PROSPECTUS SUPPLEMENT
- ---------------------
(TO PROSPECTUS DATED JUNE 6, 1996)
926,280 Shares
(LOGO)
DUKE REALTY INVESTMENTS, INC.
Common Stock
----------------------------
Duke Realty Investments, Inc. (the "Company") is a self-administered
and self-managed real estate investment trust that began operations through
a related entity in 1972. As of June 30, 1997, the Company owned a
diversified portfolio of 262 in-service industrial, office and retail
properties, encompassing approximately 31.4 million square feet located in
seven states, and 26 buildings and one building expansion encompassing
approximately 4.1 million square feet under development. The Company also
owned approximately 1,300 acres of land for future development. The Company
has the largest commercial real estate operations in Indianapolis and
Cincinnati and is one of the largest real estate companies in the Midwest.
The Company expects to continue to pay regular quarterly dividends to its
shareholders.
All of the shares of Common Stock offered hereby are being sold by the
Company. The Common Stock is listed on the New York Stock Exchange under
the symbol DRE. The last reported sale price for the Common Stock on
September 11, 1997 was $21.50 per share.
___________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS TO WHICH IT
RELATES. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT (1) COMPANY (2)
<S> <C> <C> <C>
Per Share $21.50 $1.075 $20.425
Total $19,915,020 $995,751 $18,919,269
</TABLE>
(1) The Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act of 1933,
as amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $25,000.
----------------
The shares of Common Stock are offered by the Underwriter, subject to
prior sale, when, as and if delivered to and accepted by the Underwriter,
subject to approval of certain legal matters by counsel for the
Underwriter. The Underwriter reserves the right to withdraw, cancel or
modify such offer and to reject orders in whole or in part. It is expected
that delivery of the shares of Common Stock will be made in New York, New
York on or about September 16, 1997.
-----------------
SMITH BARNEY INC.
--------------------
The date of this Prospectus Supplement is September 11, 1997.
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING ENTERING STABILIZING BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
S-2
<PAGE>
THE FOLLOWING INFORMATION 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 DOCUMENTS
INCORPORATED HEREIN AND THEREIN BY REFERENCE. UNLESS INDICATED OTHERWISE,
THE INFORMATION CONTAINED IN THIS PROSPECTUS SUPPLEMENT IS PRESENTED AS OF
JUNE 30, 1997. SHARE AND PER SHARE AMOUNTS IN THIS PROSPECTUS SUPPLEMENT
REFLECT THE COMPANY'S TWO-FOR-ONE STOCK SPLIT WHICH OCCURRED ON AUGUST 25,
1997. SEE "RECENT DEVELOPMENTS." ALL REFERENCES TO THE "COMPANY" IN THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS INCLUDE THE COMPANY
AND THOSE ENTITIES OWNED OR CONTROLLED BY THE COMPANY, UNLESS THE CONTEXT
INDICATES OTHERWISE.
WHEN USED IN THIS PROSPECTUS SUPPLEMENT, THE WORDS "BELIEVES," "EXPECTS"
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. 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.
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. At June 30, 1997, the Company owned a diversified portfolio of 262
in-service industrial, office and retail properties (the "Properties"),
encompassing approximately 31.4 million square feet located in seven
states, and 26 buildings and one building expansion encompassing
approximately 4.1 million square feet under development. The Company also
owned approximately 1,300 acres of unencumbered land (the "Land") for
future development, of which approximately 75% is zoned for industrial use
and which is typically located adjacent to the Properties. The Company
provides leasing, management, construction, development and other tenant-
related services for the Properties and certain properties owned by third
parties. The Company has the largest commercial real estate operations in
Indianapolis and Cincinnati and is one of the largest real estate companies
in the Midwest. The Company believes that the Midwest offers a relatively
strong and stable economy compared to other regions of the United States
and provides significant growth potential due to its central location,
established manufacturing base, skilled work force and moderate labor
costs.
