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, 1999 ------------- 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 ------- 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 August 12, 1999 was 19,069,953. DUKE-WEEKS REALTY LIMITED PARTNERSHIP INDEX PART I - FINANCIAL INFORMATION PAGE - - ------------------------------ ---- ITEM 1. FINANCIAL STATEMENTS Condensed Consolidated Balance Sheets as of June 30, 1999 (Unaudited) and December 31, 1998 2 Condensed Consolidated Statements of Operations for the three and six months ended June 30, 1999 and 1998 (Unaudited) 3 Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 1999 and 1998 (Unaudited) 4 Condensed Consolidated Statement of Partners' Equity for the six months ended June 30, 1999 (Unaudited) 5 Notes to Condensed Consolidated Financial Statements (Unaudited) 6-10 Independent Accountants' Review Report 11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 12-20 PART II - OTHER INFORMATION Item 1. Legal Proceedings 20 Item 2. Changes in Securities 20 Item 3. Defaults Upon Senior Securities 21 Item 4. Submission of Matters to a Vote of Security Holders 21-22 Item 5. Other Information 22 Item 6. Exhibits and Reports on Form 8-K 22 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS DUKE-WEEKS REALTY LIMITED PARTNERSHIP AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS) JUNE 30, December 31, 1999 1998 ---------- ------------ ASSETS (UNAUDITED) ------ Real estate investments: Land and improvements $ 355,804 $ 312,022 Buildings and tenant improvements 2,364,216 2,091,757 Construction in progress 204,609 185,950 Investments in unconsolidated companies 114,570 125,746 Land held for development 181,274 146,911 --------- --------- 3,220,473 2,862,386 Accumulated depreciation (204,750) (179,887) --------- --------- Net real estate investments 3,015,723 2,682,499 Cash and cash equivalents 168,096 6,626 Accounts receivable from tenants, net of allowance of $625 and $896 10,720 9,641 Straight-line rent receivable, net of allowance of $841 23,581 20,332 Receivables on construction contracts 75,343 29,162 Deferred financing costs, net of accumulated amortization of $7,803 and $11,064 14,732 11,316 Deferred leasing and other costs, net of accumulated amortization of $17,934 and $16,838 57,720 53,281 Escrow deposits and other assets 62,281 41,205 --------- --------- $3,428,196 $2,854,062 ========= ========= LIABILITIES AND PARTNERS' EQUITY Indebtedness: Secured debt $ 341,556 $ 326,317 Unsecured notes 890,000 590,000 Unsecured line of credit 159,000 91,000 --------- --------- 1,390,556 1,007,317 Construction payables and amounts due subcontractors 60,776 55,012 Accounts payable 3,911 4,836 Accrued expenses: Real estate taxes 39,348 36,075 Interest 14,235 10,329 Other expenses 18,602 21,676 Other liabilities 22,080 21,928 Tenant security deposits and prepaid rents 18,973 18,534 --------- --------- Total liabilities 1,568,481 1,175,707 Minority interest 317 367 --------- --------- Partners' equity: General partner: Common equity 1,305,582 1,223,260 Preferred equity 444,885 348,366 --------- --------- 1,750,467 1,571,626 Limited partners' common equity 108,931 106,362 --------- --------- Total partners' equity 1,859,398 1,677,988 --------- --------- $3,428,196 $2,854,062 ========= ========= See accompanying Notes to Condensed Consolidated Financial Statements - 2 - DUKE-WEEKS REALTY LIMITED PARTNERSHIP AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER UNIT AMOUNTS) (UNAUDITED) Three Months Ended Six Months Ended ------------------ ---------------- 1999 1998 1999 1998 ---- ---- ---- ---- RENTAL OPERATIONS: Revenues: Rental income $104,369 $80,503 $203,848 $157,338 Equity in earnings of unconsolidated companies 2,779 2,576 5,287 5,417 ------- ------ ------- ------- 107,148 83,079 209,135 162,755 ------- ------ ------- ------- Operating expenses: Rental expenses 17,501 13,839 36,127 27,684 Real estate taxes 11,674 8,053 22,491 15,887 Interest expense 17,129 14,346 33,120 27,225 Depreciation and amortization 20,935 16,525 41,389 30,785 ------- ------ ------- ------- 67,239 52,763 133,127 101,581 ------- ------ ------- ------- Earnings from rental operations 39,909 30,316 76,008 61,174 ------- ------ ------- ------- SERVICE OPERATIONS: Revenues: Property management, maintenance and leasing fees 3,795 3,597 7,421 6,634 Construction management and development fees 4,812 3,131 13,159 4,690 Other income 286 294 580 598 ------- ------ ------- ------- 8,893 7,022 21,160 11,922 ------- ------ ------- ------- Operating expenses: Payroll 3,339 3,804 7,056 6,687 Maintenance 807 594 1,602 1,198 Office and other 1,165 