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 March 31, 2000
--------------
OR
___ 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: 0-20625
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DUKE-WEEKS REALTY LIMITED PARTNERSHIP
State of Incorporation: IRS Employer ID Number:
Indiana 35-1898425
- ----------------------- ----------------------
Address of principal executive offices:
8888 Keystone Crossing, Suite 1200
----------------------------------
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 Limited Partnership Units outstanding as of April 30, 2000
was 19,187,880.
DUKE-WEEKS REALTY LIMITED PARTNERSHIP
INDEX
PART I - FINANCIAL INFORMATION PAGE
- ------------------------------ ----
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets as of
March 31, 2000 (Unaudited) and December 31, 1999 2
Condensed Consolidated Statements of Operations for the
three months ended March 31, 2000 and 1999
(Unaudited) 3
Condensed Consolidated Statements of Cash Flows for the
three months ended March 31, 2000 and 1999 (Unaudited) 4
Condensed Consolidated Statement of Partners' Equity for
the three months ended March 31, 2000 (Unaudited) 5
Notes to Condensed Consolidated Financial Statements
(Unaudited) 6-11
Independent Accountants' Review Report 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 13-18
PART II - OTHER INFORMATION
- ---------------------------
Item 1. Legal Proceedings 19
Item 2. Changes in Securities 19
Item 3. Defaults Upon Senior Securities 19
Item 4. Submission of Matters to a Vote of
Security Holders 19
Item 5. Other Information 19
Item 6. Exhibits and Reports on Form 8-K 19
Signatures 20
Exhibits
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DUKE-WEEKS REALTY LIMITED PARTNERSHIP AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
March 31, December 31,
2000 1999
--------- -----------
ASSETS (UNAUDITED)
------
Real estate investments:
Land and improvements $ 610,651 $ 602,789
Buildings and tenant improvements 4,149,512 4,124,117
Construction in progress 353,624 327,944
Investments in unconsolidated
companies 150,266 145,587
Land held for development 257,919 246,533
--------- ---------
5,521,972 5,446,970
Accumulated depreciation (278,164) (254,574)
--------- ---------
Net real estate investments 5,243,808 5,192,396
Cash 37,856 18,514
Accounts receivable, net of allowance
of $1,678 and $1,775 17,393 26,844
Accrued straight-line rent receivable,
net of allowance of $841 31,345 29,770
Receivables on construction contracts 32,535 29,537
Deferred financing costs, net of
accumulated amortization of $9,834
and $9,082 16,068 16,571
Deferred leasing and other costs,
net of accumulated amortization
of $24,080 and $21,287 89,536 83,153
Escrow deposits and other assets 178,803 90,499
--------- ---------
$5,647,344 $5,487,284
========= =========
LIABILITIES AND PARTNERS' EQUITY
--------------------------------
Indebtedness:
Secured debt $ 541,685 $ 528,665
Unsecured notes 1,326,762 1,326,811
Unsecured line of credit 408,000 258,000
--------- ---------
2,276,447 2,113,476
Construction payables and amounts
due subcontractors 73,166 89,985
Accounts payable 2,608 3,179
Accrued expenses:
Accrued real estate taxes 54,884 47,604
Accrued interest 19,913 20,658
Other accrued expenses 30,069 41,836
Other liabilities 32,009 30,541
Tenant security deposits and
prepaid rents 38,797 36,156
--------- ---------
Total liabilities 2,527,893 2,383,435
--------- ---------
Minority interest 2,287 1,860
--------- ---------
Partners' equity:
General partner
Common equity 2,094,226 2,082,720
Preferred equity (liquidation
preference of $609,883) 587,270 587,385
--------- ---------
2,681,496 2,670,105
Limited partners' common equity 332,713 328,929
Limited partners' preferred equity 102,955 102,955
--------- ---------
Total partners' equity 3,117,164 3,101,989
--------- ---------
$5,647,344 $5,487,284
========= =========
See accompanying Notes to Consolidated Financial Statements.
