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 June 30, 1998
-------------
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 August 7, 1998 was 81,010,289
($.01 par value).
<PAGE>
DUKE REALTY INVESTMENTS, INC.
INDEX
PART I - FINANCIAL INFORMATION PAGE
- ------------------------------ ----
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets as of
June 30, 1998 (Unaudited) and December 31, 1997 2
Condensed Consolidated Statements of Operations
for the three and six months ended June 30,
1998 and 1997 (Unaudited) 3
Condensed Consolidated Statements of Cash
Flows for the six months ended June 30, 1998
and 1997 (Unaudited) 4
Condensed Consolidated Statement of
Shareholders' Equity for the six
months ended June 30, 1998 (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 9-17
PART II - OTHER INFORMATION
- ---------------------------
Item 1. Legal Proceedings 17
Item 2. Changes in Securities 17
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to a Vote of
Security Holders 17
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DUKE REALTY INVESTMENTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
JUNE 30, December 31,
ASSETS 1998 1997
------ ----------- ------------
(UNAUDITED)
<S> <C> <C>
Real estate investments:
Land and improvements $ 271,079 $ 231,614
Buildings and tenant improvements 1,890,930 1,591,604
Construction in progress 102,455 107,242
Investments in unconsolidated companies 125,771 106,450
Land held for development 145,905 139,817
---------- ----------
2,536,140 2,176,727
Accumulated depreciation (146,350) (116,264)
---------- ----------
Net real estate investments 2,389,790 2,060,463
Cash 22,379 10,353
Accounts receivable from tenants,
net of allowance of $511 and $420 6,898 5,932
Straight-line rent receivable, net
of allowance of $841 17,874 14,746
Receivables on construction contracts 17,161 22,700
Deferred financing costs, net of
accumulated amortization of $10,720
and $9,101 11,847 12,386
Deferred leasing and other costs, net
of accumulated amortization of $12,828
and $9,251 42,060 34,369
Escrow deposits and other assets 22,792 15,265
--------- ---------
$2,530,801 $2,176,214
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Indebtedness:
Secured debt $ 363,584 $ 367,119
Unsecured notes 590,000 340,000
Unsecured line of credit - 13,000
--------- ---------
953,584 720,119
Construction payables and amounts
due subcontractors 33,062 40,786
Accounts payable 5,413 1,342
Accrued expenses:
Real estate taxes 28,775 25,203
Interest 9,245 6,883
Other 15,038 13,848
Other liabilities 17,270 11,720
Tenant security deposits and prepaid rents 18,242 14,268
---------- ---------
Total liabilities 1,080,629 834,169
---------- ---------
Minority interest 109,224 107,364
---------- ---------
Shareholders' equity:
Preferred shares and paid-in capital
($.01 par value); 5,000 shares authorized:
9.10% Series A, 300 shares issued and
outstanding (liquidation preference of
$75,000) 72,288 72,288
7.99% Series B, 300 shares issued and
outstanding (liquidation preference of
$150,000) 146,050 146,050
Common shares and paid-in capital
($.01 par value); 150,000 shares
authorized; 80,970 and 76,065 shares
issued and outstanding 1,181,230 1,071,990
Distributions in excess of net income (58,620) (55,647)
--------- ---------
Total shareholders' equity 1,340,948 1,234,681
--------- ---------
$2,530,801 $2,176,214
========= =========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
- 2 -
<PAGE>
DUKE REALTY INVESTMENTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
------------------ -----------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
RENTAL OPERATIONS:
Revenues:
Rental income $ 80,503 $ 49,802 $ 157,338 $ 98,860
Equity in earnings of
unconsolidated companies 2,576 1,784 5,417 3,644
------ ------ ------- -------
83,079 51,586 162,755 102,504
------ ------ ------- -------
Operating expenses:
Rental expenses 13,839 8,793 27,684 18,022
Real estate taxes 8,053 4,673 15,887 9,115
Interest expense 14,346 9,695 27,225 18,641
Depreciation and
amortization 16,525 10,052 30,785 19,551
------ ------ ------- -------
52,763 33,213 101,581 65,329
------ ------ ------- -------
Earnings from rental
operations 30,316 18,373 61,174 37,175
------ ------ ------- ------
SERVICE OPERATIONS:
Revenues:
Property management,
maintenance
and leasing fees 3,597 3,214 6,634 5,855
Construction management and
development fees 3,131 1,645 4,690 2,711
Other income 294 270 598 502
------ ------- ------ ------
7,022 5,129 11,922 9,068
------ ------ ------- ------
Operating expenses:
Payroll 3,804 2,545 6,687 4,885
Maintenance 594 528 1,198 916
Office and other 804 344 1,322 1,093
------- ------- ------- -------
5,202 3,417 9,207 6,894
------- ------- ------- -------
Earnings from service
operations 1,820 1,712 2,715 2,174
------- ------- ------- -------
General and administrative
expense (3,103) (1,574) (5,443) (2,890)
------- ------- ------- -------
Operating income 29,033 18,511 58,446 36,459
OTHER INCOME (EXPENSE):
Interest income 400 177 589 427
Earnings from property sales 368 102 954 382
Other expense (30) (376) (61) (419)
Minority interest in earnings
of unitholders (2,956) (1,572) (6,148) (3,330)
Other minority interest in
earnings of subsidiaries (254) (440) (254) (425)
-------- -------- ------- -------
Net income 26,561 16,402 53,526 33,094
Dividends on preferred shares (4,703) (1,706) (9,406) (3,412)
------- -------- ------- -------
Net income available for
common shares $21,858 $14,696 $44,120 $29,682
====== ====== ====== ======
Net income per common share:
Basic $ .27 $ .23 $ .56 $ .48
====== ====== ====== ======
Diluted $ .27 $ .23 $ .56 $ .48
====== ====== ====== ======
Weighted average number of
common shares outstanding 80,080 63,168 78,376 62,400
====== ====== ====== ======
Weighted average number of
common and dilutive
potential common shares 91,830 70,576 90,222 70,081
====== ====== ====== ======
</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 SIX MONTHS ENDED JUNE 30,
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
Cash flows from operating activities:
Net income $53,526 $33,094
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation of buildings and tenant
improvements 27,385 17,241
Amortization of deferred financing costs 656 690
Amortization of deferred leasing and other
costs 3,400 2,310
Minority interest in earnings 6,402 3,755
Straight-line rental income (3,107) (1,642)
Earnings from property sales (954) (382)
Construction contracts, net (2,185) 13,918
Other accrued revenues and expenses, net 18,559 5,524
Equity in earnings in excess of
distributions received from
unconsolidated companies (3,371) (3,046)
------ ------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 100,311 71,462
------- ------
Cash flows from investing activities:
Rental property development costs (101,464) (79,808)
Acquisition of real estate investments (194,703) (44,434)
Acquisition of land held for development
and infrastructure costs (19,377) (29,068)
Recurring costs:
Tenant improvements (5,216) (4,259)
Leasing commissions (2,528) (2,431)
