<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. 000-22933
---------
WEEKS REALTY, L.P.
(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
<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
<TABLE>
<CAPTION>
Weeks Realty, L.P.
Consolidated Condensed Balance Sheets
- -------------------------------------------------------------------------------------------------------------
September 30, December 31,
(Unaudited; in thousands, except unit 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 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 PARTNERS' CAPITAL
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
- --------------------------------------------------------------------------------------------------------------
Other limited partners' capital interests,
7,202,593 and 5,632,695 Common Units
at September 30, 1998 and December 31, 1997,
respectively, at redemption value (Note 1) 215,177 180,246
- --------------------------------------------------------------------------------------------------------------
Partners' capital
Preferred Units, at $25.00 liquidation preference,
6,000,000 of 8% Preferred Units outstanding
at September 30, 1998 and December 31, 1997 150,000 150,000
Common Units, 19,615,969 and 17,703,992 Common Units
outstanding at September 30, 1998 and December 31, 1997,
respectively 287,735 227,146
- --------------------------------------------------------------------------------------------------------------
Total partners' capital 437,735 377,146
- --------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $1,366,769 $852,361
- --------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these condensed balance sheets.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
WEEKS REALTY, L.P.
Consolidated Condensed Statements Of Operations
- ------------------------------------------------------------------------------------------------------------------------------------
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
(Unaudited; in thousands, except per unit 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
- ------------------------------------------------------------------------------------------------------------------------------------
NET INCOME 11,220 7,451 32,468 19,206
Distributions to preferred unitholders (3,000) -- (9,000) --
- ------------------------------------------------------------------------------------------------------------------------------------
NET INCOME AVAILABLE TO COMMON UNITHOLDERS $ 8,220 $ 7,451 $ 23,468 $19,206
- ------------------------------------------------------------------------------------------------------------------------------------
NET INCOME PER COMMON UNIT
Basic $0.31 $0.33 $0.91 $0.92
Diluted 0.31 0.32 0.90 0.91
- ------------------------------------------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE COMMON UNITS
Basic 26,506 22,834 25,884 20,816
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 REALTY, L.P.
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 $ 32,468 $ 19,206
Adjustments to reconcile net income to net cash
provided by operating activities:
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 asset (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 705 690
Collections of notes receivable and other 501 --
Proceeds from sale of real estate assets 2,373 2,484
- -------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (376,956) (127,213)
- -------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Capital contributions from Company 54,331 107,266
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)
Distributions (44,017) (25,280)
- -------------------------------------------------------------------------------------------------------------
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 Operating Partnership'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 Operating Partnership'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 REALTY, L.P.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. THE OPERATING PARTNERSHIP
Weeks Realty, L.P., a Georgia limited partnership, (the "Operating
Partnership"), and its subsidiaries own, operate, develop, construct, acquire
and manage industrial and suburban office buildings in the southeast United
States and Texas. Weeks Corporation, a Georgia corporation, through its wholly
owned subsidiaries, Weeks GP Holdings, Inc. and Weeks LP Holdings, Inc.,
referred to herein as the "Company," is the sole general partner and a limited
partner and owns a majority interest in the Operating Partnership. The
Operating Partnership, including the operations of its subsidiaries, conducts
substantially all of the on-going operations of Weeks Corporation, a publicly
traded company which operates as a self-administered and self-managed real
estate investment trust ("REIT") under the Internal Revenue Code of 1986 (the
"Code").
As of September 30, 1998, the Company owned 73.1% of the common units of limited
partnership interest ("Common Units") in the Operating Partnership. Common
Units held by persons other than the Company (the "Other Limited Partnership
Interests") represented a 26.9% partnership interest in the Operating
Partnership. 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 Operating Partnership 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 Operating Partnership 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 Operating Partnership to substantially all (99%) of the
economic benefits from the results of the Service Companies' operations.
