 4,722 1,058 13,775 767 6,506 3,260 25,003
------ ------ ----- ------ ----- ------ ------- -------
Total
Leased 17,741 $67,793 7,063 $81,520 1,597 $15,104 26,401 $164,417
====== ====== ===== ====== ===== ====== ====== =======
Total
Portfolio
Square
Feet 18,582 7,387 1,690 27,659
====== ===== ===== ======
Annualized
net effective
rent per
square foot $ 3.82 $ 11.54 $ 9.46 $ 6.23
====== ====== ====== =======
</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 development and
acquisition of additional rental properties in its primary markets;
(ii) the expansion into other attractive Midwestern markets; and
(iii) the completion of the 5.1 million square feet of properties
under development at March 31, 1997 over the next four quarters.
The 5.1 million square feet of properties under development should
provide future earnings from rental operations growth for the
Company as they are placed in service as follows (in thousands,
except percent leased and stabilized returns):
<TABLE>
<CAPTION>
Anticipated
In-Service Square Percent Project Stabilized
Date Feet Leased Costs Return
------------ ------ ------- ------- ----------
<S> <C> <C> <C> <C>
2nd Quarter 1997 1,650 81% $ 50,332 11.9%
3rd Quarter 1997 1,931 69% 65,067 11.1%
4th Quarter 1997 668 72% 44,004 11.7%
1st Quarter 1998 830 79% 37,833 11.5%
----- -------
5,079 75% $197,236 11.5%
===== =======
</TABLE>
RESULTS OF OPERATIONS
---------------------
Following is a summary of the Company's operating results and
property statistics for the three months ended March 31, 1997
and 1996 (in thousands, except number of properties and per share
amounts):
- 10 -
<PAGE>
<TABLE>
<CAPTION>
Three months ended March 31,
----------------------------
1997 1996
-------- --------
<S> <C> <C>
Rental Operations revenue $50,918 $36,537
Service Operations revenue 3,939 4,346
Earnings from Rental Operations 18,759 11,172
Earnings from Service Operations 462 1,183
Operating income 17,905 11,288
Net income available for common shares $14,986 $ 9,648
Weighted average common shares outstanding 30,812 24,284
Net income per common share $ .49 $ .40
Number of in-service properties at
end of period 250 214
In-service square footage at end of
period 27,659 22,297
Under development square footage at
end of period 5,079 2,891
</TABLE>
COMPARISON OF THREE MONTHS ENDED MARCH 31, 1997 TO THREE MONTHS ENDED
MARCH 31, 1996
--------------------------------------------------------------------
Rental Operations
-----------------
The Company increased its in-service portfolio of rental
properties from 214 properties comprising 23.0 million square
feet at March 31, 1996 to 250 properties comprising 27.7 million
square feet at March 31, 1997 through the acquisition of 23
properties totaling 2.1 million square feet and the completion of
15 properties and three building expansions totaling 3.5 million
square feet developed by the Company. The Company also disposed
of two properties totaling 226,000 square feet. These 36 net
additional rental properties primarily account for the $14.4
million increase in revenues from Rental Operations from 1996 to
1997. The Company also received a $1.2 million net lease
termination payment made by a tenant in one of the Company's
office properties which is included in rental income for the
three months ended March 31, 1997. The increase from 1996 to 1997
in rental expenses, real estate taxes and depreciation and
amortization expense is also a result of the additional 36 in-
service rental properties.
Interest expense increased by approximately $600,000 from $8.0
million for the three months ended March 31, 1996 to $8.6 million
for the three months ended March 31, 1997 due to additional
unsecured debt issued in its medium-term note program in the last
two quarters of 1996 to fund the development and acquisition of
additional rental properties.
As a result of the above-mentioned items, earnings from rental
operations increased $7.6 million from $11.2 million for the
three months ended March 31, 1996 to $18.8 million for the three
months ended March 31, 1997.
Service Operations
------------------
Service Operation revenues decreased to $3.9 million for the
three months ended March 31, 1997 as compared to $4.3 million for
the three months ended March 31, 1996. This decrease was
primarily the result of a decrease in construction management
fees caused by unfavorable weather conditions during the three
months ended March 31, 1997. Service Operation operating expenses
increased from $3.2
- 11 -
<PAGE>
million to $3.5 million for the three months ended March 31, 1997
as compared to the three months ended March 31, 1996 primarily as
a result of an increase in operating expenses resulting from the
overall growth of the Company.
As a result of the above-mentioned items, earnings from Service
Operations decreased from $1.2 million for the three months ended
March 31, 1996 to $462,000 for the three months ended March 31,
1997.
General and Administrative Expense
----------------------------------
General and administrative expense increased from $1.1 million
for the three months ended March 31, 1996 to $1.3 million for the
three months ended March 31, 1997 primarily as a result of
increased state and local taxes due to the growth in revenues and
net income of the Company.
