<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the Transition Period from to
-------- --------
Commission File No. 011-13254
---------
WEEKS CORPORATION
(Exact name of Registrant as specified in its Charter)
Georgia 58-1525322
------- ----------
(State of Incorporation) (I.R.S. Employer Identification No.)
4497 Park Drive, Norcross, Georgia 30093
(Address of principal executive offices, including zip code)
(770)923-4076
(Registrant's telephone number, including area code)
N/A
---
(Former name, former address and former fiscal year,
if changed since last report)
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 such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past ninety (90) days. (X) YES ( ) NO
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date (19,671,787 shares of
common stock outstanding as of November 6, 1998)
<PAGE>
INDEX PAGE
- --------------------------------------------------------------------------------
PART I. FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
ITEM 1. FINANCIAL STATEMENTS
Consolidated Condensed Balance Sheets
at September 30, 1998 and December 31, 1997...................... 3
Consolidated Condensed Statements of Operations
for the three and nine months ended September 30, 1998 and 1997.. 4
Consolidated Condensed Statements of Cash Flows
for the nine months ended September 30, 1998 and 1997............ 5
Notes to Consolidated Condensed Financial
Statements....................................................... 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.................... 17
PART II. OTHER INFORMATION
- -------------------------------------------------------------------------------
ITEM 2. CHANGES IN SECURITIES............................................ 33
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K................................. 33
SIGNATURES ............................................................... 34
- -------------------------------------------------------------------------------
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
Weeks Corporation
Consolidated Condensed Balance Sheets
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
September 30, December 31,
(Unaudited; in thousands, except share data) 1998 1997
===================================================================================================================
<S> <C> <C>
ASSETS
Real estate assets
Land $ 157,795 $106,196
Buildings and improvements 944,385 627,309
Accumulated depreciation (86,505) (61,548)
- -------------------------------------------------------------------------------------------------------------------
Operating real estate assets 1,015,675 671,957
- -------------------------------------------------------------------------------------------------------------------
Developments in progress 189,485 100,433
Land held for future development 37,689 22,562
- -------------------------------------------------------------------------------------------------------------------
Net real estate assets 1,242,849 794,952
- -------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents 299 5,421
Receivables 10,972 7,031
Deferred costs, net 23,136 13,087
Investments in and notes receivable
from unconsolidated service companies 38,251 9,257
Investments in unconsolidated real estate entities 34,574 2,525
Other assets 16,688 20,088
- -------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $1,366,769 $852,361
===================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Debt
Mortgage notes payable $ 265,544 $192,595
Unsecured notes 200,000 --
Credit facility borrowings 210,720 82,920
- -------------------------------------------------------------------------------------------------------------------
Total debt 676,264 275,515
- -------------------------------------------------------------------------------------------------------------------
Accounts payable and accrued expenses 28,763 14,578
Other liabilities 8,830 4,876
- -------------------------------------------------------------------------------------------------------------------
Total liabilities 713,857 294,969
- -------------------------------------------------------------------------------------------------------------------
Minority interests in Operating Partnership 135,082 98,344
- -------------------------------------------------------------------------------------------------------------------
Commitments and contingencies
Shareholders' equity
Preferred Stock, at $25.00 liquidation preference; 20,000,000 shares
authorized; 6,000,000, 8% series A cumulative redeemable
shares issued and outstanding 150,000 150,000
Common Stock, $0.01 par value; 100,000,000 shares authorized;
19,615,969 and 17,703,992 shares issued and outstanding
at September 30, 1998 and December 31, 1997, respectively 196 177
Common stock warrants 1,400 --
Additional paid-in capital 428,658 370,696
Deferred compensation (718) (895)
Accumulated deficit (61,706) (60,930)
- -------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 517,830 459,048
- -------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,366,769 $852,361
===================================================================================================================
</TABLE>
The accompanying notes are an integral part of these condensed balance sheets.
3
<PAGE>
WEEKS CORPORATION
Consolidated Condensed Statements Of Operations
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
(Unaudited; in thousands, except per share data) Sept. 30, 1998 Sept. 30, 1997 Sept. 30, 1998 Sept. 30, 1997
====================================================================================================================================
<S> <C> <C> <C> <C>
REVENUES
Rental income $34,269 $21,047 $ 94,312 $57,326
Tenant reimbursements 4,339 2,903 12,433 7,319
Other 479 329 1,361 971
- ------------------------------------------------------------------------------------------------------------------------------------
39,087 24,279 108,106 65,616
- ------------------------------------------------------------------------------------------------------------------------------------
EXPENSES
Property operating, maintenance
and management 5,729 3,473 15,784 8,762
Real estate taxes 3,395 1,927 9,133 5,394
Depreciation and amortization 9,944 6,300 27,500 17,344
Interest, including amortization of
deferred financing costs 8,459 5,014 21,836 15,020
General and administrative 1,471 881 4,085 2,633
- ------------------------------------------------------------------------------------------------------------------------------------
28,998 17,595 78,338 49,153
- ------------------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE EQUITY IN EARNINGS OF
UNCONSOLIDATED ENTITIES, INTEREST INCOME
AND GAIN ON SALE OF REAL ESTATE ASSETS 10,089 6,684 29,768 16,463
Equity in earnings of unconsolidated
service companies 781 314 1,670 1,538
Equity in earnings of unconsolidated
real estate entities 66 -- 220 --
Interest income 231 453 757 996
Gain on sale of real estate assets 53 -- 53 209
- ------------------------------------------------------------------------------------------------------------------------------------
Income before minority interests 11,220 7,451 32,468 19,206
Minority interests (2,149) (1,683) (6,130) (4,533)
- ------------------------------------------------------------------------------------------------------------------------------------
NET INCOME 9,071 5,768 26,338 14,673
Dividends to preferred shareholders (3,000) -- (9,000) --
- ------------------------------------------------------------------------------------------------------------------------------------
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS $ 6,071 $ 5,768 $ 17,338 $14,673
- ------------------------------------------------------------------------------------------------------------------------------------
NET INCOME PER COMMON SHARE
Basic $ 0.31 $0.33 $ 0.91 $0.92
Diluted 0.31 0.32 0.90 0.91
- ------------------------------------------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE COMMON SHARES
Basic 19,574 17,693 19,122 15,904
Diluted 26,654 23,017 26,056 21,018
- ------------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these condensed financial statements.
</TABLE>
4
<PAGE>
WEEKS CORPORATION
Consolidated Condensed Statements Of Cash Flows
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Nine Months Nine Months
Ended Ended
(Unaudited; in thousands) Sept. 30, 1998 Sept. 30, 1997
===================================================================================================================
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 26,338 $ 14,673
Adjustments to reconcile net income to net cash
provided by operating activities:
Minority interests 6,130 4,533
Depreciation and amortization 27,500 17,344
Amortization of deferred financing costs 1,184 679
Amortization of deferred compensation 227 216
Straight-line rent revenue (1,351) (500)
Undistributed earnings of unconsolidated entities -- (227)
Gain on sale of real estate assets (53) (209)
Net change in:
Receivables and other assets (4,577) (2,573)
Deferred costs (5,130) (4,354)
Accounts payable and accrued expenses 7,635 5,792
Other liabilities 2,076 1,164
- -------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 59,979 36,538
- -------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Property acquisition, development and construction (314,885) (112,349)
Real estate loans (5,392) (18,038)
Investments in and advances to unconsolidated entities (60,258) --
Distributions in excess of earnings of unconsolidated entities 501 --
Collections of notes receivable and other 705 690
Proceeds from sale of real estate assets 2,373 2,484
- -------------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (376,956) (127,213)
- -------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Common share offering proceeds 48,600 112,902
Underwriting discount and offering costs (1,400) (6,334)
Proceeds from issuance of common stock warrants,
stock option exercises and dividend reinvestment plan 7,131 698
Unsecured note borrowings 200,000 --
Line of credit proceeds, net 127,800 50,698
Payments of mortgage notes payable (18,188) (41,667)
Deferred financing costs (8,071) (126)
Dividends to shareholders (35,362) (19,709)
Distributions to minority interests (8,655) (5,571)
- -------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 311,855 90,891
- -------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (5,122) 216
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 5,421 260
- -------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 299 $ 476
===================================================================================================================
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
</TABLE>
The Company's 1998 property acquisition and development activity was net of the
settlement of real estate loans of $10,785,000, the assumption of other
liabilities in excess of other assets of $4,224,000, the assumption of
indebtedness of $91,137,000 and the issuance of Common Units valued at
$52,426,000.
The Company's 1997 property acquisition and development activity was net of the
settlement of real estate loans of $2,874,000, the assumption of indebtedness of
$34,779,000 and the issuance of Common Units valued at $16,568,000.
The accompanying notes are an integral part of these condensed financial
statements.
5
<PAGE>
WEEKS CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. THE COMPANY
Weeks Corporation and its subsidiaries own, operate, develop, construct, acquire
and manage industrial and suburban office buildings in the southeast United
States and Texas. As used herein, the term "Company" includes Weeks Corporation
and its subsidiaries, including Weeks Realty, L.P. (the "Operating
Partnership"), unless the context indicates otherwise. The Company, through its
subsidiaries, is the general partner of and owns a majority interest in the
Operating Partnership which, including the operations of its subsidiaries,
conducts substantially all of the on-going operations of the Company. The
Company has elected to qualify and operate as a self-administered and self-
managed real estate investment trust ("REIT") under the Internal Revenue Code of
1986, as amended (the "Code"). As a REIT, the Company will not generally be
subject to corporate federal income taxes as long as it satisfies certain
technical requirements of the Code relating to the composition of its income and
assets, and including the requirement to distribute 95% of its taxable income to
its shareholders.
As of September 30, 1998, the Company had outstanding 19,615,969 shares of
common stock and owned the same number of units of common limited partnership
interest in the Operating Partnership ("Common Units"), and the Company's
ownership interest in the Operating Partnership was 73.1%. Common Units held by
persons other than the Company totaled 7,202,593 as of September 30, 1998, and
represented a 26.9% minority interest in the Operating Partnership. Common
Units representing the 26.9% minority interest in the Operating Partnership are
convertible by their holders into shares of common stock on a one-for-one basis,
or into cash, at the Company's option. The Company's weighted average ownership
interest in the Operating Partnership was 73.9% and 77.5% for the three months
ended and 73.9% and 76.4% for the nine months ended September 30, 1998 and 1997,
respectively.
The Company conducts its third-party service businesses through two subsidiary
companies (the "Service Companies"): Weeks Realty Services, Inc. and Weeks
Construction Services, Inc. Together the Service Companies and their
subsidiaries conduct third-party development, construction, landscape, property
management and commercial brokerage services. The Company holds 100% of the
nonvoting and 1% of the voting common stock of the Service Companies. The
remaining voting common stock is held by three executive officers of the
Company. The ownership of the common stock of the Service Companies entitles
the Company to substantially all (99%) of the economic benefits from the results
of the Service Companies' operations.
As of September 30, 1998, the Company's in-service property portfolio, including
one property totaling 86,000 square feet held in a 50% owned entity, consisted
of 269 industrial properties, 30 suburban office properties and 5 retail
properties comprising 23,455,000 square feet. The Company's primary markets and
the concentration of the Company's in-service portfolio (based on square
footage) are Atlanta, Georgia (56.4%), Nashville, Tennessee (11.6%), Miami,
Florida (10.4%), Raleigh-Durham-Chapel Hill, North Carolina (9.8%), Dallas/Ft.
Worth, Texas (4.6%), Orlando, Florida (3.2%), Jacksonville, Florida (2.4%) and
Spartanburg, South Carolina (1.6%). In addition, 45 industrial and suburban
office properties and one property expansion were under development or in lease-
up and one industrial property was under agreement to acquire as of September
30, 1998, comprising an additional 5,698,000 square feet.
6
<PAGE>
2. BASIS OF PRESENTATION
The accompanying consolidated condensed financial statements include the
consolidated condensed financial position of the Company and its subsidiaries at
September 30, 1998, and December 31, 1997, and their results of operations and
cash flows for the three and nine months ended September 30, 1998 and 1997. The
Service Companies and their subsidiaries are reflected in the accompanying
consolidated condensed financial statements on the equity method of accounting.
All significant intercompany balances and transactions have been eliminated in
the consolidated condensed financial statements. Certain prior year amounts
have been reclassified to conform to the 1998 presentation.
The accompanying interim unaudited financial statements have been prepared by
the Company's management in accordance with generally accepted accounting
principles for interim financial information and in conformity with the rules
and regulations of the Securities and Exchange Commission. In the opinion of
management, the interim financial statements presented herein reflect all
adjustments of a normal and recurring nature which are necessary to fairly state
the interim financial statements. The results of operations for the interim
periods are not necessarily indicative of the results that may be expected for
the year ending December 31, 1998. These financial statements should be read in
conjunction with the Company's audited financial statements and the notes
thereto included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1997.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, SFAS 131, "Disclosures About Segments of an Enterprise and Related
Information" was issued prescribing new guidelines for the reporting of segment
data. SFAS 131 will apply to all public, for-profit companies and will be
effective for the Company beginning with the fourth quarter and year ending
December 31, 1998. The Company was not subject to segment reporting under prior
accounting standards, but will be required to provide certain segment
disclosures under SFAS 131. The Company continues to evaluate the disclosure
provisions of SFAS 131 and plans to adopt SFAS 131 in it financial statements
for the year ending December 31, 1998.
In March 1998, Emerging Issues Task Force Issue No. 97-11, "Accounting for
Internal Costs Relating to Real Estate Property Acquisitions," was issued
prescribing that internal acquisition costs relating to the acquisition of
operating real estate properties should be expensed as incurred. Effective with
the first quarter of 1998, the Company implemented this new guideline, which did
not have a material impact on the Company's financial position or results of
operations.
In June 1998, SFAS 133, "Accounting for Derivative Instruments and for Hedging
Activities," was issued prescribing new accounting standards for the accounting
and disclosures of derivative instruments and hedging transactions. SFAS 133
will be effective for the Company beginning January 1, 2000. The Company is
evaluating the provisions of SFAS 133 and plans to adopt SFAS 133 in its
financial statements beginning in 2000.
7
<PAGE>
3. BORROWINGS
Total borrowings at September 30, 1998 and December 31, 1997 consist of the
following (in thousands):
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
SEPT. 30, DEC. 31,
1998 1997
- ----------------------------------------------------------------------------------
<S> <C> <C>
Unsecured Notes
Due 2005, interest at 6.875% $100,000 $ -
Due 2007, interest at 7.375% 100,000 -
- ----------------------------------------------------------------------------------
200,000 -
- ----------------------------------------------------------------------------------
UNSECURED CREDIT FACILITY 210,720 82,920
- ----------------------------------------------------------------------------------
MORTGAGE NOTES
Fixed rate notes, interest at 6.00% to 9.80%,
due in 1999 to 2012 259,781 186,798
Variable rate industrial revenue bonds,
interest at 4.00% to 6.45% at September 30, 1998,
due in 2004 to 2010 5,763 5,797
- ----------------------------------------------------------------------------------
265,544 192,595
- ----------------------------------------------------------------------------------
TOTAL BORROWINGS $676,264 $275,515
- ----------------------------------------------------------------------------------
</TABLE>
UNSECURED NOTES
On August 4, 1998, the Operating Partnership issued $100,000,000 of 7.375%
unsecured notes due August 1, 2007. In the first quarter of 1998, the Operating
Partnership issued $100,000,000 of 6.875% unsecured notes due March 15, 2005.
The proceeds from these unsecured notes were used to reduce borrowings under the
Operating Partnership's revolving credit facility. These unsecured notes are
subject to certain covenants, including those governing the Operating
Partnership's interest and fixed charge coverage and total leverage.
CREDIT FACILITY
Effective July 1, 1998, the Operating Partnership refinanced its existing
$225,000,000 syndicated revolving line of credit (the "Line of Credit") and
expanded its bank lending group to five banks. Additionally, effective July 1,
1998, the Operating Partnershp entered into a $20,000,000 swing revolving credit
facility (the "Swing Facility") with one bank. The combined Line of Credit and
Swing Facility are referred to herein as the "Credit Facility." The Credit
Facility is unsecured and can be used for development and construction,
acquisitions and general corporate purposes. The entire Credit Facility is
guaranteed by the Company. Additionally, the Company and the Operating
Partnership are required to meet certain financial and non-financial covenants
including those governing the Company's and the Operating Partnership's maximum
unsecured borrowings, total leverage, limitations on secured borrowings and a
restriction on the amount of dividends and distributions to not more than 95% of
"funds from operations," a REIT industry measure of operating performance,
unless the additional amounts are necessary to maintain the Company's REIT
status under the Code. The Line of Credit matures on December 31, 2000, and may
be extended annually through December 31, 2002, subject to annual extension fees
of 0.10%. The Swing Facility matures on June 30, 1999 and may be extended
annually.
