UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE |
SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2001
OR
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE |
SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from __________ to ___________.
Commission File Number: 1-9044
DUKE-WEEKS REALTY CORPORATION
State of Incorporation: | IRS Employer ID Number: |
Indiana | 35-1740409 |
Address of principal executive offices: |
600 East 96th Street, Suite 100 |
Indianapolis, Indiana 46240 |
Telephone: (317) 808-6000 |
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 for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x No _________
The number of Common Shares outstanding as of August 10, 2001 was 130,052,221 ($.01 par value).
DUKE-WEEKS REALTY CORPORATION
INDEX
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
DUKE-WEEKS REALTY CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(in thousands, except per share amounts)
June 30, | December 31, | |||||||
ASSETS | 2001 | 2000 | ||||||
(Unaudited) | ||||||||
Real estate investments: | ||||||||
Land and improvements | $ | 595,284 | $ | 581,530 | ||||
Buildings and tenant improvements | 4,033,278 | 3,989,033 | ||||||
Construction in progress | 226,240 | 216,938 | ||||||
Investments in unconsolidated companies | 326,608 | 367,581 | ||||||
Land held for development | 256,856 | 257,779 | ||||||
5,438,266 | 5,412,861 | |||||||
Accumulated depreciation | (390,624 | ) | (338,426 | ) | ||||
Net real estate investments | 5,047,642 | 5,074,435 | ||||||
Cash and cash equivalents | 103,027 | 39,191 | ||||||
Accounts receivable, net of allowance of $2,201 and $1,540 | 18,908 | 19,454 | ||||||
Straight-line rent receivable, net of allowance of $1,460 | 39,611 | 34,512 | ||||||
Receivables on construction contracts | 58,310 | 45,394 | ||||||
Deferred financing costs, net of accumulated amortization of $15,313 and $13,288 | 13,998 | 12,540 | ||||||
Deferred leasing and other costs, net of accumulated amortization of $36,614 and $31,522 | 97,890 | 102,413 | ||||||
Escrow deposits and other assets | 111,100 | 132,097 | ||||||
$ | 5,490,486 | $ | 5,460,036 | |||||
LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||
Indebtedness: | ||||||||
Secured debt | $ | 442,287 | $ | 466,624 | ||||
Unsecured notes | 1,461,483 | 1,286,591 | ||||||
Unsecured lines of credit | - | 220,000 | ||||||
1,903,770 | 1,973,215 | |||||||
Construction payables and amounts due subcontractors | 72,571 | 70,105 | ||||||
Accounts payable | 2,358 | 4,312 | ||||||
Accrued expenses: | ||||||||
Real estate taxes | 55,193 | 51,328 | ||||||
Interest | 26,184 | 28,780 | ||||||
Other | 47,484 | 61,341 | ||||||
Other liabilities | 94,653 | 88,540 | ||||||
Tenant security deposits and prepaid rents | 35,223 | 34,208 | ||||||
Total liabilities | 2,237,436 | 2,311,829 | ||||||
Minority interest | 431,522 | 435,317 | ||||||
Shareholders’ equity | ||||||||
Preferred shares ($.01 par value); 5,000 shares authorized | 683,753 | 608,874 | ||||||
Common shares ($.01 par value); 250,000 shares authorized; 129,797 and 127,932 shares issued and outstanding | 1,298 | 1,279 | ||||||
Additional paid-in capital | 2,216,885 | 2,180,120 | ||||||
Accumulated other comprehensive income | (836 | ) | - | |||||
Distributions in excess of net income | (79,572 | ) | (77,383 | ) | ||||
Total shareholders' equity | 2,821,528 | 2,712,890 | ||||||
$ | 5,490,486 | $ | 5,460,036 | |||||
See accompanying Notes to Condensed Consolidated Financial Statements
DUKE-WEEKS REALTY CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
For the three and six months ended June 30,
(in thousands, except per share amounts)
(Unaudited)
Three Months Ended | Six Months Ended | ||||||||||||||||||||||
2001 | 2000 | 2001 | 2000 | ||||||||||||||||||||
RENTAL OPERATIONS: | |||||||||||||||||||||||
Revenues: | |||||||||||||||||||||||
Rental income | $ | 174,453 | $ | 174,182 | $ | 348,451 | $ | 346,092 | |||||||||||||||
Equity in earnings of unconsolidated companies | 7,315 | 4,226 | 17,285 | 7,050 | |||||||||||||||||||
181,768 | 178,408 | 365,736 | 353,142 | ||||||||||||||||||||
Operating expenses: | |||||||||||||||||||||||
Rental expenses | 29,736 | 28,264 | 60,504 | 57,106 | |||||||||||||||||||
Real estate taxes | 18,066 | 19,064 | 35,923 | 37,584 | |||||||||||||||||||
Interest expense | 28,671 | 36,253 | 58,284 | 68,934 | |||||||||||||||||||
Depreciation and amortization | 37,995 | 38,748 | 78,309 | 78,115 | |||||||||||||||||||
114,468 | 122,329 | 233,020 | 241,739 | ||||||||||||||||||||
Earnings from rental operations | 67,300 | 56,079 | 132,716 | 111,403 | |||||||||||||||||||
SERVICE OPERATIONS: | |||||||||||||||||||||||
Revenues: | |||||||||||||||||||||||
Property management, maintenance and leasing fees | 7,896 | 6,582 | 14,494 | 12,265 | |||||||||||||||||||
Construction and development activity income | 15,316 | 18,399 | 30,768 | 25,947 | |||||||||||||||||||
Other income | 415 | 60 | 687 | 894 | |||||||||||||||||||
23,627 | 25,041 | 45,949 | 39,106 | ||||||||||||||||||||
Operating expenses | 14,400 | 14,088 | 27,434 | 22,777 | |||||||||||||||||||
Earnings from service operations | 9,227 | 10,953 | 18,515 | 16,329 | |||||||||||||||||||
General and administrative expense | (4,688 | ) | (4,510 | ) | (8,715 | ) | (9,674 | ) | |||||||||||||||
Operating income | 71,839 | 62,522 | 142,516 | 118,058 | |||||||||||||||||||
OTHER INCOME (EXPENSE): | |||||||||||||||||||||||
Interest income | 1,567 | 2,283 | 3,002 | 3,903 | |||||||||||||||||||
Earnings from land and depreciated property dispositions | 146 | 2,387 | 12,663 | 16,661 | |||||||||||||||||||
Other expense | (428 | ) | (128 | ) | (1,367 | ) | (250 | ) | |||||||||||||||
Minority interest in earnings of common unitholders | (7,202 | ) | (6,877 | ) | (15,837 | ) | (14,311 | ) | |||||||||||||||
Minority interest in earning of preferred unitholders | (2,102 | ) | (2,102 | ) | (4,204 | ) | (4,204 | ) | |||||||||||||||
Other minority interest in earnings of subsidiaries | (330 | ) | (311 | ) | (1,241 | ) | (972 | ) | |||||||||||||||
Net income | $ | 63,490 | $ | 57,774 | $ | 135,532 | $ | 118,885 | |||||||||||||||
Dividends on preferred shares | (13,815 | ) | (12,249 | ) | (27,087 | ) | (24,501 | ) | |||||||||||||||
Net income available for common shareholders | $ | 49,675 | $ | 45,525 | $ | 108,445 | $ | 94,384 | |||||||||||||||
