PROSPECTUS SUPPLEMENT
- ---------------------
(TO PROSPECTUS DATED MAY 27, 1997)
661,157 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 September 30, 1997, the Company owned a diversified
portfolio of 278 in-service industrial, office and retail
properties, encompassing approximately 34.2 million square
feet located in seven states, and 31 buildings and one
building expansion encompassing approximately 4.5 million
square feet under development. The Company also owned
approximately 1,500 acres of land for future development.
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 February 24, 1998 was $22 - 11/16
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 $ 22.6875 $ 1.0209 $ 21.6666
Total $14,999,999.44 $674,999.98 $14,324,999.46
</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 and subject to its right to
reject orders in whole or in part. It is expected that
delivery of the Common Stock offered hereby will be made at
the offices of Legg Mason Wood Walker, Incorporated,
Baltimore, Maryland, on or about February 27, 1998.
------------------------
LEGG MASON WOOD WALKER
Incorporated
------------------------
The date of this Prospectus Supplement is February
24, 1998.
<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."
<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 SEPTEMBER 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 WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND
SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED. 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 September 30, 1997, the
Company owned a diversified portfolio of 278 in-service
industrial, office and retail properties (the "Properties"),
encompassing approximately 34.2 million square feet located
in seven states, and 31 buildings and one building expansion
encompassing approximately 4.5 million square feet under
development. The Company also owned approximately 1,500
acres of unencumbered land (the "Land") for future
development, of which approximately 72% 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 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 approximately 52 million square
feet of commercial property since its founding including an
average of approximately 4.4 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 nine months
ended September 30, 1997, the Company placed in service 3.9
million square feet of new development and acquired 3.4
million square feet of property.
The Company manages approximately 47 million square feet
of property, including over 8.2 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 more than
1,900 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
the Operating Partnership as the sole general partner and
owner, as of September 30, 1997 of approximately 92% of the
<PAGE>
Units. In addition, the senior management team of the
Company owns approximately 10.75% 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 NET
PERCENT NET EFFECTIVE OCCUPANCY
TYPE OF SQUARE OF TOTAL EFFECTIVE ANNUAL AT
PROPERTY FEET SQ. FT. RENT (1) RENT SEPT. 30, 1997
- ----------- ------ -------- --------- ------------ --------------
<S> <C> <C> <C> <C> <C>
Industrial 23,256 68% $ 83,601 40% 94.5%
Office 9,292 27% 109,720 53% 96.6%
Retail 1,692 5% 15,601 7% 96.3%
------ ---- ------- ----
Total 34,240 100% $208,922 100% 95.1%
====== ==== ======= ====
</TABLE>
(1) Represents annual net effective rent due from tenants
in occupancy as of September 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 % OF
------------------------------------------- ANNUAL
NET NET
PRIMARY % OF EFFECTIVE EFFECTIVE
MARKET INDUSTRIAL OFFICE RETAIL TOTAL TOTAL RENT (1) RENT
- ------------ ---------- ------ ------ ------ ----- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Indianapolis 13,624 1,458 194 15,276 45% $ 62,834 30%
Cincinnati 4,255 3,159 781 8,195 24 58,886 28
Columbus 2,071 1,481 219 3,771 11 26,362 13
St Louis 1,188 998 -- 2,186 6 18,038 9
Cleveland 790 1,201 -- 1,991 6 16,841 8
Chicago -- 995 -- 995 3 15,199 7
Nashville 634 -- -- 634 2 4,333 2
Other (2) 694 -- 498 1,192 3 6,429 3
------ ----- ----- ------ ---- ------- ----
Total 23,256 9,292 1,692 34,240 100% $208,922 100%
====== ===== ===== ====== ==== ======= ====
Percent of
Total
Square Feet 68% 27% 5% 100%
</TABLE>
(1) Represents annual Net Effective Rent due from tenants in
occupancy as of September 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.
