<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 March 31, 1999
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 58-2121388
------- ----------
(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
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PART I. FINANCIAL INFORMATION
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Item 1. Financial Statements
Consolidated Condensed Balance Sheets
at March 31, 1999 and December 31, 1998............. 3
Consolidated Condensed Statements of Operations
for the three months ended March 31, 1999 and 1998.. 4
Consolidated Condensed Statements of Cash Flows
for the three months ended March 31, 1999 and 1998.. 5
Notes to Consolidated Condensed Financial
Statements.......................................... 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations....... 17
Item 3. Quantitative and Qualitative Disclosures About
Market Risk......................................... 33
PART II. OTHER INFORMATION
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Item 2. Changes in Securities............................... 34
Item 6. Exhibits and Reports on Form 8-K.................... 34
SIGNATURES...................................................... 35
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2
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PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
WEEKS REALTY, L.P.
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
March 31, December 31,
(Unaudited; in thousands, except unit data) 1999 1998
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Real estate assets
Land $ 176,915 $ 169,443
Buildings and improvements 1,069,829 1,031,617
Accumulated depreciation (101,640) (96,383)
- -----------------------------------------------------------------------------------------------------------
Operating real estate assets 1,145,104 1,104,677
- -----------------------------------------------------------------------------------------------------------
Developments in progress 166,239 160,783
Land held for future development 37,118 42,438
- -----------------------------------------------------------------------------------------------------------
Net real estate assets 1,348,461 1,307,898
- -----------------------------------------------------------------------------------------------------------
Cash and cash equivalents 2,159 1,503
Receivables 15,336 15,316
Deferred costs, net 28,405 29,163
Investments in and notes receivable
from unconsolidated service companies 42,926 43,639
Investments in unconsolidated real estate entities 7,676 35,204
Other assets 14,781 14,869
- -----------------------------------------------------------------------------------------------------------
Total assets $1,459,744 $1,447,592
===========================================================================================================
LIABILITIES AND PARTNERS' CAPITAL
Debt
Mortgage notes payable $ 243,764 $ 251,399
Unsecured bank borrowings 225,140 203,025
Unsecured notes 200,000 200,000
- -----------------------------------------------------------------------------------------------------------
Total debt 668,904 654,424
- -----------------------------------------------------------------------------------------------------------
Accounts payable and accrued expenses 28,785 32,977
Other liabilities 10,160 9,626
- -----------------------------------------------------------------------------------------------------------
Total liabilities 707,849 697,027
- -----------------------------------------------------------------------------------------------------------
Commitments and contingencies
Other limited partners' capital interests, 7,324,677 and 7,314,001
common units at March 31, 1999 and December 31, 1998, respectively,
at redemption value (Note 1) 209,211 206,163
- -----------------------------------------------------------------------------------------------------------
Partners' capital
Series A Preferred Units, at $25.00 liquidation preference, 6,000,000
of 8% cumulative redeemable units outstanding at March 31, 1999
and December 31, 1998, respectively 150,000 150,000
Series C Preferred Units, at $25.00 liquidation preference, 1,400,000
of 8% cumulative redeemable units outstanding at March 31, 1999
and December 31, 1998, respectively 35,000 35,000
Series D Preferred Units, at $25.00 liquidation preference, 2,600,000
of 8.625% cumulative redeemable units outstanding at March 31, 1999
and December 31, 1998, respectively 65,000 65,000
Common Units, 19,754,070 and 19,674,412 common units outstanding
at March 31, 1999 and December 31, 1998, respecitvely 292,684 294,402
- -----------------------------------------------------------------------------------------------------------
Total partners' capital 542,684 544,402
- -----------------------------------------------------------------------------------------------------------
Total liabilities and partners' capital $1,459,744 $1,447,592
===========================================================================================================
The accompanying notes are an integral part of these consolidated condensed
balance sheets.
</TABLE>
3
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WEEKS REALTY, L.P.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Three Months Three Months
Ended Ended
(Unaudited; in thousands, except per unit data) March 31, 1999 March 31, 1998
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Revenues
Rental income $38,520 $28,345
Tenant reimbursements 5,561 3,960
Other 340 388
- -----------------------------------------------------------------------------------------------------------------------
44,421 32,693
- -----------------------------------------------------------------------------------------------------------------------
Expenses
Property operating, maintenance
and management 6,341 4,721
Real estate taxes 3,912 2,746
Depreciation and amortization 11,344 8,361
Interest, including amortization of
deferred financing costs 9,103 6,102
General and administrative 1,756 1,280
- -----------------------------------------------------------------------------------------------------------------------
32,456 23,210
- -----------------------------------------------------------------------------------------------------------------------
Income before Equity in Earnings of
Unconsolidated Entities, Interest Income
and Gain on Sale of Real Estate Assets 11,965 9,483
Equity in earnings of unconsolidated
service companies 503 488
Equity in earnings of unconsolidated
real estate entities 89 68
Interest income 325 279
Gain on sale of real estate assets 4,899 --
- -----------------------------------------------------------------------------------------------------------------------
Net Income 17,781 10,318
Distributions to preferred unitholders (5,102) (3,000)
- -----------------------------------------------------------------------------------------------------------------------
Net Income Available to Common Unitholders $12,679 $ 7,318
- -----------------------------------------------------------------------------------------------------------------------
Net Income per Common Unit
Basic $ 0.47 $ 0.29
Diluted 0.47 0.29
- -----------------------------------------------------------------------------------------------------------------------
Weighted Average Common Units
Basic 27,051 24,868
Diluted 27,177 25,063
- -----------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated condensed
financial statements.
</TABLE>
4
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WEEKS REALTY, L.P.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Three Months Three Months
Ended Ended
(Unaudited; in thousands) March 31, 1999 March 31, 1998
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating Activities
Net income $ 17,781 $ 10,318
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 11,344 8,361
Amortization of deferred financing costs 516 281
Amortization of deferred compensation 107 72
Straight-line rent revenue (1,089) (251)
Gain on sale of real estate assets (4,899) --
Undistributed earnings of unconsolidated entities -- (556)
Net change in:
Deferred costs (2,011) (1,350)
Receivables and other assets (144) (1,361)
Accounts payable and accrued expenses (4,081) (194)
Other liabilities 534 618
- ----------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 18,058 15,938
- ----------------------------------------------------------------------------------------------------------
Investing Activities
Property acquisition, development and construction (63,560) (108,297)
Investments in and advances to unconsolidated entities (4,864) (18,494)
Real estate loans -- (4,857)
Proceeds from sale of real estate assets 51,832 --
Collections on real estate loans, notes receivable and other 1,231 224
Distributions in excess of earnings of unconsolidated entities 127 --
- ----------------------------------------------------------------------------------------------------------
Net cash used in investing activities (15,234) (131,424)
- ----------------------------------------------------------------------------------------------------------
Financing Activities
Capital contributions from Company -- common units 1,825 50,071
Unsecured note borrowings -- 100,000
Line of credit proceeds (repayments), net 22,115 (14,975)
Payments of mortgage notes payable (7,635) (4,698)
Deferred financing costs -- (6,132)
Distributions to unitholders (18,473) (13,720)
- ----------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (2,168) 110,546
- ----------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 656 (4,940)
Cash and cash equivalents, beginning of period 1,503 5,421
- ----------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 2,159 $ 481
==========================================================================================================
</TABLE>
Supplemental disclosure of non-cash investing and financing activities:
The Operating Partnership's 1999 acquisition and development activity was net of
the issuance of Common Units valued at $300,000 and net of the Operating
Partnership's investment and advances to unconsolidated entities of $32,733,000
(see Note 3).
The Operating Partnership's 1998 property acquisition and development activity
was net of the settlement of real estate loans of $7,898,000, the assumption of
other liabilities in excess of other assets of $4,224,000, the assumption of
indebtedness of $80,897,000 and the issuance of Common Units valued at
$36,123,000.
The accompanying notes are an integral part of these consolidated 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 March 31, 1999, the Company owned 73.0% 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 27.0% partnership interest in the Operating
Partnership. The Company's weighted average ownership interest in the Operating
Partnership was 72.9% and 73.5% for the three months ended March 31, 1999 and
1998, 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
redemption rights are reflected in the caption "other limite 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, to the Operating Partnership in exchange for Units
having substantially the same economic characteristics as the equity securities
issued by the Company.
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
6
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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 March 31, 1999, the Operating Partnership's in-service property portfolio,
including two properties totaling 336,000 square feet held in unconsolidated
entities, consisted of 270 industrial properties, 34 suburban office properties
and 5 retail properties comprising 25,926,000 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 (53.3%), Nashville, Tennessee (11.2%), Raleigh-Durham-Chapel Hill, North
Carolina (9.8%), Miami, Florida (9.4%), Dallas/Ft. Worth, Texas (7.1%), Orlando,
Florida (3.8%), Jacksonville, Florida (2.5%), Spartanburg, South Carolina
(1.5%), Tampa, Florida (0.7%) and Ft. Lauderdale, Florida (0.7%). In addition,
42 industrial and suburban office properties were under development or in lease-
up and one industrial property was under agreement to acquire as of March 31,
1999, comprising an additional 4,450,000 square feet.
Announced Merger Transaction
On March 1, 1999, the Company announced that it had entered into an Agreement
and Plan of Merger (the "REIT Merger Agreement") with Duke Realty Investments,
Inc., an Indiana based REIT specializing in industrial and office building
development and ownership ("Duke"), and that the Operating Partnership had
entered into an Agreement and Plan of Merger (the "OP Merger Agreement" and,
together with the REIT Merger Agreement, the "Merger Agreements") with Duke
Realty Limited Partnership, an Indiana limited partnership of which Duke is the
managing general partner ("Duke OP"). The Merger Agreements provide for a
merger of the Company with and into Duke (the "REIT Merger") and a merger of the
Operating Partnership with and into Duke OP (the "OP Merger" and, together with
the REIT Merger, the "Mergers"). At the effective time of the Mergers, Duke
will change its name to Duke-Weeks Realty Corporation.
Pursuant to the Merger Agreements: (i) each outstanding share of common stock,
par value $0.01 per share, of the Company ("Weeks Common Stock") will be
converted into the right to receive 1.38 shares of common stock, par value $0.01
per share, of Duke ("Duke Common Stock"), (ii) each issued and outstanding share
of 8.0% Series A Preferred Stock, par value $0.01 per share, of the Company will
be converted into the right to receive one preference share representing 1/1000
of a share of 8.0% Series F Cumulative Redeemable Preferred Stock, par value
$0.01 per share, of Duke; (iii) each issued and outstanding share of 8.625%
Series D Cumulative Redeemable Preferred Stock, par value $0.01 per share, of
the Company will be converted into the right to receive one preference share
representing 1/1000 of a share of 8.625% Series H Cumulative Redeemable
Preferred Stock, par value $0.01 per share, of Duke; (iv) each issued and
outstanding Common Unit in the Operating Partnership will be converted into 1.38
common units of limited partnership interest in Duke OP; (v) each issued and
outstanding 8.0% Series A Preferred Unit in the Operating Partnership will be
converted into one 8.0% Series F Cumulative Redeemable Preferred Unit in Duke
OP; (vi) each issued and outstanding 8.0% Series C Preferred Unit in the
Operating Partnership will be converted into one 8.0% Series G Cumulative
Redeemable Preferred Unit in Duke OP; and (vii) each issued and outstanding
8.625% Series D Preferred Unit in the Operating Partnership will be converted
into one 8.625% Series H Cumulative Redeemable Preferred Unit in Duke OP.
Holders representing 2% of the outstanding Weeks Common Stock have entered into
voting agreements, agreeing to vote their shares in favor of the transactions
contemplated by the Merger Agreements.
7
<PAGE>
Holders representing 5% of the outstanding Duke Common Stock have entered into
voting agreements, agreeing to vote their shares in favor of the transactions
contemplated by the Merger Agreements. The requisite approvals of the partners
of Duke OP and the Operating Partnership to the transactions have been obtained.