8
<PAGE>
In periods prior to March 17, 1998, the Service Companies and Weeks Development
were direct borrowers under the Credit Facility. In connection with the
issuance of the unsecured notes in March 1998 and the refinancing of the Credit
Facility discussed above, the Service Companies and Weeks Development refinanced
their Credit Facility borrowings with intercompany loans from the Operating
Partnership (see Note 4).
Interest under the Credit Facility accrues at bank prime minus 0.25% or at LIBOR
plus 0.80% at the election of the Operating Partnership. In addition, the
Operating Partnership pays annual facility fees equal to 0.15% of the total Line
of Credit. The weighted average interest rate on Credit Facility borrowings,
excluding the effect of the interest rate swap agreements described below, was
6.4% at September 30, 1998. Prior to July 1, 1998, interest under the Credit
Facility accrued at bank prime minus 0.25% or at LIBOR plus 1.05%, at the
election of the Operating Partnership, and fees on the unused portion of the
Credit Facility were 0.15%.
Interest paid, net of amounts capitalized, totaled $17,373,000 and $14,123,000
for the nine months ended September 30, 1998 and 1997, respectively. Interest
costs capitalized totaled $3,443,000 and $1,516,000 for the three months and
$8,302,000 and $3,738,000 for the nine months ended September 30, 1998 and 1997,
respectively.
At September 30, 1998, the Company had in place two interest rate swap
agreements with a commercial bank to effectively change the interest costs on
$40,000,000 of Credit Facility borrowings from the variable rates discussed
above to fixed rates. The agreements, with notional principal amounts of
$10,000,000 and $30,000,000, mature in July 1999 and July 2001 with effective
fixed interest rates of 7.3% and 7.6%, respectively.
MORTGAGE NOTES PAYABLE
At September 30, 1998, fixed rate mortgage notes payable included 34 notes with
a weighted average interest rate of 8.2%. The weighted average term to maturity
of fixed rate mortgage notes payable was 6.6 years at September 30, 1998. Total
mortgage indebtedness increased by $72,949,000 in 1998 due to the assumption of
five mortgage notes totaling $91,137,000 in connection with the Company's
building acquisitions, net of principal repayments and retirements of
$18,188,000. Certain Company officers and Common Unitholders guarantee a
portion of the fixed rate mortgage notes.
9
<PAGE>
DEBT MATURITIES
Scheduled maturities of total borrowings at September 30, 1998, are summarized
as follows (in thousands):
----------------------------------------------
YEAR AMOUNT
----------------------------------------------
Remainder of 1998 $ 1,026
1999 71,226(a)
2000 229,373(a)
2001 12,885
2002 9,874
2003 and thereafter 351,880
----------------------------------------------
$676,264
----------------------------------------------
(a) Includes $18,570 maturing in 1999 under the Swing Facility and $192,150
maturing in 2000 under the Line of Credit, assuming that no extensions are
exercised.
10
<PAGE>
4. INVESTMENTS IN AND NOTES RECEIVABLE
FROM UNCONSOLIDATED SERVICE COMPANIES
The Company conducts its third-party development, construction, landscape,
property management and commercial brokerage businesses through the Service
Companies and their subsidiaries. Additionally, the Service Companies and their
subsidiaries also own land in various business parks, either directly or through
ownership interests in real estate partnerships and joint ventures. The Company
intends, based on market conditions, to acquire land from the Service Companies
and their subsidiaries for the development of future properties. As discussed
in Note 2, the Service Companies and their subsidiaries are accounted for on the
equity method of accounting. Under the equity method, the Company recognizes,
in its consolidated statements of operations, its economic share (99%) of the
earnings or losses of the Service Companies and their subsidiaries.
The following information summarizes the financial position, results of
operations and cash flows of the Service Companies and their subsidiaries on a
combined basis (in thousands):
-------------------------------------------------------------------------
SEPTEMBER 30, DECEMBER 31,
Financial Position 1998 1997
=========================================================================
Assets
Real estate assets $13,874 $12,403
Investments in unconsolidated entities 11,820 2,849
Receivables and other assets 30,488 20,158
-------------------------------------------------------------------------
$56,182 $35,410
=========================================================================
LIABILITIES AND EQUITY
Borrowings from the Operating Partnership $39,106 $10,900
Credit facility borrowings -- 16,620
Other borrowings 2,309 2,000
Other liabilities 15,597 7,513
Total equity (deficit) (830) (1,623)
-------------------------------------------------------------------------
$56,182 $35,410
=========================================================================
As discussed in Note 3 and effective March 17, 1998, the operations of the
Service Companies and their subsidiaries are financed through line of credit
borrowings from the Operating Partnership. These line of credit borrowings
accrue interest at bank prime plus 1%, payable monthly, and are due on demand.
Previously, these entities were financed through direct borrowings under the
Credit Facility. As part of these financing arrangements, the Service Companies
and their subsidiaries have agreed not to incur any additional unsecured
borrowings other than through borrowings from the Operating Partnership.
Borrowings from the Operating Partnership also include $10,876,000 of 12% notes
due in 2004.
11
<PAGE>
At September 30, 1998, the Company's investment in and notes receivable from the
Service Companies and their subsidiaries totaling $38,251,000 includes notes
receivable from the Service Companies and their subsidiaries of $39,106,000 and
the Company's investment in the Subsidiaries of ($856,000).
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------
THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
Results of Operations Sept. 30, 1998 Sept. 30, 1997 Sept. 30, 1998 Sept. 30, 1997
===============================================================================================================
<S> <C> <C> <C> <C>
Revenue
Construction and development fees $1,277 $ 724 $ 2,482 $ 1,781
Landscape 1,729 1,442 4,288 4,313
Commissions 177 150 967 612
Property management fees and other 43 118 173 404
---------------------------------------------------------------------------------------------------------------
3,226 2,434 7,910 7,110
---------------------------------------------------------------------------------------------------------------
COSTS AND EXPENSES
Direct costs 1,339 1,440 3,446 3,901
Interest expense Operating Partnership 719 326 1,867 981
Interest expense - other 38 14 109 178
General and administrative 783 642 2,542 1,681
Other 218 103 552 385
---------------------------------------------------------------------------------------------------------------
3,097 2,525 8,516 7,126
---------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE GAINS ON SALE OF
properties and equity in earnings
of unconsolidated entities 129 (91) (606) (16)
Gain on sale of properties - third parties - 79 377 313
Gain on sale of properties Operating
Partnership 148 - 290 580
Equity in earnings of
unconsolidated entities 184 - 649 271
---------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ 461 $ (12) $ 710 $ 1,148
---------------------------------------------------------------------------------------------------------------
Net income attributable
to Operating Partnership $ 456 $ (12) $ 702 $ 1,137
Interest expense Operating Partnership 719 326 1,867 981
Elimination of intercompany
profits Operating Partnership (394) - (899) (580)
---------------------------------------------------------------------------------------------------------------
Equity in earnings of Service Companies $ 781 $ 314 $ 1,670 $ 1,538
===============================================================================================================
Distributions and interest paid
to Operating Partnership $1,818 $1,311 $ 2,191 $ 1,311
===============================================================================================================
</TABLE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------
Nine Months Nine Months
Ended Ended
Cash Flows Sept. 30, 1998 Sept. 30, 1997
===============================================================================================================
<S> <C> <C>
Operating activities $ (2,582) $(7,229)
Investing activities (11,964) (5,206)
Financing activities 9,895 10,593
---------------------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
In connection with the Company's January 1998 acquisition of a real estate
portfolio in Miami, Florida (see Note 7), the Service Companies acquired a one-
third interest in Codina Group, Inc. ("Codina"), a Miami-based real estate
services company, for aggregate consideration of approximately $9,600,000.
5. SHAREHOLDERS' EQUITY
The Company declared and paid quarterly common stock dividends relating to the
second quarter of 1998 of $9,079,000 or $0.465 per common share during the three
months ended September 30, 1998. Additionally, the minority Common Unitholders
in the Operating Partnership received cash distributions totaling $3,143,000 or
$0.465 per Common Unit during the three months ended September 30, 1998. The
Company also declared and paid a quarterly Series A preferred stock dividend of
$3,000,000 or $0.50 per share during the three months ended September 30, 1998.
In October 1998, the Company declared and paid quarterly common stock dividends
and made distributions to minority Unitholders relating to the third quarter of
1998 of $9,122,000 or $0.465 per common share and $3,223,000 or $0.465 per
Common Unit, respectively. Additionally, in October 1998, the Company declared
and paid a quarterly Series A preferred stock dividend of $3,000,000 or $0.50
per share.
In the first quarter of 1998, the Company completed two common stock offerings
consisting of 1,072,797 and 468,750 shares and received net proceeds of
approximately $33,100,000 and $14,100,000, respectively. The proceeds were used
to reduce the Company's outstanding Credit Facility borrowings.
In February 1998, the Company sold 350,000 common stock warrants to certain
executive officers and employees of Codina for an aggregate price of $1,400,000.
The common stock warrants entitle their holders to purchase 350,000 shares of
the Company's common stock at a price of $32.75 per share through February 2008.
13
<PAGE>
6. NET INCOME PER COMMON SHARE
The Company adopted the provisions of SFAS 128 for the year ended December 31,
1997. For the three and nine months ended September 30, 1998 and 1997,
reconciliations of income available to common shareholders and weighted average
common shares used in the Company's basic and diluted net income per common
share computations are detailed below (in thousands, except per share data):
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
Sept. 30, 1998 Sept. 30, 1997 Sept. 30, 1998 Sept. 30, 1997
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Computation of Net Income per Common Share
Net income available to common
shareholders - basic $ 6,071 $ 5,768 $17,338 $14,673
Minority interests in earnings of
the Operating Partnership 2,149 1,683 6,130 4,533
- ------------------------------------------------------------------------------------------------------------------
Net income available to common
shareholders - diluted $ 8,220 $ 7,451 $23,468 $19,206
- ------------------------------------------------------------------------------------------------------------------
Weighted average common shares - basic 19,574 17,693 19,122 15,904
Dilutive securities -
Common Units of limited partnership interest in
the Operating Partnership 6,932 5,141 6,762 4,912
Stock options 148 183 172 202
- ------------------------------------------------------------------------------------------------------------------
Weighted average common shares - diluted 26,654 23,017 26,056 21,018
- ------------------------------------------------------------------------------------------------------------------
NET INCOME PER COMMON SHARE
Basic $ 0.31 $ 0.33 $ 0.91 $ 0.92
Diluted 0.31 0.32 0.90 0.91
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
Basic net income per common share for the periods presented was computed by
dividing income available to common shareholders by the weighted average number
of shares of common stock outstanding during the period. Diluted net income per
common share was computed assuming that Common Units were converted into common
stock on the later of the beginning of the period presented or upon their actual
issuance and based on the dilutive effect of stock options outstanding. The
Company has 662,000 outstanding stock options and 350,000 outstanding stock
warrants that were not dilutive in the three and nine months ended September 30,
1998.
Previously reported net income per common share under prior accounting standards
was equal to basic net income per common share under SFAS 128.
14
<PAGE>
7. ACQUISITIONS/DISPOSITIONS
In the third quarter of 1998, the Operating Partnership acquired nine industrial
buildings totaling approximately 835,000 square feet for approximately
$42,489,000. The aggregate acquisition consideration was comprised of the
issuance of $10,848,000 of Common Units, the assumption of mortgage indebtedness
of $3,290,000 and $28,351,000 of cash, used to fund the assumption and repayment
of indebtedness, closing costs and acquisition expenses, funded through Credit
Facility borrowings. The acquired properties are located in Tennessee, Florida
and Georgia.Two of the buildings, under development prior to their acquisition,
were acquired from NWI Warehouse Group, L.P. ("NWI"), a related entity, for
total acquisition consideration of approximately $13,957,000.
In July 1998, the Operating Partnership sold a 30,381 square foot building
located in Miami, Florida to one of the building's tenants for approximately
$2,373,000, resulting in a gain of $53,000. This building was originally
acquired in January 1998 as part of the Miami, Florida portfolio acquisition
discussed below.
In June 1998, the Operating Partnership acquired five industrial buildings
totaling approximately 1,074,000 square feet and 67.9 acres of undeveloped land
located in Dallas/Ft. Worth, Texas. The aggregate acquisition consideration of
approximately $48,300,000 was paid in cash, funded through Credit Facility
borrowings. In addition to these five buildings, the Operating Partnership
entered into arrangements to acquire four additional industrial buildings in
Dallas, Texas. On September 30, 1998, the Operating Partnership assigned its
acquisition rights to acquire the four buildings to NWI, and NWI acquired the
buildings for aggregate consideration of approximately $34,645,000.
Simultaneously, the Operating Partnership advanced $31,600,000 under a
$33,600,000 adjustable rate loan agreement with NWI and entered into a 17 month
option arrangement enabling the Operating Partnership to acquire the buildings
from NWI. The adjustable rate loan is secured by the four buildings, bears
interest at LIBOR plus 1.30% and matures on the earlier of the acquisition of
buildings by the Operating Partnership or September 30, 2003. The Operating
Partnership has accounted for this transaction with NWI as an investment in real
estate under the equity method of accounting.
Additionally, in the second quarter of 1998, the Operating Partnership acquired
ten industrial and suburban office buildings totaling approximately 467,000
square feet for approximately $29,550,000. The aggregate acquisition
consideration was comprised of the issuance of $3,264,000 of Common Units, the
assumption of mortgage indebtedness of $2,949,000 and $23,337,000 of cash,
funded through Credit Facility borrowings. The acquired properties are located
in Tennessee, Florida, North Carolina and Georgia.
On January 9, 1998, the Operating Partnership acquired a 2,477,000 square foot,
24-building portfolio and approximately five acres of land subject to ground
leases in Miami, Florida. Aggregate acquisition consideration of approximately
$175,200,000, including closing costs and acquisition expenses, consisted of the
issuance of $28,310,000 of Common Units, the assumption of $78,033,000 of
mortgage indebtedness (see Note 3), the assumption of certain other liabilities
in excess of certain other assets of approximately $4,224,000, and cash of
approximately $64,633,000 funded through Credit Facility borrowings. In
connection with the acquisition, the Operating Partnership has also agreed,
subject to customary closing conditions and the completion of due diligence
procedures, to acquire a 90,000 square foot building under development for
approximately $5,100,000 and approximately nine acres of adjacent, undeveloped
land for approximately $4,000,000. Additionally, in the first quarter of 1998,
the Operating Partnership acquired two industrial buildings under development
totaling approximately
15
<PAGE>
102,800 square feet for approximately $4,400,000. The aggregate acquisition
consideration was comprised of the issuance of $1,514,000 of Common Units and
$2,886,000 of cash, used to fund the assumption and repayment of indebtedness,
closing costs and acquisition expenses, funded through Credit Facility
borrowings.
8. SUBSEQUENT EVENT
On November 6, 1998, the Operating Partnership sold 1,400,000, 8% Series C
Cumulative Redeemable Preferred Partnership Units (the "Series C Preferred
Units"). The Series C Preferred Units have a liquidation preference of $25.00
per unit and are redeemable by the Operating Partnership after five years. In
combination with the issuance of the Series C Preferred Units, the Company
issued a warrant that entitles its holder to purchase 1,046,729 shares of
Company common stock at a price of $33.4375 per share. The Series C Preferred
Units are automatically redeemed upon the exercise of the common stock warrant.
The warrant has a perpetual term unless the Series C Preferred Units are
redeemed by the Operating Partnership, in which case the warrant expires within
30 days of redempton. The Operating Partnership received net proceeds of
approximately $34,400,000 from this transaction. The proceeds were used to
reduce outstanding Credit Facility borrowings.
16
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the accompanying
consolidated condensed financial statements and notes thereto, included
elsewhere herein. In addition to historical information, management's
discussion and analysis and other statements issued or made from time to time by
the Company or its representatives contain statements which may constitute
"Forward-looking Statements" within the meaning of the Securities Act of 1933,
as amended, and the Securities Exchange Act of 1934, as amended, each as amended
by the Private Securities Litigation Reform Act of 1995, 15 U.S.C.A. Sections
77z-2 and 78u-5 (Supp. 1996). Those statements include statements regarding the
intent, belief or current expectations of the Company and members of its
management team as well as the assumptions on which such statements are based.