Under the provisions of the Operating Partnership's limited partnership
agreement, as amended, the Company is obligated, upon request to redeem each
Common Unit held by the Other Limited Partnership Interests for shares of Weeks
Corporation common stock on a one-for-one basis, or cash, at the Company's
option. The Company currently anticipates that it will elect to issue common
stock for Common Units presented for redemption by the Other Limited Partnership
Interests in the Operating Partnership. The Other Limited Partnership Interests
redemption rights are reflected in the caption "other limited partners' capital
interests" in the accompanying consolidated balance sheets at the cash
redemption price (computed using the Company's closing stock price as quoted on
the New York Stock Exchange) at the balance sheet dates.
Additionally, the terms of the limited partnership agreement obligate the
Company to contribute the net proceeds from the issuance of additional equity
securities, including issuances under the Company's incentive stock plan and
stock warrant agreements (see Note 5), to the Operating Partnership in exchange
for Units having substantially the same economic characteristics as the equity
securities issued by the Company.
6
<PAGE>
Operating Partnership net profits, net losses and cash flow (after allocations
to preferred ownership interests) are allocated to the partners in proportion to
their common ownership interests. Cash distributions from the Operating
Partnership shall be, at a minimum, sufficient to enable the Company to satisfy
its annual dividend requirements to maintain its REIT status under the Code.
As of September 30, 1998, the Operating Partnership'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 five retail properties comprising 23,455,000 square feet. The
Operating Partnership's primary markets and the concentration of the Operating
Partnership'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.
7
<PAGE>
2. BASIS OF PRESENTATION
The accompanying consolidated condensed financial statements include the
consolidated condensed financial position of the Operating Partnership 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 Operating Partnership'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 Operating Partnership's audited financial
statements and the notes thereto included in the Operating Partnership'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 Operating Partnership beginning with the fourth quarter and
year ending December 31, 1998. The Operating Partnership was not subject to
segment reporting under prior accounting standards, but will be required to
provide certain segment disclosures under SFAS 131. The Operating Partnership
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 Operating Partnership implemented this new
guideline, which did not have a material impact on the Operating Partnership'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 Operating Partnership beginning January 1, 2000. The
Operating Partnership is evaluating the provisions of SFAS 133 and plans to
adopt SFAS 133 in its financial statements beginning in 2000.
8
<PAGE>
<TABLE>
<S> <C>
3. BORROWINGS
</TABLE>
Total borrowings at September 30, 1998 and December 31, 1997 consist of the
following (in thousands):
-----------------------------------------------------------------
SEPT. 30, DEC. 31,
1998 1997
-----------------------------------------------------------------
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
-----------------------------------------------------------------
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.
9
<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 Operating Partnership 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 Operating
Partnership'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.
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 Operating Partnership 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 Operating Partnership 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 Operating Partnership 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 Operating Partnership'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 Operating Partnership'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
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
Nine Months Nine Months
Ended Ended
Cash Flows Sept. 30, 1998 Sept. 30, 1997
- -----------------------------------------------------------------------------------------------------------------
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 Operating Partnership'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. PARTNERS' CAPITAL
In July 1998, the Operating Partnership paid distributions to Common Unitholders
of $12,222,000 or $0.465 per Common Unit and to Preferred Unitholders of
$3,000,000 of $0.50 per unit relating to second quarter 1998 operating results.
In October 1998, the Operating Partnership paid distributions to Common
Unitholders of $12,345,000 or $0.465 per Common Unit and to Preferred
Unitholders $3,000,000 or $0.50 per unit relating to third quarter 1998
operating results.
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 redemption. The Operating Partnership has agreed to issue 1,046,729
Common Units to the Company in exchange for an exercise price of $33.4375 per
Common Unit upon the exercise of the warrant. The Operating Partnership received
net proceeds of approximately $34,400,000 from this transaction. The proceeds
were used to reduce outstanding Credit Facility borrowings.