The consummation of the transactions contemplated by the Merger Agreements is
expected to occur on or about June 30, 1999 and is subject to approval by the
stockholders of Duke and the shareholders of the Company and satisfaction of
certain other customary closing conditions. Additionally, the consent of
certain Operating Partnership debt holders, lenders and others will be required
to consummate the Mergers. There can be no assurance that the transactions
contemplated by the Merger Agreements will be consummated. The Company has
agreed with Duke that if the REIT Merger Agreement is terminated under certain
circumstances, the Company will pay Duke certain fees and expenses. Duke has
agreed with the Company that if the REIT Merger Agreement is terminated under
certain other circumstances, Duke will pay the Company certain fees and
expenses.
8
<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 March 31, 1999, and December 31, 1998, and their results of
operations and cash flows for the three months ended March 31, 1999 and 1998.
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.
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, 1999. 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, 1998.
Recent Accounting Pronouncements
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 require the Operating Partnership to record all derivative instruments on
the balance sheet at fair value. Changes in derivative fair values will either
be recorded in earnings along with the changes in fair value of related hedged
assets or liabilities or as an adjustment to shareholders' equity depending on
the nature and type of derivative instrument. 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. The impact of SFAS 133 on the Operating
Partnership's financial statements will depend on the extent, type and
effectiveness of the Operating Partnership's hedging activities. However, the
Operating Partnership does not believe the effect of adopting SFAS 133 will be
material to its financial position or results of operations.
3. ACQUISITIONS/DISPOSITIONS
In January 1999, the Operating Partnership acquired four industrial buildings
located in Dallas, Texas from NWI Warehouse Group, L.P. ("NWI"), a related
entity, for aggregate acquisition consideration of approximately $35,054,000,
which resulted in a gain to NWI, net of intercompany eliminations, of
approximately $245,000. In periods prior to the acquisition of the buildings
from NWI, the Operating Partnership had invested and advanced approximately
$32,733,000 under the terms of loan and option agreements with NWI. The
Operating Partnership accounted for these arrangements with NWI as an investment
in real estate under the equity method of accounting. In the first quarter of
1999, the Operating Partnership recognized earnings of $19,000 under the equity
method with respect to this transaction.
Also in January 1999, the Operating Partnership sold 21 buildings totaling
approximately 1,181,000 square feet located in Atlanta, Georgia for net proceeds
of approximately $51,832,000, resulting in a gain
9
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of approximately $4,899,000. For income tax purposes, the Operating Partnership
has and intends to use the proceeds from the sale to complete a tax-deferred,
like-kind exchange. As part of this agreement, the Operating Partnership has
also agreed to sell, upon the completion of construction, an additional building
totaling approximately 182,000 square feet for approximately $7,300,000.
4. BORROWINGS
Total borrowings at March 31, 1999 and December 31, 1998 consisted of the
following (in thousands):
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
March 31, December 31,
1999 1998
- -------------------------------------------------------------------------------
<S> <C> <C>
Unsecured Notes
Due 2005, interest at 6.875% $100,000 $100,000
Due 2007, interest at 7.375% 100,000 100,000
- -------------------------------------------------------------------------------
200,000 200,000
- -------------------------------------------------------------------------------
Unsecured Bank Borrowings
Credit Facility 140,140 118,025
Term Loan 85,000 85,000
- -------------------------------------------------------------------------------
225,140 203,025
- -------------------------------------------------------------------------------
Mortgage Notes Payable
Fixed rate notes, interest at 6.00% to 9.80%,
due in 1999 to 2012 243,164 250,788
Variable rate industrial revenue bonds,
interest at 6.06% at March 31, 1999,
due in 2010 600 611
- -------------------------------------------------------------------------------
243,764 251,399
- -------------------------------------------------------------------------------
Total Borrowings $668,904 $654,424
- -------------------------------------------------------------------------------
</TABLE>
Unsecured Notes
At March 31, 1999, the Operating Partnership had outstanding $100,000,000 of
6.875% unsecured notes due March 15, 2005 and $100,000,000 of 7.375% unsecured
notes due August 1, 2007. These unsecured notes are subject to certain
covenants, including those governing the Operating Partnership's interest and
fixed charge coverage and total leverage.
Unsecured Bank Borrowings
Credit Facility
At March 31, 1999, the Operating Partnership financed its operations through a
$225,000,000 syndicated revolving line of credit (the "Line of Credit") and a
$20,000,000 swing revolving credit facility (the "Swing Facility") with a bank
lending group. Together, 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, interest
and fixed charge coverage, 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
10
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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%
and the prior consent of the banks in the bank lending group. The Swing Facility
matures on June 30, 1999, and may be extended annually, subject to the prior
consent of the lender.
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
5.9% at March 31, 1999. Prior to July 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%.
At March 31, 1999, 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.
Term Loan
At March 31, 1999, the Operating Partnership had outstanding an $85,000,000
unsecured syndicated bank term loan (the "Term Loan") with a group of five
banks. Interest accrues on the Term Loan at LIBOR plus 1.25% and the Term Loan
matures on December 31, 2001. Simultaneously with the execution of the Term
Loan, the Operating Partnership entered into three interest rate swap agreements
with three commercial banks to effectively change the interest costs on the
entire $85,000,000 Term Loan from its variable rate to fixed rates. The
interest rate swap agreements, with notional principal amounts of $35,000,000,
$25,000,000 and $25,000,00, mature on December 31, 2001, and effectively convert
interest costs on the Term Loan to a fixed rate of approximately 6.3% through
maturity.
Mortgage Notes Payable
At March 31, 1999, fixed rate mortgage notes payable included 29 notes with a
weighted average interest of 8.3%. The weighted average term to maturity of
fixed rate mortgage notes payable was 6.4 years at March 31, 1999. Total
mortgage indebtedness decreased by $7,635,000 in 1999 due to principal
repayments and retirements. Certain Company officers and Common Unitholders
guarantee a portion of the fixed rate mortgage notes.
Debt Maturities
Scheduled maturities of total borrowings at March 31, 1999, are summarized as
follows (in thousands):
- ------------------------------------------------
Year Amount
- ------------------------------------------------
1999 $ 62,083(a)
2000 158,853(a)
2001 91,352
2002 9,874
2003 7,854
2004 and thereafter 338,888
- ------------------------------------------------
$668,904
================================================
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(a) Includes $16,990 maturing in 1999 under the Swing Facility and $123,150
maturing in 2000 under the Line of Credit, assuming that no extensions are
exercised.
Interest paid, net of amounts capitalized, totaled $11,818,000 and $5,037,000
for the three months ended March 31, 1999 and 1998, respectively. Interest
costs capitalized totaled $3,398,000 and $2,162,000 for the three months ended
March 31, 1999 and 1998, respectively.
5. 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 held for sale or future development, 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. 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):
----------------------------------------------------------------------
March 31, December 31,
Financial Position 1999 1998
----------------------------------------------------------------------
Assets
Real estate assets $20,230 $22,768
Investments in unconsolidated entities 12,304 12,096
Receivables and other assets 33,187 26,634
----------------------------------------------------------------------
$65,721 $61,498
======================================================================
Liabilities and Equity
Borrowings from the Operating Partnership $44,214 $44,575
Other borrowings 2,309 2,309
Other liabilities 20,466 15,472
Total equity (deficit) (1,268) (858)
----------------------------------------------------------------------
$65,721 $61,498
======================================================================
The operations of the Service Companies and their subsidiaries are financed
through borrowings from the Operating Partnership. These line of credit
borrowings accrue interest at bank prime plus 1%, payable monthly, and are due
on demand. 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.
12
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At March 31, 1999, the Operating Partnership's investment in and notes
receivable from the Service Companies and their subsidiaries totaling
$42,926,000 includes notes receivable from the Service Companies and their
subsidiaries of $44,214,000 and the Operating Partnership's investment in the
Subsidiaries of ($1,288,000).
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
Three Months Three Months
Ended Ended
Results of Operations March 31, 1999 March 31, 1998
- ---------------------------------------------------------------------------------
<S> <C> <C>
Revenue
Construction and development fees $1,099 $ 652
Landscape 2,563 1,035
Commissions 190 232
Property management fees and other 300 79
- ---------------------------------------------------------------------------------
4,152 1,998
- ---------------------------------------------------------------------------------
Costs and expenses
Direct costs 2,476 804
Interest expense - Operating Partnership 936 391
Interest expense - third parties 51 167
General and administrative 916 817
Other 390 88
- ---------------------------------------------------------------------------------
4,769 2,267
- ---------------------------------------------------------------------------------
Loss before gains on sale of
real estate and equity in earnings
of unconsolidated entities (617) (269)
Gain on sale of real estate - third parties -- 377
Gain on sale of real estate - Operating
Partnership -- 142
Equity in earnings of
unconsolidated entities 208 244
- ---------------------------------------------------------------------------------
Net income (loss) $ (409) $ 494
- ---------------------------------------------------------------------------------
Net income (loss) attributable
to Operating Partnership $ (405) $ 489
Interest expense - Operating Partnership 936 391
Elimination of intercompany
profits - Operating Partnership (28) (392)
- ---------------------------------------------------------------------------------
Equity in earnings of Service Companies $ 503 $ 488
- ---------------------------------------------------------------------------------
Distributions and interest paid
to Operating Partnership $ 610 $ --
=================================================================================
- ---------------------------------------------------------------------------------
Three Months Three Months
Ended Ended
Cash Flows March 31, 1999 March 31, 1998
- ---------------------------------------------------------------------------------
Operating activities $3,057 $ 2,105
Investing activities 1,549 (8,749)
Financing activities (971) 1,810
- ---------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
6. PARTNERS' CAPITAL
In January 1999, the Operating Partnership paid to Common Unitholders
distributions of $13,581,000 or $0.505 per Common Unit relating to fourth
quarter 1998 operating results and also paid distributions on its series A
preferred units of $3,000,000 or $0.50 per unit. Additionally, the Operating
Partnership made distributions to the holders of the series C preferred units of
$662,000 or $0.47 per unit and the series D preferred units of $1,230,000 or
$0.47 per unit.
In April 1999, the Operating Partnership paid distributions to Common
Unitholders relating to the first quarter of 1999 of $13,674,000 or $0.505 per
Common Unit. Additionally, in April 1999, the Company paid a quarterly series A
preferred unit distributions of $3,000,000 or $0.50 per unit and made
distributions to the holders of the series C preferred units of $700,000 or
$0.50 per unit and the series D preferred units of $1,402,000 or $0.539 per
unit.
7. NET INCOME PER COMMON UNIT
Reconciliations of net 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
share data):
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
Three Months Three Months
Ended Ended
March 31, 1999 March 31, 1998
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Computation of Net Income Available to Common Unitholders
Net income available to Common
Unitholders - basic and diluted $12,679 $ 7,318
- -------------------------------------------------------------------------------------------
Computation of Weighted Average Common Units
Weighted average Common Units - basic 27,051 24,868
Dilutive securities -
Company stock options 126 195
- -------------------------------------------------------------------------------------------
Weighted average Common Units - diluted 27,177 25,063
- -------------------------------------------------------------------------------------------
Net Income per Common Unit
Basic $ 0.47 $ 0.29
Diluted 0.47 0.29
- -------------------------------------------------------------------------------------------
</TABLE>
14
<PAGE>
Basic net income per Common Unit for the periods presented was computed by
dividing net 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 Company stock options
outstanding. Common Units issuable upon the exercise of 789,000 and 76,000
additional outstanding Company stock options, respectively, and 350,000
outstanding Company stock warrants were not dilutive in the three months ended
March 31, 1999 and 1998. In addition, the convertible feature of the series C
preferred units was not dilutive in the three months ended March 31, 1999.