- 2 -
DUKE-WEEKS REALTY LIMITED PARTNERSHIP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31,
(IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
(UNAUDITED)
2000 1999
------ ------
RENTAL OPERATIONS:
Revenues:
Rental income $171,910 $ 99,479
Equity in earnings of
unconsolidated companies 2,824 2,508
------- -------
174,734 101,987
------- -------
Operating expenses:
Rental expenses 28,842 18,626
Real estate taxes 18,520 10,817
Interest expense 32,681 15,991
Depreciation and amortization 39,779 20,454
------- -------
119,822 65,888
------- -------
Earnings from rental
operations 54,912 36,099
------- -------
SERVICE OPERATIONS:
Revenues:
Property management,
maintenance and
leasing fees 5,683 3,626
Construction and development
activity income 7,548 8,347
Other income 834 294
------- -------
14,065 12,267
------- -------
Operating expenses 8,689 7,231
------- -------
Earnings from service
operations 5,376 5,036
------- -------
General and administrative
expenses (5,164) (3,615)
------- -------
Operating income 55,124 37,520
OTHER INCOME (EXPENSE):
Interest income 1,620 599
Other expense (122) (232)
Earnings from land and
depreciated property sales 14,686 2,314
Minority interest in earnings
of subsidiaries (661) (430)
------- -------
Net income 70,647 39,771
Dividends on preferred units (14,354) (8,842)
------- -------
Net income available for
common unitholders $ 56,293 $ 30,929
======= =======
Net income per common unit:
Basic $ .39 $ .32
======= =======
Diluted $ .39 $ .32
======= =======
Weighted average number
of common units outstanding 145,125 97,198
======= =======
Weighted average number of
common and dilutive
potential common units 146,326 98,094
======= =======
See accompanying Notes to Consolidated Financial Statements.
- 3 -
DUKE-WEEKS REALTY LIMITED PARTNERSHIP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31,
(IN THOUSANDS)
(UNAUDITED)
2000 1999
---- ----
Cash flows from operating activities:
Net income $ 70,647 $ 39,771
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation of buildings and tenant
improvements 35,714 18,260
Amortization of deferred leasing
and other costs 4,065 2,194
Amortization of deferred financing costs 678 356
Minority interest in earnings 661 430
Straight-line rent adjustment (3,676) (1,770)
Earnings from land and depreciated
property sales (14,686) (2,314)
Construction contracts, net (19,817) (34,091)
Other accrued revenues and expenses, net 3,640 9,253
Equity in earnings in (excess)/shortfall
of distributions received from
unconsolidated companies 168 (21)
------- -------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 77,394 32,068
------- -------
Cash flows from investing activities:
Rental property development costs (168,411) (67,163)
Acquisition of real estate investments - (54,854)
Acquisition of undeveloped land and
infrastructure costs (21,082) (47,809)
Recurring tenant improvements (7,411) (3,148)
Recurring leasing costs (5,387) (2,706)
Recurring building improvements (1,351) (259)
Other deferred leasing costs (10,027) (3,288)
Other deferred costs and other assets (3,762) (4,654)
Proceeds from land and depreciated
property sales, net 163,783 8,003
Tax deferred exchange escrow, net (97,558) -
Distributions received from
unconsolidated companies - 16,802
Net investment in and advances to
unconsolidated companies (9,120) (7,993)
------- -------
NET CASH USED BY INVESTING ACTIVITIES (160,326) (167,069)
------- -------
Cash flows from financing activities:
Contributions from general partner 10,317 110,376
Proceeds from indebtedness 18,741 125,000
Payments on indebtedness including
principal amortization (5,383) (1,873)
Borrowings/(repayments) on lines of
credit, net 150,000 (26,000)
Distributions to partners (56,561) (33,032)
Distributions to preferred unitholders (14,354) (8,842)
Distributions to minority interest (117) (296)
Deferred financing costs (369) (1,977)
------- -------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 102,274 163,356
------- -------
NET INCREASE IN CASH
AND CASH EQUIVALENTS 19,342 28,355
Cash and cash equivalents at
beginning of period 18,514 6,626
------- -------
Cash and cash equivalents at
end of period $ 37,856 $ 34,981
======= =======
Other non-cash items:
Assumption of debt for real
estate acquisitions $ - $ 9,116
======= =======
Conversion of Limited Partner
Units to shares $ 102 $ 507
======= =======
Issuance of Limited Partner
Units for real
estate acquisitions $ 3,937 $ 715
======= =======
See accompanying Notes to Consolidated Financial Statements.