Net income per common share: | |||||||||||||||||||||||
Basic | $ | 0.39 | $ | 0.36 | $ | 0.84 | $ | 0.75 | |||||||||||||||
Diluted | $ | 0.38 | $ | 0.36 | $ | 0.83 | $ | 0.74 | |||||||||||||||
Weighted average number of common shares outstanding | 129,131 | 126,597 | 128,765 | 126,334 | |||||||||||||||||||
Weighted average number of common and dilutive potential common shares | 149,572 | 147,181 | 151,369 | 146,754 | |||||||||||||||||||
See accompanying Notes to Condensed Consolidated Financial Statements
DUKE-WEEKS REALTY CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
For the six months ended June 30
(in thousands)
(Unaudited)
2001 | 2000 | ||||||||
Cash flows from operating activities: | |||||||||
Net income | $ | 135,532 | $ | 118,885 | |||||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||
Depreciation of buildings and tenant improvements | 69,223 | 71,378 | |||||||
Amortization of deferred leasing and other costs | 9,086 | 6,737 | |||||||
Amortization of deferred financing costs | 2,609 | 1,553 | |||||||
Minority interest in earnings | 21,282 | 19,487 | |||||||
Straight-line rent adjustment | (6,320 | ) | (8,145 | ) | |||||
Earnings from land and depreciated property dispositions | (12,663 | ) | (16,661 | ) | |||||
Construction contracts, net | 235 | (36,887 | ) | ||||||
Other accrued revenues and expenses, net | (6,062 | ) | 19,416 | ||||||
Equity in earnings in (excess)/shortfall of operating distributions received from unconsolidated companies | 6,692 | (1,621 | ) | ||||||
Net cash provided by operating activities | 219,614 | 174,142 | |||||||
Cash flows from investing activities: | |||||||||
Development of real estate investments | (222,910 | ) | (268,388 | ) | |||||
Acquisition of real estate investments | (13,927 | ) | (5,932 | ) | |||||
Acquisition of land held for development and infrastructure costs | (22,953 | ) | (32,140 | ) | |||||
Recurring tenant improvements | (7,819 | ) | (16,204 | ) | |||||
Recurring leasing costs | (6,394 | ) | (10,830 | ) | |||||
Recurring building improvements | (3,911 | ) | (3,275 | ) | |||||
Other deferred leasing costs | (608 | ) | (21,735 | ) | |||||
Other deferred costs and other assets | (11,286 | ) | (9,185 | ) | |||||
Tax deferred exchange escrow, net | 25,202 | (87,940 | ) | ||||||
Proceeds from land and depreciated property sales, net | 187,605 | 214,299 | |||||||
Capital distributions from unconsolidated companies | 59,899 | - | |||||||
Advances from (to) unconsolidated companies | (2,544 | ) | (16,652 | ) | |||||
Net cash used by investing activities | (19,646 | ) | (257,982 | ) | |||||
Cash flows from financing activities: | |||||||||
Proceeds from issuance of common shares, net | 30,648 | 13,866 | |||||||
Proceeds/ (payments) from issuance/ (repurchase) of preferred shares, net | 72,265 | (277 | ) | ||||||
Proceeds from indebtedness | 175,000 | - | |||||||
Payments on indebtedness including principal amortization | (46,019 | ) | (8,230 | ) | |||||
Borrowings/ (repayments) on lines of credit, net | (204,247 | ) | 245,227 | ||||||
Distributions to common shareholders | (110,634 | ) | (98,467 | ) | |||||
Distributions to preferred shareholders | (27,087 | ) | (24,501 | ) | |||||
Distributions to preferred unitholders | (4,204 | ) | (4,204 | ) | |||||
Distributions to minority interest | (17,306 | ) | (15,724 | ) | |||||
Deferred financing costs | (4,548 | ) | (898 | ) | |||||
Net cash provided by (used for) financing activities | (136,132 | ) | 106,792 | ||||||
Net increase (decrease) in cash and cash equivalents | 63,836 | 22,952 | |||||||
Cash and cash equivalents at beginning of period | 39,191 | 18,765 | |||||||
Cash and cash equivalents at end of period | $ | 103,027 | $ | 41,717 | |||||
Other non-cash items: | |||||||||
Assumption of debt for real estate acquisitions | $ | 6,379 | $ | - | |||||
Contributions of property to unconsolidated companies | $ | 15,812 | $ | - | |||||
Conversion of Limited Partner Units to shares | $ | 7,847 | $ | 2,480 | |||||
Issuance of Limited Partner Units for real estate acquisitions | $ | 2,487 | $ | 3,937 | |||||
See accompanying Notes to Condensed Consolidated Financial Statements
DUKE-WEEKS REALTY CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statement of Shareholders’ Equity
For the six months ended June 30, 2001
(in thousands, except per share data)
(Unaudited)
Accumulated | |||||||||||||||||||
Additional | Other | Distributions | |||||||||||||||||
Preferred | Common | Paid-in | Comprehensive | in Excess of | |||||||||||||||
Stock | Stock | Capital | Income (Loss) | Net Income | Total | ||||||||||||||
Balance at December 31, 2000 | $ | 608,874 | $ | 1,279 | $ | 2,180,120 | $ | - | $ | (77,383 | ) | $ | 2,712,890 | ||||||
Comprehensive Income: | |||||||||||||||||||
Net income | - | - | - | - | 135,532 | 135,532 | |||||||||||||
Distributions to preferred shareholders | - | - | - | - | (27,087 | ) | (27,087 | ) | |||||||||||
Transition adjustment resulting from adoption of SFAS 133 | - | - | - | 398 | - | 398 | |||||||||||||
Gains (losses) on derivative instuments | - | - | - | (1,234 | ) | - | (1,234 | ) | |||||||||||
Comprehensive income available for common shareholders | 107,609 | ||||||||||||||||||
Issuance of common shares | - | 15 | 31,536 | - | - | 31,551 | |||||||||||||
Issuance of preferred shares | 75,000 | - | (2,614 | ) | - | - | 72,386 | ||||||||||||
Acquisition of minority interest | - | 4 | 7,843 | - | - | 7,847 | |||||||||||||
Repurchase of Preferred D Series shares | (121 | ) | - | - | - | - | (121 | ) | |||||||||||
Distributions to common shareholders ($.86 per share) | - | - | - | - | (110,634 | ) | (110,634 | ) | |||||||||||
Balance at June 30, 2001 | $ | 683,753 | $ | 1,298 | $ | 2,216,885 | $ | (836 | ) | $ | (79,572 | ) | $ | 2,821,528 | |||||
See accompanying Notes to Condensed Consolidated Financial Statements
DUKE-WEEKS REALTY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Financial Statements
The interim condensed consolidated financial statements included herein have been prepared by Duke-Weeks Realty Corporation (the “Company”) without audit. The statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the instructions for Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. These financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report to Shareholders.