8. SEGMENT DATA
The Operating Partnership's primary business is the acquisition, development and
ownership of industrial and suburban office properties in the southeast United
States and Texas. At March 31, 1999, the Operating Partnership's in-service
operating property portfolio (based on square footage) consisted of 89.6%
industrial properties, 8.6% suburban office properties and 1.8% retail and other
properties.
The Operating Partnership manages its properties and operating business through
geographic markets. Each geographic market is managed by local market managers
who are knowledgeable about the specific real estate fundamentals and
characteristics of the market. The Operating Partnership executes its business
plan through this geographic market strategy of utilizing local market knowledge
coupled with meaningful concentrations of properties in those markets.
Segment operating performance is measured on segment earnings before interest
expense and depreciation and amortization expense. Segment revenues consist
primarily of property operating revenues from in-service properties, but also
include other miscellaneous segment revenues. Segment earnings consist
primarily of segment revenues less segment property operating, maintenance,
management and real estate tax expenses and direct segment general and
administrative expenses. To the extent an operating segment generates earnings
from unconsolidated entities, such earnings are included in the measurement of
segment earnings. The Operating Partnership's measurement of segment earnings
is consistent with the Operating Partnership's calculation of segment
unleveraged "funds from operations," a REIT industry measure of operating
performance. Intersegment transactions are not material to the presentation of
the segment data.
15
<PAGE>
A summary of reportable segment revenues, segment earnings and segment assets is
detailed below (in thousands):
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
North South Segment
Georgia Carolina Florida Tennessee Other(a) Total
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Three months ended March 31, 1999
Segment revenues $ 22,165 $ 6,908 $ 5,778 $ 4,762 $ 4,808 $ 44,421
- ----------------------------------------------------------------------------------------------------------------------------------
Segment earnings $ 17,684 $ 5,180 $ 3,957 $ 3,754 $ 3,432 $ 34,007
Segment assets(b) $605,761 $222,372 $195,232 $185,478 $229,940 $1,438,783
- ----------------------------------------------------------------------------------------------------------------------------------
Three months ended March 31, 1998
Segment revenues $ 18,381 $ 5,249 $ 4,807 $ 3,002 $ 1,254 $ 32,693
- ----------------------------------------------------------------------------------------------------------------------------------
Segment earnings $ 14,912 $ 3,787 $ 3,187 $ 2,417 $ 762 $ 25,065
- ----------------------------------------------------------------------------------------------------------------------------------
Segment assets(b) $539,261 $171,812 $183,779 $124,066 $ 66,651 $1,085,569
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
A reconciliation of segment earnings to consolidated net income is as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Three Months Three Months
Ended Ended
March 31, 1999 March 31, 1998
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Segment earnings $ 34,007 $ 25,065
Depreciation and amortization expense (11,344) (8,361)
Interest expense (9,103) (6,102)
Corporate general and administrative expense (1,003) (563)
Interest income 325 279
Gain on sale of real estate assets 4,899 --
- ----------------------------------------------------------------------------------------------------------------------------------
Consolidated net income $ 17,781 $ 10,318
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Represents aggregate data for operating segments below the quantitative
threshold prescribed by SFAS 131.
(b) At period end.
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 buildigs 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.
Announced Merger Transaction
On March 1, 1999, the Company announced that it had entered into an Agreement
and Plan of Merger (the "REIT Merger Agreement") with Duke Realty Investments,
Inc., an Indiana based REIT specializing in industrial and office building
development and ownership ("Duke"), and that the Operating Partnership had
entered into an Agreement and Plan of Merger (the "OP Merger Agreement" and,
together with the REIT Merger Agreement, the "Merger Agreements") with Duke
Realty Limited Partnership, an Indiana limited partnership of which Duke is the
managing general partner ("Duke OP"). The Merger Agreements provide for a
merger of the Company with and into Duke (the "REIT Merger") and a merger of the
Operating Partnership with and into Duke OP (the "OP Merger" and,
17
<PAGE>
together with the REIT Merger, the "Mergers"). At the effective time of the
Mergers, Duke will change its name to Duke-Weeks Realty Corporation.
Pursuant to the Merger Agreements: (i) each outstanding share of common stock,
par value $0.01 per share, of the Company ("Weeks Common Stock") will be
converted into the right to receive 1.38 shares of common stock, par value $0.01
per share, of Duke ("Duke Common Stock"), (ii) each issued and outstanding share
of 8.0% Series A Preferred Stock, par value $0.01 per share, of the Company will
be converted into the right to receive one preference share representing 1/1000
of a share of 8.0% Series F Cumulative Redeemable Preferred Stock, par value
$0.01 per share, of Duke; (iii) each issued and outstanding share of 8.625%
Series D Cumulative Redeemable Preferred Stock, par value $0.01 per share, of
the Company will be converted into the right to receive one preference share
representing 1/1000 of a share of 8.625% Series H Cumulative Redeemable
Preferred Stock, par value $0.01 per share, of Duke; (iv) each issued and
outstanding Common Unit in the Operating Partnership will be converted into 1.38
common units of limited partnership interest in Duke OP; (v) each issued and
outstanding 8.0% Series A Preferred Unit in the Operating Partnership will be
converted into one 8.0% Series F Cumulative Redeemable Preferred Unit in Duke
OP; (vi) each issued and outstanding 8.0% Series C Preferred Unit in the
Operating Partnership will be converted into one 8.0% Series G Cumulative
Redeemable Preferred Unit in Duke OP; and (vii) each issued and outstanding
8.625% Series D Preferred Unit in the Operating Partnership will be converted
into one 8.625% Series H Cumulative Redeemable Preferred Unit in Duke OP.
Holders representing 2% of the outstanding Weeks Common Stock have entered into
voting agreements, agreeing to vote their shares in favor of the transactions
contemplated by the Merger Agreements. Holders representing 5% of the
outstanding Duke Common Stock have entered into voting agreements, agreeing to
vote their shares in favor of the transactions contemplated by the Merger
Agreements. The requisite approvals of the partners of Duke OP and the
Operating Partnership to the transactions have been obtained.
The consummation of the transactions contemplated by the Merger Agreements is
expected to occur on or about June 30, 1999 and is subject to approval by the
stockholders of Duke and the shareholders of the Company and satisfaction of
certain other customary closing conditions. Additionally, the consent of
certain Operating Partnership debt holders, lenders and others will be required
to consummate the Mergers. There can be no assurance that the transactions
contemplated by the Merger Agreements will be consummated. The Company has
agreed with Duke that if the REIT Merger Agreement is terminated under certain
circumstances, the Company will pay Duke certain fees and expenses. Duke has
agreed with the Company that if the REIT Merger Agreement is terminated under
certain other circumstances, Duke will pay the Company certain fees and
expenses.
18
<PAGE>
Results of Operations
Operating information relating to the Operating Partnership's properties for the
three months ended March 31, 1999 and 1998, is summarized below (in thousands):
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
Three Months Three Months
Ended Ended %
March 31, 1999 March 31, 1998 Change
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Rental revenues $38,520 $28,345 35.9%
Tenant reimbursements 5,561 3,960 40.4%
- ---------------------------------------------------------------------------
Property operating revenues 44,081 32,305 36.5%
- ---------------------------------------------------------------------------
Operating, maintenance and
management expenses 6,341 4,721 34.3%
Real estate taxes 3,912 2,746 42.5%
Depreciation and amortization 11,344 8,361 35.7%
- ---------------------------------------------------------------------------
Property operating expenses 21,597 15,828 36.4%
- ---------------------------------------------------------------------------
Property operating revenues less
property operating expenses $22,484 $16,477 36.5%
===========================================================================
</TABLE>
Period to period comparisons of property operating revenues and expenses for
1999 and 1998 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, 1998.
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, 1998.
For the comparable three months ended March 31, 1999 and 1998, operating results
of the core properties, exclusive of core properties sold in January 1999 (see
Note 3 to the consolidated condensed financial statements), are summarized below
(in thousands). Core properties information represents the operating results of
223 properties totaling approximately 15,942,000 square feet and excludes the
operating results of 19 properties totaling 1,073,000 square feet, sold in
January 1999.
- ------------------------------------------------------------------------------
Three Months Three Months
Ended Ended %
March 31, 1999 March 31, 1998 Change
- ------------------------------------------------------------------------------
Rental revenues $22,728 $22,447 1.3%
Tenant reimbursements 3,533 3,234 9.3%
- ------------------------------------------------------------------------------
Property operating revenues 26,261 25,681 2.3%
- ------------------------------------------------------------------------------
Operating, maintenance and
management expenses 3,561 3,418 4.2%
Real estate taxes 2,129 2,032 4.8%
Depreciation and amortization 7,068 6,726 5.1%
- ------------------------------------------------------------------------------
Property operating expenses 12,758 12,176 4.8%
- ------------------------------------------------------------------------------
Property operating revenues less
property operating expenses $13,503 $13,505 0.0%
==============================================================================
Average occupancy 94.8% 96.4%
==============================================================================
19
<PAGE>
Comparison of Operating Results for the Three Months Ended March 31, 1999, to
the Three Months Ended March 31, 1998
Property operating revenues (rental revenue plus tenant reimbursements)
increased $11,776,000 or 36.5% between periods. Of this increase, $5,304,000
and $7,098,000 were attributable to acquisition and development properties,
respectively, and such increases were offset by a decrease in property operating
revenues from core properties of $626,000. The increases relating to
acquisition and development properties were due to the acquisition of 49
properties (48 in 1998 and 1 in 1999) totaling approximately 5,187,000 square
feet and the stabilization of 37 development properties (27 in 1998 and 10 in
1999) and one property expansion in 1998 totaling approximately 4,568,000 square
feet. The decrease relating to core properties was due primarily to the sale of
19 core properties totaling 1,073,000 square feet in January 1999. Property
operating expenses increased $5,769,000 or 36.4% between periods due primarily
to the growth in the property portfolio resulting from the acquisition and
development properties, offset somewhat by the decreased property operating
expenses of the core properties sold as discussed above.
Property operating revenues from core properties, exclusive of the core
properties sold in January 1999, increased 2.3% despite a decrease in overall
average occupancy of approximately 1.6%. This increase in property operating
revenues was due primarily to both rental rate and tenant reimbursement
increases between periods. Property operating expenses increased 4.8% due
primarily to increased utility and real estate tax expense in 1999. Property
operating revenues less property operating expenses from core properties
increased 1.7%, exclusive of depreciation and amortization expense.
Interest expense increased by $3,001,000 or 49.2% from $6,102,000 for the three
months ended March 31, 1998, to $9,103,000 for the three months ended March 31,
1999, due to increased net interest expense on unsecured bank borrowings and
unsecured note borrowings due primarily to higher average borrowings used to
finance the Operating Partnership's growth in 1999 compared to 1998.
Operating Partnership general and administrative expenses increased by $476,000
or 37.2% from $1,280,000 for the three months ended March 31, 1998, to
$1,756,000 for the three months ended March 31, 1999, 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 and the continued growth of its existing offices in
Orlando and Tampa, Florida during 1998. As a percentage of total revenue,
general and administrative expenses remained comparable between periods at 4.0%
in the first quarter of 1999 and 3.9% in the first quarter of 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 5 to the consolidated condensed
financial statements). Equity in earnings of the Service Companies and their
subsidiaries increased by $15,000 or 3.1% from $488,000 for the three months
ended March 31, 1998, to $503,000 for the three months ended March 31, 1999, due
primarily to increased profits from construction service operations and from the
Service Companies' equity investment in Codina Group, Inc., offset by reduced
profits from third-party land sales. Equity in earnings of unconsolidated real
estate entities of $89,000 in 1999 and $68,000 in 1998 primarily represents the
Operating Partnership's 50% share of earnings from a single building equity
investment.
20
<PAGE>
The gain on sale of real estate assets of $4,899,000 in the three months ended
March 31, 1999, represents the profit from the sale of 21 buildings (19 core
properties and two development properties) totaling 1,181,000 square feet (see
Note 3 to the consolidated condensed financial statements).