Building improvements (894) (337)
Other deferred leasing costs (8,049) (6,429)
Other deferred costs and other assets (7,769) (985)
Proceeds from property sales, net 3,980 23,025
Net investment in and advances to
unconsolidated companies (15,468) (30,681)
-------- --------
NET CASH USED BY INVESTING ACTIVITIES (351,488) (175,407)
--------- --------
Cash flows from financing activities:
Proceeds from issuance of common
shares, net 102,912 63,684
Payments on indebtedness including
principal amortization (5,730) (1,458)
Proceeds from indebtedness 250,000 -
Borrowings (repayments) on lines of
credit, net (20,000) 79,000
Distributions to common shareholders (47,093) (31,911)
Distributions to preferred shareholders (9,406) (3,412)
Distributions to minority interest (6,741) (3,900)
Deferred financing costs (739) (285)
--------- -------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 263,203 101,718
--------- -------
NET INCREASE (DECREASE) IN CASH 12,026 (2,227)
Cash and cash equivalents at beginning
of period 10,353 5,334
-------- -------
Cash and cash equivalents at end of period $22,379 $3,107
====== =====
</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 SIX MONTHS ENDED JUNE 30, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Preferred Common
Shares 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, 1997 $ 218,338 $1,071,990 $(55,647) $1,234,681
Net income - - 53,526 53,526
Issuance of common shares,
net of underwriting
discounts and offering
costs of $4,924 - 103,536 - 103,536
Acquisition of minority
interest - 5,704 - 5,704
Distributions to common
shareholders
($.60 per common share) - - (47,093) (47,093)
Distributions to preferred
shareholders - - (9,406) (9,406)
------- --------- ------- --------
BALANCE AT JUNE 30, 1998 $218,338 $1,181,230 $(58,620) $1,340,948
======= ========= ======= =========
</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"), of which the Company owns 88.2% at
June 30, 1998. The remaining interests in DRLP ("Limited Partner
Units") are exchangeable for shares of the Company's common stock
on a one-for-one basis. 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 $250 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
2001 and bears interest at the 30-day London Interbank Offered
Rate ("LIBOR") plus .80%. The Company also has a demand $7
million secured revolving credit facility which is available to
provide working capital. This facility bears interest at the 30-
day LIBOR rate plus .65%.
3. RELATED PARTY TRANSACTIONS
The Company provides property 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 $1.1 million and
$1.7 million for such services for the six months ended June 30,
1998 and 1997, 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.
-6-
<PAGE>
4. NET INCOME PER COMMON SHARE
Basic net income per common share is computed by dividing net
income available for common shares by the weighted average number
of common shares outstanding for the period. Diluted net income per
share is computed by dividing the sum of net income available for
common shares and minority interest in earnings of unitholders, by
the sum of the weighted average number of common shares and
dilutive potential common shares outstanding for the period.
The following table reconciles the components of basic and
diluted net income per common share for the three and six months
ended June 30:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------ ----------------
June 30, June 30,
------------------ ----------------
1998 1997 1998 1997
---- ----- ---- ----
<S> <C> <C> <C> <C>
Basic net income available
for common shares $21,858 $14,696 $44,120 $29,682
Minority interest in
earnings of unitholders 2,956 1,572 6,148 3,330
------ ------ ------ -------
Diluted net income
available for common
shares and dilutive
potential shares $24,814 $16,268 $50,268 $33,012
====== ====== ====== ======
Weighted average number
of common shares
outstanding 80,080 63,168 78,376 62,400
Weighted average
partnership units
outstanding 10,850 6,686 10,923 6,908
Dilutive shares for
long-term compensation
plans 900 722 923 773
------- ------ ------ ------
Weighted average number
of common shares and
dilutive potential common
shares 91,830 70,576 90,222 70,081
====== ====== ====== ======
</TABLE>
5. SUBSEQUENT EVENTS
On July 23, 1998, the Board of Directors declared a dividend of
$.34 per share of common stock which is payable on August 31,
1998, to common shareholders of record on August 14, 1998.
On July 23, 1998, the Board of Directors declared a dividend of
$.56875 per depositary share on the Series A Cumulative
Redeemable Preferred Shares which is payable on August 31, 1998
to preferred shareholders of record on August 17, 1998. Each
depositary share represents one-tenth of a share of the Company's
9.10% Series A preferred shares.
On July 23, 1998, the Board of Directors declared a dividend of
$.99875 per depositary share on the Series B Cumulative Step-up
Redeemable Preferred Shares. The dividend is payable on September
30, 1998 to preferred shareholders of record on September 16,
1998. Each depositary share represents one-tenth of a share of
the Company's 7.99% Series B 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 June 30, 1998,
the related condensed consolidated statements of operations for
the three and six months ended June 30, 1998 and 1997, the
related condensed consolidated statements of cash flows for the
six months ended June 30,1998 and 1997, and the related condensed
consolidated statement of shareholders' equity for the six months
ended June 30, 1998. 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, 1997, and
the related consolidated statements of operations and cash flows
for the year then ended (not presented herein); and in our report
dated January 28, 1998, 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, 1997 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
August 5, 1998
- 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 94% the last two years.
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, 1998 and 1997 (in thousands, except percentages):
<TABLE>
<CAPTION>
Total Percent of
Square Feet Total Square Feet Percent Occupied
-------------- ------------------- ----------------
Type 1998 1997 1998 1997 1998 1997
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
INDUSTRIAL
Service
Centers 5,296 3,051 10.98% 9.71% 93.58% 94.93%
Bulk 28,368 18,702 58.83 59.55 93.69% 95.64%
OFFICE
Suburban 11,819 7,244 24.51 23.07 96.21% 96.80%
CBD 699 699 1.45 2.23 92.67% 91.09%
RETAIL 2,041 1,710 4.23 5.44 95.67% 95.15%
------- ------ ------- -------
Total 48,223 31,406 100.00% 100.00% 94.37% 95.71%
====== ====== ====== ======
</TABLE>
Management expects occupancy of the in-service property portfolio
to remain stable because (i) only 5.3% and 11.8% of the Company's
occupied square footage is subject to leases expiring in the
remainder of 1998 and in 1999, respectively, and (ii) the
Company's renewal percentage averaged 81%, 80% and 65% in 1997,
1996 and 1995, respectively.