<PAGE>
RECENT DEVELOPMENTS
OPERATING PERFORMANCE, DIVIDEND INCREASE AND STOCK SPLIT
For the nine months ended September 30, 1997, the Company
reported the following information as compared to the same
period in 1996.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------
1997 1996
------ ------
(IN THOUSANDS)
<S> <C> <C>
Net income available for common shareholders $ 46,593 $ 35,425
Revenues 173,707 130,234
Funds From Operations 74,130 55,113
Cash flow provided by (used by):
Operating activities 110,138 69,103
Investing activities (380,536) (202,507)
Financing activities 439,196 139,600
</TABLE>
For the fourth quarter ended December 31, 1997, the Company
reported net income available for common shareholders of
$19.4 million on revenues of $78.4 million, which represents
a significant increase from $15.4 million and $50.9 million,
respectively, for the fourth quarter of 1996. Funds from
Operations also increased to $33.1 million for the fourth
quarter of 1997 from $21.0 million for the fourth quarter of
1996.
On October 23, 1997, the Company's Board of Directors
raised its regular quarterly common dividend from $.295 per
share to $.30 per share, payable on November 28, 1997 to
common shareholders of record on November 14, 1997. This
dividend equals $1.20 on an annualized basis. On January 29,
1998, the Company's Board of Directors declared a regular
quarterly common dividend of $.30 per share, payable on
February 27, 1998 to common shareholders of record on
February 13, 1998. The Company effected a two-for-one split
of its common stock (the "Stock Split") which was paid on
August 25, 1997 to common shareholders of record on
August 18, 1997. 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.
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.
<PAGE>
In September 1997, the Company issued approximately 10.5
million shares of its Common Stock for public sale through a
group of underwriters, raising net proceeds of $214.4
million. The Company also issued 926,280 shares of Common
Stock to a unit trust, raising net proceeds of approximately
$18.9 million.
DEVELOPMENT AND ACQUISITIONS
During the first eleven months of 1997, the Company
completed development of and placed in service 28 properties
and two property expansions comprising 5.3 million square
feet at a total cost of $197.9 million. The Company had 21
properties and two property expansions under development at
November 30, 1997 comprising 4.2 million square feet which
will have a total cost of $203.4 million upon completion.
Also during the first eleven months of 1997, the Company
acquired 83 properties with 8.3 million square feet at a
total cost of $558.9 million.
These property additions (the "New Properties"), totaling
17.9 million square feet, consist of 72% industrial, 25%
office and 3% retail projects. The total cost of the New
Properties is expected to be $994.4 million. At November 30,
1997, the New Properties which have been placed in service
are 92% leased, and the New Properties under construction
are 62% pre-leased for a combined total of 85% 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 10.7% with anticipated leasing
activity. The annual contractual NOI to be generated from
the New Properties, once placed in service, will be $106.0
million with anticipated additional leasing.
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.