804 3,884 1,322 ------- ------ ------- ------- 5,311 5,202 12,542 9,207 ------- ------ ------- ------- Earnings from service operations 3,582 1,820 8,618 2,715 ------- ------ ------- ------ General and administrative expense (3,496) (3,103) (7,111) (5,443) ------- ------ ------- ------ Operating income 39,995 29,033 77,515 58,446 OTHER INCOME (EXPENSE): Interest income 546 412 1,145 589 Earnings (loss) from property sales 1,971 368 4,285 954 Other expense (106) (30) (338) (61) Other minority interest in earnings of subsidiaries (450) (254) (880) (254) ------- ------ ------- ------- Net income $ 41,956 $29,529 $ 81,727 $ 59,674 Dividends on preferred units (9,254) (4,703) (18,096) (9,406) ------- ------ ------- ------- Net income available for common unitholders $ 32,702 $24,826 $ 63,631 $ 50,268 ======= ====== ======= ======= Net income per common unit: Basic $ 0.33 $ 0.27 $ 0.65 $ 0.56 ======= ====== ======= ======= Diluted $ 0.33 $ 0.27 $ 0.65 $ 0.56 ======= ====== ======= ======= Weighted average number of common units outstanding 97,894 90,930 97,548 89,299 ======= ====== ======= ======= Weighted average number of common and dilutive potential common units 98,855 91,830 98,477 90,222 ======= ====== ======= ======= See accompanying Notes to Condensed Consolidated Financial Statements - 3 - DUKE-WEEKS REALTY LIMITED PARTNERSHIP AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, (IN THOUSANDS) (UNAUDITED) 1999 1998 ---- ---- Cash flows from operating activities: Net income $ 81,727 $ 59,674 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation of buildings and tenant improvements 37,049 27,385 Amortization of deferred financing costs 725 656 Amortization of deferred leasing and other costs 4,340 3,400 Minority interest in earnings 880 254 Straight-line rental income (3,748) (3,107) Earnings from property sales (4,286) (954) Construction contracts, net (40,417) (2,185) Other accrued revenues and expenses, net 6,799 18,482 Equity in earnings in excess of distributions received from unconsolidated companies (499) (3,371) ------- ------- NET CASH PROVIDED BY OPERATING ACTIVITIES 82,570 100,234 ------- ------- Cash flows from investing activities: Rental property development costs (161,843) (101,464) Acquisition of rental properties (87,827) (194,703) Acquisition of land held for development and infrastructure costs (60,973) (19,377) Recurring costs: Tenant improvements (7,845) (5,216) Leasing commissions (4,993) (2,528) Building improvements (666) (894) Other deferred leasing costs (8,439) (8,049) Other deferred costs and other assets (18,870) (8,182) Proceeds from property sales, net 24,695 3,980 Other distributions received from unconsolidated companies 16,802 - Net investment in and advances to unconsolidated companies (13,017) (15,468) ------- ------- Net cash used by investing activities (322,976) (351,901) ------- ------- Cash flows from financing activities: Contributions from general partner 134,420 102,912 Proceeds from indebtedness 300,000 250,000 Borrowings (repayments) on lines of credit, net 61,000 (20,000) Payments on indebtedness including principal amortization (3,947) (5,730) Distributions to partners (66,229) (53,641) Distributions to preferred unitholders (18,096) (9,406) Distributions to minority interest (930) (193) Deferred financing costs (4,342) (739) ------- ------- NET CASH PROVIDED BY FINANCING ACTIVITIES 401,876 263,203 ------- ------- NET INCREASE IN CASH AND CASH EQUIVALENTS 161,470 11,536 Cash and cash equivalents at beginning of period 6,626 10,372 ------- ------- Cash and cash equivalents at end of period $168,096 $ 21,908 ======= ======= See accompanying Notes to Condensed Consolidated Financial Statements - 4 - DUKE-WEEKS REALTY LIMITED PARTNERSHIP AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF PARTNERS' EQUITY FOR THE SIX MONTHS ENDED JUNE 30, 1999 (IN THOUSANDS) (UNAUDITED) General Partner Limited ------------------------ Partners' Common Preferred Common Equity Equity Equity Total --------- --------- --------- --------- BALANCE AT DECEMBER 31, 1998 $1,223,260 $348,366 $106,362 $1,677,988 Net income 56,989 18,096 6,642 81,727 Capital contribution from General Partner 38,720 96,519 - 135,239 Acquisition of Partnership interest for common stock of the General Partner 46,125 - - 46,125 Acquisition of property in exchange for Limited Partner Units - - 2,644 2,644 Distributions to preferred unitholders - (18,096) - (18,096) Distributions to partners (59,512) - (6,717) (66,229) --------- ------- ------- --------- BALANCE AT JUNE 30, 1999 $1,305,582 $444,885 $108,931 $1,859,398 ========= ======= ======= ========= COMMON