In the first quarter of 1998, the Operating Partnership issued Common Units to
the Company totaling 1,072,797 and 468,750 and received net proceeds of
$33,100,000 and $14,100,000, respectively. The cash contributions discussed
above result from the contribution by the Operating Partnership of the net
proceeds from the sale of Company common stock in the public equity markets.
The proceeds were used to reduce the Operating Partnership's outstanding Credit
Facility borrowings.
In February 1998, the Company contributed $1,400,000 to the Operating
Partnership resulting from the Company's sale of 350,000 common stock warrants.
In return, the Operating Partnership agreed to issue 350,000 Common Units to the
Company in exchange for an exercise price of $32.75 per Common Unit upon the
exercise of such warrants. The terms of this agreement are structured to
parallel the terms of the Company's sale of 350,000 common stock warrants with
an exercise price of $32.75 per common share. The Operating Partnership's
obligation to issue Common Units and the Company's common stock warrants expire
in February 2008.
13
<PAGE>
6. NET INCOME PER COMMON UNIT
The Operating Partnership 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 Unitholders and weighted
average Common Units used in the Operating Partnership's basic and diluted net
income per Common Unit computations are detailed below (in thousands, except per
unit 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 UNIT
Net income available to Common
Unitholders - basic and diluted $ 8,220 $ 7,451 $23,468 $19,206
- --------------------------------------------------------------------------------------------------------------
Weighted average Common Units - basic 26,506 22,834 25,884 20,816
Dilutive securities -
Stock options 148 183 172 202
- --------------------------------------------------------------------------------------------------------------
Weighted average Common Units - diluted 26,654 23,017 26,056 21,018
- --------------------------------------------------------------------------------------------------------------
NET INCOME PER COMMON UNIT
Basic $ 0.31 $ 0.33 $ 0.91 $ 0.92
Diluted 0.31 0.32 0.90 0.91
- --------------------------------------------------------------------------------------------------------------
</TABLE>
Basic net income per Common Unit for the periods presented was computed by
dividing income available to Common Unitholders by the weighted average number
of Common Units outstanding during the period. Diluted net income per Common
Unit was computed based on the dilutive effect of the Company's stock options
outstanding. Common Units issuable upon the exercise of 662,000 outstanding
Company stock options and 350,000 outstanding Company common stock warrants were
not dilutive in the three and nine months ended September 30, 1998.
Previously reported net income per Common Unit under prior accounting standards
was equal to basic net income per Common Unit 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.
15
<PAGE>
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 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.
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 Operating Partnership 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 Operating
Partnership 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 Operating Partnership'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 Operating
Partnership'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 Operating Partnership 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
The Operating Partnership and its subsidiaries own, operate, develop, construct,
acquire and manage industrial and suburban office buildings in the southeast
United States and Texas. The Operating Partnership and its subsidiaries conduct
substantially all of the on-going operations of Weeks Corporation (the
"Company"), a publicly-traded company which operates as a self -administered and
self-managed REIT. The Operating Partnership was formed and capitalized with
the proceeds from the Company's initial public offering in August 1994 and
succeeded to substantially all of the interests in certain land and industrial
and suburban office buildings under common ownership and the development,
landscape and property management businesses of the predecessors to the
Operating Partnership and the Company. For a further description of the
Operating Partnership, see Note 1 to the consolidated condensed financial
statements.
17
<PAGE>
RESULTS OF OPERATIONS
Operating information relating to the Operating Partnership'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 Operating Partnership 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 Operating Partnership'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 Operating Partnership's growth in 1998
compared to 1997.
Operating Partnership 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 Operating
Partnership'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 Operating
Partnership'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 Operating Partnership (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 Operating Partnership'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 Operating
Partnership'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 Operating Partnership's growth
in 1998 compared to 1997.
Operating Partnership 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 Operating
Partnership'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 Operating
Partnership'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 Operating Partnership (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 Operating Partnership's 50% share of earnings from a single building equity
investment.
