PROSPECTUS SUPPLEMENT
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(TO PROSPECTUS DATED MAY 27, 1997)
826,873 SHARES
[LOGO]
DUKE REALTY INVESTMENTS, INC.
COMMON STOCK
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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 December 31, 1997, the Company owned a
diversified portfolio of 355 in-service industrial, office and retail
properties, encompassing approximately 40.7 million square feet located in
eight states, and 25 buildings and three building expansions encompassing
approximately 5.2 million square feet under development. The Company also
owned approximately 1,700 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
April 21, 1998 was $24.1875 per share.
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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.
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A.G. Edwards & Sons, Inc. (the "Underwriter") has agreed to purchase the
Common Stock from the Company at a price of $22.9825 per share, resulting
in aggregate proceeds to the Company of $19,003,608.72 before payment of
expenses by the Company estimated at $25,000, subject to the terms and
conditions of a terms agreement and related underwriting agreement
(collectively, the "Underwriting Agreement"). The Underwriter intends to
sell the shares of Common Stock to the sponsor of a newly-formed unit
investment trust (the "Trust") at an aggregate purchase price of
$19,203,629.30, resulting in an aggregate underwriting discount of
$200,020.58. See "Underwriting." Such sponsor intends to deposit the shares
of Common Stock into the Trust in exchange for units in the Trust. The
units of the Trust will be sold to investors at a price based upon the net
asset value of the securities in the Trust. For purposes of this
calculation, the value of the Common Stock as of the evaluation time for
units of the Trust on April 21, 1998 was $24.1875 per share of Common
Stock.
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<PAGE>
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 A.G. Edwards & Sons, Inc., St. Louis, Missouri, on or about
April 24, 1998.
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A.G. EDWARDS & SONS, INC.
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The date of this Prospectus Supplement is April 21, 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
DECEMBER 31, 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 December 31, 1997, the Company owned a diversified portfolio of
355 in-service industrial, office and retail properties (the "Properties"),
encompassing approximately 40.7 million square feet located in eight
states, and 25 buildings and three building expansions encompassing
approximately 5.2 million square feet under development. The Company also
owned approximately 1,700 acres of unencumbered land (the "Land") for
future development, of which approximately 70% 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 54 million square feet of
commercial property since its founding including an average of
approximately 4.8 million square feet per year during the last five years.
In addition, the Company acquired approximately 14.1 million square feet
during the three years ended December 31, 1997. During 1997, the Company
placed in service 5.3 million square feet of new development and acquired
8.4 million square feet of property.
The Company manages approximately 54 million square feet of property,
including over 8.3 million square feet owned by third parties. The Company
manages approximately 37% and 27% of all competitive suburban office,
warehousing and light manufacturing space in Indianapolis and Cincinnati,
respectively. In addition to providing services to more than 2,300 tenants
in the Properties, the Company provides such services to nearly 1,000
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 72% and 39% 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
<PAGE>
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 December 31, 1997 of
approximately 87% of the 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.
<TABLE>
<CAPTION>
SUMMARY OF PROPERTIES
(IN THOUSANDS, EXCEPT PERCENTAGES)
PERCENT
OF TOTAL OCCUPANCY
PERCENT ANNUA L NET EFFECTIVE AT
SQUARE OF TOTAL NET EFFECTIVE ANNUAL DECEMBER 31,
TYPE OF PROPERTY FEET SQ. FT. RENT (1) RENT 1997
- ---------------- ------ --------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Industrial 27,880 69% $101,074 41% 93.3%
Office 10,747 26% 128,879 52% 95.8%
Retail 2,041 5% 18,028 7% 95.8%
------ ---- ------- ----
Total 40,668 100% $247,981 100% 94.1%
====== ==== ======= ====
</TABLE>
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(1) Represents annual net effective rent due from tenants in occupancy as
of December 31, 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.