The Company
The Company’s rental operations are conducted through Duke-Weeks Realty Limited Partnership (“DWRLP”), of which the Company owns 87.2% at June 30, 2001. The remaining interests in DWRLP are exchangeable for shares of the Company's common stock on a one-for-one basis. In addition, the Company conducts operations through Duke Realty Services Limited Partnership and Duke Construction Limited Partnership, in which the Company’s wholly-owned subsidiary, Duke Services, Inc., is the sole general partner. The consolidated financial statements include the accounts of the Company and its majority-owned or controlled subsidiaries. The equity interests in these majority-owned or controlled subsidiaries not owned by the Company are reflected as minority interests in the consolidated financial statements.
2. Lines of Credit
The Company has the following lines of credit available:
Borrowing | Outstanding | ||||||||||
Capacity | Maturity | Interest | at June 30, 2001 | ||||||||
Description | (in 000’s) | Date | Rate | (in 000’s) | |||||||
Unsecured Line of Credit | $ | 500,000 | February 2004 | LIBOR + .65 | % | $ | 0 | ||||
Unsecured Line of Credit | 150,000 | July 2002 | LIBOR + .675 | % | 0 | ||||||
Secured Line of Credit | 150,000 | January 2003 | LIBOR + 1.05 | % | 68,409 | ||||||
The lines of credit are used to fund development and acquisition of additional rental properties and to provide working capital.
The $500 million line of credit allows the Company an option to obtain borrowings from the financial institutions that participate in the line of credit at rates lower than the stated interest rate, subject to certain restrictions.
The Company renewed its $150 million unsecured line of credit, reducing the interest rate from LIBOR + .775% to LIBOR + .675% and extending the maturity date to July 2002.
3. Related Party Transactions
The Company provides management, maintenance, leasing, construction, and other tenant related services to properties in which certain executive officers have continuing ownership interests. The Company was paid fees totaling $943,000 and $993,000 for such services for the six months ended June 30, 2001 and 2000, respectively. Management believes the terms for such services are equivalent to those available in the market. The Company has an option to purchase the executive officers' interest in each of these properties which expires October 2003. The option price of each property was established at the date the option was granted.
4. Net Income Per Common Share
Basic net income per common share is computed by dividing net income available for common shareholders by the weighted average number of common shares outstanding for the period. Diluted net income per share is computed by dividing the sum of net income available for common shareholders and minority interest in earnings of unitholders, by the sum of the weighted average number of common shares and dilutive potential common shares outstanding for the period.
The following table reconciles the components of basic and diluted net income per common share for the three and six months ended June 30:
Three Months Ended | Six Months Ended | ||||||||||||
June 30, | June 30, | ||||||||||||
2001 | 2000 | 2001 | 2000 | ||||||||||
Net income available for common shareholders | $ | 49,675 | $ | 45,525 | $ | 108,445 | $ | 94,384 | |||||
Joint venture partner convertible ownership net income | - | - | 1,666 | - | |||||||||
Minority interest in earnings of common unitholders | 7,202 | 6,877 | 15,837 | 14,311 | |||||||||
Diluted net income available for common shareholders | $ | 56,877 | $ | 52,402 | $ | 125,948 | $ | 108,695 | |||||
Weighted average number of common shares outstanding | 129,131 | 126,597 | 128,765 | 126,334 | |||||||||
Weighted average common partnership units outstanding | 18,768 | 19,122 | 18,804 | 19,088 | |||||||||
Joint venture partner convertible ownership common share equivalents | - | - | 2,118 | - | |||||||||
Dilutive shares for long-term compensation plans | 1,673 | 1,462 | 1,682 | 1,332 | |||||||||
Weighted average number of common shares and dilutive potential common shares | 149,572 | 147,181 | 151,369 | 146,754 | |||||||||
The Preferred D Series Convertible stock and the Series G preferred limited partner units were anti-dilutive for the three months and six months ended June 30, 2001; therefore, no conversion to common shares is included in weighted dilutive potential common shares.
A joint venture partner in one of the Company's unconsolidated ventures has the option to convert a portion of its ownership to Company common shares. The effects of the option on earnings per share was dilutive for the six months ended June 30, 2001; therefore conversion to common shares is included in weighted dilutive potential common shares. The effect of this same option was anti-dilutive for the three months ended June 30, 2001; therefore, no conversion to common shares is included in dilutive potential common shares.
5. Segment Reporting
The Company is engaged in four operating segments; the ownership and rental of office, industrial and retail real estate investments and the providing of various real estate services such as property management, maintenance, leasing, development and construction management to third-party property owners (“Service Operations”). The Company’s reportable segments offer different products or services and are managed separately because each requires different operating strategies and management expertise. There are no material intersegment sales or transfers.
Non-segment revenue to reconcile to total revenue consists mainly of equity in earnings of unconsolidated companies. Non-segment assets to reconcile to total assets consist of corporate assets including cash, deferred financing costs and investments in unconsolidated companies.
The Company assesses and measures segment operating results based on industry performance measures referred to as Funds From Operations (“FFO”). The National Association of Real Estate Investment Trusts defines FFO as net income or loss, excluding gains or losses from debt restructuring and sales of depreciated operating property, plus operating property depreciation and amortization and adjustments for minority interest and unconsolidated companies on the same basis. FFO is not a measure of operating results or cash flows from operating activities as measured by generally accepted accounting principles, is not necessarily indicative of cash available to fund cash needs and should not be considered an alternative to cash flows as a measure of liquidity. Interest expense and other non-property specific revenues and expenses are not allocated to individual segments in determining the Company’s performance measure.