The Company has developed over 50 million square feet of commercial
property since its founding including an average of approximately 4.1
million square feet per year during the last five years. In addition, the
Company acquired approximately 8.9 million square feet during the three
years ended December 31, 1996. During the six months ended June 30, 1997,
the Company placed in service 2.6 million square feet of new development
and acquired 1.8 million square feet of property.
The Company manages over 43 million square feet of property, including
over 8.1 million square feet owned by third parties. The Company manages
approximately 35% and 29% of all competitive suburban office, warehousing
and light manufacturing space in Indianapolis and Cincinnati, respectively.
In addition to providing services to approximately 1,800 tenants in the
Properties, the Company provides such services to over 900 tenants in 92
properties owned by third parties. Based on market data maintained by the
Company, the Company believes that it was responsible in the first six
months of 1997 for approximately 67% and 34% 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.
All of the Company's interests in the Properties and Land 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"). Partnership interests ("Units") in the
Operating Partnership may be exchanged by the holders thereof, other than
the Company, for Common Stock of the Company 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
S-3
<PAGE>
the Operating Partnership as the sole general partner and owner, as of June
30, 1997 of approximately 90% of the Units. In addition, the senior
management team of the Company owns approximately 12.5% of the Company
through Common Stock and Unit ownership.
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
SQUARE OF TOTAL EFFECTIVE ANNUAL AT
TYPE OF PROPERTY FEET SQUARE FEET RENT (1) RENT JUNE 30, 1997
- ---------------- ------ ----------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Industrial 21,753 69% $ 77,384 42% 95.5%
Office 7,943 25 91,739 50 96.3%
Retail 1,710 6 15,471 8 95.2%
------ --- ------- ---
Total 31,406 100% $184,594 100% 95.7%
====== === ======= ===
</TABLE>
- ---------------
(1)Represents annual net effective rent due from tenants in occupancy as of
June 30, 1997. 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.
SQUARE FOOTAGE AND ANNUAL NET EFFECTIVE RENT OF PROPERTIES
(IN THOUSANDS, EXCEPT PERCENTAGES)
<TABLE>
<CAPTION>
SQUARE FEET ANNUAL PERCENT
---------------------------------------- NET OF TOTAL
PRIMARY % OF EFFECTIVE NET EFFECTIVE
MARKET INDUSTRIAL OFFICE RETAIL TOTAL TOTAL RENT (1) RENT
- ---------- ---------- ------ ------ ----- ----- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Indianapolis 13,621 1,417 194 15,232 49% $ 61,635 33%
Cincinnati 4,003 2,961 799 7,763 25 55,113 31
Columbus 1,749 1,481 219 3,449 11 25,759 14
St Louis 924 680 -- 1,604 5 12,626 7
Cleveland 332 1,059 -- 1,391 4 13,669 7
Nashville 562 -- -- 562 2 3,896 2
Chicago -- 345 -- 345 1 5,961 3
Other (2) 562 -- 498 1,060 3 5,935 3
------ ----- ----- ------ --- ------- ---
Total 21,753 7,943 1,710 31,406 100% $184,594 100%
====== ===== ===== ====== === ======= ===
Percent
of Total
Square feet 69% 25% 6% 100%
===== ===== ===== ======
</TABLE>
-------------
(1) Represents annual Net Effective Rent due from tenants in occupancy
as of June 30, 1997, excluding additional rent due as a result of
operating expense reimbursements, landlord allowances for operating
expenses and percentage rents.
(2) Represents properties not located in the Company's primary markets.
These properties are located in other similar Midwestern markets.
S-4
<PAGE>
RECENT DEVELOPMENTS
OPERATING PERFORMANCE, DIVIDEND INCREASE AND STOCK SPLIT
For the six months ended June 30, 1997, the Company reported the
following information as compared to the same period in 1996.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
----------------------
1997 1996
---------- ---------
(IN THOUSANDS)
<S> <C> <C>
Net income available for common shareholders $ 29,682 $21,947
Revenues 111,572 83,744
Funds From Operations 48,123 34,911
Cash flow provided by (used by):
Operating activities 71,462 39,116
Investing activities (175,407) (93,598)
Financing activities 101,718 49,041
</TABLE>
On July 24, 1997, the Company's Board of Directors raised its regular
quarterly common dividend from $.51 per share to $.59 per share, payable on
August 29, 1997 to common shareholders of record on August 15, 1997. The
new dividend is an increase of $.32 per year which is a 15.7% increase over
the previous amount. This dividend equals $2.36 on an annualized basis.