- 9 -
<PAGE>
The following table reflects the Company's in-service portfolio
lease expiration schedule as of June 30, 1998 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
------------- --------------- ------------- ------------------
Yr. of Sq. Sq. Sq. Sq.
Exp. Ft. Rent Ft. Rent Ft. Rent Ft. Rent
- ------- ----- ---- ---- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1998 1,737 $ 7,346 637 $ 7,095 19 $ 212 2,393 $ 14,653
1999 3,814 16,265 1,476 16,213 113 1,177 5,403 33,655
2000 2,976 12,655 1,166 14,638 128 1,555 4,270 28,848
2001 3,527 14,444 1,653 20,079 90 1,076 5,270 35,599
2002 4,110 17,080 1,562 17,996 153 1,684 5,825 36,760
2003 2,751 11,972 1,012 12,852 109 1,223 3,872 26,047
2004 1,364 5,646 357 4,501 17 178 1,738 10,325
2005 2,698 8,573 964 13,407 176 1,513 3,838 23,493
2006 2,122 7,793 711 10,344 8 108 2,841 18,245
2007 2,352 7,687 571 7,887 76 760 2,999 16,334
2008 and
Thereafter 4,113 14,472 1,933 26,585 1,126 9,405 7,172 50,462
------ ------- ------ ------- ----- ------ ------ -------
Total
Leased 31,564 $123,933 12,042 $151,597 2,015 $18,891 45,621 $294,421
====== ======= ====== ======= ===== ====== ====== =======
Total
Portfolio
Square
Feet 33,664 12,518 2,041 48,223
====== ====== ===== ======
Annualized
net
effective
rent per
square foot $ 3.93 $ 12.59 $ 9.38 $ 6.45
======= ===== ====== =======
</TABLE>
This stable occupancy, along with increasing 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 4.2 million
square feet of properties under development at June 30, 1998 over
the next four quarters. The 4.2 million square feet of
properties under development is expected to 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>
3rd Quarter 1998 609 57% $ 47,467 11.6%
4th Quarter 1998 1, 621 33% 89,484 11.7%
1st Quarter 1999 1, 269 27% 70,589 11.1%
Thereafter 650 75% 74,523 11.0%
----- -------
4,149 41% $282,063 11.3%
===== =======
</TABLE>
-10-
<PAGE>
RESULTS OF OPERATIONS
---------------------
Following is a summary of the Company's operating results and
property statistics for the three and six months ended June 30, 1998 and
1997 (in thousands, except number of properties and per share
amounts):
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
--------------------- --------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Rental Operations revenue $83,079 $51,586 $162,755 $102,504
Service Operations revenue 7,022 5,129 11,922 9,068
Earnings from Rental Operations 30,316 18,373 61,174 37,175
Earnings from Service
Operations 1,820 1,712 2,715 2,174
Operating income 29,033 18,511 58,446 36,459
Net income available for
common shares $21,858 $14,696 $44,120 $29,682
Weighted average common shares
outstanding 80,080 63,168 78,376 62,400
Weighted average common and
dilutive potential common
shares 91,830 70,576 90,222 70,081
Basic income per common share $ 0.27 $ 0.23 $ 0.56 $ 0.48
Diluted income per common share $ 0.27 $ 0.23 $ 0.56 $ 0.48
Number of in-service properties
at end of period 419 262 419 262
In-service square footage at
end of period 48,223 31,406 48,223 31,406
Under development square
footage at end of period 4,149 4,097 4,149 4,097
</TABLE>
COMPARISON OF THREE MONTHS ENDED JUNE 30, 1998 TO THREE MONTHS ENDED
---------------------------------------------------------------------
JUNE 30, 1997
--------------
Rental Operations
-----------------
The Company increased its in-service portfolio of rental
properties from 262 properties comprising 31.4 million square
feet at June 30, 1997 to 419 properties comprising 48.2 million
square feet at June 30, 1998 through the acquisition of 124
properties totaling 10.1 million square feet and the completion
of 37 properties and 3 building expansions totaling 7.0 million
square feet developed by the Company. The Company also disposed
of 4 properties totaling approximately 300,000 square feet.
These 157 net additional rental properties primarily account for
the $31.5 million increase in revenues from Rental Operations
from 1997 to 1998. The increase from 1997 to 1998 in rental
expenses, real estate taxes and depreciation and amortization
expense is also a result of the additional 157 in-service rental
properties.
Interest expense increased by approximately $4.6 million from
$9.7 million for the three months ended June 30, 1997 to $14.3
million for the three months ended June 30, 1998 primarily due to
additional unsecured debt issued in the third quarter of 1997 and
the first two quarters of 1998 to fund the development and
acquisition of additional rental properties.
As a result of the above-mentioned items, earnings from rental
operations increased $11.9 million from $18.4 million for the
three months ended June 30, 1997 to $30.3 million for the three
months ended June 30, 1998.
Service Operations
------------------
Service Operations revenues increased to $7.0 million for the
three months ended June 30, 1998 as compared to $5.1 million for
the three months ended June 30, 1997 primarily as a result of
increases in construction management fee revenue because of an
increase in third-party construction volume.
-11-
<PAGE>
Service Operations operating expenses increased from $3.4 million
to $5.2 million for the three months ended June 30, 1998 as
compared to the three months ended June 30, 1997 primarily as a
result of an increase in construction activity and the overall
growth of the Company.
As a result of the above-mentioned items, earnings from Service
Operations increased from $1.7 million for the three months ended
June 30, 1997 to $1.8 million for the three months ended June 30,
1998.
General and Administrative Expense
-----------------------------------
General and administrative expense increased from $1.6 million
for the three months ended June 30, 1997 to $3.1 million for the
three months ended June 30, 1998 primarily as a result of
internal acquisition costs which are no longer permitted to be
capitalized being charged to general and administrative expense
as well as an increase in state and local income taxes resulting
from the overall growth of the Company.
Other Income (Expense)
----------------------
Interest income increased from $177,000 for the three months
ended June 30, 1997 to $400,000 for the three months ended June
30, 1998 primarily as a result of interest income which was
earned on short-term investments during the three months ended
June 30, 1998. Other expense consists of costs incurred during
the pursuit of various build-to-suit development projects or the
acquisition of real estate assets. During the three months ended
June 30, 1997, approximately $312,000 of costs were expensed in
connection with the decision to abandon the acquisition of a
large real estate portfolio.
Net Income Available for Common Shares
---------------------------------------
Net income available for common shares for the three months ended
June 30, 1998 was $21.9 million compared to net income available
for common shares of $14.7 million for the three months ended
June 30, 1997. This increase results primarily from the
operating result fluctuations in rental and service operations
explained above.