- 4 -
DUKE-WEEKS REALTY LIMITED PARTNERSHIP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF PARTNERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2000
(IN THOUSANDS)
(UNAUDITED)
General Partner Limited Limited
---------------------- Partners' Partners'
Common Preferred Common Preferred
Equity Equity Equity Equity Total
------- --------- --------- --------- ------
BALANCE AT
DECEMBER 31, 1999 $2,082,720 $ 587,385 $328,929 $102,955 $3,101,989
Net income 48,858 12,252 7,435 2,102 70,647
Capital contribution
from (repayments to)
General Partner 11,639 (115) - - 11,524
Acquisition of partner-
ship interest for
common stock of
General Partner 102 - (120) - (18)
Acquisition of property
in exchange for
Limited Partner Units - - 3,937 - 3,937
Distributions to
preferred unitholders - (12,252) - (2,102) (14,354)
Distributions to
partners ($.39 per
Common Unit) (49,093) - (7,468) - (56,561)
--------- ------- ------- ------- ---------
BALANCE AT MARCH
31, 2000 $2,094,226 $587,270 $332,713 $102,955 $3,117,164
========= ======= ======= ======= =========
COMMON UNITS
OUTSTANDING AT
MARCH 31, 2000 126,463 19,188 145,651
========= ======= =========
See accompanying Notes to Condensed Consolidated Financial Statements
- 5 -
DUKE-WEEKS REALTY LIMITED PARTNERSHIP
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 Limited
Partnership (the "Partnership") without audit. The statements
have been prepared in accordance with generally accepted
accounting principles 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 generally accepted accounting principles
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 Partnership's Annual Financial Statements.
THE PARTNERSHIP
The Partnership was formed on October 4, 1993, when
the General Partner contributed all of its properties and related
assets and liabilities along with the net proceeds from the issuance
of an additional 14,000,833 units through a common stock offering to
the Partnership. Simultaneously, the Partnership completed the
acquisition of Duke Associates, a full-service commercial real
estate firm operating in the Midwest. The General Partner was formed
in 1985 and qualifies as a real estate investment trust under
provisions of the Internal Revenue Code. The General Partner is the
sole general partner of the Partnership and owns 86.8% of the
Partnership at March 31, 2000. The remaining limited partnership
interest ("Limited Partner Units") (together with the units of
general partner interests, the ("Common Units")) are mainly owned by
the previous partners of Duke Associates. The Limited Partner Units
are exchangeable for units of the General Partner's common stock on
a one-for-one basis subject generally to a one-year holding period.
The General Partner periodically acquires a portion of the minority
interest in the Partnership through the issuance of units of common
stock for a like number of Common Units. The acquisition of the
minority interest is accounted for under the purchase method with
assets acquired recorded at the fair market value of the General
Partner's common stock on the date of acquisition.
The service operations are conducted through Duke Realty Services
Limited Partnership and Duke Construction Limited Partnership, in
which the Partnership has an 89% profits interest (after certain
preferred returns on partners' capital accounts) and effective
control of their operations. The consolidated financial statements
include the accounts of the Partnership and its majority-owned or
controlled subsidiaries. The equity interests in these majority-
owned or controlled subsidiaries not owned by the Partnership are
reflected as minority interests in the consolidated financial
statements.
- 6 -
DUKE-WEEKS REALTY LIMITED PARTNERSHIP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
2. LINES OF CREDIT
The Partnership has the following lines of credit available (in
thousands):
Outstanding
Borrowing Maturity Interest at March
Description Capacity Date Rate 31, 2000
------------------------ --------- ---------- ------------ ----------
Unsecured Line of Credit $450,000 April 2001 LIBOR + .70% $408,000
Unsecured Line of Credit 300,000 April 2001 LIBOR + .90% -
Secured Line of Credit 150,000 Jan. 2003 LIBOR + 1.05% 18,741
The lines of credit are used to fund development and acquisition
of additional rental properties and to provide working capital.
The $450 million line of credit allows the Partnership 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. Amounts
outstanding on the line of credit at March 31, 2000 are at LIBOR
+ .58% to .70%.
3. RELATED PARTY TRANSACTIONS
The Partnership provides management, maintenance, leasing,
construction, and other tenant related services to properties in
which certain executive officers have continuing ownership
interests. The Partnership was paid fees totaling $536,000 and
$972,000 for such services for the three months ended March 31,
2000 and 1999, respectively. Management believes the terms for
such services are equivalent to those available in the market.
The Partnership 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.
At March 31, 2000, other assets included outstanding loan
advances totaling $2.4 million due from a related party, under a
$5.7 million demand loan agreement. The loan bears interest at
LIBOR plus 2.10% and is secured by real estate assets held by the
related entity, for which the Partnership has arrangements to
acquire in future periods. Interest earned under the agreement
and included in the accompanying condensed consolidated
statements of operations totaled $70,934 in the three months
ended March 31, 2000.
4. NET INCOME PER COMMON UNIT
Basic net income per common unit is computed by dividing net
income available for common unitholders by the weighted average number
of common units outstanding for the period. Diluted net income
per unit is computed by dividing net income available for common
unitholders by the sum of the weighted average number of common units
and dilutive potential common units outstanding for the period.