The Board of Directors also declared a two-for-one split of the Company's
common stock (the "Stock Split") to be effected as a 100% share dividend,
payable on August 25, 1997 to common shareholders of record on August 18,
1997. The Company also announced that its Board of Directors anticipates
the Company's regular quarterly dividend amount to be $.30 per common share
on a post-Stock Split basis. This would equate to a dividend increase of
1.7% and follows the Company's 15.7% dividend increase announced July 24,
1997. The official declaration for this new dividend is expected to be on
October 23, 1997, the date of the Company's next regularly scheduled Board
of Directors' meeting. Share and per share amounts in this Prospectus
Supplement have been restated to reflect the effect of the Stock Split.
FINANCING
In July 1997, the Company issued 3.0 million Depositary Shares, each
representing 1/10 of a Series B Cumulative Step-Up Redeemable Preferred
Share, raising net proceeds of $146.1 million. These securities are not
redeemable prior to September 30, 2007 and offer a cumulative distribution
of 7.99% through September 2012, and 9.99% thereafter. The proceeds of
this financing were fully used to reduce the outstanding balance on the
Company's unsecured line of credit and to fund the development and
acquisition of additional rental properties.
In August 1997, the Company issued $100 million of unsecured Pass-through
Asset Trust Securities ("PATS") on August 21, 1997. The PATS bear interest
at a coupon rate of 6.95% and mature on August 15, 2004. The effective
rate of the PATS is 7.347%, which includes the effect of the settlement of
a forward Treasury lock agreement which the Company entered into in April
1997. The Company and an affiliate of the placement agent for the PATS can
effectively agree to reset the interest rate and remarket the underlying
notes with a maturity of August 15, 2011.
The Company reduced the interest rate on its $150.0 million unsecured
line of credit from the 30-day London Interbank Offered Rate ("LIBOR") plus
1.25% to LIBOR plus 1.00% effective March 27, 1997. Effective August 28,
1997, the unsecured line of credit was increased to $200.0 million and the
interest rate was reduced to LIBOR plus .80%. This line of credit also
includes a "competitive bid option" and matures in April 2001.
Concurrently with this Offering, the Company is offering 9,500,000 shares
of its Common Stock for public sale through a group of underwriters. The
Company has also granted an option to such underwriters to purchase up to
an
S-5
aggregate of 1,425,000 additional shares of Common Stock. There can be no
assurance that this transaction will be consummated.
DEVELOPMENT AND ACQUISITIONS
During the first seven months of 1997, the Company completed development
of and placed in service 10 properties and one property expansion
comprising 2.6 million square feet at a total cost of $79.5 million. The
Company had 27 properties and one property expansion under development at
July 31, 1997 comprising 4.2 million square feet which will have a total
cost of $204.1 million upon completion. Also during the first seven months
of 1997, the Company acquired 9 properties with 1.9 million square feet at
a total cost of $120.5 million.
These property additions (the "New Properties"), totaling 8.7 million
square feet, consist of 73% industrial, 23% office and 4% retail projects.
The total cost of the New Properties is expected to be $404.1 million. At
July 31, 1997, the New Properties which have been placed in service are 88%
leased, and the New Properties under construction are 58% pre-leased for a
combined total of 73% leased. The New Properties are expected to provide a
weighted average unleveraged stabilized return on cost (computed as
property annual contractual net operating income ("NOI") divided by total
project costs) of 11.3% with anticipated leasing activity. The annual
contractual NOI to be generated from the New Properties, once placed in
service, will be $45.7 million with anticipated additional leasing. The
cost of the New Properties to be placed in-service in the third quarter of
1997 is $47.1 million, in the fourth quarter of 1997 is $78.9 million and
in 1998 is $78.1 million.