Segment Operations
The Operating Partnership manages its business through geographic operating
segments and segment operating performance is measured based on profits before
interest expense and depreciation and amortization expense, referred to herein
as "segment earnings." See note 8 to the consolidated condensed financial
statements for an additional discussion and presentation of segment information.
A comparison of segment earnings for the three months ended March 31, 1999 and
below (in thousands):
- ----------------------------------------------------
Three Months Three Months
Ended Ended
Operating Segments March 31, 1999 March 31, 1998
- ----------------------------------------------------
Georgia $17,684 $14,912
North Carolina 5,180 3,787
South Florida 3,957 3,187
Tennessee 3,754 2,417
Other 3,432 762
- ----------------------------------------------------
Total $34,007 $25,065
====================================================
Segment earnings, as defined, increased $8,942,000 or 35.7% from $25,065,000 in
the three months ended March 31, 1998 to $34,007,000 in the three months ended
March 31, 1999. Segment earnings in Georgia increased due primarily to
stabilization of development properties throughout 1998 and in the first
quarter of 1999. North Carolina segment earnings increased due primarily to both
the acquisitions and the stabilization of development properties subsequent to
March 31, 1998. South Florida segment earnings in the first quarter of 1999
reflect a full quarter of earnings from properties acquired in January 1998 plus
earnings from an additional development property stabilized in 1999 compared to
a partial quarter of earnings from the acquisition properties in 1998. Segment
earnings in Tennessee increased due primarily to properties acquired in 1998.
Other segment earnings increased due primarily to the earnings from properties
acquired in the Operating Partnership's entry into the Dallas/Ft. Worth, Texas
market in June 1998, additional earnings from 1998 acquisition properties in the
Jacksonville, Florida market and from the stabilization of development
properties in Orlando, Florida in 1998 and 1999.
Liquidity and Capital Resources
The Operating Partnership continues to generate increasing cash flows from
operations. Cash provided by operating activities increased 13.3% from
$15,938,000 for the three months ended March 31, 1998, to $18,058,000 for the
three months ended March 31, 1999, due primarily to the growth in the Company's
operating income resulting from 37 development properties (27 in 1998 and 10 in
1999) and one property expansion in 1998 stabilized and from 49 buildings
acquired (48 in 1998 and one in 1999).
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. Management believes that operating cash flows will
continue to be adequate to fund these requirements for the remainder of 1999.
21
<PAGE>
During the three months ended March 31, 1999, the Operating Partnership invested
$63,560,000 of cash in property acquisition, development and construction
activities. This compares to $108,297,000 for the same three month period in
1998. This decreased cash investment activity reflects primarily the decreased
cash component of the Operating Partnership's building acquisition activity in
1999 compared to 1998 of approximately $54,252,000 offset by increased
development activity. In addition, during the first quarter of 1999, the
Operating Partnership received net proceeds of $51,832,000 from the sale of
operating real estate assets.
Financing for the Operating Partnership's property investment activities, in
excess of activities funded through operating real estate asset sales, consisted
primarily of $22,115,000 of Credit Facility borrowings in the three months ended
March 31, 1999 compared to $50,071,000 from Company capital contributions, and
$94,141,000 of net proceeds from unsecured note borrowings, offset somewhat by
reduced Credit Facility borrowings, in the three months ended March 31, 1998.
The debt and equity components of the Operating Partnership's ongoing financing
strategy may differ based on 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 4 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, refinanced, as necessary, through the issuance of both common and
preferred equity securities and public and private unsecured debt obligations.
Additionally, the Operating Partnership may continue to selectively use real
estate asset sales and other joint venture arrangements to supplement the
financing of its development pipeline. As of March 31, 1999, the Operating
Partnership had available capacity under the Credit Facility of approximately
$104,860,000.
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 $550,000,000 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
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. As an alternative to the
more traditional debt and equity financings used in prior years, the Operating
Partnership has in early 1999, and may continue, to utilize selective real
estate asset sales and other joint venture arrangements to provide additional
sources of capital in periods where the pricing, terms and availability of other
traditional financing sources are not advantageous to the Operating Partnership.
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.
Total consolidated debt amounted to $668,904,000 at March 31, 1999, including
unsecured note borrowings of $200,000,000, unsecured bank borrowings of
$225,140,000 and mortgage notes payable of
22
<PAGE>
$243,764,000. Of the $243,764,000 of mortgage indebtedness, $243,164,000 is
fixed rate and $600,000 is variable rate. At March 31, 1999, the weighed average
interest rate on the Operating Partnership's fixed rate mortgage debt was 8.3%
and on its variable rate mortgage debt was 6.1%. The weighted average interest
rates under the Credit Facility and the unsecured term loan, exclusive of the
impact of the interest rate swap agreements, at March 31, 1999, were 5.9% and
6.3%, respectively. The weighted average interest rate on the Operating
Partnership's unsecured notes was 7.125% at March 31, 1999. Based on the
outstanding balance of mortgage notes payable at March 31, 1999, the weighted
average interest rates on the mortage notes with a final maturity in each of the
next five years and thereafter were 7.3% in 1999, 9.0% in 2000, 7.9% in 2001,
8.2% in 2002, 8.3% in 2003 and 8.5% thereafter.
Including total consolidated debt obligations of $668,904,000 and $2,309,000 of
other notes payable on unconsolidated properties, the total debt obligations of
the Operating Partnership and its unconsolidated entities was $671,213,000 or
40% of total market capitalization (defined as total debt plus the market equity
value of the Operating Partnership's common and preferred units) at March 31,
1999. Based on the closing price of the common stock of the Company of
$28.5625, on March 31, 1999, the 27,078,747 Common Units outstanding would have
a total market value of $773,437,000, 10,000,000 preferred partnership units
outstanding would have a liquidation value of $250,000,000 and 350,000 common
unit warrants outstanding have a book value of $1,400,000, resulting in total
equity value of $1,024,837,000.
Current Development and Acquisition Activity
At March 31, 1999, the Operating Partnership had committed developments and
acquisitions totaling approximately $280,049,000, representing 42 buildings
totaling 4,450,000 square feet. Including new development activity, net of the
stabilization of development properties, between March 31, 1999 and May 10,
1999, the Operating Partnership had, at May 10, 1999, committed developments and
acquisitions totaling approximately $325,735,000, representing 50 buildings
totaling 5,264,000 square feet. Properties under agreement to acquire as of
May 10, 1999, consisted of one building, totaling 90,000 square feet, with a
total expected cost of approximately $5,100,000. Development properties as of
May 10, 1999, consisted of 49 buildings totaling 5,174,000 square feet, with a
total expected cost of approximately $320,635,000.
It is expected that such development and acquisition properties will stabilize
or be acquired as detailed below:
- ---------------------------------------------------------------------
Square Estimated
Year Buildings Feet Cost(a)
- ---------------------------------------------------------------------
1999 17 1,683,000 $115,554,000
2000 33 3,581,000 210,181,000
- ---------------------------------------------------------------------
50 5,264,000 $325,735,000
- ---------------------------------------------------------------------
(a) For development properties represents the entire estimated cost of the
property at the estimated stabilization date.
23
<PAGE>
In addition, the Operating Partnership has committed, subject to closing
conditions and the completing and updating of due diligence procedures, to
acquire development land totaling approximately $32,641,000 over various periods
ranging up to five years.
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 the Board of Directors of the Company in
determining the amount of cash distributions the Operating Partnership will pay
to its Common 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 $1,089,000 and $251,000 for the three
months ended March 31, 1999 and 1998, 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 $0 and $419,000 for the three months
ended March 31, 1999 and 1998, respectively.
24
<PAGE>
For the three months ended March 31, 1999, funds from operations increased by
$3,610,000 or 23.0% to $19,304,000 compared to funds from operations of
$15,694,000 for the three months ended March 31, 1998. Funds from operations
for the three months ended March 31, 1999 and 1998 are detailed below (in
thousands):
- -------------------------------------------------------------------------------
Three Months Three Months
Ended Ended
March 31, 1999 March 31, 1998
- -------------------------------------------------------------------------------
Net income available to
common unitholders $12,679 $ 7,318
Depreciation and amortization 11,344 8,361
Depreciation and amortization -
unconsolidated entities 180 15
Gain on sale of operating real estate assets (4,899) --
- -------------------------------------------------------------------------------
Funds from operations available to
common shareholders $19,304 $15,694
- -------------------------------------------------------------------------------
Weighted average common units
Basic 27,051 24,868
Diluted(1) 27,177 25,063
===============================================================================
(1) Represents the weighted average shares of Common Units outstanding plus the
dilutive effect of the Company's outstanding stock options. Common Unit
equivalents related to the Company's outstanding stock options totaled
126,000 and 195,000 for the three months ended March 31, 1999 and 1998,
respectively.
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 months ended March 31, 1999 and 1998 (in thousands):
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
Three Months Three Months
Ended Ended
March 31, 1999 March 31, 1998
- ---------------------------------------------------------------------------------
<S> <C> <C>
Building acquisitions(1)(2) $43,117 $179,581
Development and land acquisition activity(3)(4) 52,706 60,380
Non-revenue-producing building
improvements 626 378
Tenant improvement and leasing costs
on second-generation leases(5) 2,054 1,827
- ---------------------------------------------------------------------------------
$98,503 $242,166
=================================================================================
</TABLE>
(1) Building acquisitions in 1998 included two buildings acquired while still
under development.
(2) Reflects aggregate acquisition costs including the Operating
Partnership's investment and advances to unconsolidated entities of
$32,733,000 in the three months ended March 31, 1999. Reflects aggregate
acquisition costs including the assumption of indebtedness of $80,897,000,
the issuance of $29,824,000 of Common Units and other assumed liabilites,
net of other assets, of $4,224,000 in the three months ended March 31,
1998.
(3) Includes first-generation leasing costs on stabilized development
properties totaling $1,068,000 and $543,000 in the three months ended March
31, 1999 and 1998, respectively.
(4) Reflects aggregate development and leasing costs including of the issuance
of $300,000 of Common Units and including the increase in construction
payables of $101,000 in the three months ended March 31, 1999. Reflects
aggregate development and leasing costs including the settlement of real
estate loans of $7,898,000, the issuance of $6,299,000 of Common Units and
exclusive of the decrease in construction payables of $3,727,000 in the
three months ended March 31, 1998.
(5) Includes second-generation leasing costs totaling $943,000 and $807,000 in
the three months ended March 31, 1999 and 1998, 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 three months ended March 31, 1999, and the
year ended December 31, 1998, 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
- -------------------------------------------------------------------------------------------
Three Months Year
Ended Ended
(In thousands, except per square foot information) March 31, 1999 Dec. 31, 1998
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Industrial Properties
Re-leasing
Square feet re-leased 490 1,843
Capitalized tenant improvements and leasing commissions $ 532 $3,826
Capitalized tenant improvements and leasing commissions
per square foot $1.09 $ 2.08
Renewal
Square feet renewed 195 2,173
Capitalized tenant improvements and leasing commissions $ 92 $1,582
Capitalized tenant improvements and leasing commissions
per square foot $0.47 $ 0.73
Total
Square feet 685 4,016
Capitalized tenant improvements and leasing commissions $ 624 $5,408
Capitalized tenant improvements and leasing commissions
per square foot $0.91 $ 1.35
===========================================================================================
Suburban Office Properties
Re-leasing
Square feet re-leased 16 103
Capitalized tenant improvements and leasing commissions $ 65 $ 347
Capitalized tenant improvements and leasing commissions
per square foot $4.04 $ 3.36
Renewal
Square feet renewed 40 92
Capitalized tenant improvements and leasing commissions $ 109 $ 160
Capitalized tenant improvements and leasing commissions
per square foot $2.70 $ 1.74
Total
Square feet 56 195
Capitalized tenant improvements and leasing commissions $ 174 $ 507
Capitalized tenant improvements and leasing commissions
per square foot $3.08 $ 2.60
- -------------------------------------------------------------------------------------------
</TABLE>
27
<PAGE>
Supplemental Disclosure of Tenant and Lease Expiration Information
Tenants
As of March 31, 1999, the Operating Partnership's properties were leased to
1,028 tenants including local, regional, national and international companies.