- 7 -
DUKE-WEEKS REALTY LIMITED PARTNERSHIP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The following table reconciles the components of basic and
diluted net income per common unit for the three months ended
March 31:
2000 1999
------ ------
Basic net income available for
common units $ 56,293 $30,929
======= ======
Weighted average common units
outstanding 145,125 97,198
Dilutive units for long-term
compensation plans 1,201 896
------- ------
Weighted average number of
common units and dilutive
potential common units 146,326 98,094
======= ======
The Preferred D Series Convertible equity and Preferred G
Convertible units were both anti-dilutive at March 31, 2000;
therefore, no conversion to common units is included in weighted
units outstanding.
5. SEGMENT REPORTING
The Partnership 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 and
construction management to third-party property owners ("Service
Operations"). The Partnership'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 Partnership assesses and measures segment operating results
based on an industry performance measure 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 Partnership's performance measure.
The revenues and FFO for each of the reportable segments for the
three months ended March 31, 2000 and 1999 and the assets for
each of the reportable segments as of March 31, 2000 and December
31, 1999 are summarized as follows:
- 8 -
DUKE-WEEKS REALTY LIMITED PARTNERSHIP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
THREE MONTHS ENDED MARCH 31
2000 1999
---- ----
Revenues
--------
Rental Operations:
Office $ 81,215 $ 60,443
Industrial 84,058 33,046
Retail 7,224 5,932
Service Operations 14,065 12,267
------- -------
Total Segment Revenues 186,562 111,688
Non-Segment Revenue 2,237 2,566
------- -------
Consolidated Revenue $188,799 $114,254
======= =======
Funds From Operations
---------------------
Rental Operations:
Office $ 55,161 $ 41,084
Industrial 65,655 24,863
Retail 5,650 4,661
Service Operations 5,376 5,036
------- -------
Total Segment FFO 131,842 75,644
Non-Segment FFO:
Interest expense (32,681) (15,991)
Interest income 1,620 599
General and administrative
expense (5,164) (3,615)
Gain on land sales 3,616 -
Other expenses (2,087) (803)
Minority interest in earnings
of subsidiaries (661) (430)
Joint venture FFO 4,288 4,022
Dividends on preferred units (14,354) (8,842)
------- -------
Consolidated FFO 86,419 50,584
------- -------
Depreciation and
amortization (39,779) (20,454)
Share of joint venture
adjustments (1,417) (1,515)
Earnings from depreciated
property sales 11,070 2,314
------- -------
Net Income Available for
Common Unitholders $ 56,293 $ 30,929
======= =======
MARCH 31, DECEMBER 31,
2000 1999
--------- ------------
Assets
------
Rental Operations:
Office $2,294,903 $2,252,795
Industrial 2,749,642 2,707,028
Retail 210,040 205,993
Service Operations 70,210 62,335
--------- ---------
Total Non-Segment Assets 5,324,795 5,228,151
Non-Segment Assets 322,549 259,133
--------- ---------
Consolidated Assets $5,647,344 $5,487,284
========= =========
6. PARTNERS' EQUITY
The following series of preferred equity are outstanding as of
March 31, 2000 (in thousands, except percentages):
Units 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% Sept. 30, 2007 150,000 No
Preferred D Series 539 7.375% Dec. 31, 2003 134,883 Yes
Preferred E Series 400 8.250% Jan. 20, 2004 100,000 No
Preferred F Series 600 8.000% Oct. 10, 2002 150,000 No
- 9 -
DUKE-WEEKS REALTY LIMITED PARTNERSHIP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
All series of preferred equity 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
contributions of the General Partner, which may include other
classes or series of preferred equity.
The Preferred Series D equity is convertible at a conversion rate
of 9.3677 common units for each preferred unit outstanding.
The dividend rate on the Preferred B Series equity increases to
9.99% after September 12, 2012.
7. MERGER WITH WEEKS CORPORATION
In July 1999, the General Partner and Weeks Corporation ("Weeks")
approved a merger transaction whereby Weeks, a self-administered,
self-managed geographically focused Real Estate Investment Trust
("REIT") which operated primarily in the southeastern United States
and its consolidated subsidiary, Weeks Realty L.P. ("Weeks Operating
Partnership"), were merged with and into the General Partner and its
consolidated subsidiary, Duke Realty Limited Partnership ("Duke
Operating Partnership"). The total purchase price of Weeks and Weeks
Operating Partnership aggregated approximately $1.9 billion, which
included the assumption of the outstanding debt and liabilities of
Weeks Operating Partnership of approximately $775 million.