The Company's expectations of total cost and weighted average unleveraged
stabilized return on cost constitute forward-looking information that is
subject to risks inherent in the completion of construction of the
properties under development and the leasing of any unleased portion of the
properties. Such risks could cause actual results to differ materially
from the Company's expectations.
CHICAGO, ILLINOIS. In May 1997, the Company entered the Chicago,
Illinois market. Through a joint venture with an institutional investor,
the Company purchased the six-story, 345,200 square foot Central Park of
Lisle 96% occupied office property in Lisle, Illinois, a western suburb of
Chicago. The acquisition also included a 17-acre site, located adjacent to
the existing property, for future office development. The Company is
establishing a regional office in Chicago. The Company believes that the
Chicago market will offer additional profitable development and acquisition
opportunities in select sub-markets. While the Company does not anticipate
dominating the Chicago market because of its magnitude, it believes that
entry into the Chicago market is in accordance with its strategy of
entering attractive Midwestern markets.
The following table sets forth information regarding each of the New
Properties as of July 31, 1997.
<TABLE>
<CAPTION>
IN-SERVICE OR
ANTICIPATED PROPERTY
IN-SERVICE DATE PROJECT/TENANT LOCATION TYPE
- --------------- -------------------------- ---------------- --------
<S> <C> <C> <C>
DEVELOPMENT
COMPLETED IN 1997:
1st Qtr. 1997 Park Fletcher Building 33 Indianapolis, IN Industrial
1st Qtr. 1997 Dukeport 2 St. Louis, MO Industrial
2nd Qtr. 1997 Silver Burdett Ginn Expansion Indianapolis, IN Industrial
2nd Qtr. 1997 Vanstar Indianapolis, IN Industrial
2nd Qtr. 1997 North Airport Park Bldg. 2 Indianapolis, IN Industrial
2nd Qtr. 1997 Pamida Lebanon, IN Industrial
2nd Qtr. 1997 Skyport Building 1 Cincinnati, OH Industrial
2nd Qtr. 1997 Parkwood Place Columbus, OH Office
2nd Qtr. 1997 Sofa Express - Florence Florence, KY Retail
2nd Qtr. 1997 Purity Wholesale Lebanon, IN Industrial
3rd Qtr. 1997 Freedom Square III Cleveland, OH Office
S-6
IN-SERVICE OR
ANTICIPATED PROPERTY
IN-SERVICE DATE PROJECT/TENANT LOCATION TYPE
- ---------------- ----------------- ----------- ----------
<S> <C> <C> <C>
UNDER DEVELOPMENT:
3rd Qtr. 1997 Mr. Coffee Cleveland, OH Industrial
3rd Qtr. 1997 Southpointe C Columbus, OH Industrial
3rd Qtr. 1997 Three Parkwood Indianapolis, IN Office
3rd Qtr. 1997 Anthem Cincinnati, OH Office
3rd Qtr. 1997 Haywood Oaks Building 8 Nashville, TN Industrial
3rd Qtr. 1997 Fountain Place Cincinnati, OH Retail
4th Qtr. 1997 Beiersdorf Cincinnati, OH Industrial
4th Qtr. 1997 Park Fletcher Building 35 Indianapolis, IN Industrial
4th Qtr. 1997 Southpointe Building D Columbus, OH Industrial
4th Qtr. 1997 Southpointe Building E Columbus, OH Industrial
4th Qtr. 1997 Hamilton Crossing Building 2 Indianapolis, IN Office
4th Qtr. 1997 Park 100 Building 133 Indianapolis, IN Industrial
4th Qtr. 1997 Landerbrook Corporate Ctr. Cleveland, OH Office
4th Qtr. 1997 4660 Governor's Pointe Cincinnati, OH Office
4th Qtr. 1997 Mosteller II Cincinnati, OH Industrial
4th Qtr. 1997 Park Fletcher Building 34 Indianapolis, IN Industrial
4th Qtr. 1997 Compmanagement Columbus, OH Office
4th Qtr. 1997 Park 100 Building 132 Indianapolis, IN Office