The following table sets forth information regarding each
of the New Properties as of November 30, 1997.
<TABLE>
<CAPTION>
In-Service or
Anticipated Property
In-Service Date Project/Tenant Location Type
- --------------- ------------------------- ------------------ ----------
DEVELOPMENT COMPLETED IN 1997:
<S> <C> <C> <C>
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 Exp. 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 Purity Wholesale Lebanon, IN Industrial
3rd Qtr. 1997 Freedom Square III Cleveland, OH Office
3rd Qtr. 1997 Sofa Express - Florence Florence, KY Retail
3rd Qtr. 1997 Mr. Coffee Cleveland, OH Industrial
3rd Qtr. 1997 Southpointe C Columbus, OH Industrial
3rd Qtr. 1997 Three Parkwood Indianapolis, IN Office
4th Qtr. 1997 Beiersdorf Cincinnati, OH Industrial
4th Qtr. 1997 Haywood Oaks Building 8 Nashville, TN Industrial
4th Qtr. 1997 Anthem Cincinnati, OH Office
4th Qtr. 1997 4660 Governor's Pointe Cincinnati, OH Office
4th Qtr. 1997 Compmanagement Columbus, OH Office
4th Qtr. 1997 Southpointe Building D 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 Gov. Point Retail No.(Lowes) Cincinnati, OH Retail
4th Qtr. 1997 Mosteller II Cincinnati, OH Industrial
4th Qtr. 1997 Park Fletcher Building 34 Indianapolis, IN Industrial
4th Qtr. 1997 Southpointe Building E Columbus, OH Industrial
4th Qtr. 1997 Park 100 Building 132 Indianapolis, IN Office
4th Qtr. 1997 Biggs B-Shoppes Cincinnati, OH Retail
4th Qtr. 1997 Fountain Place Cincinnati, OH Retail
<PAGE>
In-Service or
Anticipated Property
In-Service Date Project/Tenant Location Type
- --------------- ------------------------ ------------------ ----------
UNDER DEVELOPMENT:
4th Qtr. 1997 Park Fletcher Building 35 Indianapolis, IN Industrial
4th Qtr. 1997 Dukeport 3 St. Louis, MO Industrial
1st Qtr. 1998 Prentice Hall Lebanon, IN Industrial
1st Qtr. 1998 Software Artistry Indianapolis, IN Office
1st Qtr. 1998 World Park Building 28 Cincinnati, OH Industrial
1st Qtr. 1998 Woodland Corporate Ctr. 1 Indianapolis, IN Office
1st Qtr. 1998 Park Fletcher Building 36 Indianapolis, IN Industrial
2nd Qtr. 1998 Rings Road Office Building Columbus, OH Office
2nd Qtr. 1998 World Park Building 29 Cincinnati, OH Industrial
2nd Qtr. 1998 Dukeport 4 St. Louis, MO Industrial
2nd Qtr. 1998 Sterling 4 Columbus, OH Office
2nd Qtr. 1998 MCI St. Louis, MO Office
2nd Qtr. 1998 Westport Center I St. Louis, MO Industrial
2nd Qtr. 1998 Park 100 Building 134 Indianapolis, IN Industrial
2nd Qtr. 1998 Fountain Parkway Bldg. B Cleveland, OH Industrial
2nd Qtr. 1998 Strongville Park 82, Bldg. B Cleveland, OH Industrial
2nd Qtr. 1998 Thompson Expansion Indianapolis, IN Industrial
2nd Qtr. 1998 Franklin Road Expansion Indianapolis, IN Industrial
3rd Qtr. 1998 Creekside Crossing One Nashville, TN Office
3rd Qtr. 1998 Governors Pointe 4680 Bldg. Cincinnati, OH Office
3rd Qtr. 1998 Western Hills Marketplace Cincinnati, OH Retail
3rd Qtr. 1998 Four Parkwood Indianapolis, IN Office
4th Qtr. 1998 Tri-County Marketplace Cincinnati, OH Retail
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 Dr. Cincinnati, OH Industrial
3rd Qtr. 1997 One Ashview Cincinnati, OH Office
3rd Qtr. 1997 Remington Buildings Cincinnati, OH Office
3rd Qtr. 1997 Executive Towers Chicago, IL Office
3rd Qtr. 1997 Riverport Properties St. Louis, MO Off/Indust
3rd Qtr. 1997 6111 Oaktree Boulevard Cleveland, OH Office