The following summarized pro forma unaudited information
represents the combined historical operating results of Weeks
Operating Partnership and Duke Operating Partnership with the
appropriate purchase accounting adjustments, assuming the merger
had occurred on January 1, 1999. The pro forma financial
information presented is not necessarily indicative of what the
Partnership's actual operating results would have been had Weeks
Operating Partnership and Duke Operating Partnership constituted
a single entity during such periods (in thousands, except per
unit amounts):
Three Months Ended
March 31,
------------------
2000 1999
---- ----
(ACTUAL) (Pro Forma)
Rental Income $171,910 $144,274
======= =======
Net earnings attributable to Common Units $ 48,859 $ 37,474
======= =======
Weighted average Common Units outstanding:
Basic 126,070 113,595
======= =======
Diluted 146,326 135,598
======= =======
Earnings attributable to Common Units:
Basic $ .39 $ .33
======= =======
Diluted $ .39 $ .33
======= =======
- 10 -
DUKE-WEEKS REALTY LIMITED PARTNERSHIP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
8. OTHER MATTERS
ACCOUNTING CHANGES
In June 1998, the Financial Accounting Standards Board issued
Statement No. 133, "Accounting for Derivative Instruments and for
Hedging Activities," effective for fiscal years beginning after
June 15, 2000. The statement will require the Partnership to
recognize all derivatives on the balance sheet at fair value.
Derivatives that are not hedges must be adjusted to fair value
through income. If the derivative is a hedge, then depending on
the nature of the hedge, changes in the fair value will either be
offset through earnings, against the change in fair value of
hedged assets, liabilities or firm commitments of recognized in
other comprehensive income until the hedged item is recognized in
earnings. The ineffective portion of a hedge's change in fair
value will be immediately recognized in earnings. Based on the
information available at this time, the adoption of this
statement is not expected to have a material impact on the
Partnership's financial statements.
RECLASSIFICATIONS
Certain 1999 balances have been reclassified to conform to 2000
presentation.
9. SUBSEQUENT EVENTS
The Board of Directors of the General Partner declared the
following distributions on April 26, 2000:
QUARTERLY
CLASS AMOUNT/UNIT RECORD DATE PAYMENT DATE
------------- ------------ ----------- ------------
Common $ 0.39 May 15, 2000 May 31, 2000
Preferred:
Series A $0.56875 May 17, 2000 May 31, 2000
Series B $0.99875 June 16, 2000 June 30, 2000
Series D $0.46094 June 16, 2000 June 30, 2000
Series E $0.51563 June 16, 2000 June 30, 2000
Series F $0.50000 July 17, 2000 July 31, 2000
- 11 -
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
The Partners
DUKE-WEEKS REALTY LIMITED PARTNERSHIP:
We have reviewed the condensed consolidated balance sheet of Duke-
Weeks Realty Limited Partnership and subsidiaries as of March 31,
2000, the related condensed consolidated statements of operations
for the three months ended March 31, 2000 and 1999, the related
condensed consolidated statements of cash flows for the three
months ended March 31, 2000 and 1999, and the related condensed
consolidated statement of partners' equity for the three months
ended March 31, 2000. These condensed consolidated financial
statements are the responsibility of the Partnership'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 generally accepted auditing
standards, 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 generally accepted accounting principles.
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet of Duke-Weeks
Realty Limited Partnership and subsidiaries as of December 31,
1999, and the related consolidated statements of operations,
partners' equity and cash flows for the year then ended (not
presented herein); and in our report dated January 25, 2000, 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, 1999 is fairly presented, in all material respects, in
relation to the consolidated balance sheet from which it has been
derived.
KPMG LLP
Indianapolis, Indiana
April 26, 2000
- 12 -
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Partnership'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 Partnership's rental space in its primary markets.
In addition, the Partnership's continued growth is dependent upon
its ability to maintain occupancy rates and increase rental rates
of its in-service portfolio and to continue development and
acquisition of additional rental properties.
The Partnership's primary markets have continued to offer strong
and stable local economies and have provided attractive new
development opportunities because of their established
manufacturing base, skilled work force and moderate labor costs.
The Partnership expects to continue to maintain its overall
occupancy levels and also expects to be able to maintain rental
rates as leases are renewed or new leases are executed. This
combination should improve the Partnership's results of
operations from its in-service properties. The Partnership's
strategy for continued growth also includes developing and
acquiring additional rental properties in its primary markets and
expanding into other attractive markets.
The Partnership tracks Same Property performance which compares those
propeties that were in-service for all of a two year period. The net
operating income from the same property portfolio increased 5.62% for
the three months ended March 31, 2000 compared to the three months
ended March 31, 1999.