Any such Forward-looking Statements are not guarantees of future performance and
the Company's actual results could differ materially from those set forth in
such Forward-looking Statements. Factors currently known to management that
could cause actual results to differ materially from those set forth in such
Forward-looking Statements include general economic conditions, local real
estate conditions, timely re-leasing of occupied square footage upon expiration,
interest rates, availability of equity and debt financing, current construction
schedules, the status of lease negotiations with potential tenants, the
satisfactory completion of due diligence procedures and other risks detailed
from time to time in the Company's filings with the Securities and Exchange
Commission, including Quarterly Reports on Form 10-Q, Current Reports on Form 8-
K and Annual Reports on Form 10-K. The Company undertakes no obligation to
update or revise Forward-looking Statements to reflect changed assumptions, the
occurrence of unanticipated events or changes to future operating results over
time.
GENERAL BACKGROUND
The Company was founded in 1965 and operated as a private real estate company
until August 1994, when it completed an initial public offering and elected to
be taxed as a REIT. As a self-administered and self-managed REIT, the Company
owns, develops, acquires and manages primarily high-quality industrial and
suburban office properties in the southeast United States and Texas. For a
further description of the Company, see Note 1 to the consolidated condensed
financial statements.
17
<PAGE>
RESULTS OF OPERATIONS
Operating information relating to the Company's properties for the three and
nine months ended September 30, 1998 and 1997, is summarized below (in
thousands):
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS
Ended Ended % Ended Ended %
SEPT. 30, 1998 SEPT. 30, 1997 CHANGE SEPT. 30, 1998 SEPT. 30, 1997 CHANGE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Rental revenues $34,269 $21,047 62.8% $ 94,312 $57,326 64.5%
Tenant reimbursements 4,339 2,903 49.5% 12,433 7,319 69.9%
- --------------------------------------------------------------------------------------------------------------------
Property operating revenues 38,608 23,950 61.2% 106,745 64,645 65.1%
- --------------------------------------------------------------------------------------------------------------------
Operating, maintenance and
management expenses 5,729 3,473 65.0% 15,784 8,762 80.1%
Real estate taxes 3,395 1,927 76.2% 9,133 5,394 69.3%
Depreciation and amortization 9,944 6,300 57.8% 27,500 17,344 58.6%
- --------------------------------------------------------------------------------------------------------------------
Property operating expenses 19,068 11,700 63.0% 52,417 31,500 66.4%
- --------------------------------------------------------------------------------------------------------------------
Property operating revenues less
property operating expenses $19,540 $12,250 59.5% $ 54,328 $33,145 63.9%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
Period to period comparisons of property operating revenues and expenses for
1998 and 1997 are discussed herein using the categories "core properties,"
"development properties" and "acquisition properties." Core properties are
defined as properties which were stabilized and operating as of January 1, 1997.
The Company defines a property as stabilized upon the earlier of substantial
lease-up or one year from building shell completion. Development properties
reflect properties completed and stabilized, and acquisition properties are
properties acquired, subsequent to January 1, 1997.
For the comparable three and nine months ended September 30, 1998 and 1997,
operating results of the core properties, representing 191 properties totaling
approximately 13,474,000 square feet, are summarized below (in thousands):
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS
Ended Ended % Ended Ended %
Sept. 30, 1998 Sept. 30, 1997 Change Sept. 30, 1998 Sept. 30, 1997 Change
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Rental revenues $18,252 $17,835 2.3% $54,276 $52,990 2.4%
Tenant reimbursements 1,990 2,005 (0.7)% 6,441 6,257 2.9%
- ------------------------------------------------------------------------------------------------------------------------
Property operating revenues 20,242 19,840 2.0% 60,717 59,247 2.5%
- ------------------------------------------------------------------------------------------------------------------------
Operating, maintenance and
management expenses 2,820 2,682 5.1% 8,261 7,787 6.1%
Real estate taxes 1,619 1,685 (3.9)% 4,960 5,004 (0.9)%
Depreciation and amortization 5,587 5,388 3.7% 16,541 16,040 3.1%
- ------------------------------------------------------------------------------------------------------------------------
Property operating expenses 10,026 9,755 2.8% 29,762 28,831 3.2%
- ------------------------------------------------------------------------------------------------------------------------
Property operating revenues less
property operating expenses $10,216 $10,085 1.3% $30,955 $30,416 1.8%
- ------------------------------------------------------------------------------------------------------------------------
Average occupancy 95.6% 96.5% 95.5% 96.4%
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE>
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998,
TO THE THREE MONTHS ENDED SEPTEMBER 30, 1997
Property operating revenues (rental revenue plus tenant reimbursements)
increased $14,658,000 or 61.2% between periods. Of this increase, $10,510,000,
$3,746,000 and $402,000 were attributable to acquisition, development and core
properties, respectively. The increases relating to acquisition and development
properties were due to the acquisition of 84 properties (37 in 1997 and 47 in
1998) totaling approximately 6,960,000 square feet and the stabilization of 28
development properties (14 in 1997 and 14 in 1998) and two property expansions
(both in 1997) totaling approximately 2,935,000 square feet. Property operating
expenses increased $7,368,000 or 63.0% between periods due primarily to the
growth in the property portfolio resulting from the acquisition and development
properties discussed above.
Property operating revenues from core properties increased 2.0% despite a
decrease in overall average occupancy of approximately 0.9%. This increase in
property operating revenues was due primarily to rental rate increases between
periods. Property operating expenses increased 2.8% due primarily to increased
maintenance and security expenses offset somewhat by decreased real estate tax
expense in 1998. Real estate taxes and tenant reimbursement revenues decreased
somewhat between periods reflecting the annual reconciliation of actual and
estimated real estate taxes on certain core properties. Property operating
revenues less property operating expenses from core properties increased 2.1%,
exclusive of depreciation and amortization expense.
Interest expense increased by $3,445,000 or 68.7% from $5,014,000 for the three
months ended September 30, 1997, to $8,459,000 for the three months ended
September 30, 1998, due to increased mortgage interest of $1,587,000 related to
mortgage debt assumed in connection with certain of the Company's 1997 and 1998
property acquisitions and increased net interest expense on unsecured Credit
Facility and unsecured note borrowings due primarily to higher average
borrowings used to finance the Company's growth in 1998 compared to 1997.
Company general and administrative expenses increased by $590,000 or 67.0% from
$881,000 for the three months ended September 30, 1997, to $1,471,000 for the
three months ended September 30, 1998, due primarily to increased personnel and
related costs associated with the Company's geographic expansion, including the
opening of an office in Dallas, Texas during the third quarter of 1998. As a
percentage of total revenue, general and administrative expenses remained
comparable between periods at 3.6% in the third quarter of 1997 versus 3.8% in
the third quarter of 1998.
Interest income decreased $222,000 or 49.0% from $453,000 for the three months
ended September 30, 1997, to $231,000 for the three months ended September 30,
1998, due primarily to the settlement of approximately $10,785,000 of real
estate loans in 1998.
Equity in earnings of unconsolidated service companies represents the Company's
99% economic interest in the earnings of the Service Companies and their
subsidiaries after the elimination of interest expense and intercompany profits
to the Company (see Note 4 to the consolidated condensed financial statements).
Equity in earnings of the Service Companies and their subsidiaries increased by
$467,000 or 148.7% from $314,000 for the three months ended September 30, 1997,
to $781,000 for the three months ended September 30, 1998, due primarily to
higher net profits from the Atlanta, Georgia based construction and landscape
service businesses between periods. Equity in earnings of unconsolidated real
estate entities of $66,000 in 1998 represents the Company's 50% share of
earnings from a single building equity investment.
19
<PAGE>
COMPARISON OF OPERATING RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998, TO
THE NINE MONTHS ENDED SEPTEMBER 30, 1997
Property operating revenues (rental revenue plus tenant reimbursements)
increased $42,100,000 or 65.1% between periods. Of this increase, $29,544,000,
$11,086,000 and $1,470,000 were attributable to acquisition, development and
core properties, respectively. The increases relating to acquisition and
development properties were due to the acquisition of 84 properties (37 in 1997
and 47 in 1998) totaling approximately 6,960,000 square feet and the
stabilization of 28 development properties (14 in 1997 and 14 in 1998) and two
property expansions (both in 1997) totaling approximately 2,935,000 square feet.
Property operating expenses increased $20,917,000 or 66.4% between periods due
primarily to the growth in the property portfolio resulting from the acquisition
and development properties discussed above.
Property operating revenues from core properties increased 2.5% despite a
decrease in overall average occupancy of approximately 0.9%. This increase in
property operating revenues was due to both rental rate and reimbursement
increases between periods. Property operating expenses increased 3.2% due
primarily to increased utilities, maintenance and security expenses in 1998.
Property operating revenues less property operating expenses from core
properties increased 2.2%, exclusive of depreciation and amortization expense.
Interest expense increased by $6,816,000 or 45.4% from $15,020,000 for the nine
months ended September 30, 1997, to $21,836,000 for the nine months ended
September 30, 1998, due primarily to increased mortgage interest of $4,775,000
related to mortgage debt assumed in connection with certain of the Company's
1997 and 1998 property acquisitions and increased net interest expense on
unsecured Credit Facility and unsecured note borrowings due primarily to higher
average borrowings used to finance the Company's growth in 1998 compared to
1997.
Company general and administrative expenses increased by $1,452,000 or 55.1%
from $2,633,000 for the nine months ended September 30, 1997, to $4,085,000 for
the nine months ended September 30, 1998, due primarily to increased personnel
and related costs associated with the Company's geographic expansion, including
the opening of an office in Dallas, Texas during the third quarter of 1998. As
a percentage of total revenue, general and administrative expenses remained
comparable between periods at 4.0% in 1997 versus 3.8% in 1998.
Interest income decreased $239,000 or 24.0% from $996,000 for the nine months
ended September 30, 1997, to $757,000 for the nine months ended September 30,
1998, due primarily to the settlement of approximately $10,785,000 of real
estate loans in 1998.
Equity in earnings of unconsolidated service companies represents the Company's
99% economic interest in the earnings of the Service Companies and their
subsidiaries after the elimination of interest expense and intercompany profits
to the Company (see Note 4 to the consolidated condensed financial statements).
Equity in earnings of the Service Companies and their subsidiaries increased by
$132,000 or 8.6% from $1,538,000 for the nine months ended September 30, 1997,
to $1,670,000 for the nine months ended September 30, 1998, due to higher net
profits from the Atlanta, Georgia based construction and landscape service
businesses, offset somewhat by increased land carrying costs in 1998 associated
with increased investment in development land. Equity in earnings of
unconsolidated real estate entities of $220,000 in 1998 represents the Company's
50% share of earnings from a single building equity investment.
20
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company continues to generate increasing cash flows from operations. Cash
provided by operating activities increased 64.2% from $36,538,000 for the nine
months ended September 30, 1997, to $59,979,000 for the nine months ended
September 30, 1998, due primarily to the growth in the Company's operating
income resulting from 28 development properties (14 in 1997 and 14 in 1998) and
two property expansions (both in 1997) stabilized and from 84 buildings acquired
(37 in 1997 and 47 in 1998).
The Company's net cash flow from operations is currently sufficient to meet the
Company's current operational needs and to satisfy the Company's current
quarterly dividends on both its common and preferred stock. Management believes
that operating cash flows will continue to be adequate to fund these
requirements for the remainder of 1998 and for 1999. The Company operates as
and intends to maintain its qualification as a REIT under the Code. As a REIT,
the Company will generally not be subject to corporate federal income taxes as
long as it satisfies certain technical requirements of the Code, including the
requirement to distribute 95% of its taxable income to its shareholders.
During the nine months ended September 30, 1998, the Company invested
$314,885,000 of cash in property acquisition, development and construction
activities. This compares to $112,349,000 for the same nine month period in
1997. This increased cash investment activity reflects primarily the increased
cash component of the Company's building acquisition activity in 1998 compared
to 1997 of approximately $120,137,000 with the remaining increase due to
increased development and land acquisition activity.
Financing for the Company's property investment activities consisted primarily
of $192,465,000 of net proceeds from unsecured note borrowings, $47,200,000 from
common equity offerings and $127,800,000 from Credit Facility borrowings in the
nine months ended September 30, 1998 compared to $106,568,000 from a common
equity offering and $50,698,000 from Credit Facility borrowings in the nine
months ended September 30, 1997. The debt and equity components of the
Company's ongoing financing strategy may differ from period-to-period based upon
market conditions.
In addition to its operating cash flow, the Company has aggregate borrowing
capacity of $245,000,000 under the Credit Facility (see Note 3 to the
consolidated condensed financial statements), which may be used, among other
things, to meet its operational obligations and annual REIT dividend
requirements. The Company currently intends to finance its development,
construction and acquisition activities primarily through borrowings under the
Credit Facility, and to periodically refinance such borrowings with longer term
debt or equity. As of November 6, 1998, subsequent to issuance of the Operating
Partnership's Series C Preferred Units for net proceeds of approximately
$34,400,000 (see Note 8 to the consolidated condensed financial statements), the
Company had available capacity under the Credit Facility of approximately
$32,900,000.
The Company believes it has adequate liquidity, borrowing capacity and sources
of capital and cash flow, including available capacity under its existing Credit
Facility, remaining capacity of approximately $650,000,000 under a universal
shelf registration statement and cash flow generated from selective real estate
asset sales and other joint venture arrangements, to meet its current
operational requirements, to fund annual principal repayments under existing
mortgage notes payable, and to fund its current development and acquisition
activity. It is management's expectation that the Company will continue to have
access to the additional capital resources necessary to further expand and
develop its business and to refinance mortgage notes payable as they mature.
These resources include the expansion of the available borrowing capacity under
the Credit Facility, other forms of debt and equity financing, in both
21
<PAGE>
public and private markets and funds generated from selective real estate asset
sales and other joint venture arrangements. The Company has unsecured
investment grade corporate debt ratings which may assist it in accessing the
corporate debt and preferred equity markets in future periods. Future
development and acquisition activities will be undertaken by the Company only as
suitable opportunities arise. Such activities are not expected to be undertaken
unless adequate sources of financing are available and a satisfactory budget
with an appropriate return on investment has been internally approved. The
Company maintains staffing levels sufficient to meet its existing construction
and leasing activities and capitalizes a portion of the costs relating to these
activities to development projects and leasing transactions, respectively. If
market conditions warrant, the Company may adjust staffing levels to avoid a
negative impact on the Company's results of operations.
The information provided above regarding the Company's future financing
availability includes Forward-looking Statements based upon management's current
assessment of capital availability in both the public and private debt and
equity markets, the suitable pricing of such debt and equity capital, the
anticipation of available third-party real estate investment and markets for
real estate asset sales and other relevant factors currently available to the
Company. Should the availability and cost of expected future financings be
negatively impacted based on changes in the above factors, the shortage of
available capital could result in the curtailment of the Company's committed and
planned development and acquisition activity. There can be assurance that any
of these factors will not change and that any change will not affect the
accuracy of the Company's Forward-looking Statements.
Total consolidated debt amounted to $676,264,000 at September 30, 1998,
including borrowings under the Credit Facility of $210,720,000, mortgage notes
payable of $265,544,000 and unsecured notes of $200,000,000. Of the
$265,544,000 of mortgage indebtedness, $259,781,000 is fixed rate and $5,763,000
is variable rate. The weighted average interest rate on the Company's fixed
rate mortgage debt was 8.2% and on its variable rate mortgage debt was 4.3% at
September 30, 1998. The weighted average interest rate under the Credit
Facility at September 30, 1998, (excluding the effect of the interest rate swap
agreements described below) was 6.4%. The weighted average effective interest
rate, including underwriting costs and expenses, on the Company's fixed rate
unsecured notes was 7.6% at September 30, 1998. At September 30, 1998, the
Company had in place interest rate swap agreements to fix the Company's interest
costs on $40,000,000 of the Company's Credit Facility borrowings. The weighted
average effective interest rate under the fixed swap arrangements was
approximately 7.5%. If interest rates under the Credit Facility, in excess of
the $40,000,000 discussed herein, and under the Company's variable rate mortgage
debt, fluctuated by 1%, interest costs to the Company, before capitalization of
interest, if any, based on outstanding borrowings at September 30, 1998, would
increase or decrease by approximately $1,800,000 on an annualized basis.