4th Qtr. 1997 Lowes Cincinnati, OH Retail
4th Qtr. 1997 Dukeport 3 St. Louis, MO Industrial
4th Qtr. 1997 Biggs B-Shoppes Cincinnati, OH Retail
1st Qtr. 1998 Prentice Hall Lebanon, IN Industrial
1st Qtr. 1998 Software Artistry Indianapolis,IN Office
1st Qtr. 1998 Park 100 Building 135 Indianapolis, IN Office
2nd Qtr. 1998 Rings Road Office Building Columbus, OH Office
2nd Qtr. 1998 Sterling 4 Columbus, OH Office
2nd Qtr. 1998 MCI St. Louis, MO Office
3rd Qtr. 1998 Creekside Crossing One Nashville, TN Office
1997 ACQUISITIONS:
2nd Qtr. 1997 NGIC/Pointe 70 St. Louis, MO Office
2nd Qtr. 1997 Dyment/Johnson Controls Cleveland, OH Industrial
2nd Qtr. 1997 Central Park of Lisle Chicago, IL Office
2nd Qtr. 1997 8555 Keystone Crossing Indianapolis, IN Office
2nd Qtr. 1997 Sun TV Columbus, OH Industrial
3rd Qtr. 1997 7910 and 7320 Kentucky Drive Cincinnati, OH Industrial
<CAPTION>
IN-SERVICE OR PERCENT
ANTICIPATED PERCENTAGE SQUARE LEASE INITIAL LEASE
IN-SERVICE DATE OWNERSHIP FEET PRE-LEASED (1) TERM(2)
- --------------- ---------- ------- ------------- ------------
<S> <C> <C> <C> <C>
DEVELOPMENT COMPLETED IN 1997:
1st Qtr. 1997 50% 112,710 100% 5 years
1st Qtr. 1997 100% 244,800 65% 5 years
2nd Qtr. 1997 100% 183,950 100% 7 years
2nd Qtr. 1997 100% 415,680 100% 10 years
2nd Qtr. 1997 100% 377,280 100% 5 years
2nd Qtr. 1997 100% 200,000 100% 10 years
2nd Qtr. 1997 100% 316,800 9% Varies
2nd Qtr. 1997 100% 156,000 100% 15 years
2nd Qtr. 1997 100% 20,250 100% 10 years
2nd Qtr. 1997 100% 556,248 100% 10 years
3rd Qtr. 1997 100% 71,025 74% Varies
---------
2,654,743 85%
---------
IN-SERVICE OR PERCENT
ANTICIPATED PERCENTAGE SQUARE LEASED OR INITIAL LEASE
IN-SERVICE DATE OWNERSHIP FEET PRE-LEASED (1) TERM (2)
- --------------- ---------- --------- -------------- -------------
<S> <C> <C> <C> <C>
UNDER DEVELOPMENT:
3rd Qtr. 1997 100% 458,000 100% 15 years
3rd Qtr. 1997 100% 322,000 0% (3) N/A
3rd Qtr. 1997 100% 121,246 73% Varies
3rd Qtr. 1997 100% 78,240 100% 10 years
3rd Qtr. 1997 100% 71,500 0% N/A
3rd Qtr. 1997 25% 207,170 95% 20 years
4th Qtr. 1997 100% 252,000 100% 10 years
4th Qtr. 1997 50% 96,000 0% N/A
4th Qtr. 1997 100% 116,520 35% 15 years
4th Qtr. 1997 100% 82,520 0% N/A
4th Qtr. 1997 100% 32,800 77% 10 years
4th Qtr. 1997 100% 20,530 100% 15 years
4th Qtr. 1997 100% 110,148 51% Varies
4th Qtr. 1997 100% 76,465 71% Varies
4th Qtr. 1997 100% 261,440 0% N/A
4th Qtr. 1997 50% 230,400 33% 5 years
4th Qtr. 1997 100% 67,841 59% 15 years
4th Qtr. 1997 100% 27,600 44% 10 years
4th Qtr. 1997 100% 128,747 100% 20 years
4th Qtr. 1997 100% 214,400 0% N/A
4th Qtr. 1997 100% 13,000 58% 5 years
1st Qtr. 1998 100% 577,340 100% 10 years
1st Qtr. 1998 100% 108,273 75% 15 years
1st Qtr. 1998 100% 77,125 67% 10 years
2nd Qtr. 1998 100% 145,000 0% N/A
2nd Qtr. 1998 100% 94,219 100% 15 years
2nd Qtr. 1998 100% 97,356 100% 10 years
3rd Qtr. 1998 100% 112,800 0% N/A
---------
4,200,680 58%
---------
1997 ACQUISITIONS:
2nd Qtr. 1997 100% 215,549 99% Varies
2nd Qtr. 1997 100% 331,550 100% 10 years
2nd Qtr. 1997 50% 345,200 96% Varies
2nd Qtr. 1997 100% 75,545 94% Varies
2nd Qtr. 1997 100% 789,175 81% 5 years
3rd Qtr. 1997 100% 132,274 100% Varies
---------
1,889,293 91%
---------
8,744,716 73%
=========
</TABLE>
- ------------------
(1) Represents completed leasing activity through July 31, 1997.