The following table sets forth information regarding the
Partnership's in-service portfolio of rental properties as of
March 31, 2000 and 1999 (in thousands, except percentages):
Total Percent of
Square Feet Total Square Feet Percent Occupied
----------------- ----------------- ----------------
Type 2000 1999 2000 1999 2000 1999
---- ---- ---- ---- ---- ---- ----
Industrial
Service Centers 12,870 6,771 14.0% 12.2% 93.1% 92.2%
Bulk 57,749 32,296 62.7% 58.2% 90.5% 94.4%
Office
Suburban 17,982 13,258 19.5% 23.9% 90.9% 95.0%
CBD 861 861 .9% 1.6% 93.6% 93.9%
Retail 2,703 2,287 2.9% 4.1% 96.5% 93.8%
------ ------ ------ ------
Total 92,165 55,473 100.0% 100.0% 91.2% 94.3%
====== ====== ====== ======
The following table reflects the Partnership's in-service
portfolio lease expiration schedule as of March 31, 2000 by
product type indicating square footage and annualized net
effective rents under expiring leases (in thousands, except per
square foot amounts):
- 13 -
Total
Portfolio Industrial Office Retail
--------------------- ---------------- --------------- ---------------
Yr.of Sq. Ann. Rent Sq. Ann.Rent Sq. Ann.Rent Sq. Ann.Rent
Exp. Ft. Revenue % Ft. Revenue Ft. Revenue Ft. Revenue
- ---- ----- --------- ---- ------- -------- ------ -------- ----- ---------
2000 5,473 $ 34,909 7% 4,468 $ 22,419 914 $ 11,405 91 $ 1,085
2001 9,278 59,663 10% 7,220 34,052 1,960 24,385 98 1,226
2002 11,037 70,570 12% 8,730 42,525 2,191 26,457 116 1,588
2003 10,033 70,466 12% 7,726 39,622 2,121 27,735 186 3,109
2004 10,087 73,912 13% 7,581 39,819 2,364 32,545 142 1,548
2005 9,479 64,293 11% 7,308 34,552 1,897 27,175 274 2,566
2006 5,407 36,432 6% 4,226 19,591 1,170 16,687 11 154
2007 4,423 29,146 5% 3,597 17,735 760 10,785 66 626
2008 5,443 33,333 6% 4,482 19,788 898 12,830 63 715
2009 6,331 41,560 7% 5,061 23,168 1,139 16,740 131 1,652
2010
and
There-
after 7,014 60,178 11% 3,838 19,328 1,746 27,963 1,430 12,887
------ ------- ---- ------ ------- ------ ------- ----- -------
Total
Leased 84,005 $574,462 100% 64,237 $312,599 17,160 $234,707 2,608 $27,156
====== ======= ==== ====== ======= ====== ======= ===== ======
Total
Port-
folio
Sq Ft 92,165 70,619 18,843 2,703
====== ====== ====== =====
Annualized
net effective
rent per
square foot $ 6.84 $ 4.87 $ 13.68 $ 10.41
====== ======= ======= ======
The Partnership 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 9.9 million square feet of properties under development at
March 31, 2000 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 Partnership 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:
2nd Quarter 2000 4,306 49% $205,734 11.37%
3rd Quarter 2000 1,679 26% 160,073 11.75%
4th Quarter 2000 1,363 44% 122,841 11.42%
Thereafter 377 46% 46,656 10.84%
----- -------
7,725 43% $535,304 11.45%
----- -------
BUILD-TO-SUIT
FOR SALE:
2nd Quarter 2000 326 100% $ 45,440
3rd Quarter 2000 1,375 100% 60,776
4th Quarter 2000 - - -
Thereafter 450 100% 70,685
----- -------
2,151 100% 176,901
----- -------
Total 9,876 $712,205
===== =======
MERGER WITH WEEKS CORPORATION
In July 1999, the General Partner and Weeks Corporation ("Weeks")
approved a merger transaction whereby Weeks, a self-administered,
self-managed geographically focused Real Estate Investment Trust
("REIT") which operated primarily in the southeastern United States
and its consolidated subsidiary, Weeks Realty L.P. ("Weeks Operating
Partnership"), were merged with and into the General Partner and its
consolidated subsidiary, Duke Realty Limited Partnership ("Duke
Operating Partnership"). The total purchase price of Weeks and Weeks
Operating Partnership aggregated approximately $1.9 billion, which
included the assumption of the outstanding debt and liabilities of
Weeks Operating Partnership of approximately $775 million.