20
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Operating Partnership 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
Operating Partnership'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 Operating Partnership's net cash flow from operations is currently
sufficient to meet the Operating Partnership's current operational needs and to
satisfy the Operating Partnership's current quarterly distributions on both its
common and preferred units, which are structured to ensure that the Company can
satisfy the dividend requirements necessary to maintain its status as a REIT.
Management believes that operating cash flows will continue to be adequate to
fund these requirements for the remainder of 1998 and for 1999.
During the nine months ended September 30, 1998, the Operating Partnership
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 Operating Partnership'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 Operating Partnership'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 Operating Partnership's ongoing financing strategy may
differ from period-to-period based upon market conditions.
In addition to its operating cash flow, the Operating Partnership 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 to fund the distributions
necessary for the Company to meet its annual REIT dividend requirements. The
Operating Partnership 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 5 to the consolidated condensed financial statements), the
Company had available capacity under the Credit Facility of approximately
$32,900,000.
The Operating Partnership 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 Operating
21
<PAGE>
Partnership 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 public and private markets and funds generated from
selective real estate sales and other joint venture arrangements. The Operating
Partnership 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 Operating Partnership 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 Operating Partnership 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 Operating Partnership may adjust staffing levels to avoid a negative impact
on the Operating Partnership'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 Operating
Partnership'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 Operating Partnership's fixed rate unsecured notes was 7.6% at September 30,
1998. At September 30, 1998, the Operating Partnership had in place interest
rate swap agreements to fix the Company's interest costs on $40,000,000 of the
Operating Partnership'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 Operating Partnership's variable rate mortgage
debt, fluctuated by 1%, interest costs to the Operating Partnership, 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.
22
<PAGE>
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 Operating Partnership 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 the Company of $29.875 on
September 30, 1998), the 26,818,562 Common Units outstanding would have a total
market value of $801,205,000, 6,000,000 preferred units outstanding would have a
total liquidation value of $150,000,000 and the 350,000 Common Units issuable
upon the exercise of the Company's common stock warrants outstanding would have
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 Operating Partnership had committed development 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 Operating Partnership had,
at November 10, 1998, committed development 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 Operating Partnership 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.
23
<PAGE>
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 Operating Partnership. 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.
SUPPLEMENTAL DISCLOSURE OF FUNDS FROM OPERATIONS
The Operating Partnership believes that funds from operations provides an
additional indicator of the financial performance of the Operating Partnership.
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 Operating Partnership.
Accordingly, the Operating Partnership expects that funds from operations will
be one of the factors considered by its Board of Directors in determining the
amount of cash distributions the Operating Partnership will pay to its
unitholders. The Operating Partnership computes funds from operations under the
current NAREIT definition by subtracting from net income the distributions to
preferred unitholders 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
distributions to unitholders, and should not be considered as an alternative to
net income for purposes of evaluating the Operating Partnership'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 Operating Partnership's funds from operations
is comparable to the funds from operations of real estate companies that use the
current NAREIT definition.
The Operating Partnership'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 Operating
Partnership'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
Operating Partnership 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 $4,384,000 or 31.9% to $18,135,000 compared to funds from operations of
$13,751,000 for the three months ended September 30, 1997. For the nine months
ended September 30, 1998, funds from operations increased by $14,708,000 or
40.5% to $50,983,000 compared to funds from operations of $36,275,000 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 Unitholders $ 8,220 $ 7,451 $23,468 $19,206
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 Unitholders $18,135 $13,751 $50,983 $36,275
- ----------------------------------------------------------------------------------------------------------------------
Weighted average common Units
Basic 26,506 22,834 25,884 20,816
Diluted(1) 26,654 23,017 26,056 21,018
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Represents the weighted average Common Units outstanding and the dilutive
effect of outstanding stock options. 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 Company 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 Operating Partnership'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 Operating Partnership'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 Operating Partnership's properties were leased to
1,016 tenants including local, regional, national and international companies.
The Operating Partnership'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.