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1998 TO SIX MONTHS ENDED
---------------------------------------------------------------------
JUNE 30, 1997
--------------
Rental Operations
------------------
The Company increased its in-service portfolio of rental
properties from 262 properties comprising 31.4 million square
feet at June 30, 1997 to 419 properties comprising 48.2 million
square feet at June 30, 1998 through the acquisition of 124
properties totaling 10.1 million square feet and the completion
of 37 properties and 3 building expansions totaling 7.0 million
square feet developed by the Company. The Company also disposed
of 4 properties totaling approximately 300,000 square feet. These
157 net additional rental properties primarily account for the
$60.3 million increase in revenues from Rental Operations from
1997 to 1998. The Company received approximately $4.0 million of
lease termination payments which are included in rental income
for the six months ended June 30, 1998. Included in rental
income for the six months ended June 30, 1997 are approximately
$1.7 of million lease termination payments. The increase from
1997 to 1998 in rental expenses, real estate taxes and
depreciation and amortization expense is also a result of the
additional 157 in-service rental properties.
-12-
<PAGE>
Interest expense increased by approximately $8.6 million from
$18.6 million for the six months ended June 30, 1997 to $27.2
million for the six months ended June 30, 1998 primarily due to
additional unsecured debt issued in the third quarter of 1997 and
the first two quarters of 1998 to fund the development and
acquisition of additional rental properties.
As a result of the above-mentioned items, earnings from rental
operations increased $24.0 million from $37.2 million for the six
months ended June 30, 1997 to $61.2 million for the six months
ended June 30, 1998.
Service Operations
-------------------
Service Operations revenues increased to $11.9 million for the
six months ended June 30, 1998 as compared to $9.1 million for
the six months ended June 30, 1997 primarily as a result of
increases in construction management fee revenue because of an
increase in third-party construction volume. Service Operations
operating expenses increased from $6.9 million to $9.2 million
for the six months ended June 30, 1998 as compared to the six
months ended June 30, 1997 primarily as a result of an increase
in construction activity and the overall growth of the Company.
As a result of the above-mentioned items, earnings from Service
Operations increased from $2.2 million for the six months ended
June 30, 1997 to $2.7 million for the six months ended June 30,
1998.
General and Administrative Expense
----------------------------------
General and administrative expense increased from $2.9 million
for the six months ended June 30, 1997 to $5.4 million for the
six months ended June 30, 1998 primarily as a result of internal
acquisition costs which are no longer permitted to be capitalized
being charged to general and administrative expense as well as an
increase in state and local income taxes resulting from the
overall growth of the Company.
Other Income (Expense)
----------------------
Interest income increased from $427,000 for the six months ended
June 30, 1997 to $589,000 for the six months ended June 30, 1998
primarily as a result of interest income which was earned on
short-term investments during the six months ended June 30, 1998.
Other expense consists of costs incurred in pursuit of
unsuccessful development or acquisition opportunities. During
the six months ended June 30, 1997, approximately $312,000 of
costs were written off in connection with the decision to
terminate the pursuit of the acquisition of a large real estate
portfolio.
Net Income Available for Common Shares
--------------------------------------
Net income available for common shares for the six months ended
June 30, 1998 was $44.1 million compared to net income available
for common shares of $29.7 million for the six months ended June
30, 1997. This increase results primarily from the operating
result fluctuations in rental and service operations explained
above.
-13-
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities totaling $100.3 million
and $71.5 million for the six months ended June 30, 1998 and
1997, 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 $351.5 million and
$175.4 million for the six months ended June 30, 1998 and 1997,
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. In
1998, $315.5 million was invested in the development and
acquisition of additional rental properties and the acquisition
of land held for development. In 1997, the investment in the
development and acquisition of additional rental properties and
land held for development was $153.3 million. Included in the
$315.5 million of net cash used by investing activities for the
development and acquisition of rental properties for the six
months ended June 30, 1998 are acquisitions of five portfolios
consisting of twenty-one industrial buildings and fifteen office
buildings.
Net cash provided by financing activities totaling $263.2 million
and $101.7 million for the six months ended June 30, 1998 and
1997, respectively, represents funds from equity and debt
offerings and borrowings under the lines of credit to fund the
Company's investing activities. Also included in financing
activities is the distribution of funds to shareholders and
minority interests. 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. In 1998, the
Company received $86.8 million of net proceeds from common equity
offerings which was used to pay down amounts outstanding on the
unsecured line of credit and to fund current development and
acquisition activity. During the six months ended June 30, 1998,
the Company received $13.8 million of net proceeds from the
issuance of common stock under its Direct Stock Purchase and
Dividend Reinvestment Plan compared to $7.0 million of net
proceeds received under the Direct Stock Purchase and Dividend
Reinvestment Plan during the first six months of 1997. In the
first quarter of 1998, the Company received $100.0 million of net
proceeds from the offering of 7.05% Puttable Reset Securities due
March 1, 2006. In the second quarter of 1998, the Company
received $100.0 million of proceeds from the offering of 6.75%
Senior Notes due May 30, 2008. The Company also received $50.0
million in proceeds from the issuance of 7.25% notes under the
Company's medium-term note program.
The Company has a $250 million unsecured line of credit which
matures in April 2001 and bears interest at the 30-day LIBOR rate
plus .80%. The Company also has a demand $7 million secured
revolving credit facility which is available to provide working
capital. This facility bears interest at the 30-day LIBOR rate
plus .65%.
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 July 30,
1998
-14-
<PAGE>
of approximately $1.2 billion 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 debt outstanding at June 30, 1998 consists of notes
totaling $953.6 million with a weighted average interest rate of
7.40% maturing at various dates through 2028. The Company has
$590.0 million of unsecured debt and $363.6 million of secured
debt outstanding at June 30, 1998.