Based on the outstanding balance of mortgage notes payable at September 30,
1998, the weighted average interest rates on the mortgage notes with a final
maturity in each of the next five years were 7.4% in 1999, 8.7% in 2000, 7.4% in
2001, 8.2% in 2002 and 8.3% in 2003.
At September 30, 1998, including total consolidated debt of $676,264,000 and
$2,309,000 of other notes payable of unconsolidated entities, the total debt
obligations of the Company and its unconsolidated entities were $678,573,000 or
approximately 42% of total market capitalization (assuming the exchange of all
Common Units for shares of common stock). At September 30, 1998 (based on the
closing price of the common stock of $29.875 on September 30, 1998, and assuming
the exchange of all Common Units for shares of common stock), there would be
26,818,562 shares of common stock outstanding with a total market value of
$801,205,000, 6,000,000 shares of preferred stock outstanding with a total
liquidation
22
<PAGE>
value of $150,000,000 and 350,000 common stock warrants outstanding with a book
value of $1,400,000, resulting in an approximate total equity value of
$952,605,000.
CURRENT DEVELOPMENT AND ACQUISITION ACTIVITY
At September 30, 1998, the Company had committed developments and acquisitions
totaling approximately $301,756,000, representing 46 buildings and one property
expansion totaling 5,698,000 square feet. Including new development activity,
net of the stabilization of development properties, between September 30, 1998
and November 10, 1998, the Company had, at November 10, 1998, committed
developments and acquisitions totaling approximately $288,670,000, representing
48 buildings totaling 5,472,000 square feet. Properties under agreement to
acquire as of November 10, 1998, consisted of one building, totaling 90,000
square feet, with a total expected cost of approximately $5,100,000.
Development properties as of November 10, 1998, consisted of 47 buildings
totaling 5,382,000 square feet, with a total expected cost of approximately
$283,570,000.
It is expected that such development and acquisition properties will stabilize
or be acquired as detailed below:
- -------------------------------------------------------------------------------
Square Estimated
Year Buildings Feet Cost(a)
- -------------------------------------------------------------------------------
1998 5 459,000 $ 15,396,000
1999 27 3,128,000 191,903,000
2000 15 1,705,000 77,471,000
2001 1 180,000 3,900,000
- -------------------------------------------------------------------------------
48 5,472,000 $288,670,000
- -------------------------------------------------------------------------------
(a) For development properties represents the entire estimated cost of the
property at the estimated stabilization date.
In addition, the Company has committed, subject to closing conditions, the
completion of due diligence procedures and other contingencies, to acquire
development land totaling approximately $22,955,000 over various periods ranging
up to five years.
It is expected that future development and land acquisition expenditures will be
funded primarily through Credit Facility borrowings, refinanced as required
through new debt or equity offerings in both private and public markets or
otherwise reduced by cash generated from selective real estate asset sales and
other joint venture arrangements. Future acquisitions will be consummated
primarily through a combination of cash funded through borrowings under the
Credit Facility, the issuance of Common Units and the assumption of
indebtedness, some of which will also be repaid through borrowings under the
Credit Facility.
The information provided above includes Forward-looking Statements about
expected property acquisitions or stabilizations that is based on current
construction schedules, the status of lease negotiations with potential tenants,
the successful completion of due diligence procedures and other relevant factors
currently available to the Company. There can be no assurance that any of these
factors will not change or that any change will not affect the accuracy of such
Forward-looking Statements.
23
<PAGE>
SUPPLEMENTAL DISCLOSURE OF FUNDS FROM OPERATIONS
The Company believes that funds from operations provides an additional indicator
of the financial performance of the Company. Funds from operations is defined by
the National Association of Real Estate Investment Trusts ("NAREIT") to mean net
income (loss) determined in accordance with generally accepted accounting
principles ("GAAP") excluding gains (or losses) from debt restructuring and
sales of property, plus depreciation and amortization of real property, and
after adjustments for unconsolidated partnerships and joint ventures.
Adjustments for unconsolidated partnerships and joint ventures will be
calculated to reflect funds from operations on the same basis. Funds from
operations is influenced not only by the operations of the properties, but also
by the capital structure of the Company. Accordingly, the Company expects that
funds from operations will be one of the factors considered by its Board of
Directors in determining the amount of cash dividends the Company will pay to
its shareholders. The Company computes funds from operations under the current
NAREIT definition by subtracting from net income the dividends to preferred
shareholders before making an adjustment for the non-cash items described above.
Funds from operations does not represent cash flow from operating, investing and
financing activities as defined by GAAP, which are discussed under "Liquidity
and Capital Resources." Additionally, funds from operations does not measure
whether cash flow is sufficient to fund all cash flow needs, including principal
amortization, capital expenditures and dividends to shareholders, and should not
be considered as an alternative to net income for purposes of evaluating the
Company's operating performance or as an alternative to cash flow, as defined by
GAAP, as a measure of liquidity. Funds from operations presented herein is not
necessarily comparable to funds from operations presented by other real estate
companies due to the fact that not all real estate companies calculate funds
from operations in the same manner. However, the Company's funds from operations
is comparable to the funds from operations of real estate companies that use the
current NAREIT definition.
The Company's calculation of funds from operations follows the guidelines issued
by NAREIT, including the recognition of rental income on the "straight-line"
basis consistent with its treatment in the Company's statement of operations
under GAAP. The "straight-line" rental adjustment increased rental revenues by
$697,000 and $176,000 for the three months ended and $1,351,000 and $500,000 for
the nine months ended September 30, 1998 and 1997, respectively. In accordance
with the NAREIT guidelines, the Company excludes gains or losses on sales of
operating (previously depreciated) real estate assets in calculating funds from
operations, but includes gains or losses on sales of undepreciated assets (land)
that are of a recurring nature. Pre-tax gains on land sales are included in
funds from operations in the amount of $46,000 and $79,000 for the three months
ended and $524,000 and $527,000 for the nine months ended September 30, 1998 and
1997, respectively.
24
<PAGE>
For the three months ended September 30, 1998, funds from operations increased
by $2,746,000 or 25.8% to $13,395,000 compared to funds from operations of
$10,649,000 for the three months ended September 30, 1997. For the nine months
ended September 30, 1998, funds from operations increased by $9,952,000 or 35.9%
to $37,666,000 compared to funds from operations of $27,714,000 for the nine
months ended September 30, 1997. Funds from operations for the three and nine
months ended September 30, 1998 and 1997 are detailed below (in thousands):
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS
Ended Ended Ended Ended
Sept. 30, 1998 SEPT. 30, 1997 SEPT. 30, 1998 SEPT. 30, 1997
========================================================================================================================
<S> <C> <C> <C> <C>
Net income available to
common shareholders $ 6,071 $ 5,768 $17,338 $14,673
Minority interests 2,149 1,683 6,130 4,533
Depreciation and amortization 9,944 6,300 27,500 17,344
Depreciation and amortization -
unconsolidated entities 24 -- 68 10
Gain on sale of operating real estate asset (53) -- (53) (209)
Gain on sale of operating real estate asset --
unconsolidated entities -- -- -- (76)
- -----------------------------------------------------------------------------------------------------------------------
Funds from operations available to
common shareholders
(Common Units fully converted) $18,135 $13,751 $50,983 $36,275
Percentage attributable to common
shareholders(1) 73.9% 77.5% 73.9% 76.4%
- -----------------------------------------------------------------------------------------------------------------------
Funds from operations attributable to
common shareholders $13,395 $10,649 $37,666 $27,714
- -----------------------------------------------------------------------------------------------------------------------
Weighted average common shares
Basic 19,574 17,693 19,122 15,904
Diluted(2) 26,654 23,017 26,056 21,018
=======================================================================================================================
</TABLE>
(1) Represents the Company's weighted average ownership percentage of the
Operating Partnership for the period.
(2) Represents the weighted average shares of common stock outstanding plus the
weighted average Common Units of limited partnership interest in the
Operating Partnership outstanding (Common Units are convertible into common
stock on a one-for-one basis) and the dilutive effect of outstanding stock
options. Weighted average Common Units outstanding totaled 6,932,000 and
5,141,000 for the three months ended and 6,762,000 and 4,912,000 for the
nine months ended September 30, 1998 and 1997, respectively. Common stock
equivalents related to outstanding stock options totaled 148,000 and
183,000 for the three months ended and 172,000 and 202,000 for the nine
months ended September 30, 1998 and 1997, respectively. Outstanding common
stock warrants were not dilutive for the three and nine months ended
September 30, 1998.
25
<PAGE>
SUPPLEMENTAL INFORMATION ON CAPITAL EXPENDITURES AND LEASING COSTS
The following table details the Company's capital expenditures and leasing costs
for the three and nine months ended September 30, 1998 and 1997 (in thousands):
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS
Ended Ended Ended Ended
Sept. 30, 1998 SEPT. 30, 1997 SEPT. 30, 1998 SEPT. 30, 1997
=======================================================================================================================
<S> <C> <C> <C> <C>
Building acquisitions(1)(2) $ 42,489 $31,594 $292,436 $ 81,352
Development and land acquisition activity(3)(4) 64,728 40,297 181,676 88,124
Non-revenue-producing building
improvements 611 249 1,403 611
Tenant improvement and leasing costs
on second-generation leases(5) 1,708 1,140 4,901 3,234
- -----------------------------------------------------------------------------------------------------------------------
$109,536 $73,280 $480,416 $173,321
=======================================================================================================================
</TABLE>
(1) Building acquisitions in 1998 included two buildings acquired while still
under development. Both of these buildings were stabilized at September 30,
1998.
(2) Reflects aggregate acquisition costs including the assumption of
indebtedness of $7,291,000 and the issuance of $10,848,000 of Common Units
in the three months ended September 30, 1998, and the assumption of
indebtedness of $91,137,000, the issuance of $43,936,000 of Common Units
and other assumed liabilities, net of other assets, of $4,224,000 in the
nine months ended September 30, 1998. Reflects aggregate acquisition costs
including the assumption of indebtedness of $28,420,000 and the issuance of
$2,234,000 of Common Units in the three months ended September 30, 1997 and
the assumption of indebtedness of $32,170,000 and the issuance of
$16,180,000 of Common Units in the nine months ended September 30, 1997.
(3) Includes first-generation leasing costs on stabilized development
properties totaling $1,042,000 and $1,470,000 in the three months ended and
$3,065,000 and $2,816,000 in the nine months ended September 30, 1998 and
1997, respectively.
(4) Reflects aggregate development and leasing costs net of the settlement of
real estate loans of $2,887,000 and exclusive of the decrease in
construction payables of $638,000 in the three months ended September 30,
1998, and net of the settlement of real estate loans of $10,785,000, the
issuance of $8,490,000 of Common Units and exclusive of the increase in
construction payables of $1,829,000 in the nine months ended September 30,
1998. Reflects aggregate development and leasing costs including the
assumption of indebtedness of $1,999,000 and exclusive of the increase in
construction payables of $4,111,000 in the three months ended September 30,
1997, and including the assumption of indebtedness of $2,609,000, the
issuance of Common Units of $388,000 and exclusive of the increase in
construction payables of $2,397,000 in the nine months ended September 30,
1997.
(5) Includes second-generation leasing costs totaling $628,000 and $471,000 in
the three months ended and $2,065,000 and $1,538,000 in the nine months
ended September 30, 1998 and 1997, respectively.
26
<PAGE>
The following table summarizes by period the Company's capitalized tenant
improvement and leasing costs incurred in the renewal or re-leasing of
previously occupied space for the nine months ended September 30, 1998, and the
year ended December 31, 1997, respectively. The information detailed below is
presented based on the date the tenants occupy the leased space.
<TABLE>
<CAPTION>
CAPITALIZED TENANT IMPROVEMENTS AND LEASING COSTS
- -----------------------------------------------------------------------------------------------------------------------
Nine MONTHS YEAR
ENDED ENDED
(In thousands, except per square foot information) SEPT. 30, 1998 DEC. 31, 1997
=======================================================================================================================
<S> <C> <C>
Industrial Properties
Re-leasing
Square feet re-leased 1,289 1,073
Capitalized tenant improvements and leasing commissions $2,617 $2,276
Capitalized tenant improvements and leasing commissions
per square foot $ 2.03 $ 2.12
RENEWAL
Square feet renewed 1,414 2,358
Capitalized tenant improvements and leasing commissions $1,196 $1,392
Capitalized tenant improvements and leasing commissions
per square foot $ 0.85 $ 0.59
TOTAL
Square feet 2,703 3,431
Capitalized tenant improvements and leasing commissions $3,813 $3,668
Capitalized tenant improvements and leasing commissions
per square foot $ 1.41 $ 1.07
=======================================================================================================================
SUBURBAN OFFICE PROPERTIES
Re-leasing
Square feet re-leased 63 69
Capitalized tenant improvements and leasing commissions $ 252 $ 493
Capitalized tenant improvements and leasing commissions
per square foot $ 4.01 $ 7.11
RENEWAL
Square feet renewed 77 134
Capitalized tenant improvements and leasing commissions $ 73 $ 267
Capitalized tenant improvements and leasing commissions
per square foot $ 0.94 $ 1.99
TOTAL
Square feet 140 203
Capitalized tenant improvements and leasing commissions $ 325 $ 760
Capitalized tenant improvements and leasing commissions
per square foot $ 2.32 $ 3.74
=======================================================================================================================
</TABLE>
27
<PAGE>
SUPPLEMENTAL DISCLOSURE OF TENANT AND LEASE EXPIRATION INFORMATION
TENANTS
As of September 30, 1998, the Company's properties were leased to 1,016 tenants
including local, regional, national and international companies. The Company's
30 largest tenants (measured by annualized base rent for leases in place in
stabilized properties and in properties under development or in lease-up where
tenants were paying rent at September 30, 1998) occupy a total of approximately
4,894,000 square feet and represent 24.0% of the annualized base rent as shown
in the table below.
30 LARGEST TENANTS MEASURED BY ANNUALIZED BASE RENT
<TABLE>
<CAPTION>
=============================================================================================================
% of Total
Square Number Annualized Annualized
Rank Tenant Feet of Leases Base Rent(1) BASE RENT(1) STATE
=============================================================================================================
<C> <S> <C> <C> <C> <C> <C>
1 Northern Telecom, Inc.(2) 401,349 8 $3,002,853 2.1% NC,TN
2 Scientific Atlanta, Inc. 573,951 11 2,616,594 1.8% GA
3 Interpath Communications, Inc. 178,456 3 1,774,842 1.2% NC
4 Radiant Systems, Inc. 106,631 1 1,609,789 1.1% GA
5 360 Communications 114,476 7 1,539,758 1.1% NC
6 Honeywell, Inc. 119,961 4 1,501,052 1.0% GA
7 United States Postal Service 254,026 4 1,484,893 1.0% FL
8 IKON Office Solutions, Inc. 177,000 4 1,468,400 1.0% GA
9 GTE Mobilnet Service Corporation 126,124 3 1,351,146 0.9% NC,GA
10 Radian International LLC 90,159 2 1,173,802 0.8% NC
11 PPD Pharmaco, Inc. 107,722 6 1,087,655 0.7% NC
12 Moore U.S.A., Inc. 274,951 2 1,085,266 0.7% TX,FL
13 AIG Claim Services, Inc. 52,372 1 1,050,059 0.7% GA
14 Tech Data Corporation 138,996 1 1,049,492 0.7% FL
15 Square D Company 102,262 2 999,309 0.7% TN,FL
16 DeVry Inc. 64,981 1 928,269 0.7% GA
17 The Athlete's Foot Group, Inc. 162,651 1 924,069 0.7% GA
18 Anixter, Inc. 167,460 2 913,150 0.7% GA
19 Merisel, Inc. 142,487 2 900,147 0.6% FL
20 Ingram-Micro, Inc. 193,973 4 887,002 0.6% GA,FL
21 Fisher Scientific Company 223,219 1 875,019 0.6% GA
22 Tekelec 98,210 3 842,303 0.6% NC
23 National Data Corporation 50,283 4 786,777 0.5% GA
24 Data General Corporation 86,000 1 775,720 0.5% GA
25 Saab Cars U.S.A., Inc. 63,625 3 749,509 0.5% GA
26 Vanstar Corporation 86,880 4 740,449 0.5% GA
27 Reckitt & Colman, Inc. 313,900 2 733,120 0.5% GA
28 AT&T Corp. 62,271 4 721,880 0.5% NC,GA,TN
29 Quadram Corp./Intelligent Systems 137,100 1 719,775 0.5% GA
30 Best Buy Stores, L.P. 222,643 1 703,548 0.5% GA
=============================================================================================================
4,894,119 93 $34,995,647 24.0%
=============================================================================================================
</TABLE>
(1) Annualized cash base rent net of rental concessions, if any, based on
leases in place for stabilized properties and in properties under
development or in lease-up where tenants were paying rent as of September
30, 1998.