The Company's 30 largest tenants (measured by annualized base rent for leases in
place in stabilized properties and in properties under development or in lease-
up where tenants were paying rent at March 31, 1999) occupy a total of
approximately 5,788,000 square feet and represent 25.9% of the annualized base
rent as shown in the table below.
<TABLE>
<CAPTION>
30 Largest Tenants Measured By Annualized Base Rent
- ---------------------------------------------------------------------------------------------------------
Number % of Total
Square of Annualized Annualized
Rank Tenant Feet Leases Base Rent(1) Base Rent(1) State
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 Northern Telecom, Inc.(2) 401,349 8 $ 3,002,853 1.9% NC,TN
2 Interpath Communications,
Inc. 189,875 4 2,417,325 1.5% NC
3 United States Postal
Service 409,026 5 2,340,518 1.5% FL,TX
4 Scientific Atlanta, Inc. 469,633 8 2,244,179 1.4% GA
5 Federal Express Corporation 237,890 4 2,098,942 1.3% FL,TN
6 Hussmann Corporation 374,045 1 1,984,687 1.2% GA
7 PPD Pharmaco, Inc. 164,495 5 1,895,200 1.2% NC
8 United Healthcare
Services, Inc. 146,106 3 1,642,260 1.0% GA,FL,SC
9 Radiant Systems, Inc. 106,631 1 1,609,789 1.0% GA
10 Alltel 114,476 7 1,541,124 1.0% NC
11 Honeywell, Inc. 119,961 4 1,501,052 0.9% GA
12 Ikon Office Solutions, Inc. 177,000 4 1,468,400 0.9% GA
13 GTE Mobilnet Service
Corporation 126,124 3 1,382,317 0.9% NC,GA
14 Tech Data Corporation 181,230 2 1,367,722 0.9% FL
15 Radian International LLC 90,159 2 1,177,399 0.7% NC
16 Innotrac Corporation 303,481 2 1,124,905 0.7% GA
17 Moore U.S.A., Inc. 274,951 2 1,085,266 0.7% TX,FL
18 AIG Claim Services, Inc. 52,372 1 1,050,059 0.7% GA
19 Pioneer-Standard
Electronics, Inc. 109,957 2 1,035,436 0.6% GA
20 Square D Company 102,262 2 1,000,749 0.6% TN,FL
21 DeVry Inc. 64,981 1 928,269 0.6% GA
22 The Athlete's Foot Group,
Inc. 162,651 1 924,069 0.6% GA
23 Anixter, Inc. 167,460 2 913,150 0.6% GA
24 Merisel, Inc. 142,487 2 900,147 0.6% FL
25 Fisher Scientific Company 223,219 1 875,019 0.5% GA
26 Reckitt & Colman, Inc. 356,000 2 871,840 0.5% GA
27 Tekelec 98,210 3 858,680 0.5% NC
28 Fritz Companies, Inc. 282,400 4 841,118 0.5% GA,TN
29 Data General Corporation 89,680 2 817,304 0.5% GA
30 National Data Corporation 50,283 4 786,776 0.4% GA
- ---------------------------------------------------------------------------------------------------------
5,788,394 92 $41,686,554 25.9%
- ---------------------------------------------------------------------------------------------------------
</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 March 31,
1999.
(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
March 31, 1999, 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
1999 3,067 12.2% 17,267 10.3%
2000 3,413 13.6% 21,650 12.9%
2001 3,088 12.3% 18,519 11.0%
2002 3,206 12.8% 25,989 15.5%
2003 3,494 13.9% 27,322 16.2%
2004 1,696 6.7% 12,082 7.2%
2005 1,470 5.8% 4,971 3.0%
2006 739 2.9% 4,094 2.4%
2007 1,280 5.1% 7,940 4.7%
2008 1,589 6.3% 13,881 8.3%
2009 701 2.8% 4,852 2.9%
2010 65 0.3% 90 0.1%
2011 405 1.6% 2,201 1.3%
2012 191 0.8% 2,167 1.3%
2013 and later 735 2.9% 5,113 2.9%
- ---------------------------------------------------------------------------------------
25,139(2) 100.0% $168,138 100.0%
=======================================================================================
Industrial Properties
1999 2,884 12.7% 15,073 11.6%
2000 3,181 14.1% 18,399 14.1%
2010 2,950 13.0% 16,587 12.7%
2002 2,691 11.9% 17,456 13.4%
2003 3,051 13.5% 19,575 15.0%
2004 1,507 6.7% 8,662 6.6%
2005 1,439 6.4% 4,511 3.5%
2006 721 3.2% 3,767 2.9%
2007 1,224 5.4% 7,348 5.6%
2008 1,296 5.7% 8,428 6.5%
2009 628 2.8% 3,481 2.7%
2010 -- -- -- --
2011 349 1.5% 2,121 1.6%
2012 126 0.6% 1,003 0.8%
2013 and later 585 2.5% 4,032 3.0%
- ---------------------------------------------------------------------------------------
22,632 100.0% $130,443 100.0%
=======================================================================================
(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
1999 140 6.7% 1,845 5.3%
2000 180 8.6% 2,699 7.8%
2001 129 6.2% 1,782 5.1%
2002 507 24.3% 8,385 24.2%
2003 428 20.5% 7,422 21.4%
2004 180 8.6% 3,209 9.3%
2005 26 1.2% 382 1.1%
2006 17 0.8% 309 0.9%
2007 56 2.7% 592 1.7%
2008 286 13.7% 5,453 15.8%
2009 73 3.5% 1,371 4.0%
2010 -- -- -- --
2011 -- -- -- --
2012 65 3.2% 1,166 3.4%
2013 and later -- -- -- --
- ----------------------------------------------------------------------------------------
2,087 100.0% $34,615 100.0%
========================================================================================
</TABLE>
(1) Annualized base rent represents the annualized monthly base rental at
the time of lease expiration.
(2) The total square footage as of March 31, 1999, is comprised of
approximately 24,559,000 square feet of leases in in-service properties,
and approximately 580,000 square feet of leases in properties under
development or in lease-up where tenants are paying rent as of March 31,
1999.
Recent Accounting Pronouncements
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 require the Operating Partnership to record all derivative instruments on
the balance sheet at fair value. Changes in derivative fair values will either
be recorded in earnings along with the changes in fair value of related hedged
assets or liabilities or as an adjustment to shareholders' equity depending on
the nature and type of derivative instrument. 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. The impact of SFAS 133 on the's
financial statements will depend on the extent, type and effectiveness of the
Operating Partnership's hedging activities. However, the Operating Partnership
does not believe the effect of adopting SFAS 133 will be material to its
financial position or results of operations.
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 second 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 in the first half
of 1999.
Cost to Address Year 2000 Issues. Through March 31, 1999, the Operating
Partnership has spent approximately $101,000 to upgrade and replace certain
computer hardware systems and its telecommunciation system to ensure year 2000
compliance. The Operating Partnership estimates that it will spend an
additional $87,000 on computer hardware system upgrades and replacements during
1999 relating to year 2000 compliance issues. A significant portion of such
actual and future expenditures are part of the Operating Partnership's on-going
technology enhancement program and, as such, these expenditures are not
incremental costs associated with year 2000 readiness. The Operating
Partnership does not expect to incur additional incremental costs in excess of
amounts stated above relating to year 2000 compliance and the Operating
Partnership does not believe the total costs of year 2000 compliance to be
material to the Operating Partnership's consolidated financial condition or
results of operations
31
<PAGE>
taken as a whole. The Operating Partnership continues to allocate the time and
resources necessary to timely resolve significant year 2000 issues.
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 obligaitons 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 Company'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 Company.
Contingency Plans. To date, the Operating Partnership has not established any
contingency plans for possible year 2000 issues. After its assessments are
completed in the first half of 1999, the Operating Partnership anticipates
evaluating and developing contingency plans to the extent such plans are
feasible, to address identified risks. It is anticipated that any such plans
will be developed in the second half of 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 I - FINANCIAL INFORMATION
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Operating Partnership's principal market risk relates to its exposure to
interest changes, primarily changes in short-term LIBOR and U.S. prime interest
rates and medium-term U.S. treasury security interest rates used as the
benchmark interest rate for the Operating Partnership's seven to ten year fixed
rate unsecured notes. Changes in short-term interest rates cause the Operating
Partnership's interest costs on unhedged line of credit borrowings to increase
or decrease on a period to period basis. Changes in medium-term U.S. treasury
security interest rates will cause the Operating Partnership's interest costs on
expected future medium-term unsecured note borrowings to increase or decrease
based on changes in the interest rates.
The Operating Partnership's primary derivative and other financial instruments
subject to interest rate risk are the Operating Partnership's fixed and variable
rate borrowing arrangements and outstanding interest rate swap arrangements.
The Operating Partnership's other financial instruments (cash and cash
equivalents, receivables, other assets, accounts payable and other liabilities)
are not generally subject to interest rate risks due to the short-term nature
andtype of these instruments.
The Operating Partnership used interest rate swap and treasury rate guarantee
hedge arrangements to manage its exposure to interest rate changes. At March
31, 1999, outstanding interest rate swap arrangements serve to decrease the
negative impact of increased short-term interest rates on the Operating
Partnership's financial results by fixing interest rates on otherwise variable
rate debt instruments. In prior years, the Operating Partnership used treasury
rate guarantee hedge arrangements to effectively fix the interest rate on
anticipated future debt issuances, however, at March 31, 1999, the Operating
Partnership had no outstanding treasury rate guarantee hedge arrangements.
Following is a summary of the terms of the Operating Partnership's fixed and
variable rate borrowing arrangements and interest rate swap arrangements at
March 31, 1999 (in thousands):
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Principal/ Average Average
Notional Fair Interest Years to
Amount Value Rate Maturity
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Debt
Mortgage Debt
Fixed rate $243,164 $251,787 8.3% 6.4
Variable rate 600 600 6.1% 11.6
Unsecured notes -- fixed rate 200,000 199,575 7.1% 7.1
Unsecured term loan -- variable rate 85,000 85,000 6.3% 2.7
Unsecured line of credit facilities -- variable rate 140,140 140,140 5.9% 1.6
Interest Rate Swaps
Unsecured line of credit swaps $ 40,000 $ (1,083) -- 1.8
Average pay rate -- -- 6.7% --
Average receive rate -- -- 5.0% --
Unsecured term loan swaps 85,000 896 -- 2.7
Average pay rate -- -- 5.0% --
Average receive rate -- -- 5.0% --
</TABLE>
If interest rates under the unsecured line of credit facilities and term loan,
in excess of the $125,000,000 effectively converted to fixed rates discussed
above, and under the Operating Partnership's variable rate mortgage debt
fluctuated by 1.0%, interest costs to the Operating Partnership, based on
outstanding borrowings at March 31, 1999, would increase or decrease by
approximately $1,000,000 on an annualized basis.
As reflected in the table above, the interest rate swap arrangements would
require the net payment of approximately $187,000 (at March 31, 1999), if the
arrangements were terminated. Under current accounting rules, these potential
costs are not recognized currently in the Operating Partnership's financial
statements, but instead are reflected as part of interest expense over the life
of the related hedged borrowings, causing reported interest costs to be higher
than current interest costs on similar unhedged indebtedness. The costs
associated with terminated swap and hedge arrangements can result in charges to
operations to the extent hedged borrowings are not completed or are no longer
outstanding.
At March 31, 1999, the Operating Partnership does not have any exposure to
foreign currency exchange risk, equity price risk or other material market
risks.