The revenues and FFO for each of the reportable segments for the three and six months ended June 30, 2001 and 2000, and the assets for each of the reportable segments as of June 30, 2001 and December 31, 2000, are summarized as follows:
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2001 | 2000 | 2001 | 2000 | ||||||||||||
Revenues | |||||||||||||||
Rental Operations: | |||||||||||||||
Office | $ | 96,360 | $ | 83,720 | $ | 188,812 | $ | 163,974 | |||||||
Industrial | 72,718 | 84,776 | 146,152 | 168,519 | |||||||||||
Retail | 6,579 | 7,768 | 13,583 | 14,891 | |||||||||||
Service Operations | 23,627 | 25,041 | 45,949 | 39,106 | |||||||||||
Total Segment Revenues | 199,284 | 201,305 | 394,496 | 386,490 | |||||||||||
Non-Segment Revenue | 6,111 | 2,144 | 17,189 | 5,758 | |||||||||||
Consolidated Revenue | $ | 205,395 | $ | 203,449 | $ | 411,685 | $ | 392,248 | |||||||
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2001 | 2000 | 2001 | 2000 | |||||||||||||
Funds From Operations | ||||||||||||||||
Rental Operations: | ||||||||||||||||
Office | $ | 65,306 | $ | 55,925 | $ | 127,852 | $ | 110,103 | ||||||||
Industrial | 56,348 | 64,617 | 112,959 | 129,775 | ||||||||||||
Retail | 5,486 | 6,520 | 11,208 | 12,032 | ||||||||||||
Services Operations | 9,227 | 10,953 | 18,515 | 16,329 | ||||||||||||
Total Segment FFO | 136,367 | 138,015 | 270,534 | 268,239 | ||||||||||||
Non-Segment FFO: | ||||||||||||||||
Interest expense | (28,671 | ) | (36,253 | ) | (58,284 | ) | (68,934 | ) | ||||||||
Interest income | 1,567 | 2,283 | 3,002 | 3,903 | ||||||||||||
General and administrative expense | (4,688 | ) | (4,510 | ) | (8,715 | ) | (9,674 | ) | ||||||||
Gain on land sales | 2,643 | 297 | 3,320 | 3,913 | ||||||||||||
Other expenses | (890 | ) | (642 | ) | (1,416 | ) | (1,111 | ) | ||||||||
Minority interest in earnings of common unitholders | (7,202 | ) | (6,877 | ) | (15,837 | ) | (14,311 | ) | ||||||||
Minority interest in earnings of preferred unitholders | (2,102 | ) | (2,102 | ) | (4,204 | ) | (4,204 | ) | ||||||||
Minority interest in earnings of subsidiaries | (330 | ) | (311 | ) | (1,241 | ) | (972 | ) | ||||||||
Minority interest share of FFO adjustments | (5,689 | ) | (5,026 | ) | (9,478 | ) | (8,981 | ) | ||||||||
Joint venture FFO | 11,564 | 6,165 | 22,752 | 10,453 | ||||||||||||
Dividends on preferred shares | (13,815 | ) | (12,249 | ) | (27,087 | ) | (24,501 | ) | ||||||||
Consolidated FFO | 88,754 | 78,790 | 173,346 | 153,820 | ||||||||||||
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2001 | 2000 | 2001 | 2000 | ||||||||||||
Depreciation and amortization | (37,995 | ) | (38,748 | ) | (78,309 | ) | (78,115 | ) | |||||||
Share of joint venture adjustments | (4,276 | ) | (1,633 | ) | (5,413 | ) | (3,050 | ) | |||||||
Earnings from depreciated property sales | (2,497 | ) | 2,090 | 9,343 | 12,748 | ||||||||||
Minority Interest share of FFO adjustments | 5,689 | 5,026 | 9,478 | 8,981 | |||||||||||
Net Income Available for Common Shareholders | $ | 49,675 | $ | 45,525 | $ | 108,445 | $ | 94,384 | |||||||
June 30, | December 31, | ||||||||
2001 | 2000 | ||||||||
Assets | |||||||||
Rental Operations: | |||||||||
Office | $ | 2,537,679 | $ | 2,473,191 | |||||
Industrial | 2,217,316 | 2,265,237 | |||||||
Retail | 191,568 | 186,389 | |||||||
Service Operations | 157,649 | 128,249 | |||||||
Total Segment Assets | 5,104,212 | 5,053,066 | |||||||
Non-Segment Assets | 386,274 | 406,970 | |||||||
Consolidated Assets | $ | 5,490,486 | $ | 5,460,036 | |||||
6. Real Estate Assets Held for Sale
In order to redeploy capital, the Company has an active sales program through which it is continually pursuing favorable opportunities to dispose of real estate assets that no longer meet long-term investment objectives of the Company. At June 30, 2001, the Company had 42 industrial, 6 office and 10 retail properties comprising approximately 6.3 million square feet held for sale. Of these properties, four build-to-suit office, six build-to-suit industrial and one build-to-suit retail properties were under development at June 30, 2001. Net operating income (defined as total property revenues, less property expenses, which include real estate taxes, repairs and maintenance, property management, utilities, insurance and other expenses) of the properties held for sale for the six months ended June 30, 2001 and 2000, is approximately $10.3 million and $8.3 million, respectively. Net book value of the properties held for sale at June 30, 2001, is $215.3 million. There can be no assurances that such properties will be sold.
7. Shareholders’ Equity
The following series of preferred stock are outstanding as of June 30, 2001 (in thousands, except percentages):
Shares | Dividend | Redemption | Liquidation | |||||||||
Description | Outstanding | Rate | Date | Preference | Convertible | |||||||
Preferred A Series | 300 | 9.100 | % | August 31, 2001 | $ | 75,000 | No | |||||
Preferred B Series | 300 | 7.990 | % | September 30, 2007 | 150,000 | No | ||||||
Preferred D Series | 535 | 7.375 | % | December 31, 2003 | 133,750 | Yes | ||||||
Preferred E Series | 400 | 8.250 | % | January 20, 2004 | 100,000 | No | ||||||
Preferred F Series | 600 | 8.000 | % | October 10, 2002 | 150,000 | No | ||||||
Preferred I Series | 300 | 8.450 | % | February 6, 2006 | 75,000 | No | ||||||
All series of preferred shares require cumulative distributions, have no stated maturity date, and the redemption price of each series may only be paid from the proceeds of other capital shares of the Company, which may include other classes or series of preferred shares.
The Preferred I Series shares were issued in February 2001.
The Preferred Series D shares are convertible at a conversion rate of 9.3677 common shares for each preferred share outstanding.
The dividend rate on the Preferred B Series shares increases to 9.99% after September 12, 2012.
The Company intends to redeem the Preferred A Series shares in September 2001.
8. Other Matters
Reclassifications
Certain 2000 balances have been reclassified to conform to 2001 presentation.