<TABLE>
<CAPTION>
SQUARE FOOTAGE AND ANNUAL NET EFFECTIVE RENT OF PROPERTIES
(IN THOUSANDS, EXCEPT PERCENTAGES)
SQUARE FEET PERCENT OF
------------------------------------------------------ ANNUAL NET
PRIMARY % OF NET EFFECTIVE EFFECTIVE
MARKET INDUSTRIAL OFFICE RETAIL TOTAL TOTAL RENT (1) RENT
- ------------ ---------- ------ ------ ----- ----- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Indianapolis 13,875 1,519 194 15,588 38% $ 65,776 27%
Cincinnati 4,649 3,403 1,130 9,182 22% 62,581 25%
St. Louis 1,266 1,902 - 3,168 8% 31,017 13%
Columbus 2,275 1,549 219 4,043 10% 28,104 11%
Cleveland 1,464 1,311 - 2,775 7% 20,507 8%
Chicago - 995 - 995 2% 15,606 6%
Minneapolis 3,156 68 - 3,224 8% 12,960 5%
Nashville 633 - - 633 2% 4,651 2%
Other (2) 562 - 498 1,060 3% 6,779 3%
------ ------ ----- ------ ---- ------- ----
Total 27,880 10,747 2,041 40,668 100% $247,981 100%
====== ====== ===== ====== ==== ======= ====
</TABLE>
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(1) Represents annual Net Effective Rent due from tenants in occupancy as
of December 31, 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 AND STOCK SPLIT
For the year ended December 31, 1997, the Company reported the following
information as compared to 1996.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
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1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Net income available for common shareholders $ 65,999 $ 50,872
Revenues 252,080 182,089
Funds From Operations 107,256 76,079
Cash flow provided by (used by):
Operating activities 159,195 95,135
Investing activities (597,324) (276,748)
Financing activities 443,148 181,220
</TABLE>
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 February 1998 and March 1998, the Company issued 661,157 and 839,895
shares of its Common Stock, respectively, to unit trusts, raising combined
net proceeds of approximately $33.3 million.
The Company issued $100 million of unsecured Puttable Reset Securities
("PURS") in March 1998. The PURS bear interest at a coupon rate of 7.05%
and mature on March 1, 2016. On March 1, 2006, the interest rate may be
reset as a fixed rate determined on the basis of certain bids to be
requested from reference dealers, and the PURS are subject to a call option
held by one of the underwriters involved in the sale of the PURS and, if
the call is not exercised, to the right of the holders to put the PURS to
the Company, in each case on the terms and conditions described therein.
The effective interest rate of the PURS is 6.72%, which includes the effect
of the settlement of a forward Treasury lock agreement which the Company
entered into in December 1997.
DEVELOPMENT AND ACQUISITIONS
During the first quarter of 1998, the Company completed development of
and placed in service 10 properties comprising 2.0 million square feet at a
total cost of $78.1 million. The Company had 23 properties and four
property expansions under development at March 31, 1998 comprising 4.3
million square feet which is expected to have a total cost of $330.9
million upon completion. Also during the first quarter of 1998, the Company
acquired 15 properties with 1.1 million square feet at a total cost of
$40.9 million.
These property additions (the "New Properties"), totaling 7.4 million
square feet, consist of 65% industrial, 32% office and 3% retail projects.
The total cost of the New Properties is expected to be $449.9 million. At
March 31, 1998, the New Properties which have been placed in service are
83% leased, and the New Properties under construction are 59% pre-leased
for a combined total of 69% leased. The New Properties are expected to
provide a weighted average unleveraged stabilized return on cost (computed
as property annual contractual net operating income ("NOI") divided by
total project costs) of 11.0% with
<PAGE>
anticipated leasing activity. The annual contractual NOI to be generated
from the New Properties, once placed in service, will be $49.5 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 March 31, 1998.