Other Income (Expense)
----------------------
Interest income decreased from $346,000 for the three months
ended March 31, 1996 to $250,000 for the three months ended March
31, 1997 primarily as a result of interest income which was
earned on certain escrows during the three months ended March 31,
1996 which were refunded later in 1996.
Net Income Available for Common Shares
--------------------------------------
Net income available for common shares for the three months ended
March 31, 1997 was $15.0 million compared to net income available
for common shares of $9.6 million for the three months ended
March 31, 1996. This increase results primarily from the
operating result fluctuations in rental and service operations
explained above.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities totaling $29.0 million
and $14.5 million for the three months ended March 31, 1997 and
1996, respectively, represents the primary source of liquidity to
fund distributions to shareholders, unitholders and the other
minority interests and to fund recurring costs associated with
the renovation and re-letting of the Company's properties. This
increase is primarily a result of, as discussed above under
"Results of Operations," 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 $41.2 million and
$79.9 million for the three months ended March 31, 1997 and 1996,
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 property sales. In 1997, $34.8 million
was invested in the development of additional rental properties
and the acquisition of land held for development. In 1996, the
investment in the development and acquisition of additional
rental properties and land held for development was $84.2
million. Included in the $84.2 million of net cash used by
investing activities
- 12 -
<PAGE>
for the development and acquisition of rental properties for the
three months ended March 31, 1996 is $44.5 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 $76.0 million which included
the assumption of $23.1 million of mortgage debt and the issuance
of $8.4 million of units of partnership interest in the
Company's operating partnership. In March 1996, the Company
received $113.8 million of net proceeds from a common equity
offering which was used to pay down amounts outstanding on the
unsecured line of credit and to fund current development and
acquisition activity. In January 1997, the Company received
$56.7 million of net proceeds from a common equity offering
which was used to pay down amounts outstanding on the
unsecured line of credit and to fund current development activity.
During the three months ended March 31, 1997, the Company also
received $2.7 million of net proceeds from the issuance of common
stock under its Direct Stock Purchase and Dividend Reinvestment Plan.
The Company has a $150 million unsecured line of credit which
matures in April 1998. In January 1996, the borrowing rate was
LIBOR plus 1.625%. In September 1996, the borrowing rate was
reduced to LIBOR plus 1.25%. On March 27, 1997 the borrowing rate
was further reduced to LIBOR plus 1.00%. The Company also has a
demand $10 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 Form S-3 Registration
Statements with the Securities and Exchange Commission ("Shelf
Registrations") which had remaining availability as of April 29,
1997 of approximately $410 million to issue common stock,
preferred stock or unsecured debt securities. The Company intends
to issue additional equity or debt under these Shelf
Registrations as capital needs arise to fund the development and
acquisition of additional rental properties.
The total mortgage debt outstanding at March 31, 1997 consists of
notes totaling $506.1 million with a weighted average interest
rate of 7.58% maturing at various dates through 2017. The Company
has $245.0 million of unsecured debt and $261.1 million of
secured debt outstanding at March 31, 1997. Scheduled principal
amortization of such mortgage debt totaled $759,000 for the three
months ended March 31, 1997.
Following is a summary of the scheduled future amortization and
maturities of the Company's indebtedness at March 31, 1997 (in
thousands):
<TABLE>
<CAPTION>
Repayments
-------------------------------------- Weighted Average
Scheduled Interest Rate of
Year Amortization Maturities Total Future Repayments
---- ------------ ---------- --------- -----------------
<S> <C> <C> <C> <C>
1997 $ 2,629 $ 10,000 $ 12,629 6.66%
1998 4,410 51,590 56,000 7.26%
1999 5,146 28,470 33,616 6.15%
2000 3,227 44,853 48,080 7.38%
2001 2,930 59,954 62,884 8.72%
2002 3,189 50,000 53,189 7.36%
2003 902 68,216 69,118 8.48%
2004 978 50,000 50,978 7.14%
2005 1,064 100,000 101,064 7.48%
2006 1,160 - 1,160 7.38%
Thereafter 17,338 - 17,338 7.54%
------ ------- -------
Total $42,973 $463,083 $506,056 7.58%
====== ======= =======
-13 -
</TABLE>
<PAGE>
The 1997 maturities consist of the outstanding balance on the
Company's $10 million demand secured line of credit.
The Company intends to pay regular quarterly dividends from net
cash provided by operating activities. A quarterly dividend of
$.51 per Common Share was declared on April 24, 1997 payable on
May 30, 1997 to shareholders of record on May 16, 1997, which
represents an annualized dividend of $2.04 per share. A quarterly
dividend of $.56875 per depositary share of Series A Preferred
Stock was declared on April 24, 1997 which is payable on May 30,
1997 to preferred shareholders of record on May 16, 1997.