9. Derivative Instruments
The Company adopted Statement of Financial Accounting Standards No. 133 "Accounting for Derivative Instruments and Hedging Activities” (SFAS 133) as amended by SFAS No. 137 and No. 138 on January 1, 2001. SFAS 133 requires that all derivative instruments be recorded on the balance sheet at their fair value. Gains or losses resulting from changes in the values of those derivatives would be accounted for depending on the use of the derivative and whether it qualifies for hedge accounting. The Company uses derivative financial instruments such as interest rate swaps to mitigate its interest rate risk on a related financial instrument. SFAS 133 requires that changes in fair value of derivatives that qualify as cash flow hedges be recognized in other comprehensive income while the ineffective portion of the derivative's change in fair value be recognized immediately in earnings. One of the Company's interest rate swap contracts did not meet the criteria of SFAS 133 to qualify for hedge accounting. SFAS 133 requires that unrealized gains and losses on derivatives not qualifying as hedge accounting be recognized currently in earnings. The cumulative effect of a change in accounting principle due to the adoption of SFAS 133 as of January 1, 2001, was $398,000 and was recorded in accumulated other comprehensive income as a transition adjustment. As of June 30, 2001, the Company recorded a net loss of $1.2 million in other comprehensive income for its interest rate swap contracts qualifying for hedge accounting and a net loss of $721,000 in other expense for the interest rate swap contract that did not qualify for hedge accounting.
In July 2001, the Company terminated its interest rate swaps that qualified for hedge accounting in conjunction with the pay-off of the loan to which the swaps were hedged. The cost to terminate these swaps was approximately $500,000.
10. Subsequent Events
The Board of Directors declared the following dividends on July 25, 2001:
Quarterly | |||||||||
Class | Amount/Share | Record Date | Payment Date | ||||||
Common | $ | 0.45 | August 16, 2001 | August 31, 2001 | |||||
Preferred (per depositary share): | |||||||||
Series A | $ | 0.56875 | August 17, 2001 | August 31, 2001 | |||||
Series B | $ | 0.99875 | September 14, 2001 | September 28, 2001 | |||||
Series D | $ | 0.46094 | September 14, 2001 | September 28, 2001 | |||||
Series E | $ | 0.51563 | September 14, 2001 | September 28, 2001 | |||||
Series F | $ | 0.50000 | October 17, 2001 | October 31, 2001 | |||||
Series I | $ | 0.52813 | September 14, 2001 | September 28, 2001 |
The Board of Directors
Duke-Weeks Realty Corporation:
We have reviewed the condensed consolidated balance sheet of Duke-Weeks Realty Corporation and subsidiaries as of June 30, 2001, the related condensed consolidated statements of operations for the three months and the six months ended June 30, 2001 and 2000, the related condensed consolidated statements of cash flows for the six months ended June 30, 2001 and 2000, and the related condensed consolidated statement of shareholders’ equity for the six months ended June 30, 2001. These condensed consolidated financial statements are the responsibility of the Company’s management.
We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States of America, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to above for them to be in conformity with accounting principles generally accepted in the United States of America.
We have previously audited, in accordance with auditing standards generally accepted in the United States of America, the consolidated balance sheet of Duke-Weeks Realty Corporation and subsidiaries as of December 31, 2000, and the related consolidated statements of operations, shareholders’ equity and cash flows for the year then ended (not presented herein); and in our report dated January 25, 2001, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2000 is fairly presented, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
KPMG LLP
Indianapolis, Indiana
July 25, 2001
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results |
of Operations |
Overview
The Company’s operating results depend primarily upon income from the rental operations of its industrial, office and retail properties located in its primary markets. This income from rental operations is substantially influenced by the supply and demand for the Company’s rental space in its primary markets. In addition, the Company’s continued growth is dependent upon its ability to maintain occupancy rates and increase rental rates of its in-service portfolio. The Company’s strategy for continued growth also includes developing and acquiring additional rental properties in its primary markets and expanding into other attractive markets.
The Company tracks Same Property performance which compares those properties that were in-service for all of a two year period. The net operating income from the same property portfolio increased 6.4% for the six months ended June 30, 2001, compared to the six months ended June 30, 2000.
The following table sets forth information regarding the Company’s in-service portfolio of rental properties as of June 30, 2001 and 2000 (in thousands, except percentages):
Total | Percent of | |||||||||||||
Square Feet | Total Square Feet | Percent Occupied | ||||||||||||
Type | 2001 | 2000 | 2001 | 2000 | 2001 | 2000 | ||||||||
Industrial | ||||||||||||||
Service Centers | 13,878 | 12,962 | 13.70 | % | 13.52 | % | 90.20 | % | 93.04 | % | ||||
Bulk | 62,274 | 60,433 | 61.48 | % | 63.06 | % | 92.83 | % | 92.41 | % | ||||
Office | 22,687 | 19,728 | 22.40 | % | 20.59 | % | 88.49 | % | 92.74 | % | ||||
Retail | 2,448 | 2,708 | 2.42 | % | 2.83 | % | 95.55 | % | 96.52 | % | ||||
Total | 101,287 | 95,831 | 100.00 | % | 100.00 | % | 91.56 | % | 92.68 | % | ||||
The following table reflects the Company’s in-service portfolio lease expiration schedule as of June 30, 2001, by product type indicating square footage and annualized net effective rents under expiring leases (in thousands, except per square foot amounts):
Total | |||||||||||||||||||||||
Portfolio | Industrial | Office | Retail | ||||||||||||||||||||
Year of | Square | Ann. Rent | Square | Ann. Rent | Square | Ann. Rent | Square | Ann. Rent | |||||||||||||||
Expiration | Feet | Revenue | Percent | Feet | Revenue | Feet | Revenue | Feet | Revenue | ||||||||||||||
2001 | 4,715 | $ | 27,721 | 4 | % | 3,869 | $ | 17,455 | 823 | $ | 9,970 | 23 | $ | 296 | |||||||||
2002 | 9,869 | 62,129 | 10 | % | 7,944 | 38,652 | 1,856 | 22,496 | 69 | 981 | |||||||||||||