4th Qtr. 1997 Blue Ash Office Center VI Cincinnati, OH Office
4th Qtr. 1997 Baur Portfolio St. Louis, MO Off/Indust
4th Qtr. 1997 Solon Industrial Buildings Cleveland, OH Industrial
4th Qtr. 1997 RL Johnson Portfolio Minneapolis, MN Industrial
In-Service or Percent
Anticipated Percentage Square Leased or Initial Lease
In-Service Date Ownership Feet Pre-Leased (1) Term (2)
--------------- ---------- ---------- -------------- -------------
DEVELOPMENT COMPLETED IN 1997:
<S> <C> <C> <C> <C>
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% 316,800 100% 5 years
2nd Qtr. 1997 100% 156,000 100% 15 years
2nd Qtr. 1997 100% 556,248 100% 10 years
3rd Qtr. 1997 100% 71,025 78% Varies
3rd Qtr. 1997 100% 20,250 100% 10 years
3rd Qtr. 1997 100% 458,000 100% 15 years
3rd Qtr. 1997 100% 322,000 78% 8 years
3rd Qtr. 1997 100% 121,246 89% 7 years
4th Qtr. 1997 100% 252,000 100% 10 years
4th Qtr. 1997 100% 71,610 100% 5 years
4th Qtr. 1997 100% 78,240 100% 10 years
4th Qtr. 1997 100% 76,465 91% Varies
4th Qtr. 1997 100% 68,700 100% 15 years
4th Qtr. 1997 100% 116,520 35% 15 years
4th Qtr. 1997 100% 32,800 77% 10 years
4th Qtr. 1997 100% 20,530 100% 15 years
4th Qtr. 1997 100% 110,148 63% Varies
4th Qtr. 1997 100% 128,747 100% 20 years
4th Qtr. 1997 100% 261,440 71% 10 years
4th Qtr. 1997 50% 230,400 56% 5 years
4th Qtr. 1997 100% 82,520 0% N/A
4th Qtr. 1997 100% 27,600 100% 10 years
4th Qtr. 1997 100% 13,000 100% 5 years
4th Qtr. 1997 25% 207,170 95% 20 years
---------
5,333,879 89%
---------
<PAGE>
In-Service or Percent
Anticipated Percentage Square Leased or Initial Lease
In-Service Date Ownership Feet Pre-Leased (1) Term (2)
--------------- ---------- ---------- -------------- -------------
UNDER DEVELOPMENT:
4th Qtr. 1997 50% 96,000 67% 5 years
4th Qtr. 1997 100% 214,400 0% N/A
1st Qtr. 1998 100% 577,340 100% 10 years
1st Qtr. 1998 100% 108,273 75% 15 years
1st Qtr. 1998 100% 220,160 87% 5 years
1st Qtr. 1998 100% 77,125 74% 10 years
1st Qtr. 1998 50% 52,800 0% N/A
2nd Qtr. 1998 100% 145,000 20% 10 years
2nd Qtr. 1998 100% 452,000 100% 10 years
2nd Qtr. 1998 100% 153,600 0% N/A
2nd Qtr. 1998 100% 94,219 100% 15 years
2nd Qtr. 1998 100% 97,356 100% 10 years
2nd Qtr. 1998 100% 177,600 0% N/A
2nd Qtr. 1998 100% 110,400 41% 5 years
2nd Qtr. 1998 100% 108,000 0% N/A
2nd Qtr. 1998 100% 72,000 0% N/A
2nd Qtr. 1998 50% 740,155 100% 10 years
2nd Qtr. 1998 100% 150,000 0% N/A
3rd Qtr. 1998 100% 112,800 0% N/A
3rd Qtr. 1998 100% 126,102 0% N/A
3rd Qtr. 1998 100% 149,000 88% Varies
3rd Qtr. 1998 100% 130,436 0% N/A
4th Qtr. 1998 100% 74,174 100% 15 years
--------- ----
4,238,940 62%
--------- ----
1997 ACQUISITIONS:
2nd Qtr. 1997 100% 215,549 99% Varies
2nd Qtr. 1997 100% 331,550 91% 10 years
2nd Qtr. 1997 50% 345,200 96% Varies
2nd Qtr. 1997 100% 75,545 94% Varies
2nd Qtr. 1997 100% 789,175 100% 5 years
3rd Qtr. 1997 100% 132,274 100% Varies
3rd Qtr. 1997 100% 120,853 100% 5 years
3rd Qtr. 1997 100% 76,556 100% 5 years
3rd Qtr. 1997 100% 649,842 97% 12 years
3rd Qtr. 1997 100% 582,091 100% 8 years
3rd Qtr. 1997 100% 70,906 62% 5 years
4th Qtr. 1997 100% 35,603 90% 7 years
4th Qtr. 1997 100% 982,114 99% 12 years
4th Qtr. 1997 100% 674,432 92% 5 years
4th Qtr. 1997 100% 3,224,301 88% 8 years
----------
8,305,991 94%
----------
17,878,810 85%
==========
</TABLE>
(1) Represents completed leasing activity through November 30, 1997.