Scheduled principal amortization of such debt totaled $3.4
million for the six months ended June 30, 1998. Following is a
summary of the scheduled future amortization and maturities of
the Company's indebtedness at June 30, 1998 (in thousands):
<TABLE>
<CAPTION>
Repayments
----------------------------------------
Weighted Average
Scheduled Interest Rate of
Year Amortization Maturities Total Future Repayments
---- ------------- ---------- ------ ------------------
<S> <C> <C> <C> <C>
1998 $ 3,524 $ 40,603 $ 44,127 7.13%
1999 5,905 30,450 36,355 6.69%
2000 6,288 64,850 71,138 7.14%
2001 5,954 74,560 80,514 8.31%
2002 6,462 50,000 56,462 7.39%
2003 4,519 66,141 70,660 8.46%
2004 3,509 177,035 180,544 7.41%
2005 3,800 100,000 103,800 7.49%
2006 4,117 100,000 104,117 7.07%
2007 3,653 14,939 18,592 7.75%
Thereafter 37,275 150,000 187,275 6.89%
------ ------- -------
Total $85,006 $868,578 $953,584 7.40%
====== ======= =======
</TABLE>
The Company intends to pay regular quarterly dividends from net
cash provided by operating activities. A quarterly dividend of
$.34 per Common Share was declared on July 23, 1998 payable on
August 31, 1998 to shareholders of record on August 14, 1998,
which represents an annualized dividend of $1.36 per share. A
quarterly dividend of $.56875 per depositary share of Series A
Preferred Shares was declared on July 23, 1998 which is payable
on August 31, 1998 to preferred shareholders of record on August
17, 1998. A quarterly dividend of $.99875 per depositary share on
the Series B Cumulative Step-Up Redeemable Preferred Shares was
declared on July 23, 1998 which is payable on September 30, 1998
to preferred shareholders of record on September 16, 1998.
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.
-15-
<PAGE>
The following table reflects the calculation of the Company's FFO
for the three and six months ended June 30 as follows (in thousands):
<TABLE>
<CAPTION>
Three Months ended Six Months ended
June 30, June 30,
------------------ ------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income available for
common shares $ 21,858 $ 14,696 $ 44,120 $ 29,682
Add back:
Depreciation and amortization 16,525 10,052 30,785 19,551
Share of joint venture adjustments 968 791 1,550 1,314
Earnings from property sales (368) (102) (954) (382)
Minority interest share of add-backs (2,050) (1,031) (3,838) (2,042)
-------- -------- -------- --------
FUNDS FROM OPERATIONS $ 36,933 $ 24,406 $ 71,663 $ 48,123
======== ======== ======== ========
CASH FLOW PROVIDED BY (USED BY):
Operating activities $ 61,260 $ 42,489 $ 100,311 $ 71,462
Investing activities (242,439) (134,244) (351,488) (175,407)
Financing activities 174,389 81,865 263,203 101,718
</TABLE>
The increase in FFO for the six months ended June 30, 1998
compared to the six months ended June 30, 1997 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.
RECENTLY ENACTED ACCOUNTING PRONOUNCEMENTS
In March 1998, the Emerging Issues Task Force of the Financial
Accounting Standards Board reached a consensus on Issue No. 97-11
"Accounting for Internal Costs Relating to Real Estate Property
Acquisitions" which requires the internal cost of pre-acquisition
activities incurred in connection with the acquisition of an
operating property be expensed as incurred. During the first
three months of 1998, prior to adopting Issue No. 97-11, the
Company capitalized approximately $275,000 of internal costs of
pre-acquisition activities which under Issue 97-11 would have
been expensed.
YEAR 2000
The Company recognizes that the Year 2000 problem could effect
its operations as well as the proper functioning of the embedded
systems included in the Company's properties. In any particular
property, the problem could effect the functioning of elevators,
heating and air conditioning systems, security systems and other
automated building systems. The Company has begun to evaluate
the Year 2000 readiness of its operations and those of its
properties, through identifying and contacting suppliers of
building systems and other critical business partners to
determine if the building systems are affected and whether these
entities have an effective plan in place to address the Year 2000
issue. The Company is also in the process of evaluating its own
systems to determine the impact of the Year 2000. The Company
expects to complete this process of inventorying and evaluating
its and its properties systems by September 1, 1998, and the
process is currently approximately 80% completed. Thereafter the
Company will develop a work plan detailing the tasks and
resources required to ready its and its properties' operations
and systems for the Year 2000. This work plan will likely include a
timetable
- 16 -
<PAGE>
for remediation and testing of systems, as well as contingency plans if
readiness cannot be achieved. In addition, in many cases the Company will
be relying on statements from outside vendors as to the Year 2000
readiness of their systems, and will not, in most circumstances,
attempt any independent verification. Because the Company is
still in the preliminary stages of its work to address the Year
2000 problem, it currently does not have complete estimates as to
the cost of achieving Year 2000 readiness and has not yet
developed any contingency plans. Based on the preliminary
information received to date, however, the Company currently
expects that these costs will not be material. The Company
expects to pass on most of the costs to achieve Year 2000
readiness in any particular property to the tenants, and will
otherwise expense the costs as incurred.
There can be no assurance that the Company will be able to
identify and correct all aspects of the Year 2000 problem that
effect it in sufficient time, that it will develop adequate
contingency plans or that the costs of achieving Year 2000
readiness will not be material. The Company, however, does not
currently expect the Year 2000 problem will have a material
impact on the Company's business, operations, or financial
condition.
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
------------------------------------------------------------
At the annual meeting of the shareholders of the Company held on April
23, 1998, the following matters received the following votes:
-17-
<PAGE>
<TABLE>
<CAPTION>
MATTER DESCRIPTION VOTES FOR VOTES AGAINST ABSTAINING
------------------ ------------- ------------- ----------
<S> <C> <C> <C>
1. Election of Directors:
Geoffrey Button 64,800,462 - 545,771
John D. Peterson 64,813,928 - 532,305
Ngaire E. Cuneo 64,811,460 - 534,773
Darell E. Zink, Jr. 64,815,528 - 530,705
2. Proposal to approve
amendment to Articles
of Incorporation 63,971,813 1,205,897 168,523
3. Proposal to approve
amendment to the 1995
Stock Option Plan 63,944,439 1,117,027 284,767
4. Proposal to approve
amendment to the 1995
Dividend Increase Unit
Plan 64,177,635 867,152 301,446
</TABLE>
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
-----------------------------------------
Exhibits
The following exhibits are filed or incorporated by reference as a part
of this report:
Exhibit 10. Amendment to Articles of Incorporation of the Company for
authorization of Duke Realty Investments, Inc. Shareholder Rights Plan.
Exhibit 15. Letter regarding unaudited interim financial information
Exhibit 27. Financial Data Schedule (EDGAR Filing Only)
-18-
<PAGE>
Reports on Form 8-K
The Company filed Form 8-K on April 21, 1998, to report the issuance of
shares of common stock.
The Company filed Form 8-K on April 23, 1998, to report the issuance of
shares of common stock.
The Company filed Form 8-K on July 31, 1998, to report the authorization
of the Duke Realty Investments, Inc. Shareholders Rights Agreement, dated
as of July 23, 1998, by and between Duke Realty Investments, Inc. and
American Stock Transfer and Trust Company.
-19-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
DUKE REALTY INVESTMENTS, INC.
-----------------------------
Registrant
Date: August 13, 1998 /s/ Thomas L. Hefner
--------------------- -------------------------------
Thomas L. Hefner
President and
Chief Executive Officer
/s/ Darell E. Zink, Jr.