33
<PAGE>
PART II - OTHER INFORMATION
ITEM 2 - CHANGE IN SECURITIES
During the three months ended March 31, 1999, the Operating Partnership
issued a total of 10,676 Common Units in the Operating Partnership, in
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 $300,000. Common
Units are convertible by their holders into shares of common stock on a
one-for-one basis, or into cash, at the Company's option. The Common
Units were issued pursuant to an exemption from registration under
Section 4(2) of the Securities Act in reliance, in part, upon the
representations and warranties set forth in the acquisition agreements.
Certain of these Common Units are subject to registration rights and
lock-up agreements which generally restrict the disposition of the Common
Units until the designated lock-up periods expire.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 - Sixteenth amendment to the Second Amended and Restated
Agreement of Limited Partnership of Weeks Realty, L.P. dated
January 14, 1999.
27.1 - Financial data schedule.
(b) Reports on Form 8-K
Form 8-K dated February 28, 1999 and filed on March 5, 1999,
announcing the execution of an Agreement and Plan of Merger between
Weeks Realty, L.P. and Duke Realty Limited Partnership.
34
<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
May 14, 1999 /s/ A. R. Weeks, Jr.
-----------------------------------
A. R. Weeks, Jr.
Chairman of the Board and
Chief Executive Officer
May 14, 1999 /s/ David P. Stockert
-----------------------------------
David P. Stockert
Senior Vice President and
Chief Financial Officer
35
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- --------------------------------------------------------------------------------
10.1 Sixteenth amendment to the Second Amended and Restated Agreement of
Limited Partnership of Weeks Realty, L.P. dated January 14, 1999.
27.1 Financial data schedule.
36
<PAGE>
EXHIBIT 10.1
SIXTEENTH AMENDMENT
TO THE
SECOND AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
WEEKS REALTY, L.P.
THIS SIXTEENTH AMENDMENT TO THE SECOND AMENDED AND RESTATED AGREEMENT OF
LIMITED PARTNERSHIP OF WEEKS REALTY, L.P. (the "Amendment") is entered into as
of the 14th day of January, 1999 by and among WEEKS GP HOLDINGS, INC., a Georgia
corporation (the "General Partner"), WEEKS CORPORATION, a Georgia corporation
(the "Company"), and PARAGON LEGACY ASSOCIATES, LTD. (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 as of April 3, 1998, the
Eleventh Amendment to the Partnership Agreement dated as of May 26, 1998, the
Twelfth Amendment to the Partnership Agreement dated as of June 3, 1998, the
Thirteenth Amendment to the Partnership Agreement dated as of August 7, 1998,
the Fourteenth Amendment to the Partnership dated as of November 6, 1998, and
the Fifteenth Amendment to the Partnership dated as of November 12, 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 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
<PAGE>
admission of the Contributor as a Limited Partner of the Partnership, and the
Contributor wishes to enter into this Amendment to memorialize their agreement
as to certain matters relating to their 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 the Contributor
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 Contributions 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, are shown on Exhibit B.
---------
3. Initial Partnership Units; Rights.
---------------------------------
(a) The Partnership Units attributable to the Partnership Interests of
the Contributor, effective upon its admission as a Limited Partner at
the date hereof, are as set forth on Exhibit B hereto, and the
---------
Partnership Agreement is hereby amended to reflect the Contributor's
having such Partnership Units.
(b) The Partnership does hereby grant to the Contributor, and it does
hereby accept, 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 them 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 have none of the 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 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 Interests of the Contributor has been reflected on Exhibit C hereto,
---------
and the Partnership Agreement is hereby amended accordingly.
5. Future Contributions. The parties acknowledge that, pursuant to
--------------------
and subject to the terms and conditions of the Transaction Documents, the
Contributor may make additional Capital
<PAGE>
Contributions. Concurrently with any such additional Capital Contribution, the
General Partner shall supplement this Amendment by executing and attaching
hereto supplements to Exhibits B and C (which shall be captioned "Exhibit B-1,"
---------------- -----------
"Exhibit B-2," "Exhibit C-1," "Exhibit C-2," and so on and shall identify the
----------- ----------- -----------
Capital Contribution to which each relates) that will, respectively, reflect (to
the extent determinable at such time) the Capital Contribution made by the
Contributor at that time, the initial Gross Asset Value of any property other
than money included in such Capital Contribution, the additional Partnership
Units attributable to the Partnership Interest associated with such Capital
Contribution, and the resulting restated Percentage Interests of all of the
Partners. Such supplements shall be in accordance with the terms of the
Transaction Documents. The Partnership Agreement shall be deemed to be amended
as reflected in each such supplement to this Amendment.
6. Adjustments to Partnership Units. The parties acknowledge that the
--------------------------------
Transaction Documents provide for adjustments to the Partnership Units of the
Contributor in certain circumstances, and further provide that the Contributor's
Partnership Interests and Units, and the resulting restated Percentage Interests
of all of the Partners, may not be capable of determination at the time a
Capital Contribution is made after the date hereof. At the times of adjustment
and final determination provided for in the Transaction Documents, the General
Partner shall supplement this Amendment by executing and attaching hereto either
additional supplements to Exhibits B and C (in the form described above), or
----------------
amended and restated versions of prior supplements to Exhibits B and C, as
----------------
applicable. Such supplements shall be in accordance with the terms of the
Transaction Documents. The Partnership Agreement shall be deemed to be amended
as reflected in each such supplement to this Amendment.
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
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 contained in the Acquisition
Agreement identified in Exhibit A attached hereto. In addition, the
Contributors hereby represents and warrants to the Partnership and the
General Partner that (i) such 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) Contributor is an "accredited investor," as
that term is defined in Rule 501(a) of Regulation D promulgated under
the Securities Act; (iii) 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 Contributor's representations as
expressed herein; (iv) Contributor has had an opportunity
<PAGE>
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) 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)
Contributor has such knowledge and experience in financial and
business matters, or has been adequately advised by Contributor's
financial representatives, that Contributor is capable of evaluating
the merits and risks of the purchase of the Partnership Units pursuant
to this Agreement and of protecting 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:
(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
<PAGE>
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 indemnifies and holds 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.
(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 Contributors.
(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 a 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.
<PAGE>
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 each
of them pursuant to the Transaction Documents and the shares of Common
Stock acquired by each of them 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 elect.
Any Transfer by a 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
deliver written notice to the General Partner indicating that the
Contributor dispute the circumstances giving rise to or the amount of
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
fails to timely deliver notice to the General Partner of their 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 do 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 Contributors),
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
<PAGE>
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 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 such 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 a 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 a Contributor included in such 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.
<PAGE>
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.
IN WITNESS WHEREOF, the parties have executed and delivered this Amendment
as of the date first above written.
WEEKS REALTY, L.P., a Georgia limited
partnership
By: 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 NEXT PAGE]
<PAGE>
CONTRIBUTOR:
PARAGON LEGACY ASSOCIATES, LTD.,
By: WRC Turtle Creek, Inc.,
a Texas corporation
By:
--------------------------
Name:
Title:
Address:
Solely to evidence its agreement to its
undertakings in Exhibit D hereto:
---------
WEEKS CORPORATION
By:
----------------------------------
Name:
Title:
<PAGE>
CONTRIBUTOR:
PARAGON LEGACY ASSOCIATES, LTD.,
By: WRC Turtle Creek, Inc.,
a Texas corporation
By:
--------------------------
Name:
Title:
Address:
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
<PAGE>
Exhibit A
---------
TRANSACTION DOCUMENTS
That certain Contribution Agreement (the "Contribution Agreement") dated as of
----------------------
December 17, 1998, between the Partnership and Contributor, covering the "Phase
II Lease" and other property described therein, together with the other
documents executed and delivered pursuant to such Contribution Agreement.
<PAGE>
Exhibit B
---------
Capital Contribution:
- --------------------
Paragon Legacy Associates, Ltd. Capital Contribution: All assets, properties
Capital Contribution: and businesses transferred from Paragon Legacy
Associates, Ltd. on January 14, 1999, to the
Partnership pursuant to the Contribution
Agreement (as defined in Exhibit A to the
foregoing Amendment)
Gross Fair Market Value of Property Contributions:
- -------------------------------------------------
Gross Fair Market Value of all
property other than money included in
Contribution: $1,500,000.00*
* This is the gross value of the property being contributed pursuant to the
Contribution Agreement as of the closing of the contribution. At such closing,
pursuant to the Contribution Agreement, Contributor is to receive a cash
distribution from the Partnership in the amount of $1,200,004.40, reimbursing
Contributor for costs and expenses relating to the property, together with Units
having a value of $299,995.60.
<PAGE>
Exhibit C
---------
Weeks Realty, L.P.
Partnership Interests as of 1/13/99
No. Person/Entity Units Percent
- ----------------- ----- -------
Common Partnership Interests
General Partner:
1 Weeks GP Holdings, Inc. 337,503 1.250%
Limited Partners:
2 Weeks LP Holdings, Inc. 19,336,919 71.621%
3 NWI Warehouse Group, L.P. 2,685,649 9.947%
4 A. Ray Weeks, Jr. 614,079 2.274%
5 John P. Weeks 239,791 0.888%
6 Marsha L. Weeks 228,047 0.845%
7 A.R. Weeks, Jr., as Trustee U/W of
Alvin Ray Weeks dated March 1, 1983,
f/b/o Marsha Lee Weeks, A.R. Weeks,
Jr., Deborah Weeks Felker, Patricia
Weeks and John Phillip Weeks 212,663 0.788%
8 Patricia L. Weeks 206,607 0.765%
9 Deborah Weeks Felker 198,339 0.735%
10 Harry T. Weeks, A.R. Weeks, Jr., and
Martha Patterson Weeks as Trustees
under Trust Agreement dated 10/27/76,
as amended, f/b/o/ Marsha Lee Weeks,
A.R. Weeks, Jr., Deborah Weeks Felker,
Patricia Louise Weeks and John Phillip
Weeks. 187,492 0.694%
11 Helen B. Weeks 163,048 0.604%
12 Weeks Horizon Corp. 116,012 0.430%
13 Oakdale Land Management, Inc. 110,493 0.409%
14 Weeks Hillside Corp. 78,145 0.289%
15 Thomas D. Senkbeil 52,817 0.196%
16 Weeks Southridge Corp. 42,993 0.159%
17 Forrest W. Robinson 28,877 0.107%
18 Harry T. Weeks 27,535 0.102%
19 Louis C. Robinson 20,016 0.074%
20 Buckley & Company Real Estate, Inc. 20,000 0.074%
21 HV, Inc. 17,074 0.063%
22 Clyde H. Duckett 5,627 0.021%
23 John C. Atwell 5,627 0.021%
24 Robert G. Cutlip 5,138 0.019%
25 Klay W. Simpson 4,110 0.015%
26 Mark W. Flowers 1,541 0.006%
27 Weeks Management Corp. 1,142 0.004%
28 RTF Management Corp. 257 0.001%
29 Marie Antoinette Robinson 268,508 0.995%
30 Harold S. Lichtin 36,639 0.136%
31 Noel A. Lichtin 298 0.001%
32 Perimeter Park West Associates
Limited Partnership 351,484 1.302%
33 Amy R. Ehrman 2,053 0.008%
34 Roland G. Robertson 2,053 0.008%
35 Timothy Nichols 1,757 0.007%
<PAGE>
No. Person/Entity Units Percent
- ----------------- ----- -------
36 Roderick Duncan 2,928 0.011%
37 James McCabe 39 0.000%
38 Anne Broaddus 1,561 0.006%
39 Harold S. Lichtin Family
Limited Partnership 342,569 1.269%
40 GB Partners, Ltd. 18,461 0.068%
41 Armando Codina 124,523 0.461%
42 Codina Family Investments, Ltd. 30,351 0.112%
43 Codina West Dade Development Corporation 117,692 0.436%
44 The Benenson Capital Company 320,721 1.188%
45 Raha Associates, Inc. 7,281 0.027%
46 Preston R. Tisch 164,001 0.607%
47 PCTC Associates, LLC 47,273 0.175%
48 Sanford H. Orkin 40,789 0.151%
49 Barbara H. Orkin, as Trustee of the
Sheri Orkin Life Trust U/A with
Sanford H. Orkin, dated December
27, 1973 6,798 0.025%
50 Barbara H. Orkin, as Trustee of the
Laurie Orkin Life Trust U/A with
Sanford H. Orkin, dated December
27, 1973 6,798 0.025%
51 Barbara H. Orkin, as Trustee of the
Michael Orkin Life Trust U/A with
Sanford H. Orkin, dated December
27, 1973 6,798 0.025%
52 Barbara H. Orkin, as Trustee of the
Kenneth Orkin Life Trust U/A with
Sanford H. Orkin, dated December
27, 1973 6,798 0.025%
53 The Futrell Properties Limited
Partnership No. 1 45,895 0.170%
54 Thomas M. Beckman 28,643 0.106%
55 Thomas B. Fowler, Jr. 28,643 0.106%
56 Ackerman & Co. 29,528 0.109%
57 Paragon Legacy Associates, Ltd. 10,676 0.040%
---------- ------
Total Common Partnership Interests 26,999,099 100.00%
========== ======
Preferred Partnership Interests
Series A Preferred Units
Weeks LP Holdings, Inc. 6,000,000
----------
Series C Preferred Units
AEW Targeted Securities Fund, L.P. 1,400,000
----------
Series D Preferred Units
Greene Street 1998 Exchange Fund, L.P. 2,600,000
----------
Total Preferred Partnership Interests 10,000,000
==========
<PAGE>
Exhibit D
---------
RIGHTS TERMS
------------
The Rights granted by the Partnership to the Contributor (referred to in
this Exhibit as "Limited Partners"), pursuant to paragraph 3(b) of the foregoing
Amendment shall be subject to the following terms and conditions:
1. Definitions. Capitalized terms used in this Exhibit without definition
-----------
shall have the meanings given to them in the Partnership Agreement or the
foregoing Amendment, as applicable, and the following terms and phrases shall,
for purposes of this Exhibit D, the Partnership Agreement and the foregoing
Amendment, have the meanings set forth below:
"Cash Purchase Price" shall have the meaning set forth in Paragraph 4
-------------------
hereof.