(2) Represents lease term of the building's primary tenant or tenants.
(3) In August 1997, the Company signed a lease totaling 168,000 square feet
with a lease term of eight years bringing this property to 52%
occupancy.
PENDING ACQUISITIONS
The Company has entered into contracts or letters of intent to purchase
certain properties in St. Louis and in the Chicago suburbs (the "Pending
Acquisitions") for an aggregate purchase price of approximately $247.3
million. The Company currently expects to complete the Pending Acquisitions
by October 1, 1997. However, the purchase of each of the Pending
Acquisitions is subject to various closing conditions. Accordingly, no
assurances can be made that the Company will close any or all of the
Pending Acquisitions.
In addition to the Pending Acquisitions, as part of its ongoing business,
the Company continually engages in discussions with other real estate
owners regarding possible portfolio or single asset acquisitions in its
current and other attractive Midwestern markets. No assurances can be made
that the Company will acquire any of the properties or portfolios currently
being evaluated.
The following describes each of the Pending Acquisitions.
S-7
<PAGE>
BAUR PROPERTIES. In August 1997, the Company entered into a letter of
intent to acquire Baur Properties' existing rental properties and
operations in St. Louis. Baur Properties has been in operation in St. Louis
for over 43 years and is one of the leading suburban office developers and
operators in the Midwest. The Baur rental property portfolio consists of
eight suburban office buildings totaling 904,000 square feet and three
industrial buildings totaling 78,000 square feet. Seven of the suburban
office projects are located in Maryville Centre, one of the premier
suburban office parks in St. Louis. The acquisition will also include
undeveloped land to accommodate approximately one million square feet of
additional suburban office development and the property management and
development operations of Baur Properties. Accordingly, Edward T. Baur, the
Chairman of Baur Properties, will become Vice President and General Manager
of the Company's St. Louis operations. The purchase price of this
acquisition is expected to be paid through the assumption of $57.5 million
in existing mortgage debt with a weighted average interest rate of 8.13%,
the payment of approximately $25.0 million in cash and the remainder in
Units. Along with its existing operations in St. Louis, the Company
believes this acquisition will make it the dominant real estate developer
in this market. The Company believes this acquisition is in accordance with
its strategy of dominating its Midwestern markets.
The following table sets forth information regarding the Baur Properties
as of July 31, 1997.
<TABLE>
<CAPTION>
RENTABLE YEAR PERCENT
PROPERTY TYPE SQUARE FEET BUILT LEASED
- ------------------- ----------------- ----------- ----- -------
<S> <C> <C> <C> <C>
500 Maryville Suburban Office 165,544 1984 100.00%
530 Maryville Suburban Office 107,957 1990 100.00%
540 Maryville Suburban Office 107,973 1990 100.00%
550 Maryville Suburban Office 97,109 1988 95.68%
625 Maryville (1) Suburban Office 101,576 1994 100.00%
635-645 Maryville Suburban Office 148,307 1987 99.86%
655 Maryville Suburban Office 90,499 1994 100.00%
Twin Oaks Suburban Office 85,066 1980 100.00%
Southport I Service Center 20,810 1977 100.00%
Southport II Service Center 22,400 1978 100.00%
Southport Commerce Center Service Center 34,873 1978 100.00%
-------
TOTAL 982,114 99.55%
=======
</TABLE>
- ---------------
(1) The Company currently intends to acquire a 49% interest in this property.