-------------------------------
Darell E. Zink, Jr.
Executive Vice President and
Chief Financial Officer
/s/ Dennis D. Oklak
-------------------------------
Dennis D. Oklak
Executive Vice President and
Chief Administrative Officer
- 20-
Exhibit 10
- -----------
ARTICLES OF AMENDMENT OF
THE ARTICLES OF INCORPORATION OF
DUKE REALTY INVESTMENTS, INC.
The undersigned officer of DUKE REALTY INVESTMENTS, INC. (the
"Corporation"), existing pursuant to the provisions of INDIANA
BUSINESS CORPORATION LAW (IND. CODE SECTION 23-1 ET SEQ.), AS
AMENDED (the "Act") and desiring to give notice of corporate
action effectuating amendment of certain provisions of its
Amended and Restated Articles of Incorporation certifies the
following facts:
ARTICLE I - AMENDMENT
SECTION 1: The date of incorporation of the Corporation is:
MARCH 12, 1992
SECTION 2: The name of the Corporation following this
amendment of its Amended and Restated Articles of Incorporation
is:
DUKE REALTY INVESTMENTS, INC.
SECTION 3: Article VI of the Amended and Restated Articles of
Incorporation, as heretofore amended, is amended to add a new
Section 6.07, the exact text of which is as set forth on Exhibit
A attached hereto and incorporated by reference herein
ARTICLE II - MANNER OF ADOPTION AND VOTE
SECTION 1: Action by Directors:
The Board of Directors of the Corporation duly adopted
resolutions amending Article VI of the Amended and Restated
Articles of Incorporation. These resolutions were adopted at a
meeting duly held on July 23, 1998 at which a quorum was present.
SECTION 2: Action by Shareholders:
Pursuant to I.C. 23-1-25-2(d), the Shareholders of the
Corporation were not required to vote with respect to this
amendment to the Amended and Restated Articles of Incorporation.
SECTION 3: Compliance with legal requirements:
The manner of the adoption of the Articles of Amendment and the
vote by which they were adopted constitute full legal compliance
with the provisions of the Act, the Amended and Restated Articles
of Incorporation, and the By-Laws of the Corporation.
This Amendment is to be effective at 12:01 a.m. on August 3,
1998.
I hereby verify, subject to penalties for perjury, that the facts
contained herein are true this 31st day of July, 1998.
/s/ John R. Gaskin
-----------------------------------
John R. Gaskin, Vice President and Secretary
<PAGE>
EXHIBIT A
SECTION 6.07. Series C Preferred Stock.
------------------------
Pursuant to authority granted under Section 6.01 of the
Corporation's Amended and Restated Articles of Incorporation (the
"Articles of Incorporation"), the Board of Directors of the Corporation
hereby establishes a series of preferred shares designated the Series C
Junior Preferred Stock ($0.001 par value per share) (the "Series C Preferred
Stock") on the following terms:
(a) Number.
------
The number of shares constituting the Series C Preferred
Stock shall initially be 500,000, subject to increase or decrease
by the Board of Directors effectuated by further Articles of
Amendment; provided, however, that no decrease shall reduce the
number of shares of Series C Preferred Stock to a number less
than that of the shares then outstanding plus the number of
shares of Series C Preferred Stock issuable upon exercise of
outstanding rights, options or warrants or upon conversion of
outstanding securities issued by the Corporation.
(b) Dividends and Distributions.
--------------------------
(1) Subject to the prior and superior rights of the
holders of any shares of any series of Preferred Stock ranking
prior and superior to the shares of Series C Preferred Stock with
respect to dividends, each holder of one one-thousandth (1/1,000)
of a share (a "Unit") of Series C Preferred Stock shall be
entitled to receive, when, as and if declared by the Board of
Directors out of funds legally available for that purpose,
quarterly dividends payable in cash to holders of record on the
last business day of March, June, September and December in each
year (each such date being referred to herein as a "Quarterly
Dividend Payment Date"), commencing on the first Quarterly
Dividend Payment Date after the first issuance of a Unit of
Series C Preferred Stock, in an amount per Unit (rounded to the
nearest cent) equal to the greater of (a) $.001 or (b) subject to
the provision for adjustment hereinafter set forth, the aggregate
per share amount of all cash dividends declared on shares of the
common stock, par value $.01 per share, of the Company (the
"Common Stock") since the immediately preceding Quarterly
Dividend Payment Date, or, with respect to the first Quarterly
Dividend Payment Date, since the first issuance of a Unit of
Series C Preferred Stock, and (ii) subject to the provision for
adjustment hereinafter set forth, quarterly distributions
(payable in kind) on each Quarterly Dividend Payment Date in an
amount per Unit equal to the aggregate per share amount of all
non-cash dividends or other distributions declared on shares of
Common Stock since the immediately preceding Quarterly Dividend
Payment Date, or with respect to the first Quarterly Dividend
Payment Date, since the first issuance of a Unit. In the event
the Corporation shall at any time following August 3, 1998 (the
"Rights Declaration Date") (i) declare any dividend on Common
Stock payable in shares of Common Stock, (ii) subdivide the
outstanding Common Stock or (iii) combine the outstanding Common
Stock into a smaller number of shares, then in each such case the
amount to which holders of Units of Series C Preferred Stock were
entitled immediately prior to such event under clause (b) of the
preceding sentence shall be adjusted by multiplying each such
amount by a fraction the numerator of which is the number of
shares of Common Stock outstanding immediately after such event
and the denominator of which is the number of shares of Common
Stock that were outstanding immediately prior to such event.
<PAGE>
(2) The Corporation shall declare a dividend or
distribution on Units of the Series C Preferred Stock as provided
in paragraph (A) above at the time it declares a dividend or
distribution on the Common Stock; provided, however, that in the
event no dividend or distribution shall have been declared on the
Common Stock during the period between any Quarterly Dividend
Payment Date and the next subsequent Quarterly Dividend Payment
Date, a dividend of $.001 per Unit on the Series C Preferred
Stock shall nevertheless be payable on such subsequent Quarterly
Dividend Payment Date.
(3) No dividend or distribution shall be paid or payable
to the holders of shares of Common Stock unless, prior thereto,
all accrued but unpaid dividends to the date of such dividend or
distribution shall have been paid to the holders of Units of
Series C Preferred Stock.