"Closing Notice" shall mean the written notice to be given by the
--------------
General Partner to the Exercising Partner(s) in response to the receipt by the
General Partner of a Conversion Exercise Notice from such Exercising Partner(s).
The form of the Closing Notice is attached hereto as Schedule 2.
"Computation Date" shall mean the date on which a Conversion Exercise
-----------------
Notice is delivered to the General Partner.
"Conversion Exercise Notice" shall have the meaning set forth in
--------------------------
Paragraph 2 hereof.
"Conversion Factor" shall mean 100%, provided that such factor shall
-----------------
be adjusted in accordance with the provisions of paragraph 10 hereof.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
------------
amended, or any successor statute.
"Exercising Partners" shall have the meaning set forth in Paragraph 2
-------------------
hereof.
"Offered Partnership Units" shall mean the Partnership Units of the
-------------------------
Exercising Partner(s) identified in a Conversion Exercise Notice that, pursuant
to the exercise of Rights, must be redeemed by the Partnership or acquired by
the General Partner and/or Weeks LP Holdings under the terms hereof.
"Redemption Price" shall mean the Cash Purchase Price or the Stock
----------------
Purchase Price.
"Rights" shall have the meaning set forth in paragraph 3(b) of the
------
foregoing Amendment.
"Securities Act" shall mean the Securities Act of 1933, as amended, or
--------------
any successor statute.
"Stock Purchase Price" shall have the meaning set forth in Paragraph 4
--------------------
hereof.
<PAGE>
2. Delivery of Conversion Exercise Notices. Any one or more Limited
---------------------------------------
Partners ("Exercising Partners") may, subject to the limitations set forth
herein, deliver to the General Partner written notice (the "Conversion Exercise
Notice") pursuant to which such Exercising Partners elect to exercise the
Rights. The form of Conversion Exercise Notice is attached hereto as Schedule
1.
3. Limitations on Exercise of Rights; Deemed Exercise.
--------------------------------------------------
(a) No Conversion Exercise Notice, with respect to any Unit may be
delivered to the General Partner by a Limited Partner until the later
of (i) the first anniversary of the date of each such issuance, or
(ii) the date on which either (A) there is a registration statement
effective under the Securities Act with respect to the issuance of any
shares of Common Stock that could be issued to such Limited Partner
pursuant to such exercise of Rights and with respect to any resale by
such Limited Partner of any of such shares of Common Stock, or (B) in
the opinion of counsel to Weeks, shares of Common Stock that could be
issued to such Limited Partner pursuant to such exercise of Rights may
be issued without registration under the Securities Act.
(b) A Limited Partner may not exercise the Rights for less than one
thousand (1,000) Partnership Units or, if such Limited Partner holds
less than one thousand (1,000) Partnership Units, all of the
Partnership Units held by such Limited Partner.
(c) Neither the General Partner nor the Partnership shall have any
obligation or authority to redeem or purchase Offered Partnership
Units to the extent that issuance of shares of Common Stock in payment
of the Stock Purchase Price for any part of the Offered Partnership
Units would result (i) in the violation of the General Ownership Limit
(as such term is defined in the Articles of Incorporation), (ii) would
cause Weeks to fail the stock ownership test of Section 856(a)(6) of
the Code, or (iii) would otherwise cause Weeks to fail to qualify as a
REIT; provided that in any such case, the General Partner or the
Partnership shall purchase for cash those offered Partnership Units
which may not be redeemed with shares of Common Stock. Each
Exercising Partner shall provide to the General Partner such
information as the General Partner may request regarding such
Exercising Partner's actual and constructive ownership of Common Stock
(and of individuals, and entities related to such Exercising Partner)
in order for the General Partner to determine, in its sole discretion,
whether a purchase or redemption of the Offered Partnership Units for
shares of Common Stock would result in a violation of such
restrictions.
(d) If, after complying with all applicable provisions of the
Partnership Agreement, any Person with an ownership interest in any of
the Contributor becomes the owner of any Partnership Units previously
owned by the any of the Contributor, such Person may exercise the
Rights granted with respect to such Partnership Units in accordance
with the terms hereof.
4. Computation of Redemption Price/Form of Payment. The Redemption Price
-----------------------------------------------
payable by the Partnership to each Exercising Partner for the Offered
Partnership Units shall be payable, at the election of the General Partner, by
the delivery by the Partnership of the Redemption Price. Notwithstanding the
foregoing, at the election of the General Partner, the Redemption Price may be
the Stock Purchase Price for part of the Offered Partnership Units and the Cash
Purchase Price for the
<PAGE>
remainder of the Offered Partnership Units. The "Stock Purchase Price" shall
mean the number of shares of Common Stock equal to the product, expressed as a
whole number, of (i) the number of Offered Partnership Units, multiplied by (ii)
the Conversion Factor. The "Cash Purchase Price" shall mean an amount of cash
(in immediately available funds) equal to (i) the number of shares of Common
Stock that would be issued to the Exercising Partner if the Stock Purchase Price
were paid for such Offered Partnership Units, multiplied by (ii) the Current Per
Share Market Price computed as of the Computation Date. To the extent the
Partnership elects to pay the Stock Purchase Price, it shall obtain the
necessary shares of Common Stock in exchange for the issuance of additional
Partnership Interests to the General Partner, Weeks LP Holdings, or any
combination thereof, as determined by the General Partner in its sole
discretion, and the General Partner and/or Weeks LP Holdings shall obtain the
necessary shares of Common Stock in exchange for the issuance of additional
capital stock to Weeks.
5. Closing; Delivery of Closing Notice. The closing of the redemption of
-----------------------------------
Offered Partnership Units shall, unless otherwise mutually agreed, be held at
the principal office of the Partnership, as follows:
(a) Within ten (10) days after the receipt by the Partnership of the
Conversion Exercise Notice, the Partnership shall deliver a Closing
Notice to the Exercising Partner(s). The Closing Notice shall state a date
for the closing of the redemption of the Offered Partnership Units, which
date shall not be later than the later of (i) twenty (20) days after the
receipt by the Partnership of the Conversion Exercise Notice (forty-five
(45) days as to the Offered Partnership Units for which the Cash Purchase
Price will be paid), and (ii) the first (1st) business day after the
expiration or termination of the waiting period applicable to each
Exercising Partner, if any, under the Hart-Scott Act.
(b) If applicable, the Closing Notice shall (i) specify the
Partnership's election to pay the Cash Purchase Price for some or all of
the Offered Partnership Units and (ii) set forth the computation of the
Cash Purchase Price to be paid by the Partnership to such Exercising
Partner(s). The Cash Purchase Price shall be paid by wire transfer of
immediately available funds to such account of the Exercising Partner as is
designated in the Conversion Exercise Notice.
6. Assumption by the General Partner and/or Weeks LP Holdings.
----------------------------------------------------------
Notwithstanding anything in this Exhibit D to the contrary, the General Partner,
Weeks LP Holdings or any combination thereof (an "Assumer" or, collectively, the
"Assumers") may, in the sole and absolute discretion of the General Partner,
assume directly and satisfy the exercise of a Right by paying the Electing
Partner the Redemption Price. In such event, the Assumers shall acquire the
Offered Partnership Units and shall be treated for all purposes of this
Agreement as the owner of such Partnership Units, which shall be held by the
Assumers in their respective existing capacities as general partner or Limited
Partners, as the case may be. In the event the General Partner shall exercise
the Assumers' right to satisfy a Right in the manner described in this Paragraph
6, the Partnership shall have no obligation to pay any amount to the Exercising
Partner with respect to such Exercising Partner's exercise of a Right; provided,
however, that the Partnership shall remain liable to the Exercising Partner to
the extent that any such Exercising Partner's Right is not fully satisfied; and
each of the Exercising Partner, the Partnership, and the Assumers shall treat
the transaction between the Assumers and the Exercising Partner as a sale of the
Exercising Partner's Partnership Units to the Assumers for federal income tax
purposes. To the extent the Assumers elect to pay the Stock Purchase Price,
they shall obtain the necessary shares of Common Stock in exchange for the
issuance of additional capital stock to Weeks. Each Exercising Partner agrees
to execute such documents as the General Partner may reasonably require in
connection with the issuance of Common Stock upon exercise of a Right.
<PAGE>
7. Closing Deliveries. At the closing, payment of the Redemption Price
------------------
shall be accompanied by proper instruments of transfer and assignment for the
Offered Partnership Units and by the delivery of (i) representations and
warranties of (A) the Exercising Partner with respect to its due authority to
sell all of the right, title and interest in and to the Offered Partnership
Units and with respect to the status of the Offered Partnership Units being
sold, free and clear of all Liens, and (B) the Partnership or the Assumers, as
applicable, with respect to due authority for the redemption or purchase of such
Offered Partnership Units, and (ii) to the extent that shares of Common Stock
are issued in payment of the Stock Purchase Price, (A) an opinion of counsel for
Weeks, reasonably satisfactory to the Exercising Partner(s), to the effect that
such shares of Common Stock have been duly authorized, are validly issued,
fully-paid and nonassessable, and (b) a stock certificate or certificates
evidencing the Common Stock to be issued and registered in the name of the
Exercising Partner(s) or its (their) designee.
8. Covenants of Weeks. To facilitate the Partnership's and the Assumers'
------------------
ability to fully perform their obligations hereunder, Weeks covenants and agrees
as follows:
(a) At all times during the pendency of the Rights, Weeks shall
reserve for issuance such number of shares of Common Stock as may be
necessary to enable Weeks to issue shares of Common Stock in full payment
of the Stock Purchase Price in regard to all Partnership Units that are
from time to time outstanding and with respect to which Rights exist.