(2) Leases with Northern Telecom totaling 370,824 square feet expire on June
30, 2005, but are subject to an early-termination right that permits
Northern Telecom to terminate any of the leases on June 30, 2000, by
delivering an early-termination notice to the Company on or before June 30,
1999. In the event it exercises its early-termination option, Northern
Telecom will be obligated to make certain termination payments to the
Company.
28
<PAGE>
LEASE EXPIRATIONS
The following tables show scheduled lease expirations for the Company's total
property portfolio, for its industrial property portfolio and for its suburban
office portfolio, respectively, based on leases under which tenants were paying
rent in both stabilized and pre-stabilized properties as of September 30, 1998,
assuming no exercise of renewal options or termination rights, if any:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
SQUARE ANNUALIZED % OF TOTAL
Year of Feet % of Total Base Rent(1) ANNUALIZED
Expiration (In thousands) Square Feet (In thousands) Base Rent(1)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total Portfolio
1998 1,597 6.9% $ 9,227 6.1%
1999 3,007 12.9% 18,579 12.2%
2000 3,574 15.4% 21,658 14.3%
2001 2,846 12.2% 17,271 11.4%
2002 3,044 13.1% 24,467 16.1%
2003 2,949 12.7% 23,717 15.6%
2004 1,262 5.4% 7,871 5.2%
2005 1,288 5.5% 4,341 2.9%
2006 769 3.3% 3,977 2.6%
2007 1,322 5.7% 8,495 5.6%
2008 790 3.4% 6,576 4.3%
2009 20 0.1% 157 0.1%
2010 65 0.3% 90 0.1%
2011 405 1.7% 2,201 1.4%
2012 and later 322 1.4% 3,284 2.1%
- -------------------------------------------------------------------------------------------------------------
23,260(2) 100.0% $151,915 100.0%
=============================================================================================================
Industrial Properties
1998 1,487 7.1% $ 7,602 6.4%
1999 2,762 13.2% 15,574 13.1%
2000 3,336 15.9% 18,297 15.4%
2010 2,735 13.0% 15,771 13.3%
2002 2,623 12.5% 17,375 14.6%
2003 2,535 12.1% 16,518 13.9%
2004 1,150 5.5% 5,995 5.0%
2005 1,257 6.0% 3,881 3.3%
2006 748 3.6% 3,608 3.0%
2007 1,266 6.0% 7,903 6.7%
2008 589 2.8% 3,243 2.7%
2009 20 0.1% 157 0.1%
2010 -- -- -- --
2011 349 1.7% 2,121 1.8%
2012 and later 107 0.5% 754 0.7%
- -------------------------------------------------------------------------------------------------------------
20,964 100.0% $118,799 100.0%
=============================================================================================================
(Table continued on following page)
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Square Annualized % of Total
Year of Feet % of Total Base Rent(1) ANNUALIZED
Expiration (In thousands) Square Feet (In thousands) Base Rent(1)
<S> <C> <C> <C> <C>
=============================================================================================================
Surburban
OFFICE PROPERTIES
1998 98 5.2% $ 1,444 4.8%
1999 197 10.6% 2,589 8.7%
2000 187 10.0% 2,817 9.4%
2001 107 5.7% 1,445 4.8%
2002 418 22.4% 7,033 23.6%
2003 405 21.7% 7,006 23.5%
2004 104 5.6% 1,700 5.7%
2005 26 1.4% 382 1.3%
2006 17 0.9% 309 1.0%
2007 56 3.0% 592 2.0%
2008 185 9.9% 3,333 11.2%
2009 -- -- -- --
2010 -- -- -- --
2011 -- -- -- --
2012 and later 66 3.6% 1,166 4.0%
- -------------------------------------------------------------------------------------------------------------
1,866 100.0% $29,816 100.0%
=============================================================================================================
</TABLE>
(1) Annualized base rent represents the annualized monthly base rental at
the time of lease expiration.
(2) The total square footage as of September 30, 1998, is comprised of
approximately 22,437,298 square feet of leases in in-service properties,
and approximately 823,046 square feet of leases in properties under
development or in lease-up where tenants are paying rent as of September
30, 1998.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, SFAS 131, "Disclosures About Segments of an Enterprise and Related
Information" was issued prescribing new guidelines for the reporting of segment
data. SFAS 131 will apply to all public, for-profit companies and will be
effective for the Company beginning with the fourth quarter and year ending
December 31, 1998. The Company was not subject to segment reporting under prior
accounting standards, but will be required to provide certain segment
disclosures under SFAS 131. The Company continues to evaluate the disclosure
provisions of SFAS 131 and plans to adopt SFAS 131 in it financial statements
for the year ending December 31, 1998.
In March 1998, Emerging Issues Task Force Issue No. 97-11, "Accounting for
Internal Costs Relating to Real Estate Property Acquisition," was issued
prescribing that internal acquisition costs relating to the acquisition of
operating real estate properties should be expensed as incurred. Effective with
the first quarter of 1998, the Company implemented this new guideline, which did
not have a material impact on the Company's financial position or results of
operations.
In June 1998, SFAS 133, "Accounting for Derivative Instruments and for Hedging
Activities," was issued prescribing new accounting standards for the accounting
and disclosures of derivative instruments and hedging transactions. SFAS 133
will be effective for the Company beginning January 1, 2000. The Company is
evaluating the provisions of SFAS 133 and plans to adopt SFAS 133 in its
financial statements beginning in 2000.
30
<PAGE>
IMPACT OF INFLATION
In the last three years, inflation has not had a significant impact on the
Company because of the relatively low inflation rate. Substantially all tenant
leases do, however, contain provisions designed to protect the Company from the
impact of inflation. Most of the leases require tenants to pay their share of
operating expenses, including common area maintenance, real estate taxes and
insurance, thereby reducing the Company's exposure to increases in costs and
operating expenses resulting from inflation. In addition, many of the leases
are for terms of less than seven years, which may enable the Company to replace
existing leases with new leases at higher base rentals if rents under the
existing leases are below the then-existing market rate. However, there can be
no assurance that the Company would be able to replace existing leases with new
leases at higher base rentals.
YEAR 2000
General. The term "year 2000 issue" is a general term used to describe the
various problems that may result from the improper processing of dates and date-
sensitive calculations by computers and other machinery and equipment as the
year 2000 is approached and reached. The year 2000 issue is the result of many
computer programs recognizing a date ending with "00" as the year 1900 rather
than 2000, causing potential system failures or miscalculations which could
result in disruptions of normal business operations.
State of Readiness. The Company's primary financial and operating systems are
supplied by third-party suppliers. Based on communications with these third-
party suppliers, internal evaluations of the third-party systems and internal
assessments of in-house information systems, the Company expects these systems
to be year 2000 compliant by the end of the first quarter of 1999.
Additionally, the Company has evaluated its telephone systems and such systems
are expected to be fully year 2000 compliant before the end of 1999.
The Company is also assessing the potential impact of the year 2000 issue
resulting from the potential failure of its key building mechanical systems or
the failure of its major vendors, suppliers and tenants to be year 2000
compliant. Key building mechanical systems include, but are not limited to,
HVAC systems, elevators and security systems. Major vendors and suppliers
include providers of utility services and suppliers of raw materials utilized in
the development and construction of buildings. The Company's assessments
include the use of questionnaires and direct discussions with such vendors,
suppliers and tenants. The Company anticipates the completion of its
assessments and evaluations in these areas by early 1999.
Cost to Address Year 2000 Issues. To date, the Company has not incurred
material incremental costs relating to year 2000 issues. The Company does not
expect additional costs relating to year 2000 compliance to be material to the
Company's financial condition or results of operations taken as a whole. The
Company plans to allocate the time and resources necessary to timely resolve any
significant year 2000 issues.
31
<PAGE>
Risks Presented by Year 2000 Issues. The Company's major and most reasonably
likely worse case risks associated with the year 2000 issue relate to the
failure of key vendors, suppliers and tenants to be fully year 2000 compliant.
Failures of critical utility systems or other building mechanical systems could
lead to significant business disruptions for tenants. Failures of tenants'
businesses that rely heavily on information technology or that are involved in
the information technology business could also lead to significant business
disruptions or failures. These occurrences could impact the Company's cash flow
and results of operations should these disruptions lead to a tenants' inability
to continue to meet their rental obligations to the Company.
Failures of major suppliers to deliver building raw materials to the Company due
to year 2000 issues could result in the Company being unable to complete
buildings in a timely manner or at the costs budgeted by the Company. This
could result in slower overall business growth and increased costs of
constructing new buildings, both of which could impact the Company's future
financial condition and results of operations.
Based on information obtained from such third parties to date, the Company does
not believe that the impact of the year 2000 issue will have a material adverse
impact on the Company's financial condition or results of operations. However,
such conclusions are based upon communications, evaluations, and assessments to
date, and if future negative events occur which cannot be resolved in a timely
manner, it could result in material financial risk to the Company.
Contingency Plans. To date, the Company has not established any contingency
plan for possible year 2000 issues. After its assessments are completed, the
Company anticipates evaluating contingency plans, to the extent such plans are
feasible, to address identified risks. It is anticipated that any such plans
will be developed in 1999.
The information provided above regarding the Company's year 2000 preparedness
includes Forward-looking Statements based upon management's current assessment
of year 2000 issues impacting the Company. Such assessments are, in part, based
on representations of other third parties regarding their year 2000
preparedness. Such Forward-looking Statements involve risks and uncertainties
and there can be no assurance that any of the factors or statements regarding
the year 2000 issue will not change and that any change will not affect the
accuracy of the Company's Forward-looking Statements.
32
<PAGE>
PART II - OTHER INFORMATION
ITEM 2 - CHANGE IN SECURITIES
During the three months ended September 30, 1998, the Company caused the
Operating Partnership to issue a total of 374,632 Common Units in the
Operating Partnership, in full or partial consideration for the
acquisition of real estate properties. The aggregate value of the
properties acquired by the Company in exchange for such Common Units was
approximately $10,848,000. Common Units are convertible by their holders
into shares of common stock on a one-for-one basis, or into cash, at the
Company's option. The Common Units were issued pursuant to an exemption
from registration under Section 4(2) of the Securities Act in reliance,
in part, upon the representations and warranties set forth in the
acquisition agreements. Certain of these Common Units are subject to
registration rights and lock-up agreements which generally restrict the
disposition of the Common Units until the designated lock-up periods
expire.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 - Thirteenth Amendment to Second Amended and Restated Agreement
of Limited Partnership of Weeks Realty, L.P., dated August 7,
1998.
10.2 - Registration Rights and Lock-Up Agreement dated August 7,
1998, by and among Weeks Corporation and Ackerman & Co.
27.1 - Financial data schedule.
(b) Reports on Form 8-K
None
33
<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.
WEEKS CORPORATION
------------------------------------
(Registrant)
November 13, 1998 /s/ A.R. Weeks, Jr.
------------------------------------
A.R. Weeks, Jr.
Chairman of the Board and
Chief Executive Officer
November 13, 1998 /s/ David P. Stockert
------------------------------------
David P. Stockert
Senior Vice President and
Chief Financial Officer
34
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- -------------------------------------------------------------------------------
10.1 Thirteenth Amendment to Second Amended and Restated
Agreement of Limited Partnership of Weeks
Realty, L.P., dated August 7, 1998.
10.2 Registration Rights and Lock-Up Agreement dated
August 7, 1998, by and among Weeks Corporation and
Ackerman & Co.
27.1 Financial data schedule.
<PAGE>
EXHIBIT 10.1
THIRTEENTH AMENDMENT
TO THE
SECOND AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
WEEKS REALTY, L.P.
THIS THIRTEENTH AMENDMENT TO THE SECOND AMENDED AND RESTATED AGREEMENT OF
LIMITED PARTNERSHIP OF WEEKS REALTY, L.P. (the "Amendment") is entered into as
of the 7th day of August, 1998, by and among WEEKS GP HOLDINGS, INC., a Georgia
corporation (the "General Partner"), WEEKS CORPORATION, a Georgia corporation
(the "Company"), and ACKERMAN & CO., a Georgia general partnership (the
"Contributor").
RECITALS
--------
Weeks Realty, L.P. (the "Partnership") is a Georgia limited partnership.
The General Partner is the sole general partner of the Partnership and is a
wholly owned subsidiary of the Company. The partnership agreement of the
Partnership is that certain Second Amended and Restated Agreement of Limited
Partnership of Weeks Realty, L.P., dated as of October 30, 1996, as amended by
the First Amendment to the Partnership Agreement dated November 1, 1996, the
Second Amendment to the Partnership Agreement dated December 31, 1996, the Third
Amendment to the Partnership Agreement dated January 31, 1997, the Fourth
Amendment to the Partnership Agreement dated August 1, 1997, the Fifth Amendment
to the Partnership Agreement dated October 7, 1997, the Sixth Amendment to the
Partnership Agreement dated October 27, 1997 , the Seventh Amendment to the
Partnership Agreement dated as of December 30,1997 and effective as of August 1,
1997, the Eighth Amendment to the Partnership Agreement dated January 9, 1998,
the Ninth Amendment to the Partnership Agreement dated January 22, 1998, the
Tenth Amendment to the Partnership Agreement dated April 3, 1998, the Eleventh
Amendment to the Partnership Agreement dated May 26, 1998, and the Twelfth
Amendment to the Partnership Agreement dated June 3, 1998 (the "Partnership
Agreement"). Capitalized terms used herein without definition shall have the
meanings ascribed to them in the Partnership Agreement.
Pursuant to the agreements and instruments listed or referred to on Exhibit
-------
A hereto (the ("Transaction Documents"), and the transactions effected by the
- -
Transaction Documents, effective as of the date hereof the Contributor has
contributed, directly or indirectly, certain properties to the capital of the
Partnership.
Pursuant to the Partnership Agreement (including, without limitation,
Section 9.3 and Section 15.7(b)(ii) thereof), the General Partner is authorized
(without the consent of any Limited
1
<PAGE>
Partner) to admit additional Limited Partners to the Partnership for such
Capital Contributions as are determined by the General Partner to be
appropriate, and to amend the Partnership Agreement to reflect such admissions.
The General Partner wishes to amend the Partnership Agreement as set forth
herein to reflect the admission of the Contributor as a Limited Partner of the
Partnership, and the Contributor wishes to enter into this Amendment to
memorialize its agreement as to certain matters relating to its becoming a
Limited Partner of the Partnership.
AGREEMENT
---------
In consideration of the circumstances referred to in the Recitals, the
consummation of the transactions effected pursuant to the Transaction Documents,
the mutual covenants and agreements contained herein, and other good and
valuable consideration, the receipt, adequacy and sufficiency of which are
hereby acknowledged, the parties hereto, intending to be legally bound, hereby
agree as follows:
1. Admission. The Contributor is hereby admitted to the Partnership as a
---------
Limited Partner, effective as of the date hereof, and hereby agrees to be bound
by the Partnership Agreement, including, but not limited to, the transfer
restrictions contained in Article IX thereof.
2. Capital Contributions. The Contributor has agreed to have made, as of
---------------------
the date hereof, the Capital Contribution set forth on Exhibit B hereto. The
---------
agreed to gross fair market values of any property other than money contributed
by the Contributor, which shall be such property's initial Gross Asset Value, is
shown on Exhibit B.
---------
3. Initial Partnership Units; Rights.
---------------------------------
(a) The Partnership Units attributable to the Partnership Interest of
the Contributor, effective upon its admission as a Limited Partner at the
date hereof, is as set forth on Exhibit B hereto, and the Partnership
---------
Agreement is hereby amended to reflect the Contributor having such
Partnership Units.
(b) The Partnership does hereby grant to the Contributor, and
Contributor hereby accepts, the right, but not the obligation (herein such
rights being sometimes referred to as the "Rights"), to require the
Partnership to redeem all or a portion of the Partnership Units issued to
it pursuant to the Transaction Documents, on the terms and subject to the
conditions and restrictions contained in Exhibit D hereto. The Rights are
---------
governed solely by this Amendment and Exhibit D hereto, and the Contributor
---------
shall not have any rights with respect to the "Rights" provided for in
Section 11.1 and Exhibit B-1 to the Partnership Agreement. The Rights
-----------
granted hereunder may be exercised by the Contributor, on the terms and
subject to the conditions and restrictions contained in Exhibit D hereto,
---------
upon delivery to the Partnership of a Conversion Exercise Notice, in the
form of Schedule 1 attached to Exhibit D, which notice shall specify the
---------
Partnership
2
<PAGE>
Units with respect to which the Rights are being exercised. Once
delivered, the Conversion Exercise Notice shall be irrevocable, subject to
compliance by the General Partner and the Partnership with the terms of the
Rights.