(4) Dividends shall begin to accrue and be cumulative on
each outstanding Unit from the Quarterly Dividend Payment Date
next preceding the date of issue of such Unit, unless the date of
issue of such Unit is prior to the record date for the first
Quarterly Dividend Payment Date, in which case dividends on such
Unit shall begin to accrue from the date of issue of such shares,
or unless the date of issue is a Quarterly Dividend Payment Date
or is a date after the record date for the determination of
holders of Units of Series C Preferred Stock entitled to receive
a quarterly dividend and before such Quarterly Dividend Payment
Date, in either of which events such dividends shall begin to
accrue and be cumulative from such Quarterly Dividend Payment
Date. Accrued but unpaid dividends shall not bear interest.
Dividends paid on Units in an amount less than the total amount
of such dividends at the time accrued and payable on such Units
shall be allocated pro rata on a Unit-by-Unit basis among all
such Units at the time outstanding. The Board of Directors may
fix a record date for the determination of holders of Units
entitled to receive payment of a dividend or distribution
declared thereon, which record date shall be no more than 60 days
prior to the date fixed for the payment thereof.
(c) Voting Rights. The holders of Units shall have the following
------------- voting rights:
(1) Subject to the provision for adjustment hereinafter
set forth, each Unit shall entitle the holder thereof to one vote
on all matters submitted to a vote of the stockholders of the
Corporation. In the event the Corporation shall at any time
following the Rights Dividend Declaration Date (i) declare or pay
any dividend on Common Stock payable in shares of Common Stock,
(ii) subdivide the outstanding shares of Common Stock or (iii)
combine or consolidate the outstanding shares of Common Stock
into a smaller number of shares, then in each such case the
number of votes per share to which holders of Units were entitled
immediately prior to such event shall be adjusted by multiplying
such number by a fraction the numerator of which is the number of
shares of Common Stock outstanding immediately after such event
and the denominator of which is the number of shares of Common
Stock that were outstanding immediately prior to such event.
(2) Except as otherwise provided herein or by law, the
holders of Units and the holders of shares of Common Stock and
any other capital stock of the Corporation having general voting
rights shall vote together as one class on all matters submitted
to a vote of stockholders of the Corporation.
(3) (i) Whenever, at any time or times, dividends
payable on any Unit or Units shall be in arrears in an amount
equal to at least two full quarterly dividends (whether or not
declared
<PAGE>
and whether or not consecutive), the number of Directors
then constituting the entire Board of Directors of the
Corporation shall automatically be increased by 2 and the holders
of record of the outstanding Units and holders of any other
shares of Preferred Stock of the Corporation ranking on a parity
with the Series C Preferred Stock shall have the exclusive right,
voting together as a single class, to elect two directors of the
Corporation at a special meeting of stockholders of the
Corporation to fill such newly-created directorships. At
elections for such directors, the holders of Units shall be
entitled to cast one vote for each Unit held.
(ii) So long as any Units are outstanding, the number
of Directors of the Corporation shall at all times be such that
the exercise, by the holders of shares of Series C Preferred
Stock and the holders of shares of Preferred Stock on a parity
therewith, of the right to elect Directors under the
circumstances provided in paragraph (iii) of this subclause (C)
will not contravene any provision of the Indiana Business
Corporation Law or the Articles of Incorporation of the
Corporation. Any director elected by holders of Units pursuant
to this Section may be removed at any annual or special meeting,
by vote of a majority of the stockholders who elected such
director voting as a class, with or without cause. In case any
vacancy shall occur among the directors elected by the holders of
Units pursuant to this Section, such vacancy may be filled by the
remaining director so elected, or his successor then in office,
and the director so elected to fill such vacancy shall serve
until the next meeting of stockholders for the election of
directors. After the holders of Units shall have exercised their
right to elect directors in any default period and during the
continuance of such period, the number of directors shall not be
further increased or decreased except by vote of the holders of Units
as herein provided or pursuant to the rights of any equity securities
ranking senior to or pari passu with the Series C Preferred Stock.
(iii) The right of the holders of Units, voting
separately as a class, to elect two members of the Board of
Directors of the Corporation as aforesaid shall continue until,
and only until, such time as all arrears in dividends (whether or
not declared) on the Units shall have been paid or declared and
set apart for payment, at which time such right shall terminate,
except as herein or by law expressly provided, subject to
reinvesting in the event of each and every subsequent default of
the character above-mentioned. Upon any termination of the right
of the holders of the Units as a class to vote for directors as
herein provided, the term of office of all directors then in
office elected by the holders of Units pursuant to this Section
shall terminate immediately. Whenever the term of office of the
directors elected by the holders of Units pursuant to this
Section shall terminate and the special voting powers vested in
the holders of the Preferred Stock pursuant to this Section shall
have expired, the maximum number of members of the Board of
Directors of the Corporation shall be such number as may be
provided for in the By-laws of the Corporation, irrespective of
any increase made pursuant to the provisions of this Section.
(4) Except as set forth herein, holders of Units shall
have no special voting rights and their consent shall not be
required (except to the extent they are entitled to vote with
holders of Common Stock as set forth herein) for taking any
corporate action.
(d) Certain Restrictions.
-------------------
(1) Whenever quarterly dividends or other dividends or
distributions payable on the Units as provided in herein are in
arrears, thereafter and until all accrued and unpaid dividends
<PAGE>
and distributions, whether or not declared, on outstanding Units
outstanding shall have been paid in full, the Corporation shall
not:
(i) declare or pay dividends on, make any other
distributions on, or redeem or purchase or otherwise acquire for
consideration any shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the
Series C Preferred Stock;
(ii) declare or pay dividends on or make any other
distributions on any shares of stock ranking on a parity (either
as to dividends or upon liquidation, dissolution or winding up)
with the Series C Preferred Stock, except dividends paid ratably
on the Units and all such parity stock on which dividends are
payable or in arrears in proportion to the total amounts to which
the holders of all such Units and all such shares are then
entitled;
(iii) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking on a parity (either as
to dividends or upon liquidation, dissolution or winding up) with
the Series C Preferred Stock; provided, however, that the
Corporation may at any time redeem, purchase or otherwise acquire
shares of any such parity stock in exchange for shares of any
stock of the Corporation ranking junior (either as to dividends
or upon dissolution, liquidation or winding up) to the Series C
Preferred Stock; or
(iv) purchase or otherwise acquire for consideration
any Units, except in accordance with a purchase offer made in
writing or by publication (as determined by the Board of
Directors) to all holders of such Units, upon such terms as the
Board of Directors, after consideration of the respective annual
dividend rates and other relative rights and preferences of the
respective series and classes, shall determine in good faith will
result in fair and equitable treatment among the respective
series or classes.
(2) The Corporation shall not permit any subsidiary of
the Corporation to purchase or otherwise acquire for
consideration any Units or shares of stock of the Corporation
unless the Corporation could, under paragraph (A) of this
Section, purchase or otherwise acquire such Units or shares at
such time and in such manner.