<TABLE>
<CAPTION>
IN-SERVICE OR % % LEASED
ANTICIPATED PROPERTY OWNER- SQUARE OR PRE-
IN-SERVICE DATE PROJECT/TENANT LOCATION TYPE SHIP FEET LEASED (1)
- --------------- -------------- ------------ -------- ----- ------ ----------
<S> <C> <C> <C> <C> <C> <C>
DEVELOPMENT COMPLETED IN FIRST QUARTER 1998:
1st Qtr. 1998 Prentice Hall Indianapolis, IN Indust. 100% 577,340 100%
1st Qtr. 1998 World Park
Bldg. 29 Cincinnati, OH Indust. 100% 452,000 100%
1st Qtr. 1998 Software
Artistry, Inc. Indianapolis, IN Office 100% 108,273 75%
1st Qtr. 1998 Dukeport 3 St. Louis, MO Indust. 100% 214,400 58%
1st Qtr. 1998 World Park
Bldg. 28 Cincinnati, OH Indust. 100% 220,160 100%
1st Qtr. 1998 Rings Road
Off. Bldg. Columbus, OH Office 100% 145,000 85%
1st Qtr. 1998 Park Fletcher
Bldg.35 Indianapolis, IN Indust. 50% 96,000 100%
1st Qtr. 1998 Woodland Corp.
Ctr. One Indianapolis, IN Office 100% 77,186 100%
1st Qtr. 1998 Fountain Pkwy.
Bldg. I Cleveland, OH Indust. 100% 108,704 100%
1st Qtr. 1998 Park Fletcher
Bldg. 36 Indianapolis, IN Indust. 50% 52,800 9%
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2,051,863 91%
Under Development:
2nd Qtr. 1998 Dukeport 4 St. Louis, MO Indust. 100% 153,600 0%
2nd Qtr. 1998 Sterling 4 Columbus, OH Office 100% 94,219 100%
2nd Qtr. 1998 MCI St. Louis, MO Office 100% 97,356 100%
2nd Qtr. 1998 General Cable Lebanon, IN Indust. 100% 395,472 50%
2nd Qtr. 1998 Westport Ctr. I St. Louis, MO Indust. 100% 177,600 0%
2nd Qtr. 1998 Park 100
Bldg. 134 Indianapolis, IN Indust. 100% 110,400 49%
2nd Qtr. 1998 Strongville Pk
82, Bldg.1 Cleveland, OH Indust. 100% 67,540 0%
2nd Qtr. 1998 Thomson Exp. Indianapolis, IN Indust. 50% 740,155 100%
2nd Qtr. 1998 Sun TV Exp. Columbus, OH Indust. 100% 231,936 100%
2nd Qtr. 1998 Franklin Road
Exp. Indianapolis, IN Indust. 100% 150,000 72%
3rd Qtr. 1998 Creekside Crsg.
One Nashville, TN Office 100% 116,390 18%
3rd Qtr. 1998 Governors Pte.
4680 Bldg. Cincinnati, OH Office 100% 126,102 0%
3rd Qtr, 1998 WestPort Ctr. II St. Louis, MO Indust. 100% 51,480 73%
3rd Qtr. 1998 Western Hills
Mktpl. Cincinnati, OH Retail 100% 148,140 82%
4th Qtr. 1998 Four Parkwood Indianapolis, IN Office 100% 132,836 0%
4th Qtr. 1998 Tri-County Mktpl.Cincinnati, OH Retail 100% 74,174 100%
4th Qtr. 1998 Executive Plaza
III Cincinnati, OH Office 100% 90,073 0%
4th Qtr. 1998 Landerbrook
Phase II Cleveland, OH Office 100% 103,300 0%
4th Qtr. 1998 Pfeiffer Woods Cincinnati, OH Office 50% 112,000 40%
4th Qtr. 1998 Emerald II Columbus, OH Office 100% 45,214 0%
4th Qtr. 1998 520 Maryville
Ctr. St. Louis, MO Office 100% 113,659 0%
4th Qtr. 1998 Park Ctr.
Bldg. I Cleveland, OH Office 100% 133,550 0%
4th Qtr. 1998 Gov. Pointe
Retail N. Cincinnati, OH Retail 100% 6,400 63%
1st Qtr. 1999 Express Med Columbus, OH Office 50% 103,606 100%
1st Qtr. 1999 One Easton Oval Columbus, OH Office 100% 127,080 0%
1st Qtr. 1999 Solutia Ctr. St. Louis, MO Office 100% 264,952 100%
1st Qtr. 1999 Novus Services Columbus, OH Office 100% 326,481 100%
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4,293,715 59%
First Quarter Acquisitions:
1st Qtr. 1998 Happe Portfolio Minneapolis, MN Indust/Office 269,658 93%
1st Qtr. 1998 Anderson
Portfolio Chicago, IL Indust. 513,074 96%
1st Qtr. 1998 Crossroads Bldg. Chicago, IL Indust. 289,920 0%
---------
1,072,652 69%
TOTAL 7,418,230 69%
=========
</TABLE>
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(1)Represents completed leasing activity through March 31, 1998.