<TABLE>
<CAPTION>
30 LARGEST TENANTS MEASURED BY ANNUALIZED BASE RENT
- -----------------------------------------------------------------------------------------------------
% 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 1 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 Operating Partnership 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 Operating Partnership.
28
<PAGE>
LEASE EXPIRATIONS
The following tables show scheduled lease expirations for the Operating
Partnership'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 Operating Partnership beginning with the fourth quarter and
year ending December 31, 1998. The Operating Partnership was not subject to
segment reporting under prior accounting standards, but will be required to
provide certain segment disclosures under SFAS 131. The Operating Partnership
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 Operating Partnership implemented this new
guideline, which did not have a material impact on the Operating Partnership'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 Operating Partnership beginning January 1, 2000. The
Operating Partnership 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
Operating Partnership because of the relatively low inflation rate.
Substantially all tenant leases do, however, contain provisions designed to
protect the Operating Partnership 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
Operating Partnership'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 Operating Partnership 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 Operating Partnership 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 Operating Partnership'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 Operating Partnership
expects these systems to be year 2000 compliant by the end of the first quarter
of 1999. Additionally, the Operating Partnership has evaluated its telephone
systems and such systems are expected to be fully year 2000 compliant before the
end of 1999.
The Operating Partnership 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 Operating Partnership's
assessments include the use of questionnaires and direct discussions with such
vendors, suppliers and tenants. The Operating Partnership anticipates the
completion of its assessments and evaluations in these areas by early 1999.
Cost to Address Year 2000 Issues. To date, the Operating Partnership has not
incurred material incremental costs relating to year 2000 issues. The Operating
Partnership does not expect additional costs relating to year 2000 compliance to
be material to the Operating Partnership's financial condition or results of
operations taken as a whole. The Operating Partnership 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 Operating Partnership'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 Operating
Partnership's cash flow and results of operations should these disruptions lead
to a tenants' inability to continue to meet their rental obligations to the
Operating Partnership.
Failures of major suppliers to deliver building raw materials to the Operating
Partnership due to year 2000 issues could result in the Operating Partnership
being unable to complete buildings in a timely manner or at the costs budgeted
by the Operating Partnership. This could result in slower overall business
growth and increased costs of constructing new buildings, both of which could
impact the Operating Partnership's future financial condition and results of
operations.
Based on information obtained from such third parties to date, the Operating
Partnership does not believe that the impact of the year 2000 issue will have a
material adverse impact on the Operating Partnership'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 Operating Partnership.
Contingency Plans. To date, the Operating Partnership has not established any
contingency plan for possible year 2000 issues. After its assessments are
completed, the Operating Partnership 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 Operating Partnership's year 2000
preparedness includes Forward-looking Statements based upon management's current
assessment of year 2000 issues impacting the Operating Partnership. 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 Operating Partnership's Forward-looking
Statements.
32
<PAGE>
PART II - OTHER INFORMATION
ITEM 2 - CHANGE IN SECURITIES
During the three months ended September 30, 1998, the Operating
Partnership issued a total of 374,632 Common Units, in full or partial
consideration for the acquisition of real estate properties. The
aggregate value of the properties acquired by the Operating Partnership
in exchange for such Common Units was approximately $10,848,000. Common
Units are convertible by their holders into shares of Company 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.
27.1 - Financial data schedule.
(b) Reports on Form 8-K
Form 8-K dated July 30, 1998, and filed on August 4, 1998, filing
certain exhibits relating to the Operating Partnership's unsecured
note offering in July 1998.
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 REALTY, L.P.
----------------------------------
(Registrant)
By: Weeks GP Holdings, Inc.
As General Partner
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.
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
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-31-1998
<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
0
<COMMON> 0
<OTHER-SE> 437,735
<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> 32,468
<INCOME-TAX> 0
<INCOME-CONTINUING> 32,468
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 32,468
<EPS-PRIMARY> 0.91
<EPS-DILUTED> 0.90
</TABLE>