4. Restated Percentage Interests. After giving effect to the admission of
-----------------------------
the Contributor as a Limited Partner at the date hereof, the Percentage Interest
of the Contributor has been reflected on Exhibit C hereto, and the Partnership
---------
Agreement is hereby amended accordingly.
5. INTENTIONALLY OMITTED.
6. Tax Considerations. In the event that Contributor elects to receive
------------------
Units hereunder, the General Partner will agree for the benefit of Contributor
that during the five-year period commencing on the date hereof, the General
Partner shall agree that (i) in the event it elects to cause the Partnership to
sell or otherwise convey any of the properties contributed to the Partnership
pursuant to this Agreement (each, a "Contributed Property"), the General Partner
will endeavor to structure any such sale or conveyance of a Contributed Property
as a tax-deferred like-kind exchange under section 1031 of the Code to the
extent such sale or conveyance would result in the recognition of gain for
federal income tax purposes by the Contributor, and (ii) the General Partner
will endeavor not to pay down or otherwise reduce (other than through regularly
scheduled payments of principal and interest) the amount of nonrecourse
indebtedness to which a Contributed Property is subject, to the extent that such
reduction would cause the Contributor to recognize gain for federal income tax
purposes. The foregoing sentence shall not apply to gain recognized by the
Contributor as a result of cash distributions made by the Partnership in the
ordinary course of its operations subsequent to any such reduction in
nonrecourse indebtedness. Notwithstanding the foregoing, the General Partner
shall have the right to sell Contributed Properties in one or more transactions
taxable in whole or in part, or to pay down or refinance nonrecourse debt
secured by a Contributed Property, if the General Partner determines, in good
faith, that such action is in the best economic interest of the Partnership and
the Partners (without taking into account the tax consequences of such action on
the Contributor), and, in such event, the General Partner agrees to provide
reasonable advance notice to the Contributor of such actions and to cooperate
with the Contributor in avoiding, to the extent feasible, any substantial
adverse federal income tax consequences to the Contributor resulting from such
actions (including, for example, by allowing the Contributor to assume deficit
capital account responsibility or by facilitating guarantees of other
Partnership nonrecourse indebtedness by the Contributor).
7. Proration of Distributions. Notwithstanding any contrary provision of
--------------------------
the Partnership Agreement, including, without limitation, Section 6.2 thereof,
the Contributor agrees that the distribution of Net Operating Cash Flow made for
the calendar quarter in which the Partnership Units are issued, by reason of
each Capital Contribution made pursuant to the Transaction Documents shall be
equal to the amount of Net Operating Cash Flow otherwise distributable with
respect to such Partnership Units under the terms of the Partnership
3
<PAGE>
Agreement, multiplied by a fraction, the numerator of which is the number of
calendar days beginning on the date of issuance of the Partnership Units and
ending on the last day of such calendar quarter and the denominator of which is
the total number of days in the calendar quarter in which the Partnership Units
are issued.
8. Representations and Warranties.
------------------------------
(a) Contributor's Representations. The Contributor hereby reaffirms
-----------------------------
and makes to each of the Partnership and the General Partner those
representations and warranties made by Cobb Investors, Ltd. in the
Contribution Agreement identified in Exhibit A attached hereto. In
---------
addition, the Contributor hereby represents and warrants to the Partnership
and the General Partner that (i) the Contributor is acquiring the
Partnership Units for the Contributor's own account and not with a view to,
or for sale in connection with, the "distribution," as such term is used in
Section 2(11) of the Securities Act of 1933, as amended (the "Securities
Act"), of any of the Partnership Units in violation of the Securities Act;
(ii) the Contributor is an "accredited investor," as that term is defined
in Rule 501(a) of Regulation D promulgated under the Securities Act; (iii)
the Contributor understands that the Partnership Units have not been
registered under the Securities Act by reason of a specific exemption from
the registration provisions of the Securities Act which depends upon, among
other things, the nature of the investment intent and the accuracy of the
Contributor's representations as expressed herein; (iv) the Contributor has
had an opportunity to discuss the Partnership's business, management and
financial affairs with the Partnership's management and the opportunity to
review the Partnership's financial records; (v) the Contributor understands
and acknowledges that no public market now exists for any of the
Partnership Units and that there can be no assurance that a public market
will ever exist for the Partnership Units; and (vi) the Contributor has
such knowledge and experience in financial and business matters, or has
been adequately advised by the Contributor's financial representatives,
that the Contributor is capable of evaluating the merits and risks of the
purchase of the Partnership Units pursuant to this Agreement and of
protecting the Contributor's interests in connection herewith.
(b) No Liens. The Contributor represents and warrants to the
--------
Partnership and the General Partner that at the date hereof none of the
Partnership Units issued or issuable to the Contributor pursuant to the
Transaction Documents, and none of the shares of Common Stock that may be
acquired by the Contributor upon exercise of Rights, is subject to any
Lien, other than the security interest created by paragraph 11 hereof.
(c) Definition. All of the representations, warranties, covenants and
----------
agreements of the Contributor referred to in this paragraph 8 are referred
to collectively as the "Representations and Warranties."
(d) General Partner Representations. The General Partner represents
-------------------------------
and warrants to the Contributor as follows:
4
<PAGE>
(i) Organization. The General Partner is duly incorporated,
------------
validly existing and in good standing under the laws of the State of
Georgia.
(ii) Due Authorization; Binding Agreement. The execution,
------------------------------------
delivery and performance of this Amendment by the General Partner have
been duly and validly authorized by all necessary action of the
General Partner and the Partnership. This Amendment has been duly
executed and delivered by the General Partner and constitutes a legal,
valid and binding obligation of the General Partner and the
Partnership, enforceable against the General Partner and the
Partnership in accordance with the terms hereof.
(iii) Consents and Approvals. No consent, waiver, approval or
----------------------
authorization of, or filing, registration or qualification with, or
notice to, any governmental unit or any other Person is required to be
made, obtained or given by the General Partner in connection with the
execution, delivery and performance of this Amendment, other than
consents, waivers, approvals or authorizations that have been obtained
prior to the date hereof.
(iv) Partnership Units. The Partnership Units issued pursuant
-----------------
to the Transaction Documents are duly authorized and, when issued in
accordance with the Transaction Documents, will be duly issued, fully
paid and nonassessable and will be unencumbered except for the
security interest created by paragraph 11 hereof.
9. Survival of Representations and Warranties. All of the Representations
------------------------------------------
and Warranties shall survive the consummation of the transactions contemplated
by the Transaction Documents; provided, however, that no claim for a breach of
any Representation or Warranty may be maintained by the Partnership, the Company
or the General Partner unless the Partnership, the Company or the General
Partner shall have delivered a written notice ("Notice of Breach") specifying
the details of such claimed breach to the respective Contributor or before the
first anniversary of the last issuance of Units pursuant to the Transaction
Documents (the "Survival Period").
10. Indemnification.
---------------
(a) The Contributor hereby agrees to indemnify and hold harmless the
Partnership, the Company and the General Partner against and from all
liabilities, demands, claims, actions or causes of action, assessments,
losses, fines, penalties, costs, damages and expenses (including, without
limitation, reasonable attorneys' and accountants' fees and expenses
actually incurred) sustained or incurred by the Partnership, the Company or
the General Partner as a result of or arising out of any inaccuracy in or
breach of a Representation or Warranty.
5
<PAGE>
(b) The Partnership, the Company and the General Partner shall not be
entitled to indemnification hereunder unless a Notice of Breach has been
delivered by the Partnership, the Company or the General Partner to the
Contributor.
(c) If a claim for indemnification is asserted by the Partnership, the
Company or the General Partner against the Contributor, the Contributor
shall have the right, at its own expense, to participate in the defense of
any claim, action or proceeding asserted against the Partnership, the
Company or the General Partner that resulted in the claim for
indemnification, and if such right is exercised, the parties shall
cooperate in the defense of such action or proceeding.
(d) Indemnification of the Partnership, the Company and the General
Partner pursuant to this paragraph 10 shall be the exclusive remedy of the
Partnership, the Company and the General Partner for any breach of any
Representation or Warranty contained in this contained in this Agreement.
Nothing contained herein shall limit any remedy the Partnership (or any
affiliate of the Partnership including, without limitation, any affiliate
of the Partnership as determined with respect to the voting or economic
control held by or in the Partnership) may have under the Transaction
Documents, including, without limitation, the remedy of specific
performance for any failure by the Contributor to contribute the property
or otherwise limit any remedy the Partnership, the Company or the General
Partner may have for any commission of fraud made by the Contributor.
11. Security and Remedies.
---------------------
(a) The Contributor hereby grants to the Partnership a lien upon and a
continuing security interest in the Partnership Units issued to it pursuant
to the Transaction Documents and the shares of Common Stock acquired by it
upon exercise of Rights with respect to such Partnership Units (the
"Collateral"), which shall be security for the indemnification obligations
of the Contributor under paragraph 10 hereof. Except as otherwise provided
in this Amendment, the indemnification obligations of the Contributor
hereunder with respect to breaches of Representations and Warranties shall
be payable out of the Contributor's entire Collateral; provided, however,
that the Contributor may satisfy all or any part of such indemnification
obligation of the Contributor in cash if the Contributor so elects. Any
Transfer by the Contributor of its Collateral shall be subject to the lien
and security interest granted hereby.
(b) In the event the General Partner asserts that the Contributor has
an indemnification obligation to the Partnership, the Company or the
General Partner under paragraph 10 hereof, the General Partner shall
deliver written notice (the "Indemnification Notice") to the Contributor
describing in reasonable detail the circumstances giving rise to such
obligation and the amount thereof. If, within thirty (30) days after the
receipt of an Indemnification Notice, the Contributor delivers written
notice to the General Partner indicating that the Contributor disputes the
circumstances giving rise to or the amount of
6
<PAGE>
such claimed indemnification obligation, the General Partner may submit
such matter for binding arbitration in accordance with the provisions of
Article XIV of the Partnership Agreement by delivering a Demand Notice to
the Contributor pursuant to such Article XIV. If, after receiving timely
notice of a dispute hereunder from the Contributor, the General Partner
fails to so submit the matter for arbitration within twenty (20) days after
receipt of such notice from the Contributor, then the Contributor shall be
relieved of the claimed indemnification obligation described in the
Indemnification Notice. In the event the Contributor (i) receives an
Indemnification Notice and fail to timely deliver notice to the General
Partner of its dispute as to the indemnification obligation and fails to
make payment within thirty (30) days after delivery of an Indemnification
Notice or (ii) has an indemnification obligation to the Partnership or the
General Partner under paragraph 10 hereof as determined pursuant to Article
XIV of the Partnership Agreement, and does not satisfy such obligation
within ten (10) days after the decision rendered in the arbitration, then,
in either event, the Partnership shall have any and all remedies of a
secured creditor under the Uniform Commercial Code, and, in addition
thereto, at the election of the Partnership, the Partnership shall, to the
extent permitted by law, be deemed, without the payment of any further
consideration or the taking of any further action required by the
Contributor, to have acquired from the Contributor such portion of the
Collateral as shall be equal in value (based, in the case of Partnership
Units, on the Current Per Share Market Price as computed as of the date
immediately preceding such deemed acquisition of the number of shares of
Common Stock for which such Partnership Units could be redeemed if the
General Partner assumed the redemption obligation and elected to pay the
Redemption Price (as defined in Exhibit D) in shares of Common Stock
---------
(assuming the ownership limits in the Articles of Incorporation would not
prohibit the issuance of any such shares of Common Stock to the
Contributor), and, in the case of shares of Common Stock, on the Current
Per Share Common Stock Price computed as of the date immediately preceding
such deemed acquisition) to the amount recoverable from the Contributor
under paragraph 10 hereof. In the event the Partnership shall have
acquired from the Contributor any Collateral pursuant to this paragraph 11,
the General Partner shall deliver written notice to the Contributor within
ten (10) days thereafter identifying the specific Collateral acquired and,
if such Collateral consists of Partnership Units, the Percentage Interests
of the Contributor following such acquisition. Unless and until the
Partnership shall have acquired from the Contributor any Collateral
pursuant to this paragraph 11, the Contributor shall retain all rights with
respect to the Collateral not expressly limited herein or in the
Partnership Agreement, including, without limitation, rights to
distributions provided for in the Partnership Agreement and rights to
dividends on shares of Common Stock. The Contributor hereby agrees to take
any and all actions and to execute and deliver any and all documents or
instruments necessary to perfect the security interest created by this
Amendment, including delivering the certificates representing the
Partnership Units or shares of Common Stock to the General Partner.
(c) On the first day immediately following the expiration of the
Survival Period as defined in paragraph 9 hereof (or, if a Notice of Breach
has been delivered to the Contributor prior to such date, then on the first
day immediately following the
7
<PAGE>
resolution of such Notice of Breach) the Contributor will be relieved of
the restrictions on transferability provided for by this Amendment (except
that the transfer restrictions contained in the Partnership Agreement shall
continue) and the security interest in the Collateral shall terminate
without further action, and the Partnership, at the request of the
Contributor, shall promptly execute and deliver any document or instrument
reasonably requested by the Contributor to evidence such termination.
12. Recourse. Notwithstanding anything contained in this Amendment or in
--------
the Partnership Agreement to the contrary, the recourse of the General Partner,
the Company or the Partnership under paragraph 10 hereof with respect to
breaches of Representations and Warranties of the Contributor shall not be
limited to the Contributor's Collateral.
13. Restriction on Transfer. In connection with the security interests
-----------------------
granted by the Contributor under paragraph 11 hereof, the Contributor agrees
that any shares of Common Stock and any portion of the Contributor's Partnership
Interests included in the Collateral shall not be Transferred without the
consent of the General Partner; provided, however, that the Contributor may
Transfer all or any portion of such shares of Common Stock or Partnership
Interests to an Affiliate of such person (so long as such Affiliate remains an
Affiliate of such person), subject to the prior security interest granted in
paragraph 11 hereof and to the restrictions contained in Article IX of the
Partnership Agreement. Upon exercise of the Rights with respect to any
Partnership Units included in the Contributor's Collateral, the Partnership, in
perfection of the security interest herein granted, shall retain the
certificate(s) representing the portion of the Common Stock issued upon such
exercise that is included in such Collateral. If any portion of the Partnership
Interests of Contributor included in Contributor's Collateral is represented by
certificates, the Partnership shall retain such certificates in perfection of
the security interest herein granted. On the first day immediately following
the expiration of the Survival Period as defined in paragraph 9 hereof (or, if a
Notice of Breach has been delivered to the Contributor prior to such date, then
on the first day immediately following the resolution of such Notice of Breach)
the Contributor will be relieved of the restrictions on transferability provided
for by this paragraph 13 without further action, and the Partnership, at the
request of the Contributor, shall promptly execute and deliver any document or
instrument reasonably requested by the Contributor to evidence such termination.
14. Miscellaneous. This Amendment shall be governed by and construed in
-------------
conformity with the laws of the State of Georgia. For the purposes of the
notice provisions of the Partnership Agreement, the address of the Contributor
is as set forth on the signature page hereof. Except as expressly amended
hereby, the Partnership Agreement shall remain in full force and effect. This
Amendment and all the terms and provisions hereof shall be binding upon and
shall inure to the benefit of the parties, and their legal representatives,
heirs, successors and permitted assigns.
8
<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this Amendment
as of the date first above written.
WEEKS GP HOLDINGS, INC., a Georgia
corporation, its Sole General Partner
By: /s/ Thomas D. Senkbeil
----------------------
Name: Thomas D. Senkbeil
Title: Vice Chairman and
Chief Investment Officer
Signatures continued on following page
9
<PAGE>
CONTRIBUTOR:
ACKERMAN & CO., a Georgia general
Partnership
By: Charles S. Ackerman & Co., Inc.,
a Georgia corporation, authorized
general partner
By: /s/ Charles S. Ackerman
-----------------------
Charles S. Ackerman, President
Address: c/o Ackerman & Co.