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Common Stock offered
hereby, after deducting the estimated offering expenses, are expected to be
approximately $19.0 million. The Company presently intends to use the net
proceeds to fund development and acquisition of additional rental
properties. See "Recent Developments."
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>
1996
First Quarter $16.25 $14.56 $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 19.00 0.255
Second Quarter 20.88 17.13 0.255
Third Quarter 23.63 19.81 0.295
Fourth Quarter 25.00 21.38 0.300
1998
First Quarter 24.63 22.63 0.300
Second Quarter
(through April 21, 1998) 24.94 24.19
</TABLE>
The last reported sale price of the Common Stock on the New York Stock
Exchange on April 21, 1998 was $24.1875 per share. As of April 21, 1998,
there were 8,642 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 none of the per share
distribution for 1997 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.
<PAGE>
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% 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 Underwriting
Agreement, the Company has agreed to sell to A.G. Edwards & Sons, Inc. (the
"Underwriter"), and the Underwriter has agreed to purchase from the
Company, 839,895 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 sell the shares of Common Stock to Nike
Securities, L.P., which intends to deposit such shares, together with
shares of common stock of other entities also acquired from the
Underwriter, into a newly-formed unit investment trust (the "Trust")
registered under the Investment Company Act of 1940, as amended, in
exchange for units in the Trust. The Underwriter is not an affiliate of
Nike Securities, L.P. or the Trust. The Underwriter intends to sell the
shares of Common Stock to Nike Securities, L.P. at an aggregate purchase
price of $19,203,629.30. It is anticipated that the Underwriter will also
participate in the distribution of units of the Trust and will receive
compensation therefor.
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.
Until the distribution of the shares of Common Stock is completed, rules
of the Securities and Exchange Commission may limit the ability of the
Underwriter to bid for and purchase shares of Common Stock. As an exception
to these rules, the Underwriter is permitted to engage in certain
transactions that stabilize the price of the Common Stock. Such
transactions consist of bids or purchases for the purpose of pegging,
fixing or maintaining the price of the Common Stock. It is not currently
anticipated that the Underwriter will engage in any such transactions in
connection with this Offering.
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 and its affiliates
have engaged, and may in the future engage, in investment banking
transactions with the Company.
<PAGE>
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 Chapman and Cutler,
Chicago, Illinois. Chapman and Cutler will rely on the opinion of Bose
McKinney & Evans as to certain matters of Indiana law.
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NO DEALER, SALESMAN OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED
OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT OR THE
PROSPECTUS IN CONNECTION WITH THE OFFERING MADE BY THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR THE UNDERWRITER. NEITHER THE DELIVERY OF THIS PROSPECTUS
SUPPLEMENT OR THE PROSPECTUS NOR ANY SALE MADE HEREUNDER AND THEREUNDER
SHALL, UNDER ANY CIRCUMSTANCE, CREATE AN IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS SUPPLEMENT OR IN THE
PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTITUTE AN OFFER OR
SOLICITATION BY ANYONE IN ANY STATE IN WHICH SUCH OFFER OR SOLICITATION IS
NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS
NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION.
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826,873 SHARES
[LOGO]
COMMON STOCK
<PAGE>
TABLE OF CONTENTS PAGE
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PROSPECTUS SUPPLEMENT
The Company S-3
Recent Developments S-5
Use of Proceeds S-7
Price Range of Common Stock and Dividend History S-7
Certain Federal Income Tax Considerations S-8
Underwriting S-10
Legal Matters S-10
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
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A.G. EDWARDS & SONS, INC.
APRIL 21, 1998