EXECUTIVE TOWERS. On August 28, 1997, the Company purchased Executive
Towers West, a three-building, 650,000 square foot, suburban office complex
in Downers Grove, Illinois, a western suburb of Chicago. This property is
near the Company's previously announced Central Park of Lisle acquisition.
The purchase price of this acquisition was paid entirely in cash. The
Company believes this acquisition is in accordance with its strategy, as
discussed above, of expanding into select sub-markets in Chicago.
The following table sets forth information regarding Executive Towers as
of July 31, 1997.
<TABLE>
<CAPTION>
RENTABLE YEAR PERCENT
PROPERTY TYPE SQUARE FEET BUILT LEASED
- ------------------- ----------------- ----------- ----- -------
<S> <C> <C> <C> <C>
Executive Towers I Suburban Office 203,302 1983 94.00%
Executive Towers I Suburban Office 224,140 1984 96.98%
Executive Towers I Suburban Office 222,400 1987 100.00%
-------
TOTAL 649,842 97.08%
=======
</TABLE>
S-8
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Common Stock offered
hereby are expected to be approximately $18.9 million. The Company
presently intends to use the net proceeds, as well as the net proceeds of
its concurrent public offering of Common Stock of approximately $192.8
million and its PATS offering of approximately $100.0 million to retire
the outstanding balance on its lines of credit (the "Lines of Credit") and
to fund development and acquisition of additional rental properties,
including the cash portion of the Pending Acquisitions, expected to total
in excess of $120 million. The remaining costs to be funded on the 4.2
million square feet of property under development at July 31, 1997 total
$108.8 million with $73.7 million expected to be spent by December 31,
1997. See "Recent Developments." The Lines of Credit are expected to have
an outstanding balance of approximately $65.0 million on September 15,
1997, bearing interest at LIBOR plus .75% to .80%.
S-9
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
Prospective purchasers should be aware that the recently enacted Taxpayer
Relief Act of 1997 (the "1997 Act") made numerous changes to the Code,
including reducing the maximum tax imposed on net capital gains from the
sale of assets held for more than 18 months by individuals, trusts and
estates. The 1997 Act also makes certain changes to the requirements to
qualify as a REIT and to the taxation of REITs and their shareholders.
The 1997 Act contains significant changes to the taxation of capital
gains of individuals, trusts and estates and certain changes to the REIT
requirements and the taxation of REITs. For gains realized after July 28,
1997, and subject to certain exceptions, the maximum rate of tax on net
capital gains of individuals, trusts and estates from the sale or exchange
of assets held for more than 18 months has been reduced to 20%, and the
maximum rate is reduced to 18% for assets acquired after December 31, 2000
and held for more than five years. For taxpayers who would be subject to a
maximum tax rate of 15%, the rate on net capital gains is reduced to 10%,
and effective for taxable years commencing after December 31, 2000, the
rate is reduced to 8% for assets held for more than five years. The
maximum rate for net capital gains attributable to the sale of depreciable
real property held for more than 18 months is 25% to the extent of the
deductions for depreciation with respect to such property. Long-term
capital gain allocated to a shareholder by the Company will be subject to
the 25% rate to the extent that the gain does not exceed depreciation on
real property sold by the Company. The maximum rate of capital gains tax
for capital assets held more than one year but not more than 18 months
remains at 28%. The taxation of capital gains of corporations was not
changed by the 1997 Act.