1040 Crown Pointe Parkway
Suite 200
Atlanta, Georgia 30338
Attn: Mr. Charles S. Ackerman
SOLELY TO EVIDENCE ITS AGREEMENT TO ITS
UNDERTAKINGS IN EXHIBIT D HERETO:
---------
WEEKS CORPORATION
By: /s/ Thomas D. Senkbeil
----------------------
Name: Thomas D. Senkbeil
Title: Vice Chairman and
Chief Investment Officer
10
<PAGE>
Exhibit 10.2
======================================
REGISTRATION RIGHTS AND LOCK-UP AGREEMENT
Dated as of August 7, 1998
by and among
WEEKS CORPORATION
and
ACKERMAN & CO.
-----------------------------------
1
<PAGE>
REGISTRATION RIGHTS AND LOCK-UP AGREEMENT
THIS REGISTRATION RIGHTS AND LOCK-UP AGREEMENT (this "Agreement") is made
and entered into as of the 7th day of August, 1998 by and among WEEKS
CORPORATION, a Georgia corporation (the "Company"), ACKERMAN & CO., a Georgia
general partnership (the "Holder"), and CHARLES S. ACKERMAN, an individual
resident of the State of Georgia ("Ackerman").
WHEREAS, this Agreement is made pursuant to the Contribution Agreement by
and between Weeks Realty, L.P., a Georgia limited partnership (the "Operating
Partnership"), and the Contributor as the general partner of Cobb Investors,
Ltd., a Georgia limited partnership (as therein defined) dated June 3, 1998 (the
"Contribution Agreement");
WHEREAS, the Holder will become the owner of Units (as defined below) in
the Operating Partnership in connection with the transactions described in the
Contribution Agreement;
WHEREAS, Ackerman beneficially owns, directly or indirectly, all of the
general partnership interests in the Holder;
WHEREAS, in order to induce the Company and the Operating Partnership to
enter into the transactions described in the Contribution Agreement, each of the
Holder and Ackerman has agreed to the Holder Lock-up (as defined below) set
forth in Section 2 hereof; and
WHEREAS, in order to induce the Holder to enter into the transactions
described in the Contribution Agreement, the Company has agreed, with respect to
the Units issued pursuant to the Contribution Agreement to provide the Holder
with the registration rights set forth in Section 3 hereof;
NOW, THEREFORE, the parties hereto, in consideration of the foregoing, the
mutual covenants and agreements hereinafter set forth, and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, agree as follows:
1. Definitions.
-----------
As used in this Agreement, the following capitalized defined terms shall
have the following meanings:
"Common Stock" shall mean the Common Stock, par value $.01 per share, of
------------
the Company.
"Company" shall have the meaning set forth in the Preamble and also shall
-------
include the Company's successors.
2
<PAGE>
"Contribution Agreement" shall have the meaning set forth in the Preamble.
----------------------
"Control" shall mean the ability, whether by the direct or indirect
-------
ownership of shares or other equity interests, by contract or otherwise, to
select a majority of the directors of a corporation, to select the managing
partner of a partnership, to select the manager of a limited liability company
or otherwise to select, or have the power to remove and then select, a majority
of those persons exercising governing authority over an Entity. In the case of
a limited partnership, the sole general partner, each of the general partners
that has equal management control and authority, or the designated managing
general partner or managing general partners thereof shall be deemed to have
control of such partnership. In the case of a trust, any trustee thereof or any
Person having the right to select any such trustee shall be deemed to have
control of such trust.
"Dispose of" shall have the meaning set forth in Section 2 hereof.
----------
"Entity" shall mean any general partnership, limited partnership,
------
corporation, limited liability company, joint venture, trust, business trust,
cooperative or association.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended
------------
from time to time.
"Holder" shall have the meaning set forth in the Preamble.
------
"Holder Lock-up" shall have the meaning set forth in Section 2 hereof.
--------------
"Holder Lock-up Period" shall have the meaning set forth in Section 2
---------------------
hereof.
"NASD" shall mean the National Association of Securities Dealers, Inc.
----
"Operating Partnership" shall have the meaning set forth in the Preamble
---------------------
and also shall include the Operating Partnership's successors and assigns.
"Partnership Agreement" shall mean the Second Amended and Restated
---------------------
Agreement of Limited Partnership of the Operating Partnership, as amended.
"Person" shall mean any individual or Entity.
------
"SEC" shall mean the Securities and Exchange Commission.
---
"Securities Act" shall mean the Securities Act of 1933, as amended from
--------------
time to time.
3
<PAGE>
"Selling Expenses" shall mean all underwriting discounts and selling
----------------
commissions and transfer taxes applicable to the sale of Shelf Registrable
Securities and disbursements of underwriters.
"Shares" shall mean any Common Stock issued or issuable to the Holder upon
------
the redemption of Units.
"Shelf Prospectus" shall mean the prospectus included in the Shelf
----------------
Registration Statement, including any preliminary prospectus, and any amendment
or supplement thereto, including any supplement relating to the terms of the
offering of any portion of the Shelf Registrable Securities covered by the Shelf
Registration Statement, and in each case including all material incorporated by
reference therein.
"Shelf Registration" shall mean a registration required to be effected
------------------
pursuant to Section 3 hereof.
"Shelf Registrable Securities" shall mean the Shares held by the Holder,
----------------------------
excluding (i) Shares that have been registered under any other effective
registration statement, (ii) Shares sold or otherwise transferred pursuant to
Rule 144 under the Securities Act, and (iii) Shares held by the Holder if all of
such Shares are eligible for sale pursuant to Rule 144 under the Securities Act
and could be sold in one transaction in accordance with the volume limitations
contained in Rule 144(e)(1)(i) under the Securities Act.
"Shelf Registration Expenses" shall mean any and all expenses incident to
---------------------------
performance of or compliance with this Agreement, including, without limitation:
(i) all SEC, stock exchange and NASD registration and filing fees, (ii) all fees
and expenses incurred in connection with compliance with state securities or
"blue sky" laws (including reasonable fees and disbursements of counsel in
connection with qualification of any of the Shelf Registrable Securities under
any state securities or blue sky laws and the preparation of a blue sky
memorandum) and compliance with the rules of the NASD, (iii) all expenses of any
Persons in preparing or assisting in preparing, word processing, printing and
distributing the Shelf Registration Statement, any Shelf Prospectus,
certificates and other documents relating to the performance of and compliance
with this Agreement, (iv) all fees and expenses incurred in connection with the
listing, if any, of any of the Shelf Registrable Securities on any securities
exchange or exchanges pursuant to Section 4(l) hereof, (v) the fees and
disbursements of counsel for the Company and of the independent public
accountants of the Company, including the expenses of any special audits or
"cold comfort" letters required by or incident to such performance and
compliance, and (vi) all other costs and expenses normally associated with the
issuance and sale of newly issued public securities other than Selling Expenses.
4
<PAGE>
"Shelf Registration Notice" shall have the meaning set forth in Section
-------------------------
4(b) hereof.
"Shelf Registration Statement" shall mean a registration statement of the
----------------------------
Company (and any other entity required to be a registrant with respect to such
registration statement pursuant to the requirements of the Securities Act) that
covers all of the Shelf Registrable Securities to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act, or any similar
rule that may be adopted by the SEC, and all amendments (including post-
effective amendments) to such registration statement, and all exhibits thereto
and materials incorporated by reference therein.
"Units" shall mean the limited partnership interests of the Operating
-----
Partnership issued to the Holder pursuant to the Contribution Agreement, which
interests are redeemable for Common Stock, or at the Operating Partnership's
option, cash.
2. Lock-Up Agreement.
-----------------
(a) Lock-up for Holder. Holder hereby agrees that with respect to all
------------------
Units issued pursuant to the Contribution Agreement from the date of issuance of
each Unit until the first anniversary of the date of each such issuance, without
the prior written consent of the Company, such Holder will not offer, sell,
contract to sell, distribute, redeem, convert or otherwise dispose of
(collectively, "Dispose of"), directly or indirectly, to any Person any such
Units (collectively, the lock-ups are referred to as the "Holder Lock-up" and
the lock-up periods are referred to as the "Holder Lock-up Period").
(b) Lock-up of the Beneficial Interest Held by Charles S. Ackerman in the
---------------------------------------------------------------------
Holder. Charles S. Ackerman hereby agrees that until the first anniversary of
- ------
the last issuance of Units to the Holder under the Contribution Agreement which
are subject to the lock-up contained in Section 2(a) hereof, without the prior
written consent of the Company, such individual will not Dispose of, directly or
indirectly, any beneficial ownership interest that such individual holds in the
Holder, except that the foregoing restriction will not be applicable to Charles
S. Ackerman in the event of his death.
3. Shelf Registration Under the Securities Act for the Benefit of the
------------------------------------------------------------------
Holder.
------
(a) Filing of Shelf Registration Statement. Following the expiration of
--------------------------------------
the Holder Lock-up Period, the Company shall cause to be filed during the third
quarter of each calendar year, or as soon as practicable thereafter, a Shelf
Registration Statement providing for the sale by the Holder of all Shelf
Registrable Securities, not theretofore registered, in accordance with the terms
hereof and will use its reasonable and diligent efforts to cause such Shelf
Registration Statement to be declared effective by the SEC as soon as
practicable thereafter. The Company agrees to use its reasonable and diligent
efforts to keep the Shelf Registration Statement with respect to the Shelf
Registrable Securities continuously effective so long as the Holder holds
5
<PAGE>
such Shelf Registrable Securities. Subject to Section 4(b) and Section 4(i), the
Company further agrees to amend the Shelf Registration Statement if and as
required by the rules, regulations or instructions applicable to the
registration form used by the Company for such Shelf Registration Statement or
by the Securities Act or any rules and regulations thereunder; provided,
--------
however, that the Company shall not be deemed to have used its
- -------
reasonable and diligent efforts to keep the Shelf Registration Statement
effective during the applicable period if it voluntarily takes any action that
would result in the Holder not being able to sell Shelf Registrable Securities
covered thereby during that period, unless such action is required under
applicable law or the Company has filed a post-effective amendment (other than
one which removes Shelf Registrable Securities from effective registration under
the Securities Act) to the Shelf Registration Statement and the SEC has not
declared it effective or except as otherwise permitted by the last three
sentences of Section 4(b).
(b) Expenses. The Company shall pay all Shelf Registration Expenses in
--------
connection with each registration pursuant to Section 3(a). Holder shall pay
all Selling Expenses and the fees and disbursements of counsel representing
Holder, if any, relating to the sale or disposition of such Shelf Registrable
Securities pursuant to the Shelf Registration Statement.
(c) Inclusion in Shelf Registration Statement. If Holder does not
-----------------------------------------
provide the information reasonably requested by the Company in connection with
the Shelf Registration Statement as promptly as practicable after receipt of
such request, but in no event later than ten (10) days thereafter, it shall not
be entitled to have its Shelf Registrable Securities included in the Shelf
Registration Statement.
4. Shelf Registration Procedures.
-----------------------------
In connection with the obligations of the Company with respect to each
Shelf Registration Statement contemplated by Section 3 hereof, the Company
shall:
(a) prepare and file with the SEC, within the time period set forth
in Section 3 hereof, the Shelf Registration Statement, which Shelf
Registration Statement (i) shall be available for the sale of the Shelf
Registrable Securities in accordance with the intended method or methods
of distribution by the Holder covered thereby and (ii) shall comply as to
form in all material respects with the requirements of the applicable form
and include all financial statements required by the SEC to be filed
therewith;
(b) subject to the last three sentences of this Section 4(b) and
Section 4(i) hereof, (i) prepare and file with the SEC such amendments to
such Shelf Registration Statement as may be necessary to keep such Shelf
Registration Statement effective for the applicable period; (ii) cause the
Shelf Prospectus to be amended or supplemented as required and to be filed
as required by Rule 424 or any similar rule that may be adopted under the
Securities Act; (iii) respond as promptly as practicable to any comments
received from the SEC with respect to the Shelf Registration Statement or
any
6
<PAGE>
amendment thereto; and (iv) comply with the provisions of the Securities
Act with respect to the disposition of all securities covered by such
Shelf Registration Statement during the applicable period in accordance
with the intended method or methods of distribution by the Holder covered
thereby. Notwithstanding anything to the contrary contained herein, the
Company shall not be required to take any of the actions described in
clauses (i), (ii) or (iii) in this Section 4(b), Section 4(d) or Section
4(i) with respect to the Shelf Registrable Securities (x) to the extent
that the Company is in possession of material non-public information that
it deems advisable not to disclose or is engaged in active negotiations or
planning for a merger or acquisition or disposition transaction and it
delivers written notice to the Holder to the effect that the Holder may
not make offers or sales under the Shelf Registration Statement for a
period not to exceed ninety (90) days from the date of such notice;
provided, however, that the Company may deliver only two such notices
-------- -------
within any twelve-month period, and (y) unless and until the Company has
received a written notice (a "Shelf Registration Notice") from the Holder
that it intends to make offers or sales under the Shelf Registration
Statement as specified in such Shelf Registration Notice; provided,
--------
however, that the Company shall have ten (10) business days to prepare and
-------
file any such amendment or supplement after receipt of the Shelf
Registration Notice. Once the Holder have delivered a Shelf Registration
Notice to the Company, Holder thereby shall promptly provide to the
Company such information as the Company reasonably requests in order to
identify the method of distribution in a post-effective amendment to the
Shelf Registration Statement or a supplement to the Shelf Prospectus.
Holder also shall notify the Company in writing upon completion of such
offer or sale or at such time as Holder no longer intend to make offers or
sales under the Shelf Registration Statement;
(c) after the Holder has delivered a Shelf Registration Notice to the
Company, furnish Holder covered thereby, without charge, as many copies of
each Shelf Prospectus and any amendment or supplement thereto in order to
facilitate the public sale or other disposition of the Shelf Registrable
Securities; the Company consents to the use of the Shelf Prospectus and
any amendment or supplement thereto by the Holder of Shelf Registrable
Securities in connection with the offering and sale of the Shelf
Registrable Securities covered by the Shelf Prospectus or amendment or
supplement thereto;
(d) use its reasonable and diligent efforts to register or qualify
the Shelf Registrable Securities by the time the Shelf Registration
Statement is declared effective by the SEC under all applicable state
securities or blue sky laws of such jurisdictions in the United States and
its territories and possessions as the Holder shall reasonably request in
writing, keep each such registration or qualification effective during the
period such Shelf Registration Statement is required to be kept effective
or during the period offers or sales are being made by the Holder after
they have delivered a Shelf Registration Notice to the Company, whichever
is shorter; provided, however, that in
-------- -------
7
<PAGE>
connection therewith, the Company shall not be required to (i) qualify as
a foreign corporation to do business or to register as a broker or dealer
in any such jurisdiction where it would not otherwise be required to
qualify or register but for this Section 4(d), (ii) subject itself to
taxation in any such jurisdiction where is not otherwise subject to
taxation, or (iii) file a general consent to service of process in any
such jurisdiction;
(e) notify the Holder promptly and confirm in writing, (i) when the
Shelf Registration Statement and any post-effective amendments thereto
have become effective, (ii) when any amendment or supplement to the Shelf
Prospectus has been filed with the SEC, (iii) of the issuance by the SEC
or any state securities authority of any stop order suspending the
effectiveness of the Shelf Registration Statement or any part thereof or
the initiation of any proceedings for that purpose, (iv) if the Company
receives any notification with respect to the suspension of the
qualification of the Shelf Registrable Securities for offer or sale in any
jurisdiction or the initiation of any proceeding for such purpose, and (v)
of the happening of any event during the period the Shelf Registration
Statement is effective as a result of which (A) such Shelf Registration
Statement contains any untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary to make
the statements therein not misleading or (B) the Shelf Prospectus as then
amended or supplemented contains any untrue statement of a material fact
or omits to state any material fact necessary in order to make the
statements therein, in light of the circumstances under which they were
made, not misleading;
(f) make every reasonable effort to obtain the withdrawal of any
order suspending the effectiveness of the Shelf Registration Statement or
any part thereof as promptly as possible;
(g) after the Holder has delivered a Shelf Registration Notice to the
Company, furnish to Holder covered thereby, without charge, at least one
conformed copy of the Shelf Registration Statement and any post-effective
amendment thereto (without documents incorporated therein by reference or
exhibits thereto, unless requested);
(h) cooperate with selling Holder to facilitate the timely
preparation and delivery of certificates representing Shelf Registrable
Securities to be sold and not bearing any Securities Act legend; and
enable certificates for such Shelf Registrable Securities to be issued for
such numbers of shares as Holder may reasonably request at least two
business days prior to any sale of Shelf Registrable Securities;
(i) subject to the last three sentences of Section 4(b) hereof, upon
the occurrence of any event contemplated by clause (x) of Section 4(b) or
clause (v) of Section 4(e) hereof, use its reasonable and diligent efforts
promptly to prepare and file an amendment or a supplement to the Shelf
Prospectus or any document incorporated therein by reference or prepare,
file and obtain effectiveness of a post-effective
8
<PAGE>
amendment to the Shelf Registration Statement, or file any other required
document, in any such case to the extent necessary so that, as thereafter
delivered to the purchasers of the Shelf Registrable Securities, such
Shelf Prospectus as then amended or supplemented will not contain any
untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they are made, not misleading;
(j) after the Holder has provided a Shelf Registration Notice to the
Company, make available for inspection by Holder covered thereby and any
counsel, accountants or other representatives retained by Holder all
financial and other records, pertinent corporate documents and properties
of the Company and cause the officers, directors and employees of the
Company to supply all such records, documents or information reasonably
requested by Holder, counsel, accountants or representatives in connection
with the Shelf Registration Statement; provided, however, that such
-------- -------
records, documents or information which the Company determines in good
faith to be confidential and notifies Holder, counsel, accountants or
representatives in writing that such records, documents or information are
confidential shall not be disclosed by such Holder, counsel, accountants
or representatives unless (i) such disclosure is ordered pursuant to a
subpoena or other order from a court of competent jurisdiction or
governmental agency, or (ii) such records, documents or information become
generally available to the public other than through a breach of this
Agreement;
(k) a reasonable time prior to the filing of any Shelf Registration
Statement or any amendment thereto, or any Shelf Prospectus or any
amendment or supplement thereto, provide copies of such document (not
including any documents incorporated by reference therein unless
requested) to Holder covered thereby after the Holder has provided a Shelf
Registration Notice to the Company;
(l) use its reasonable and diligent efforts to cause all Shelf
Registrable Securities to be listed on any securities exchange on which
similar securities issued by the Company are then listed;
(m) provide a CUSIP number for all Shelf Registrable Securities, not
later than the effective date of a Shelf Registration Statement; and
(n) use its reasonable efforts to make available to its security
holders, as soon as reasonably practicable, an earnings statement covering
at least 12 months which shall satisfy the provisions of Section 11(a) of
the Securities Act and Rule 158 thereunder or any similar rule as may be
adopted by the SEC.