FUNDS FROM OPERATIONS
Management believes that Funds From Operations ("FFO"), which is
defined by the National Association of Real Estate Investment
Trusts as net income or loss excluding gains or losses from debt
restructuring and sales of property plus depreciation and
amortization, and after adjustments for 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.
The following table reflects the calculation of the Company's FFO
for the three months ended March 31 as follows (in thousands):
<TABLE>
<CAPTION>
Three months ended
March 31,
--------------------
(in thousands) 1997 1996
------ ------
<S> <C> <C>
Net income available for common shares $14,986 $ 9,648
Add back:
Depreciation and amortization 9,499 6,761
Share of joint venture depreciation
and amortization 523 440
(Earnings) loss from property sales (280) 14
Minority interest share of add-backs (1,011) (1,040)
------ ------
FUNDS FROM OPERATIONS $23,717 $15,823
====== ======
CASH FLOW PROVIDED BY (USED BY):
Operating activities $28,973 $14,469
Investing activities (41,163) (79,865)
Financing activities 19,853 71,759
</TABLE>
<PAGE>
The increase in FFO for the three months ended March 31, 1997
compared to the three months ended March 31, 1996 results
primarily from the increased in-service rental property portfolio
as discussed above under "Results of Operations."
While management believes that FFO is the most relevant and
widely used measure of the 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.
- 14 -
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
--------------------------
None
Item 2. Changes in Securities
------------------------------
None
Item 3. Defaults upon Senior Securities
----------------------------------------
None
Item 4. Submission of Matters to a Vote of Security Holders
------------------------------------------------------------
None
Item 5. Other Information
--------------------------
When used in this Form 10-Q, the words "believes," "expects,"
"estimates" and similar expressions are intended to identify forward
looking-statements. Such statements are subject to certain risks and
uncertainties which could cause actual results to differ materially.
In particular, among the factors that could cause actual results to
differ materially are continued qualification as a real estate
investment trust, general business and economic conditions,
competition, increases in real estate construction costs, interest
rates, accessibility of debt and equity capital markets and other
risks inherent in the real estate business including tenant
defaults, potential liability relating to environmental matters and
illiquidity of real estate investments. Readers are cautioned not to
place undue reliance on these forward-looking statements, which
speak only as of the date hereof. The Company undertakes no
obligation to publicly release the results of any revisions to these
forward-looking statements which may be made to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events. Readers are also advised to refer to the
Company's Form 8-K Report as filed with the U.S. Securities and
Exchange Commission on March 29, 1996 for additional information
concerning these risks.
Item 6. Exhibits and Reports on Form 8-K
------------------------------------------
Exhibit 15. Letter regarding unaudited interim financial information
Exhibit 27. Financial Data Schedule (EDGAR Filing Only)
- 15 -
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
DUKE REALTY INVESTMENTS, INC.
-----------------------------
Registrant
Date: May 12, 1997 /s/ Thomas L. Hefner
-------------------------- ---------------------
President and
Chief Executive Officer
/s/ Darell E. Zink, Jr.
-----------------------
Executive Vice President and
Chief Financial Officer
/s/ Dennis D. Oklak
-----------------------
Vice President and Treasurer
(Chief Accounting Officer)
- 16 -
Exhibit 15
The Board of Directors
Duke Realty Investments, Inc.
Gentlemen:
RE: Registration Statements Nos. 33-61361, 33-64567, 33-64659,
33-55727, 333-04695, 333-24289, 333-26833, and 333-26845
With respect to the subject registration statements, we
acknowledge our awareness of the use therein of our report dated
May 5, 1997 related to our review of interim
financial information.
Pursuant to Rule 436(c) under the Securities Act of 1933,
such report is not considered a part of a registration
statement prepared or certified by an accountant, or a report
prepared or certified by an accountant within the meaning of
sections 7 and 11 of the Act.
KPMG Peat Marwick LLP
Indianapolis, Indiana
May 12, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM DUKE
REALTY INVESTMENTS, INC. AND SUBSIDIARIES' MARCH 31, 1997 CONSOLIDATED
FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 12,997
<SECURITIES> 0
<RECEIVABLES> 28,065
<ALLOWANCES> (1,377)
<INVENTORY> 0
<CURRENT-ASSETS> 35,650
<PP&E> 1,344,560
<DEPRECIATION> (90,075)
<TOTAL-ASSETS> 1,417,578
<CURRENT-LIABILITIES> 82,462
<BONDS> 506,056
0
72,288
<COMMON> 756,772
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1,417,578
<SALES> 0
<TOTAL-REVENUES> 55,387
<CGS> 28,350
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,449
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,602
<INCOME-PRETAX> 14,986
<INCOME-TAX> 0
<INCOME-CONTINUING> 14,986
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,986
<EPS-PRIMARY> $0.49
<EPS-DILUTED> 0
</TABLE>