(2) Represents lease term of the building's primary tenant or tenants.
RECENT ACQUISITIONS
During the fourth quarter of 1997, the Company purchased
two large portfolios of properties in St. Louis and
Minneapolis (the "Recent Acquisitions") for an aggregate
purchase price of approximately $297.9 million.
The following describes each of the Recent Acquisitions.
BAUR PROPERTIES. In October 1997, the Company acquired
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
also included undeveloped land to accommodate approximately
one million square feet of additional suburban office
<PAGE>
development and the property management and development
operations of Baur Properties. Accordingly, Edward T. Baur,
the Chairman of Baur Properties, became Vice President and
General Manager of the Company's St. Louis operations. 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.
R.L. JOHNSON PROPERTIES. In October 1997, the Company
acquired R.L. Johnson Company's existing rental properties
and operations in Minneapolis. R.L. Johnson Company has been
in operation for over 34 years and is one of the leading
developers and operators of industrial real estate in
Minneapolis. The R.L. Johnson rental property portfolio
consists of 41 industrial buildings totaling 3.2 million
square feet. Robb Johnson, the President of R.L. Johnson
Company, became Vice President and General Manager of the
Company's Minneapolis operations. The Company believes this
acquisition is in accordance with its strategy of dominating
its Midwestern markets.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the
Common Stock offered hereby are expected to be approximately
$14.3 million. The Company presently intends to use the net
proceeds to retire the outstanding balance on its lines of
credit (the "Lines of Credit") and to fund development and
acquisition of additional rental properties. See "Recent
Developments." The Lines of Credit are expected to have an
outstanding balance of approximately $85.0 million on
February 27, 1998, bearing interest at LIBOR plus .65% to
.80%.
<PAGE>
PRICE RANGE OF COMMON STOCK AND DIVIDEND HISTORY
The Common Stock is listed on the New York Stock Exchange
under the symbol DRE. The following table sets forth the
high and low sale prices of the Common Stock for the periods
indicated and the dividend paid per share during each such
period. All share price and dividend information has been
adjusted to reflect the effect of the Stock Split.
<TABLE>
<CAPTION>
CLOSING PRICES
PER SHARE
------------- DIVIDENDS
QUARTERLY PERIOD HIGH LOW PER SHARE
- ---------------- ---- ----- ---------
<S><C> <C> <C> <C>
1996
First Quarter $16.25 $14.57 $0.245
Second Quarter 15.25 14.19 0.245
Third Quarter 16.63 14.50 0.255
Fourth Quarter 19.25 16.38 0.255
1997
First Quarter 21.44 19.13 0.255
Second Quarter 20.81 17.44 0.255
Third Quarter 22.81 19.88 0.295
Fourth Quarter 25.00 21.38 0.300
1998
First Quarter (through
February 24, 1998) 25.00 22.63 0.300
</TABLE>
The last reported sale price of the Common Stock on the
New York Stock Exchange on February 24, 1998 was $22 - 11/16
per share. As of February 19, 1998, there were 8,319
registered holders of Common Stock.
Since its organization in 1986, the Company has paid
regular and uninterrupted dividends. The Company intends to
continue to declare quarterly dividends on its Common Stock.
However, no assurances can be given as to the amounts of
future dividends as such dividends are subject to the
Company's cash flow from operations, earnings, financial
condition, capital requirements and such other factors as
the Board of Directors deems relevant. The Company has
determined that approximately 1% of the per share
distribution for 1996 represented return of capital to the
shareholders for income tax purposes. No assurance can be
given that such percentage will not change in future years.
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
For a discussion of material federal income tax
consequences applicable to distributions to shareholders and
the Company's election to be taxed as a REIT, see "Federal
Income Tax Considerations" in the accompanying Prospectus.
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 or exchange
of assets held for more than 18 months by individuals,
trusts and estates to 20%. This reduced tax rate is
effective for sales and exchanges occurring after July 28,
1997. 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. 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 such 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 the 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.