2003 | 10,372 | 68,679 | 11 | % | 8,260 | 41,430 | 1,997 | 25,825 | 115 | 1,424 | |||||||||||||
2004 | 11,321 | 76,848 | 12 | % | 8,781 | 42,328 | 2,446 | 33,209 | 94 | 1,311 | |||||||||||||
2005 | 13,420 | 94,488 | 14 | % | 10,257 | 49,675 | 2,881 | 41,968 | 282 | 2,845 | |||||||||||||
2006 | 11,040 | 76,165 | 12 | % | 8,552 | 40,830 | 2,426 | 34,567 | 62 | 768 | |||||||||||||
2007 | 5,632 | 39,257 | 6 | % | 4,596 | 24,529 | 981 | 14,052 | 55 | 676 | |||||||||||||
2008 | 5,852 | 38,409 | 6 | % | 4,633 | 21,460 | 1,162 | 16,316 | 57 | 633 | |||||||||||||
2009 | 6,268 | 38,474 | 6 | % | 5,125 | 21,984 | 1,060 | 15,279 | 83 | 1,211 | |||||||||||||
2010 | 5,707 | 46,467 | 7 | % | 3,796 | 18,612 | 1,624 | 25,391 | 287 | 2,464 | |||||||||||||
2011 and Thereafter | 8,543 | 75,518 | 12 | % | 4,511 | 21,078 | 2,820 | 42,655 | 1,212 | 11,785 | |||||||||||||
Total Leased | 92,739 | $ | 644,155 | 100 | % | 70,324 | $ | 338,033 | 20,076 | $ | 281,728 | 2,339 | $ | 24,394 | |||||||||
Total Portfolio | |||||||||||||||||||||||
Square Feet | 101,287 | 76,152 | 22,687 | 2,448 | |||||||||||||||||||
Annualized neteffective rentper square foot | $ | 6.95 | $ | 4.81 | $ | 14.03 | $ | 10.43 | |||||||||||||||
The Company also expects to realize growth in earnings from rental operations through (i) the development and acquisition of additional rental properties in its primary markets; (ii) the expansion into other attractive markets; and (iii) the completion of the 7.6 million square feet of properties under development by the Company at June 30, 2001, over the next three quarters and thereafter. These properties under development should provide future earnings through Service Operations income upon sale or from rental operations growth for the Company as they are placed in service as follows (in thousands, except percent leased and stabilized returns):
Anticipated | ||||||||||
In-Service | Square | Percent | Project | Stabilized | ||||||
Date | Feet | Leased | Costs | Return | ||||||
Held For Rental: | ||||||||||
3rd Quarter 2001 | 2,089 | 27 | % | $ | 115,958 | 11.4 | % | |||
4th Quarter 2001 | 1,930 | 21 | % | 83,354 | 11.5 | % | ||||
1st Quarter 2002 | 669 | 36 | % | 64,393 | 11.6 | % | ||||
Thereafter | 345 | 52 | % | 42,255 | 11.2 | % | ||||
5,033 | 27 | % | $ | 305,960 | 11.4 | % | ||||
Build-to-Suit for Sale: | ||||||||||
3rd Quarter 2001 | 931 | 100 | % | $ | 47,179 | |||||
4th Quarter 2001 | 1,437 | 100 | % | 80,805 | ||||||
1st Quarter 2002 | — | - | - | |||||||
Thereafter | 184 | - | 14,955 | |||||||
2,552 | 93 | % | $ | 142,939 | ||||||
Total | 7,585 | 49 | % | $ | 448,899 | |||||
Results of Operations
Following is a summary of the Company’s operating results and property statistics for the three and six months ended June 30, 2001 and 2000 (in thousands, except number of properties and per share amounts):
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||
2001 | 2000 | 2001 | 2000 | |||||||||||
Rental Operations revenue | $ | 181,768 | $ | 178,408 | $ | 365,736 | $ | 353,142 | ||||||
Service Operations revenue | 23,627 | 25,041 | 45,949 | 39,106 | ||||||||||
Earnings from Rental Operations | 67,300 | 56,079 | 132,716 | 111,403 | ||||||||||
Earnings from Service Operations | 9,227 | 10,953 | 18,515 | 16,329 | ||||||||||
Operating income | 71,839 | 62,522 | 142,516 | 118,058 | ||||||||||
Net income available for common shares | $ | 49,675 | $ | 45,525 | $ | 108,445 | $ | 94,384 | ||||||
Weighted average common shares outstanding | 129,131 | 126,597 | 128,765 | 126,334 | ||||||||||
Weighted average common and dilutive potentialcommon shares | 149,572 | 147,181 | 151,369 | 146,754 | ||||||||||
Basic income per common share | $ | 0.39 | $ | 0.36 | $ | 0.84 | $ | 0.75 | ||||||
Diluted income per common share | $ | 0.38 | $ | 0.36 | $ | 0.83 | $ | 0.74 | ||||||
Number of in-service properties at end of period | 905 | 886 | 905 | 886 | ||||||||||
In-service square footage at end of period | 101,287 | 95,831 | 101,287 | 95,831 | ||||||||||
Under development square footage at end of period | 7,585 | 7,455 | 7,585 | 7,455 |
Comparison of Three Months Ended June 30, 2001 to Three Months Ended June 30, 2000
Rental Operations
Rental Operations revenue increased to $181.8 million from $178.4 million for the three months ended June 30, 2001, compared to the same period in 2000 primarily due to equity in earnings of unconsolidated companies increasing from $4.2 million for the three months ended June 30, 2000, to $7.3 million for the same period in 2001. This increase is the result of the Company contributing $469 million of property to a joint venture in October 2000. The Company holds a 50% interest in this venture. Additionally, the Company increased its in-service portfolio from 886 properties at June 30, 2000, to 905 properties at June 30, 2001. The following summary of the Company's acquisition and development activity since January 1, 2000:
Square | ||||||
Buildings | Feet | |||||
Properties owned as of: | ||||||
January 1, 2000 | 865 | 92,502 | ||||
Acquisitions | 2 | 169 | ||||
Developments placed in service | 75 | 11,546 | ||||
Dispositions | (53 | ) | (6,586 | ) | ||
Contributions from joint venture | ||||||
Partners | 24 | 3,331 | ||||
December 31, 2000 | 913 | 100,962 | ||||
Acquisitions | 5 | 258 | ||||
Developments placed in service | 27 | 4,301 | ||||
Dispositions | (40 | ) | (4,234 | ) | ||
June 30, 2001 | 905 | 101,287 | ||||
Rental, real estate and depreciation and amortization expenses remained consistent during the three months ended June 30, 2000 and 2001, as the Company's portfolio of in-service property has not changed significantly over the past year. Additionally, the Company has placed a greater emphasis in cost cutting measures within its in-service portfolio over the past year in an effort to control operating expenses.
The $7.6 million decrease in interest expense is primarily attributable to lower outstanding balances on the Company's lines of credit associated with the financing of the Company's investment and operating activities.
As a result of the above-mentioned items, earnings from Rental Operations increased $11.2 million from $56.1 million for the three months ended June 30, 2000, to $67.3 million for the three months ended June 30, 2001.
Service Operations
Service Operations revenues decreased by $1.4 million from $25.0 million for the three months ended June 30, 2000, to $23.6 million for the three months ended June 30, 2001, primarily as a result of decreases in construction and development income from third party construction.