(b) During the pendency of the Rights, the Limited Partners shall
receive in a timely manner all communications transmitted from time to time
by Weeks to its shareholders generally.
9. Limited Partners' Covenants. Each Limited Partner covenants and agrees
---------------------------
that all Offered Partnership Units tendered in accordance with the exercise of
Rights shall be delivered free and clear of all Liens. Should any Liens exist
or arise with respect to such Offered Partnership Units, neither the Assumers
nor the Partnership shall be under any obligation to redeem or acquire the same
unless, in connection therewith, the General Partner has elected to pay a
portion of the Redemption Price in the form of the Cash Purchase Price in
circumstances in which such Cash Purchase Price will be sufficient to cause such
existing Lien to be discharged in full upon application of all or a part of the
Cash Purchase Price. The Partnership and the Assumers are expressly authorized
to apply such portion of the Cash Purchase Price as may be necessary to
discharge such Lien in full. Each Limited Partner further agrees that, in the
event any state or local property transfer tax is payable as a result of the
transfer of its Offered Partnership Units to the Partnership or the Assumers,
such Limited Partner shall assume and pay such transfer tax.
10. Antidilution Provisions
-----------------------
(a) The Conversion Factor shall be subject to adjustment from time to
time effective upon the occurrence of the following events and shall be
expressed as a percentage, calculated to the nearest one-thousandth of one
percent (.001%):
(i) In case Weeks shall pay or make a dividend or other distribution
on any class of stock of Weeks in shares of Common Stock, the
Conversion Factor in effect at the opening of business on the day
following the date fixed for the determination of shareholders
entitled to receive such dividend or other distribution shall be
increased in proportion to the increase in outstanding shares of
Common Stock resulting from such dividend or other distribution,
such increase to become effective immediately after the opening
of business on the day following the
<PAGE>
record date fixed for such dividend or other distribution.
(ii) In case outstanding shares of Common Stock shall be subdivided
into a greater number of shares, the Conversion Factor in effect
at the opening of business on the day following the day upon
which such subdivision becomes effective shall be proportionately
increased, and, conversely, in case the outstanding shares of
Common Stock shall be combined into a smaller number of shares,
the Conversion Factor in effect at the opening of business on the
day following the day upon which such combination becomes
effective shall be proportionately reduced, such increase or
reduction, as the case may be, to become effective immediately
after the opening of business on the day following the day upon
which such subdivision or combination becomes effective.
(b) In case Weeks shall issue rights, options or warrants to all
holders of its shares of Common Stock entitling them to subscribe for or
purchase Common Stock or other securities convertible into shares of Common
Stock at a price per share less than the Current Per Share Market Price as
of the day before the "ex date" with respect to the issuance or
distribution, each Limited Partner holding Rights shall be entitled to
receive such number of such rights, options or warrants, as the case may
be, as he would have been entitled to receive had he exercised all of his
then existing Rights immediately prior to the record date for such issuance
by Weeks. The term "ex date" shall mean the first date on which shares of
Common Stock trade regular way without the right to receive such issuance
or distribution.
(c) In case the shares of Common Stock shall be changed into the same
or a different number of shares of any class or classes of stock, whether
by capital reorganization, reclassification, or otherwise (other than
subdivision or combination of shares described in subparagraph (a) (ii) of
this Paragraph), then and in each such event the Limited Partners holding
Rights shall have the right thereafter to exercise their Rights for the
kind and amount of shares and other securities and property that would have
been received upon such reorganization, reclassification or other change by
holders of the number of shares of Common Stock with respect to which such
Rights could have been exercised immediately prior to such reorganization,
reclassification or change.
(d) The General Partner may, but shall not be required to, make such
adjustments to the number of shares of Common Stock issuable upon exercise
of Rights, in addition to those required by this Paragraph 10, as the
General Partner considers to be advisable in order that any event treated
for federal income tax purposes as a dividend of stock or stock rights
shall not be taxable to the recipients. The General Partner shall have the
power to resolve any ambiguity or correct any error in the adjustments made
pursuant to this Paragraph and its actions in so doing shall be final and
conclusive, absent manifest error by the General Partner in taking such
action.
11. Fractions of Shares. No fractional shares of Common Stock shall be
-------------------
issued upon exercise of Rights. If Rights shall be exercised with respect to
more than one Offered Partnership Unit at one time by the same Exercising
Partner, the number of full shares of Common Stock comprising the Stock Purchase
Price (or the cash equivalent amount thereof to the extent the Cash Purchase
Price is paid) shall be computed on the basis of the aggregate number of Offered
Partnership Units. Instead of any fractional share of Common Stock that would
otherwise be issuable upon exercise of Rights, the Partnership or the Assumers
shall pay a cash adjustment in respect of such fraction in an amount equal to
the Cash Purchase
<PAGE>
Price computed hereunder for such fraction of a share.
12. Notice of Adjustments of Conversion Factor. Whenever the Conversion
------------------------------------------
Factor is adjusted as herein provided:
(a) the General Partner shall compute the adjusted Conversion Factor
in accordance with Paragraph 10 hereof and shall prepare a certificate
signed by the chief financial officer or the Treasurer of the General
Partner setting forth the adjusted Conversion Factor and showing in
reasonable detail the facts upon which such adjustment is based; and
(b) notice stating that the Conversion Factor has been adjusted and
setting forth the adjusted Conversion Factor shall forthwith be mailed by
the General Partner to all holders of Rights at their last addresses on
record under this Agreement.
13. Notice of Certain Corporate Actions.
-----------------------------------
In case:
(a) Weeks shall declare a dividend (or any other distribution) on its
Common Stock payable otherwise than in cash; or
(b) Weeks shall authorize the granting to the holders of its Common
Stock of rights, options or warrants to subscribe for or purchase any
shares of stock of any class or of any other rights; or
(c) of any reclassification of the shares of Common Stock (other than
a subdivision or combination of its outstanding Common Stock, or of any
consolidation, merger or share exchange to which Weeks is a party and for
which approval of any shareholders of Weeks is required), or of the sale or
transfer of all or substantially all of the assets of Weeks; or
(d) of the voluntary or involuntary dissolution, liquidation or
winding up of Weeks;
then the General Partner shall cause to be mailed to all holders of Rights at
their last addresses on record under this Agreement, at least 20 days (or 12
days in any case specified in clause (a) or (b) above) prior to the applicable
record date hereinafter specified, a notice stating (i) the date on which a
record is to be taken for the purpose of such dividend, distribution, rights,
options or warrants, or, if a record is not to be taken, the date as of which
the holders of shares of Common Stock of record to be entitled to such dividend,
distribution, rights, options or warrants are to be determined, or (ii) the date
on which such reclassification, consolidation, merger, share exchange, sale,
transfer, dissolution, liquidation or winding up is expected to become
effective, and the date as of which it is expected that holders of shares of
Common Stock of record shall be entitled to exchange their shares for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, share exchange, sale, transfer, dissolution, liquidation
or winding up.
14. Provisions in Case of Consolidation, Merger or Sale of Assets.
-------------------------------------------------------------
In case of any consolidation of Weeks with, or merger of Weeks into, any
other Person, any merger or consolidation of another Person into Weeks (other
than a merger that does not result in any reclassification, conversion, exchange
or cancellation of outstanding shares of Common Stock), any
<PAGE>
acquisition of the outstanding Common Stock by share exchange, or any sale or
transfer of all or substantially all of the assets of Weeks, the Person formed
by such consolidation or resulting from such merger or that acquires the
outstanding Common Stock or such assets of Weeks as the case may be, shall
execute and deliver to each holder of Rights an agreement providing that such
holder shall have the right thereafter, during the period such rights shall be
exercisable (which shall be at least as long as the period for which the Rights
can be exercised under the other provisions of this Agreement), to exercise the
Rights for the kind and amount of securities, cash and other property receivable
upon such consolidation, merger, share exchange, sale or transfer by a holder of
the number of shares of Common Stock for which the Rights might have been
exercised immediately prior to such consolidation, merger, share exchange, sale
or transfer, assuming both that (a) such holder of shares of Common Stock is not
a Person with which Weeks consolidated or into which Weeks merged or that merged
into Weeks, or that acquired the outstanding Common Stock by share exchange, or
to which such sale or transfer was made, as the case may be (a "Constituent
Person"), or an Affiliate of a Constituent Person, and that (b) such holder does
not exercise his right of election, if any, as to the kind or amount of
securities, cash or other property receivable upon such consolidation, merger,
share exchange, sale or transfer (provided that if the kind or amount of
--------
securities, cash and other property receivable upon such consolidation, merger,
share exchange, sale or transfer is not the same for each share of Common Stock
in respect of which such right of election, if any, is not exercised ("non-
electing Share"), then for the purpose of this Paragraph 14, the kind and amount
of securities, cash and other property receivable upon such consolidation,
merger, share exchange, sale or transfer by each non-electing Share shall be
deemed to be the kind and amount so receivable per non-electing Share by a
plurality of the non-electing Shares). Such agreement shall provide for
adjustments that, for events subsequent to the effective date of such agreement,
shall be as nearly equivalent as may be practicable to the adjustments provided
for in this Exhibit D.
The above provisions of this Paragraph 14 shall similarly apply to
successive consolidations, mergers, sales or transfers.
<PAGE>
SCHEDULE 1
CONVERSION EXERCISE NOTICE
--------------------------
To: Weeks Realty, L.P.
Reference is made to that certain Sixteenth Amendment (the "Amendment") to
the Second Amended and Restated Agreement of Limited Partnership of Weeks
Realty, L.P. (the "Partnership"). Capitalized terms used but not defined herein
shall have the meanings set forth in Amendment. Pursuant to Exhibit D to the
Amendment, the undersigned, being a limited partner of the Partnership (an
"Exercising Partner"), hereby elects to exercise its Rights as to the number of
Offered Partnership Units specified opposite its name below:
Number of Offered
Exercising Limited Partner Partnership Units
-------------------------- -----------------
_______________________________________
Signature of Exercising Limited Partner
Date:
----------------------------------
<PAGE>
SCHEDULE 2
CLOSING NOTICE
--------------
To: Exercising Limited Partner(s)
Reference is made to that certain Sixteenth Amendment (the "Amendment") to
the Second Amended and Restated Agreement of Limited Partnership of Weeks
Realty, L.P. (the "Partnership"). Capitalized terms used but not defined herein
shall have the meaning set forth in Amendment. The closing of the redemption of
the Offered Partnership Units shall occur at _______, ________, Georgia, on
___________. Pursuant to Exhibit D to the Amendment, the Partnership hereby
notifies the Exercising Partner(s) that it has elected to pay the Cash Purchase
Price to the Exercising Partner(s) for the number of Offered Partnership Units
set forth below, and that the computation of the Cash Purchase Price is set
forth on an attachment hereto
NUMBER OF OFFERED CASH PURCHASE
EXERCISING PARTNER(S) PARTNERSHIP UNITS PRICE
- --------------------- ----------------- -------------------------
WEEKS REALTY, L.P.
By: Weeks GP Holdings, Inc.,
General Partner
By:
------------------------
Title:
------------------
Date:____________________
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 2,159
<SECURITIES> 0
<RECEIVABLES> 15,336
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 1,348,461
<DEPRECIATION> 101,640
<TOTAL-ASSETS> 1,459,744
<CURRENT-LIABILITIES> 0
<BONDS> 668,904
0
0
<COMMON> 0
<OTHER-SE> 542,684
<TOTAL-LIABILITY-AND-EQUITY> 1,459,744
<SALES> 0
<TOTAL-REVENUES> 44,421
<CGS> 0
<TOTAL-COSTS> 32,456
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,103
<INCOME-PRETAX> 17,781
<INCOME-TAX> 0
<INCOME-CONTINUING> 17,781
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,781
<EPS-PRIMARY> 0.47
<EPS-DILUTED> 0.47
</TABLE>