9
<PAGE>
The Company may require Holder to furnish to the Company in writing such
information regarding the proposed distribution by Holder as the Company may
from time to time reasonably request in writing.
In connection with and as a condition to the Company's obligations with
respect to the Shelf Registration Statement pursuant to Section 3 hereof and
this Section 4, Holder covenants and agrees that (i) it will not offer or sell
any Shelf Registrable Securities under the Shelf Registration Statement until it
has provided a Shelf Registration Notice pursuant to Section 4(b) and has
received copies of the Shelf Prospectus as then amended or supplemented as
contemplated by Section 4(c) and notice from the Company that the Shelf
Registration Statement and any post-effective amendments thereto have become
effective as contemplated by Section 4(e); (ii) upon receipt of any notice from
the Company contemplated by Section 4(b) or Section 4(e) (in respect of the
occurrence of an event contemplated by clause (v) of Section 4(e)), such Holder
shall not offer or sell any Shelf Registrable Securities pursuant to the Shelf
Registration Statement until Holder receives copies of the supplemented or
amended Shelf Prospectus contemplated by Section 4(i) hereof and receives notice
that any post-effective amendment has become effective, and, if so directed by
the Company, Holder will deliver to the Company (at the expense of the Company)
all copies in its possession, other than permanent file copies then in Holder's
possession, of the Shelf Prospectus as amended or supplemented at the time of
receipt of such notice; (iii) all offers and sales by Holder under the Shelf
Registration Statement shall be completed within sixty (60) days after the first
date on which offers or sales can be made pursuant to clause (i) above, and upon
expiration of such sixty (60) day period, Holder will not offer or sell any
Shelf Registrable Securities under the Shelf Registration Statement until it has
again complied with the provisions of clause (i) above; (iv) Holder and any of
its beneficial owners, officers, directors or affiliates, if any, will comply
with the provisions of Regulation M promulgated by the SEC as applicable to them
in connection with sales of Shelf Registrable Securities pursuant to the Shelf
Registration Statement; (v) Holder and any of its beneficial owners, officers,
directors or affiliates, if any, will comply with the prospectus delivery
requirements of the Securities Act as applicable to them in connection with
sales of Shelf Registrable Securities pursuant to the Shelf Registration
Statement; and (vi) Holder and any of its beneficial owners, officers, directors
or affiliates, if any, will enter into such written agreements as the Company
shall reasonably request to ensure compliance with clause (iv) and (v) above.
5. Holdback Agreements. Holder agrees not to effect any public sale or
-------------------
distribution (including sales pursuant to Rule 144) of equity securities of the
Company, or any securities convertible into or exchangeable or exercisable for
such securities, during the 7 days prior to (provided that Holder receives a
notice from the Company of the commencement of such 7-day period) and the 90-day
period beginning on the effective date of any underwritten offering of
securities by the Company (except as part of such underwritten registration),
unless the underwriters managing the registered public offering otherwise agree.
10
<PAGE>
6. Indemnification; Contribution.
-----------------------------
(a) Indemnification by the Company. The Company agrees to indemnify and
------------------------------
hold harmless Holder and the beneficial owners, officers and directors and each
Person, if any, who controls Holder within the meaning of Section 15 of the
Securities Act as follows:
(i) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, to which Holder, or any beneficial owner,
officer, director or controlling Person may become subject under the
Securities Act or otherwise (A) that arise out of or are based upon any
untrue statement or alleged untrue statement of a material fact contained
in the Shelf Registration Statement or any amendment thereto, or the
omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not
misleading or (B) that arise out of or are based upon any untrue statement
or alleged untrue statement of a material fact contained in any Shelf
Prospectus or any amendment or supplement thereto, or the omission or
alleged omission to state therein a material fact necessary in order to
make the statements therein, in the light of the circumstances under which
they were made, not misleading;
(ii) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim
whatsoever based upon any such untrue statement or alleged untrue
statement or any omission or alleged omission, if such settlement is
effected with the written consent of the Company; and
(iii) subject to the limitations set forth in Section 6(c),
against any and all expense whatsoever, as incurred (including reasonable
fees and disbursements of counsel), reasonably incurred in investigating,
preparing or defending against any litigation, or investigation or
proceeding by any governmental agency or body, commenced or threatened, in
each case whether or not a party, or any claim whatsoever based upon any
such untrue statement or alleged untrue statement or omission or alleged
omission, to the extent that any such expense is not paid under
subparagraph (i) or (ii) above;
provided, however, that the indemnity provided pursuant to this Section 6(a)
- -------- -------
shall not apply with respect to any loss, liability, claim, damage or expense
that arise out of or are based upon any untrue statement or alleged untrue
statement or omission or alleged omission made in reliance upon and in
conformity with written information furnished to the Company by Holder (i)
expressly for use in the Shelf Registration Statement or any amendment thereto,
or the Shelf Prospectus or any amendment or supplement thereto or (ii) pursuant
to any representation,
11
<PAGE>
warranty or other statement contained in the Contribution Agreement or any
admission amendment to the Partnership Agreement.
(b) Indemnification by the Holder. Holder agrees to indemnify and hold
-----------------------------
harmless the Company, and each of its respective directors and officers
(including each director and officer of the Company who signed the Shelf
Registration Statement), and each Person, if any, who controls the Company
within the meaning of Section 15 of the Securities Act, to the same extent as
the indemnity contained in Section 6(a) hereof, but only insofar as such loss,
liability, claim, damage or expense arises out of or is based upon any untrue
statement or alleged untrue statement or omission or alleged omission made in
the Shelf Registration Statement or any amendment thereto, or the Shelf
Prospectus or any amendment or supplement thereto, in reliance upon and in
conformity with written information furnished to the Company by Holder expressly
for use therein. In no event, however shall the liability of Holder exceed the
cumulative net proceeds received by Holder from any offering made in connection
with a Shelf Registration Statement.
(c) Conduct of Indemnification Proceedings. Each indemnified party shall
--------------------------------------
give reasonably prompt notice to each indemnifying party of any action or
proceeding commenced against it in respect of which indemnity may be sought
hereunder, but failure to so notify an indemnifying party (i) shall not relieve
it from any liability which it may have under the indemnity agreement provided
in Section 6(a) or (b) above, unless and to the extent it did not otherwise
learn of such action and the lack of notice by the indemnified party materially
prejudices the indemnifying party or results in the forfeiture by the
indemnifying party of substantial rights and defenses and (ii) shall not, in any
event, relieve the indemnifying party from any obligations to any indemnified
party other than the indemnification obligation provided under Section 6(a) or
(b) above. After receipt of such notice, the indemnifying party shall be
entitled to participate in and, to the extent it shall wish, jointly with any
other indemnifying party so notified, to assume the defense of such action or
proceeding at such indemnifying party's own expense with counsel chosen by such
indemnifying party and approved by the indemnified party, which approval shall
not be unreasonably withheld; provided, however, that, if the defendants in any
-------- -------
such action or proceeding include both the indemnified party and the
indemnifying party and the indemnified party reasonably determines, upon advice
of counsel, that a conflict of interest exists or that there may be legal
defenses available to it or other indemnified parties that are different from or
in addition to those available to the indemnifying party, then the indemnified
party shall be entitled to separate counsel (which shall be limited to a single
law firm), the reasonable fees and expenses of which shall be paid by the
indemnifying party. If the indemnifying party does not assume the defense of
any such action or proceeding, after having received the notice referred to in
the first sentence of this paragraph, the indemnifying party will pay the
reasonable fees and expenses of counsel (which shall be limited to a single law
firm) for the indemnified party. In such event, however, the indemnifying party
will not be liable for any settlement effected without the written consent of
such indemnifying party. If the indemnifying party assumes the defense of any
such action or proceeding in accordance with this paragraph, such indemnifying
party shall not be liable for any fees and expenses of counsel for the
12
<PAGE>
indemnified party incurred thereafter in connection with such action or
proceeding, except as set forth in the proviso in the second sentence of this
Section 6(c).
(d) Contribution. In order to provide for just and equitable contribution
------------
in circumstances in which the indemnity agreement provided for in this Section 6
is for any reason held to be unenforceable although applicable in accordance
with its terms, the Company and the selling Holder shall contribute to the
aggregate losses, liabilities, claims, damages and expenses of the nature
contemplated by such indemnity agreement incurred by the Company and the selling
Holder, in such proportion as is appropriate to reflect the relative fault of
and benefits to the Company on the one hand and the selling Holder on the other
(in such proportion that the selling Holder is responsible for the balance), in
connection with the statements or omissions which resulted in such losses,
claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. The relative benefits to the indemnifying party and
indemnified parties shall be determined by reference to, among other things, the
total proceeds received by the indemnified party and indemnified parties in
connection with the offering to which such losses, claims, damages, liabilities
or expenses relate. The relative fault of the indemnifying party and indemnified
parties shall be determined by reference to, among other things, whether the
action in question, including any untrue or alleged untrue statement of a
material fact or omission or alleged omission to state a material fact, has been
made by, or relates to information supplied by, such indemnifying party or the
indemnified parties, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such action.
The parties hereto agree that it would not be just or equitable if
contribution pursuant to this Section 6(d) were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 6(d), Holder shall not be
required to contribute any amount in excess of the amount by which the total
price at which the Shelf Registrable Securities of Holder were offered to the
public exceeds the amount of any damages which Holder would otherwise have been
required to pay by reason of such untrue statement or omission.
Notwithstanding the foregoing, no Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation. For purposes of this Section 6(d), each Person,
if any, who controls Holder within the meaning of Section 15 of the Securities
Act and beneficial owners, directors and officers of Holder shall have the same
rights to contribution as any member of the Holder, and each director of the
Company, each officer of the Company who signed the Shelf Registration
Statement, and each Person, if any, who controls the Company within the meaning
of Section 15 of the Securities Act shall have the same rights to contribution
as the Company.
13
<PAGE>
(e) In the event any sale pursuant to a Shelf Registration is an
underwritten offering, then the Company agrees to indemnify and hold harmless
each underwriter of Shelf Registrable Securities to the same extent and on
substantially similar terms as the Company's indemnification of the members of
the Holder as set forth in Section 6(a) above.
7. Rule 144 Sales.
--------------
(a) Compliance. The Company covenants that, so long as it is subject to
----------
the reporting requirements of the Exchange Act, it will file the reports
required to be filed by it under the Exchange Act so as to enable the Holder to
sell Shelf Registrable Securities pursuant to Rule 144 under the Securities Act.
(b) Cooperation with the Holder. In connection with any sale, transfer or
---------------------------
other disposition by Holder of any Shelf Registrable Securities pursuant to Rule
144 under the Securities Act, the Company shall cooperate with such Holder to
facilitate the timely preparation and delivery of certificates representing
Shelf Registrable Securities to be sold and not bearing any Securities Act
legend, and enable certificates for such Shelf Registrable Securities to be for
such number of shares as Holder may reasonably request at least two business
days prior to any sale of Shelf Registrable Securities.
8. Miscellaneous.
-------------
(a) Amendments and Waivers. The provisions of this Agreement, including
----------------------
the provisions of this sentence, may not be amended, modified, supplemented or
waived, nor may consent to departures therefrom be given, without the written
consent of the Company and the Holder.
(b) Notices. All notices and other communications provided for or
-------
permitted hereunder shall be made in writing by hand-delivery, registered first-
class mail, telex, telecopier, or any courier guaranteeing overnight delivery,
(i) if to the Holder, at the addresses set forth in the Contribution Agreement,
or (ii) if to the Company, at 4497 Park Drive, Norcross, Georgia 30093,
Attention: A. R. Weeks, Jr.
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five business
days after being deposited in the mail, postage prepaid, if mailed; when
answered back, if telexed; when receipt is acknowledged, if telecopied; or at
the time delivered if delivered by an air courier guaranteeing overnight
delivery.
(c) No Assignment. This Agreement shall inure to the benefit of and be
-------------
binding upon the parties hereto and, where applicable, their successors and
permitted assigns. No party to this Agreement may assign or delegate all or any
portion of its rights, obligations, or liabilities under this Agreement without
the prior written consent of each other party to this Agreement.
14
<PAGE>
Nothing expressed or implied herein is intended or shall be construed to confer
upon or give to any third party any rights or remedies by virtue hereof.
(d) Third Party Beneficiaries. There shall be no third party
-------------------------
beneficiaries or intended beneficiaries of this Agreement.
(e) Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(f) Headings. The headings in this Agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof.
(g) Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of Georgia without giving effect to the
conflicts of law provisions thereof.
(h) Specific Performance. The parties hereto acknowledge that there would
--------------------
be no adequate remedy at law if any party fails to perform any of its
obligations hereunder, and accordingly agree that each party, in addition to any
other remedy to which it may be entitled at law or in equity, shall be entitled
to compel specific performance of the obligations of any other party under this
Agreement in accordance with the terms and conditions of this Agreement in any
court of the United States or any State thereof having jurisdiction.
(i) Entire Agreement. This Agreement is intended by the parties as a
----------------
final expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. This Agreement supersedes all prior
agreements and understandings between the parties with respect to such subject
matter.
[SIGNATURES BEGIN ON FOLLOWING PAGE]
15
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above
WEEKS CORPORATION
By: /s/ Thomas D. Senkbeil
----------------------
Name: Thomas D. Senkbeil
Title: Vice Chairman and
Chief Investment Officer
ACKERMAN & CO.
By: /s/ Charles S. Ackerman
-----------------------
Name: Charles S. Ackerman
Title: President
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 299
<SECURITIES> 0
<RECEIVABLES> 10,972
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 1,242,849
<DEPRECIATION> 86,505
<TOTAL-ASSETS> 1,366,769
<CURRENT-LIABILITIES> 0
<BONDS> 676,264
0
150,000
<COMMON> 196
<OTHER-SE> 367,634
<TOTAL-LIABILITY-AND-EQUITY> 1,366,769
<SALES> 0
<TOTAL-REVENUES> 108,106
<CGS> 0
<TOTAL-COSTS> 78,338
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21,836
<INCOME-PRETAX> 26,338
<INCOME-TAX> 0
<INCOME-CONTINUING> 26,338
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 26,338
<EPS-PRIMARY> 0.91
<EPS-DILUTED> 0.90
</TABLE>