Service Operations expenses increased slightly for the three months ended June 30, 2001, compared to the same period in 2000 as the Company has reduced overhead and employee related costs throughout 2001 in an effort to minimize the effects of decreased construction and development activity.
As a result, earnings from Service Operations decreased from $11.0 million for the three months ended June 30, 2000, to $9.2 million for the three months ended June 30, 2001.
Other Income and Expenses
The Company has a disposition strategy to pursue favorable opportunities to dispose of real estate assets that no longer meet long-term investment objectives of the Company, which resulted in net sales proceeds of $94.1 million and a net gain of $146,000 during the three months ended June 30, 2001. While the Company continues to pursue favorable disposition opportunities, specific buildings were sold for minimal profits or losses in order to exit less strategic markets and less profitable sectors of larger markets.
In conjunction with this disposition strategy, included in net real estate investments are 58 buildings with a net book value of $215.3 million which were classified as held for sale by the Company at June 30, 2001. The Company expects to complete these and other dispositions and use the proceeds to fund future investments in real estate assets.
Net Income Available for Common Shareholders
Net income available for common shareholders for the three months ended June 30, 2001, was $49.7 million compared to net income available for common shareholders of $45.5 million for the three months ended June 30, 2000. This increase results primarily from the operating result fluctuations in rental and service operations explained above.
Comparison of Six Months Ended June 30, 2001 to Six Months Ended June 30, 2000
Rental Operations
Rental Operations revenue increased to $365.7 million from $353.1 million for the six months ended June 30, 2001, compared to the same period in 2000. This increase is due to a $10.2 million increase in equity in earnings of unconsolidated companies attributable to the Company's significant contribution of property to a 50% owned joint venture in October 2000 as discussed earlier in the analysis of the three month rental operations results.
Rental, real estate and depreciation and amortization expenses remained consistent during the six months ended June 30, 2000 and 2001, due to minor changes in the Company's portfolio of in-service properties from 2000 and concentrated efforts by the Company to reduce operational expenses within its rental properties.
The $10.7 million decrease in interest expense is primarily attributable to lower outstanding debt balances on the Company's lines of credit associated with the financing of the Company's investment and operating activities.
As a result of the above-mentioned items, earnings from Rental Operations increased $21.3 million from $111.4 million for the six months ended June 30, 2000, to $132.7 million for the six months ended June 30, 2001.
Service Operations
Service Operations revenues increased by $6.8 million from $39.1 million for the six months ended June 30, 2000, to $45.9 million for the six months ended June 30, 2001, primarily as a result of increases in construction and development income from third party construction.
Service Operations operating expenses increased from $22.8 million for the six months ended June 30, 2000, to $27.4 million for the six months ended June 30, 2001, primarily due to the overall growth of the Company and the increased portfolio of buildings associated with this growth.
As a result, earnings from Service Operations increased from $16.3 million for the six months ended June 30, 2000, to $18.5 million for the six months ended June 30, 2001.
Other Income and Expenses
The Company has a disposition strategy to pursue favorable opportunities to dispose of real estate assets that no longer meet long-term investment objectives of the Company, which resulted in net sales proceeds of $187.6 million and a net gain of $12.7 million during the six months ended June 30, 2001.
Net Income Available for Common Shareholders
Net income available for common shareholders for the six months ended June 30, 2001, was $108.4 million compared to net income available for common shareholders of $94.4 million for the six months ended June 30, 2000. This increase results primarily from the operating result fluctuations in rental and service operations explained above.
Liquidity and Capital Resources
Net cash provided by operating activities totaling $219.6 million and $174.1 million for the six months ended June 30, 2001 and 2000, respectively, represents the primary source of liquidity to fund distributions to shareholders, unitholders and the other minority interests and to fund recurring costs associated with the renovation and re-letting of the Company’s properties.
Net cash used by investing activities totaling $19.6 million and $258.0 million for the six months ended June 30, 2001 and 2000, respectively, represents the investment of funds by the Company to expand its portfolio of rental properties through the development and acquisition of additional rental properties net of proceeds received from property sales.
Net cash provided by (used for) financing activities totaling ($136.1) million and $106.8 million for the six months ended June 30, 2001 and 2000, respectively, is comprised of debt and equity issuances, net of distributions to shareholders and minority interests and repayments of outstanding indebtedness. In the first six months of 2001, the Company received $30.6 million of net proceeds from the issuance of common shares and $72.3 million of net proceeds from the issuance of preferred shares. Additionally, the Company received $175.0 million of proceeds from the issuance of unsecured debt. All proceeds were used to reduce amounts outstanding under the Company’s lines of credit and to fund the development and acquisition of additional rental properties.
In the first six months of 2000, the Company received $13.9 million of net proceeds from the issuance of common shares which was used to reduce amounts outstanding under the Company’s lines of credit and to fund the development and acquisition of additional rental properties.
The Company has the following lines of credit available:
Borrowing | Outstanding | ||||||||||
Capacity | Maturity | Interest | at June 30, 2001 | ||||||||
Description | (in 000’s) | Date | Rate | (in 000’s) | |||||||
Unsecured Line of Credit | $ | 500,000 | February 2004 | LIBOR + .65 | % | $ | 0 | ||||
Unsecured Line of Credit | 150,000 | July 2002 | LIBOR + .675 | % | $ | 0 | |||||
Secured Line of Credit | 150,000 | January 2003 | LIBOR + 1.05 | % | $ | 68,409 | |||||
The lines of credit are used to fund development and acquisition of additional rental properties and to provide working capital.
The $500 million line of credit allows the Company an option to obtain borrowings from the financial institutions that participate in the line of credit at rates lower than the stated interest rate, subject to certain restrictions.
The Company renewed its $150 million unsecured line of credit, reducing the interest rate from LIBOR + .775% to LIBOR + .675% and extended the maturity date to July 2002.
The Company currently has on file one Form S-3 Registration Statement with the Securities and Exchange Commission (“Shelf Registration”) which had remaining availability as of June 30, 2001, of approximately $692.9 million to issue common stock, preferred stock or unsecured debt securities. The Company intends to issue additional equity or debt under this Shelf Registration as capital needs arise to fund the development and acquisition of additional rental properties. The Company also plans to file additional shelf registrations as necessary.
The total debt outstanding at June 30, 2001, consists of notes totaling approximately $1.9 billion with a weighted average interest rate of 7.16% maturing at various dates through 2028. The Company has $1.5 billion of unsecured debt and $442.3 million of secured debt outstanding at June 30, 2001. Scheduled principal amortization of such debt totaled $4.9 million for the six months ended June 30, 2001.