UNITS OUTSTANDING AT JUNE 30, 1999 89,747 8,926 98,673 ========= ======= ========= See accompanying Notes to Condensed Consolidated Financial Statements - 5 - DUKE-WEEKS REALTY LIMITED PARTNERSHIP NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. FINANCIAL STATEMENTS On June 18, 1999, the shareholders of Duke Realty Investments, Inc. (the "General Partner") and Weeks Corporation ("Weeks"), approved a merger transaction (the "Merger") which was consummated in July 1999, whereby Weeks and its consolidated subsidiary, Weeks Realty L.P. ("Weeks Operating Partnership") merged with and into the General Partner and Duke Realty Limited Partnership ("Duke Operating Partnership"). The combined operating partnerships continued operating under the name Duke-Weeks Realty Limited Partnership (the "Partnership"). See Note 7 for a more complete discussion of the Merger. The accompanying condensed financial statements of the Partnership represent the financial position and results of operations for Duke Operating Partnership on a stand-alone basis and do not reflect the financial position or results of operations for Weeks Operating Partnership or the combined partnership, unless otherwise indicated, since the Merger was consummated after June 30, 1999. The interim condensed consolidated financial statements included herein have been prepared by 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 90.9% of the Partnership at June 30, 1999. 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. - 6 - 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. 2. LINES OF CREDIT The Partnership has the following lines of credit (LOC) available: Borrowing Outstanding at Capacity Maturity Interest June 30, 1999 Description (in 000's) Date Rate (in 000's) - - ------------------------ ---------- ---------- -------- -------------- Unsecured Line of Credit $450,000 April 2001 LIBOR + .70% $159,000 Unsecured Line of Credit $300,000 April 2001 LIBOR + .90% $ 0 Both LOC are used to fund development and acquisition of additional rental properties and to provide working capital. Effective July 2, 1999, the interest rate on the $450 million LOC was adjusted from LIBOR + .80% to LIBOR + .70% in conjunction with the Partnership's new debt rating following the Merger (see Note 7). Additionally, the $450 million LOC allows the Partnership an option to obtain borrowings from the financial institutions that participate in the LOC at rates lower than the stated interest rate, subject to certain restrictions. Amounts outstanding on the LOC at June 30, 1999 are at LIBOR + .80%. The $300 million LOC was obtained July 2, 1999, following the Merger (see Note 7). On July 2, 1999, the Partnership repaid certain outstanding debt balances of Weeks Operating Partnership using a combination of cash on hand and the LOC. The balance on the combined LOC following these paydowns was $285 million. 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 $1.4 million and $1.1 million for such services for the six months ended June 30, 1999 and 1998, 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. 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 - The following table reconciles the components of basic and diluted net income per common unit for the three and six months ended June 30: Three Months Ended Six Months Ended June 30, June 30, ------------------ ----------------- 1999 1998 1999 1998 ------ ------ ------ ------ Basic net income available for common unitholders $32,702 $24,826 $63,631 $50,268 ====== ====== ====== ====== Weighted average common units outstanding 97,894 90,930 97,548 89,299 Dilutive units for long-term compensation plans 961 900 929 923 ------ ------ ------ ------ Weighted average number of common units and dilutive potential common units 98,855 91,830 98,477 90,222 ====== ====== ======= ====== The Preferred D Series Convertible equity was anti-dilutive at June 30, 1999; 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 consists of corporate assets including cash, deferred financing costs and investments in unconsolidated companies. The Partnership 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 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 and six months ended June 30, 1999 and 1998 and the assets for each of the reportable segments as of June 30, 1999 and December 31, 1998 are summarized as follows: Three Months Ended Six Months Ended June 30, June 30, -------------------- ----------------- 1999 1998 1999 1998 ------ ------ ------ ------ Revenues - - -------- Rental Operations: Office Properties $ 63,001 $50,011 $122,652 $ 99,528 Industrial Properties 35,820 25,288 68,390 