- 14 -
The following summarized pro forma unaudited information
represents the combined historical operating results of Weeks
Operating Partnership and Duke Operating Partnership with the
appropriate purchase accounting adjustments, assuming the merger
had occurred on January 1, 1999. The pro forma financial
information presented is not necessarily indicative of what the
Partnership's actual operating results would have been had Weeks
Operating Partnership and Duke Operating Partnership constituted
a single entity during such periods (in thousands, except per
unit amounts):
Three Months Ended
March 31,
2000 1999
------- --------
(Actual) (Pro Forma)
Rental Income $171,910 $144,274
======= =======
Net earnings attributable to
Common Units $ 56,293 $ 44,595
======= =======
Weighted average Common Units
outstanding:
Basic 145,125 134,528
======= =======
Diluted 146,326 135,598
======= =======
Earnings attributable
to Common Units:
Basic $ .39 $ .33
======= =======
Diluted $ .39 $ .33
======= =======
RESULTS OF OPERATIONS
Following is a summary of the Partnership's operating results and
property statistics for the three months ended March 31, 2000 and
1999 (in thousands, except number of properties and per unit
amounts):
2000 1999
---- ----
Rental Operations revenue $174,734 $101,987
Service Operations revenue 14,065 12,267
Earnings from Rental Operations 54,912 36,099
Earnings from Service Operations 5,376 5,036
Operating income 55,124 37,520
Net income available for common units $ 48,859 $ 27,394
Weighted average common units
outstanding 126,070 86,370
Weighted average common and
dilutive potential
common units 146,326 98,094
Basic income per common share $ .39 $ .32
Diluted income per common share $ .39 $ .32
Number of in-service properties
at end of period 871 474
In-service square footage at
end of period 92,165 55,473
Under development square footage
at end of period 9,876 5,713
COMPARISON OF THREE MONTHS ENDED MARCH 31, 2000 TO THREE MONTHS ENDED
MARCH 31, 1999
--------------------------------------------------------------------
Rental Operations
-----------------
The Partnership increased its in-service portfolio of rental
properties from 474 properties comprising 55.5 million square
feet at March 31, 1999 to 871 properties comprising 92.2 million
square feet at March 31, 2000 through the acquisition of 352
properties totaling 29.8 million square feet and the completion
of 75 properties and five building expansions totaling 10.9
million square feet developed by the Partnership. Of these
additional properties, 335 properties
- 15 -
totaling 28.6 million square feet relate to the merger with Weeks
Operating Partnership. The Partnership also disposed of 30 properties
totaling 4.0 million square feet. These 397 net additional rental
properties primarily account for the $72.7 million increase in
revenues from Rental Operations from 1999 to 2000. The increase
in rental expenses, real estate taxes and depreciation and
amortization expense for the same period is also a result of the
additional 397 in-service rental properties.
The $16.7 million increase in interest expense is primarily
attributed to higher outstanding debt balances associated with
the financing of the Partnership's investment activities. The
increased balances include $450 million of unsecured debt issued
in 1999, the assumption of $185 million of secured debt and $287
million of unsecured debt in the merger with Weeks Operating
Partnership, and increased borrowings on the Partnership's
unsecured lines of credit. These higher borrowing costs were
partially offset by the capitalization of interest on increased
property development activities.
As a result of the above-mentioned items, earnings from rental
operations increased $18.8 million from $36.1 million for the
three months ended March 31, 1999 to $54.9 million for the three
months ended March 31, 2000.
Service Operations
-------------------
Service Operation revenues increased by $1.8 million from $12.3
million for the three months ended March 31, 1999 to $14.1
million for the three months ended March 31, 2000 primarily as a
result of increases in construction and development revenue
arising from third-party construction volume.
As a result of the above-mentioned items, earnings from Service
Operations increased from $5.0 million for the three months ended
March 31, 1999 to $5.4 million for the three months ended March
31, 2000.
Earnings from Land and Depreciated Property Sales
-------------------------------------------------
The Partnership has a disposition strategy to pursue favorable
opportunities to dispose of real estate assets that no longer
meet long-term investment objectives of the Partnership, which
resulted in net sales proceeds of $163.8 million and a net gain
of $14.7 million during the three months ended March 31, 2000
Net Income Available for Common Unitholders
-------------------------------------------
Net income available for common unitholders for the three months
ended March 31, 2000 was $56.3 million compared to $30.9 million
for the three months ended March 31, 1999. 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 $77.4 million
and $32.1 million for the three months ended March 31, 2000 and
1999, respectively, represents the primary source of
- 16 -
liquidity to fund distributions to unitholders and the other minority
interests and to fund recurring costs associated with the
renovation and re-letting of the Partnership's properties.