(e) Reacquired Units.
----------------
Any Units purchased or otherwise acquired by the
Corporation in any manner whatsoever shall be retired and
cancelled promptly after the acquisition thereof. All such Units
shall, upon their cancellation, become authorized but unissued
fractional shares of Preferred Stock and may be reissued as part
of a new series of Preferred Stock to be created by resolution or
resolutions of the Board of Directors, subject to the conditions
and restrictions on issuance set forth herein.
(f) Liquidation, Dissolution or Winding Up.
--------------------------------------
(1) Upon any voluntary liquidation, dissolution or
winding up of the Company, no distribution shall be made (i) to
the holders of shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the
Series C Preferred Stock unless, prior thereto, the holders of
Units shall have received $1.00 per Unit, plus an amount equal to
accrued and unpaid dividends and distributions thereon, whether
or not declared, to the date of such payment (the "Series C
<PAGE>
Liquidation Preference"), or (ii) to the holders of stock ranking
on a parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Series C Preferred Stock,
except distributions made ratably on the Series C Preferred Stock
and all other such parity stock in proportion to the total
amounts to which the holders of all such shares are entitled upon
such liquidation, dissolution or winding up. Thereafter, the
holders of Units shall be entitled to receive an aggregate amount
per Unit, subject to the provision for adjustment hereinafter set
forth, equal to the aggregate amount to be distributed per share
to the holders of Common Stock. In the event the Company shall
at any time after the date hereof declare or pay any dividend on
the Common Stock payable in shares of Common Stock, or effect a
subdivision or combination or consolidation or the outstanding
shares of Common Stock (by reclassification or otherwise) into a
greater or lesser number of shares of Common Stock, then in each
such case the aggregate amount to which holders of Units were
entitled immediately prior to such event under the preceding
sentence shall be adjusted by multiplying such amount by a
fraction the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that
were outstanding immediately prior to such event.
(2) In the event, however, that there are not sufficient
assets available to permit payment in full of the Series C
Liquidation Preference and the liquidation preferences of all
other series of Preferred Stock, if any, which rank on a parity
with the Series C Preferred Stock, then such remaining assets
shall be distributed ratably to the holders of such parity shares
in proportion to their respective liquidation preferences.
(g) Consolidation, Merger, Etc.
--------------------------
In case the Company shall enter into any consolidation,
merger, combination or other transaction in which the shares of
Common Stock are exchanged for or converted into other stock or
securities, cash and/or any other property, then in any such case
the Units shall at the same time be similarly exchanged for or
converted into an amount per Unit (subject to the provision for
adjustment hereinafter set forth) equal to the aggregate amount
of stock, securities, cash and/or any other property (payable in
kind), as the case may be, into which or for which each share of
Common Stock is converted or exchanged. In the event the Company
shall at any time (i) declare any dividend on Common Stock
payable in shares of Common Stock, (ii) subdivide the outstanding
Common Stock or (iii) combine the outstanding Common Stock into a
smaller number of shares, then in each such case the amount set
forth in the preceding sentence with respect to the exchange or
conversion of Units shall be adjusted by multiplying such amount
by a fraction the numerator of which is the number of shares of
Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that
were outstanding immediately prior to such event.
(h) Redemption.
-----------
The Units shall not be redeemable by the Company;
provided, however, that the foregoing shall not limit the ability
of the Company to purchase or otherwise deal in such Units to the
extent otherwise permitted hereby and by law.
(i) Ranking.
-------
The Series C Preferred Stock shall rank junior to all
other series of the Company's Preferred Stock (whether with or
without par value) as to the payment of dividends and the
distribution of assets, unless the terms of any such series shall
provide otherwise.
(j) Amendment.
--------
Neither these Articles of Amendment nor the Articles of
Incorporation of the Company may be amended in any manner which
would materially alter or change the powers, preferences or
special rights of the Series C Preferred Stock so as to affect
them
<PAGE>
adversely without the affirmative vote of the holders of a
majority or more of the outstanding Units, voting separately as a
class.
(k) Fractional Shares.
-----------------
Series C Preferred Stock may be issued in Units or
other fractions of a share, which Units or fractions shall
entitle the holder, in proportion to such holder's Units or
fractional shares, to exercise voting rights, receive dividends,
participate in distributions and to have the benefit of all other
rights of holders of Series C Preferred Stock.
<PAGE>
Exhibit 15
- ----------
The Board of Directors
Duke Realty Investments, Inc.
Gentlemen:
RE: Registration Statements Nos. 33-64567, 33-64659, 33-55727,
333-04695, 333-24289, 333-26833, 333-49911, 333-39965, 333-50081
and 333-26845
With respect to the subject registration statements, we
acknowledge our awareness of the use therein of our report dated
August 5, 1998 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
August 11, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM DUKE
REALTY INVESTMENTS, INC. AND SUBSIDIARIES' JUNE 30, 1997 CONSOLIDATED
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 3,107
<SECURITIES> 0
<RECEIVABLES> 27,597
<ALLOWANCES> (1,374)
<INVENTORY> 0
<CURRENT-ASSETS> 24,328
<PP&E> 1,459,765
<DEPRECIATION> (96,491)
<TOTAL-ASSETS> 1,550,879
<CURRENT-LIABILITIES> 81,934
<BONDS> 614,857
0
72,288
<COMMON> 762,993
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1,550,879
<SALES> 0
<TOTAL-REVENUES> 112,381
<CGS> 57,581
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 7,167
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17,951
<INCOME-PRETAX> 29,682
<INCOME-TAX> 0
<INCOME-CONTINUING> 29,682
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 29,682
<EPS-PRIMARY> $.48
<EPS-DILUTED> $.48
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM DUKE
REALTY INVESTMENTS, INC. AND SUBSIDIARIES' JUNE 30, 1998 CONSOLIDATED
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 22,379
<SECURITIES> 0
<RECEIVABLES> 43,285
<ALLOWANCES> (1,352)
<INVENTORY> 0
<CURRENT-ASSETS> 69,230
<PP&E> 2,536,140
<DEPRECIATION> (146,350)
<TOTAL-ASSETS> 2,530,801
<CURRENT-LIABILITIES> 236,269
<BONDS> 953,584
0
218,338
<COMMON> 1,122,610
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 2,530,801
<SALES> 0
<TOTAL-REVENUES> 176,220
<CGS> 89,067
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 15,808
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27,225
<INCOME-PRETAX> 44,120
<INCOME-TAX> 0
<INCOME-CONTINUING> 44,120
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 44,120
<EPS-PRIMARY> $.56
<EPS-DILUTED> $.56
</TABLE>