Following is a summary of the scheduled future amortization and maturities of the Company’s indebtedness at June 30, 2001 (in thousands):
Future Repayments | ||||||||||||
Weighted Average | ||||||||||||
Scheduled | Interest Rate of | |||||||||||
Year | Amortization | Maturities | Total | Future Repayments | ||||||||
2001 | $ | 5,565 | $ | 162,279 | $ | 167,844 | 7.24 | % | ||||
2002 | 11,095 | 50,000 | 61,095 | 7.29 | % | |||||||
2003 | 10,931 | 349,622 | 360,553 | 7.23 | % | |||||||
2004 | 9,212 | 176,186 | 185,398 | 7.39 | % | |||||||
2005 | 7,824 | 219,642 | 227,466 | 7.17 | % | |||||||
2006 | 6,730 | 146,179 | 152,909 | 7.09 | % | |||||||
2007 | 4,910 | 116,554 | 121,464 | 7.09 | % | |||||||
2008 | 3,605 | 100,000 | 103,605 | 6.75 | % | |||||||
2009 | 3,863 | 275,000 | 278,863 | 7.31 | % | |||||||
2010 | 4,190 | - | 4,190 | 6.79 | % | |||||||
Thereafter | 15,383 | 225,000 | 240,383 | 6.90 | % | |||||||
Total | $ | 83,308 | $ | 1,820,462 | $ | 1,903,770 | 7.16 | % | ||||
Funds From Operations
Management believes that Funds From Operations (“FFO”), which is defined by the National Association of Real Estate Investment Trusts as net income or loss excluding gains or losses from debt restructuring and sales of depreciated operating property, plus operating depreciation and amortization, and adjustments for minority interest and unconsolidated companies (adjustments for minority interest and unconsolidated companies are calculated to reflect FFO on the same basis), is the industry standard for reporting the operations of real estate investment trusts.
The following table reflects the calculation of the Company’s FFO for the three and six months ended June 30 as follows (in thousands):
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||
2001 | 2000 | 2001 | 2000 | |||||||||||
Net income available for common shares | $ | 49,675 | $ | 45,525 | $ | 108,445 | $ | 94,384 | ||||||
Add back: | ||||||||||||||
Depreciation and amortization | 37,995 | 38,748 | 78,309 | 78,115 | ||||||||||
Share of joint venture adjustments | 4,276 | 1,633 | 5,413 | 3,050 | ||||||||||
(Earnings) loss from depreciated operating property dispositions | 2,497 | (2,090 | ) | (9,343 | ) | (12,748 | ) | |||||||
Minority interest share of add-backs | (5,689 | ) | (5,026 | ) | (9,478 | ) | (8,981 | ) | ||||||
Funds From Operations | $ | 88,754 | $ | 78,790 | $ | 173,346 | $ | 153,820 | ||||||
Cash flow provided by (used by): | ||||||||||||||
Operating activities | $ | 126,273 | $ | 74,877 | $ | 219,614 | $ | 174,142 | ||||||
Investing activities | 23,803 | (75,591 | ) | (19,646 | ) | (257,982 | ) | |||||||
Financing activities | (85,940 | ) | 4,518 | (136,132 | ) | 106,792 | ||||||||
The increase in FFO for the three and six months ended June 30, 2001, compared to the three and six months ended June 30, 2000, results primarily from the increases in rental operations discussed above under “Results of Operations.”
While management believes that FFO is the most relevant and widely used measure of the Company's operating performance, such amount does not represent cash flow from operations as defined by generally accepted accounting principles, should not be considered as an alternative to net income as an indicator of the Company's operating performance, and is not indicative of cash available to fund all cash flow needs.
None
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
At the annual meeting of the shareholders of the Company, holders of 118,92,753 common shares were represented in person or by proxy at said meeting, there were 128,294,812 common shares which could be voted at said meeting and that the votes were as follows:
1. Regarding the proposal to elect five (5) Directors of the Company:
FOR | AGAINST | |||
Geoffrey Button | 115,558,686 | 3,364,063 | ||
William Cavanaugh III | 113,524,454 | 5,398,294 | ||
Ngaire E. Cuneo | 113,504,649 | 5,418,099 | ||
Charles R. Eitel | 115,553,065 | 3,369,683 | ||
Darell E. Zink, Jr. | 115,538,937 | 3,383,811 |
2. Regarding the proposal to approve the 2000 Performance Share Plan of Duke-Weeks Realty Corporation:
FOR | AGAINST | ABSTAIN | ||
115,241,636 | 3,147,901 | 509,925 |
3. Regarding the proposal to approve an amendment to the 1995 Dividend Increase Unit Plan of Duke-Weeks Realty Services Limited Partnership authorizing the issuance of an additional 1,000,000 shares of the Company's common stock under the Plan.
FOR | AGAINST | ABSTAIN | ||
115,745,397 | 2,756,701 | 402,473 |
4. Regarding the proposal to approve the amendment to the 1999 Director's Stock Option and Dividend Increase Unit Plan of Duke Realty Investments, Inc.
FOR | AGAINST | ABSTAIN | ||
109,622,232 | 8,652,291 | 629,306 |
5. To consider and act upon a proposal by a shareholder requesting that the Board of Directors repeal the Shareholders Rights Plan unless such Plan is approved by the shareholders.
FOR | AGAINST | ABSTAIN | ||
50,702,996 | 48,744,777 | 1,649,859 |
Item 5. Other Information
When used in this Form 10-Q, the words "believes," "expects," "estimates" and similar expressions are intended to identify forward-looking statements. Such statements are subject to certain risks and uncertainties which could cause actual results to differ materially. In particular, among the factors that could cause actual results to differ materially are continued qualification as a real estate investment trust, general business and economic conditions, competition, increases in real estate construction costs, interest rates, accessibility of debt and equity capital markets and other risks inherent in the real estate business including tenant defaults, potential liability relating to environmental matters and illiquidity of real estate investments. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company undertakes no obligation to publicly release the results of any revisions to these forward-looking statements which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. Readers are also advised to refer to the Company's Form 8-K Report as filed with the U.S. Securities and Exchange Commission on March 28, 1996 for additional information concerning these risks.
Item 6. Exhibits and Reports on Form 8-K
Exhibits
Exhibit 15. Letter regarding unaudited interim financial information
Reports on Form 8-K
None.
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.
DUKE-WEEKS REALTY CORPORATION | ||||
Registrant | ||||
Date: | August 13, 2001 | /s/ | Thomas L. Hefner | |
President and | ||||
Chief Executive Officer | ||||
/s/ | Darell E. Zink, Jr. | |||
Executive Vice President and | ||||
Chief Financial Officer | ||||
/s/ | Dennis D. Oklak | |||
Executive Vice President and | ||||
Chief Administrative Officer | ||||
(Chief Accounting Officer) |