PROPOSED TAX LEGISLATION
On February 2, 1998, President Clinton released his
budget proposal for fiscal year 1999 (the "Proposal"). Two
provisions contained in the Proposal could affect the
Company if enacted in final form. First, the Proposal would
prohibit a REIT from owning, directly or indirectly, more
than 10% of the voting power or value of all classes of a C
corporation's stock (other than the stock of a qualified
REIT subsidiary). Currently, a REIT may own no more than 10%
of the voting stock of a C corporation, but its ownership of
the nonvoting stock of a C corporation is not limited (other
than by the rule that the value of a REIT's combined equity
and debt interests in a C corporation may not exceed 5%
<PAGE>
of the value of a REIT's total assets). That provision is
proposed to be effective with respect to stock in a C
corporation acquired by a REIT on or after the date of
"first committee action"(i.e., first action by the House
Ways and Means Committee with respect to the provision). If
enacted as presently written, that provision would severely
limit the use by a REIT of taxable subsidiaries to conduct
businesses the income from which would be nonqualifying
income if received directly by the REIT.
Second, the Proposal would require recognition of any
built-in gain associated with the assets of a "large" C
corporation (i.e., a C corporation whose stock has a fair
market value of more than $5 million) upon its conversion to
REIT status or merger into a REIT. That provision is
proposed to be effective for conversions to REIT status
effective for taxable years beginning after January 1, 1999
and mergers of C corporations into REITs that occur after
December 31, 1998. This provision would require immediate
recognition of gain if, at any time after December 31, 1998,
a "large" C corporation merges into the Company.
<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 Legg Mason Wood Walker, Incorporated (the
"Underwriter"), and the Underwriter has agreed to purchase
from the Company, 661,157 shares of Common Stock at the
public offering price less the underwriting discounts and
commissions set forth on the cover page of this Prospectus
Supplement. The Underwriting Agreement provides that the
Underwriter's obligation to purchase the Common Stock is
subject to the satisfaction of certain conditions, including
the receipt of certain legal opinions. The nature of the
Underwriter's obligation is such that it is committed to
purchase all of the shares of Common Stock if any shares are
purchased.
The Underwriter intends to deposit the Common Stock
offered hereby with the trustee of Legg Mason REIT Trust,
February 1998 Series (the "Trust"), a registered unit
investment trust under the Investment Company Act of 1940,
as amended, in exchange for units of the Trust. If all of
the Common Stock so deposited is valued at the last reported
sale price for the Common Stock on the NYSE on February 24,
1998, the aggregate underwriting commissions would be
$674,999.98. The Underwriter is acting as sponsor and
depositor of the Trust, and is therefore considered an
affiliate of the Trust.
In the Underwriting Agreement, 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.
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.
In the ordinary course of business, the Underwriter has in
the past and may in the future from time to time provide
investment banking, financial advisory and commercial
banking services to the Company and its affiliates for which
customary compensation has been and will be received. The
Underwriter has acted as one of several representatives of
various underwriters in connection with various offerings of
the Company's Common Stock in 1993 through 1997.
LEGAL MATTERS
In addition to the legal opinions for the Company
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. The legality of the shares of
Common Stock offered hereby will be passed upon for the
Underwriters by Hunton & Williams, Richmond, Virginia.
Hunton & Williams will rely on Bose McKinney & Evans as to
certain matters of Indiana law.
<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.
661,157 SHARES
[LOGO]
COMMON STOCK
TABLE OF CONTENTS
PAGE
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PROSPECTUS SUPPLEMENT
The Company S-3
Recent Developments S-5
Use of Proceeds S-8
Price Range of Common Stock and Dividend History S-9
Certain Federal Income Tax Considerations S-10
Underwriting S-12
Legal Matters S-12
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 4
Description of Debt Securities 4
Description of Preferred Stock 15
Description of Depositary Shares 21
Description of Common Stock 24
Federal Income Tax Considerations 26
Plan of Distribution 33
Legal Opinions 34
Experts 34
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PROSPECTUS SUPPLEMENT
-----------------------
LEGG MASON WOOD WALKER
Incorporated
FEBRUARY 24, 1998