The 1997 Act also includes several provisions that are intended to
simplify the taxation of REITs. These provisions are effective for taxable
years beginning after the date of enactment of the 1997 Act which, as to
the Company, is its taxable year commencing January 1, 1998. First, in
determining whether a REIT satisfies the income tests, a REIT's rental
income from a property will not cease to qualify as "rents from real
property" merely because the REIT performs services for a tenant other than
permitted customary services if the amount that the REIT is deemed to have
received as a result of performing impermissible services does not exceed
one percent of all amounts received directly or indirectly by the REIT with
respect to such property. The amount that a REIT will be deemed to have
received for performing impermissible services is at least 150% of the
direct cost to the REIT of providing those services. Second, certain non-
cash income, including income from cancellation of indebtedness and
original issue discount, will be excluded from income in determining the
amount of dividends that a REIT is required to distribute. Third, a REIT
may elect to retain and pay income tax on any net long-term capital gains
and require its shareholders to include such undistributed net capital
gains in their income. If a REIT makes such an election, the REIT's
shareholders would receive a tax credit attributable to their share of
capital gains tax paid by a REIT on the undistributed net capital gain that
was included in the shareholders' income, and such shareholders will
receive an increase in the basis of their shares in the amount of
undistributed net capital gain included in their income reduced by the
amount of the credit. Fourth, the 1997 Act repeals the requirement that a
REIT receive less than 30% of its gross income from the sale or disposition
of stock or securities held for less than one year, gain from prohibited
transactions, and gain from certain sales of real property held less than
four years. Finally, the 1997 Act contains a number of technical
provisions that reduce the risk that a REIT will inadvertently cease to
qualify as a REIT.
S-10
<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 the Underwriter, and the
Underwriter has agreed to purchase from the Company, 926,280 shares of
Common Stock. The Underwriting Agreement provides that the obligation of
the Underwriter is subject to certain conditions precedent, and that the
Underwriter will be obligated to purchase all of the shares of Common Stock
if any are purchased.
Smith Barney Inc. (the "Underwriter") intends to deposit the shares with
the trustee of The Equity Focus Trusts - REIT Portfolio Series, 1997 (the
"Trust"), a registered unit investment trust under the Investment Company
Act of 1940, as amended, to which the Underwriter acts as sponsor and
depositor, in exchange for units in the Trust. The Underwriter is an
affiliate of the Trust.
The Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended, or to contribute to payments the Underwriter may be required to
make in respect thereof.
The Company and the executive officers of the Company and the Directors
have agreed that for a period of 45 days from the date of this Prospectus
Supplement they will not, without prior and written consent of the
Underwriter, offer, sell or otherwise dispose of any shares of Common Stock
or any other security convertible into or exercisable for shares of Common
Stock (except pursuant to the Company's stock option or dividend
reinvestment plans and certain other agreements).
In connection with the Offering, the rules of the Securities and Exchange
Commission permit the Underwriter to engage in certain transactions that
stabilize the price of the Common Stock. Such transactions may consist of
bids or purchases for the purpose of pegging, fixing or maintaining the
price of the Common Stock.
If the Underwriter creates a short position in the Common Stock in
connection with the Offering (i.e., if it sells more shares of Common Stock
than are set forth on the cover page of this Prospectus Supplement), the
Underwriter may reduce that short position by purchasing Common Stock in
the open market.
In general, purchases of a security for the purpose of stabilization or
to reduce a short position could cause the price of the security to be
higher than it might otherwise be in the absence of such purchases.
Neither the Company nor the Underwriter makes any representation or
prediction as to the direction or magnitude of any effect that the
transactions described above may have on the price of the Common Stock. In
addition, neither the Company nor the Underwriter makes any representation
that the Underwriter will engage in such transactions or that such
transactions, once commenced, will not be discontinued without notice.
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 &
Evans.
S-11
<PAGE>
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 UNDERWRITER. 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.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PROSPECTUS SUPPLEMENT
The Company S-3
Recent Developments S-5
Use of Proceeds S-9
Certain Federal Income Tax Considerations S-10
Underwriting S-11
Legal Matters S-11
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 Opinion 26
Experts 26
926,280 Shares
(LOGO)
---------------------
PROSPECTUS SUPPLEMENT
---------------------
SMITH BARNEY, INC.
SEPTEMBER 11, 1997
</TABLE>