Net cash used by investing activities totaling $160.3 million and
$167.1 million for the three months ended March 31, 2000 and
1999, respectively, represents the investment of funds by the
Partnership 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 financing activities totaling $102.3 million
and $163.4 million for the three months ended March 31, 2000 and
1999, respectively, is comprised of debt and equity contributions
from the General Partner, net of distributions to unitholders and
minority interests and repayments of outstanding indebtedness.
The Partnership has the following lines of credit available (in
thousands):
Outstanding
Borrowing Maturity Interest at March
Description Capacity Date Rate 31, 2000
- ------------------------ --------- ---------- ------------ ------------
Unsecured Line of Credit $450,000 April 2001 LIBOR + .70% $408,000
Unsecured Line of Credit 300,000 April 2001 LIBOR + .90% -
Secured Line of Credit 150,000 Jan. 2003 LIBOR + 1.05% 18,741
The lines of credit are used to fund development and acquisition
of additional rental properties and to provide working capital.
The $450 million line of credit allows the Partnership 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. Amounts
outstanding on the line of credit at March 31, 2000 are at LIBOR
+ .58% to .70%.
The General Partner and the Partnership currently have on file
three Form S-3 Registration Statements with the Securities and
Exchange Commission ("Shelf Registrations") which had remaining
availability as of March 31, 2000 of approximately $292.9 million
to issue common stock, preferred stock or unsecured debt
securities. The General Partner and the Partnership intend to
issue additional equity or debt under these Shelf Registrations
as capital needs arise to fund the development and acquisition of
additional rental properties. The General Partner and the
Partnership also plan to file additional shelf registrations as
necessary.
The total debt outstanding at March 31, 2000 consists of notes
totaling $2.3 billion with a weighted average interest rate of
7.15% maturing at various dates through 2028. The Partnership has
$1.7 billion of unsecured debt and $541.7 million of secured debt
outstanding at March 31, 2000. Scheduled principal amortization
of such debt totaled $2.7 million for the three months ended
March 31, 2000.
Following is a summary of the scheduled future amortization and
maturities of the Partnership's indebtedness at March 31, 2000
(in thousands):
- 17 -
Future Repayments
----------------------------------------- Weighted Average
Scheduled Interest Rate of
Year Amortization Maturities Total Future Repayments
------- ------------ ----------- ------------ -----------------
2000 10,118 62,318 72,436 7.15%
2001 13,733 587,381 601,114 6.79%
2002 14,130 55,037 69,167 7.35%
2003 13,979 300,047 314,026 7.58%
2004 12,590 176,146 188,736 7.41%
2005 11,559 213,662 225,221 7.25%
2006 10,856 146,178 157,034 7.12%
2007 9,172 116,576 125,748 7.13%
2008 8,386 100,000 108,386 6.79%
2009 9,010 150,000 159,010 7.72%
There-
after 32,455 223,114 255,569 6.98%
------- --------- ---------
Total $145,988 $2,130,459 $2,276,447 7.15%
======= ========= =========
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 property, plus operating
property depreciation and amortization and adjustments for
minority interest and unconsolidated companies 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 Partnership's
FFO for the three months ended March 31 as follows (in
thousands):
2000 1999
---- ----
Net income available for common units $ 56,293 $ 30,929
Add back (deduct):
Depreciation and amortization 39,779 20,454
Share of joint venture adjustments 1,417 1,515
Earnings from depreciated property sales (11,070) (2,314)
------- -------
FUNDS FROM OPERATIONS $ 86,419 $ 50,584
======= =======
CASH FLOW PROVIDED BY (USED BY):
Operating activities $ 77,394 $ 32,068
Investing activities (160,326) (167,069)
Financing activities 102,274 163,356
The increase in FFO for the three months ended March 31, 2000
compared to the three months ended March 31, 1999 results
primarily from the increased in-service rental property portfolio
as discussed above under "Results of Operations."
While management believes that FFO is the most relevant and
widely used measure of the Partnership'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 Partnership's operating performance, and is not indicative of
cash available to fund all cash flow needs.
- 18 -
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
--------------------------
None
Item 2. Changes in Securities
------------------------------
None
Item 3. Defaults upon Senior Securities
----------------------------------------
None
Item 4. Submission of Matters to a Vote of Security Holders
------------------------------------------------------------
None
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 Partnership 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
Partnership's Form 8-K Report as filed with the U.S. Securities
and Exchange Commission on March 29, 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
Exhibit 27. Financial Data Schedule (EDGAR Filing Only)
Reports on Form 8-K
-------------------
None
- 19 -
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 LIMITED PARTNERSHIP
Registrant
Date: May , 2000 /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)
- 20 -