47,841 Retail Properties 6,273 5,043 12,078 10,067 Service Operations 8,893 7,022 21,160 11,922 ------- ------ ------- ------- Total Segment Revenues 113,987 87,364 224,280 169,358 Non-Segment Revenue 2,054 2,737 6,015 5,319 ------- ------ ------- ------- Consolidated Revenue $116,041 $90,101 $230,295 $174,677 ======= ====== ======= ======= - 8 - Three Months Ended Six Months Ended June 30, June 30, -------------------- ---------------- 1999 1998 1999 1998 ------ ------ ------ ------ Funds From Operations - - --------------------- Rental Operations: Office Properties $ 44,191 $35,460 $ 85,405 $ 70,826 Industrial Properties 28,294 20,414 53,053 38,415 Retail Properties 5,324 4,193 9,929 8,325 Services Operations 3,582 1,820 8,618 2,715 ------- ------ ------- ------- Total Segment FFO 81,391 61,887 157,005 120,281 Non-Segment FFO: Interest expense (17,129) (14,346) (33,120) (27,225) Interest income 546 412 1,145 589 General and administrative expense (3,496) (3,103) (7,111) (5,443) Other revenues and expenses, net (1,835) (1,269) (2,608) (3,860) Minority interest in earnings (450) (254) (880) (254) Joint venture FFO 4,021 3,327 8,043 6,967 Dividends on preferred units (9,254) (4,703) (18,096) (9,406) ------- ------ ------- ------- Consolidated FFO 53,794 41,951 104,378 81,649 Depreciation and amortization (20,935) (16,525) (41,389) (30,785) Share of joint venture adjustments (1,241) (968) (2,756) (1,550) Earnings from operating property sales 1,084 368 3,398 954 ------- ------ ------- ------- Net Income Available for Common Unitholders $ 32,702 $24,826 $ 63,631 $ 50,268 ======= ====== ======= ======= JUNE 30, DECEMBER 31, 1999 1998 -------- ------------ Assets Rental Operations: Office Properties $1,590,742 $1,409,162 Industrial Properties 1,081,302 907,656 Retail Properties 174,821 161,675 Service Operations 70,686 55,268 --------- --------- Total Segment Assets 2,917,551 2,533,761 Non-Segment Assets 510,645 320,301 --------- --------- Consolidated Assets $3,428,196 $2,854,062 ========= ========= 6. PARTNERS' EQUITY The following series of preferred equity are outstanding as of June 30, 1999 (in thousands, except percentages): Units Dividend Redemption Liquidation Book Conver- Description Outstanding Rate Date Preference Value tible - - ----------- ----------- -------- ---------- ----------- ----- ------- Preferred A Series 300 9.100% 8/31/01 $ 75,000 $ 72,288 No Preferred B Series 300 7.990% 9/30/07 150,000 146,050 No Preferred D Series 540 7.375% 12/31/03 135,000 129,460 Yes Preferred E Series 400 8.250% 1/20/04 100,000 96,519 No 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. - 9 - 7. MERGER WITH WEEKS CORPORATION On June 18, 1999, the shareholders of both the General Partner and Weeks approved a merger transaction which was consummated in July 1999, 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 Operating Partnership, were merged with and into the General Partner and its consolidated subsidiary, Duke Operating Partnership. The combined Operating Partnership has continued under the name Duke- Weeks Realty Limited Partnership. In accordance with the terms of the Merger, each outstanding Weeks Operating Partnership common unit was converted into the right to receive 1.38 common units of the Partnership and each outstanding Weeks Operating Partnership Series A preferred equity was converted into the right to receive one unit of a new class of the Partnership Series F preferred equity. In addition, the Partnership assumed Weeks Operating Partnership debt and other liabilities upon consummation of the Merger. The Merger was structured as a tax-free merger and was accounted for under the purchase method. Based on the in-service properties of Duke Operating Partnership and Weeks Operating Partnership at June 30, 1999, the Partnership would have had 882 in-service properties totaling 86.1 million square feet, which were approximately 93% leased. The Partnership has operations in 15 cities in the midwestern and southeastern United States. 8. SUBSEQUENT EVENTS The Board of Directors of the General Partner declared the following distributions on July 28, 1999: QUARTERLY CLASS AMOUNT/UNIT RECORD DATE PAYMENT DATE - - --------- ----------- ----------- -------------------- Common $0.39 August 16, 1999 August 31, 1999 Preferred: Series A $0.56875 August 17, 1999 August 31, 1999 Series B $0.99875 September 16, 1999 September 30, 1999 Series D $0.46094 September 16, 1999 September 30, 1999 Series E $0.51563 September 16, 1999 September 30, 1999 Series F $0.50000 October 15, 1999 October 29, 1999 - 10 - 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 June 30, 1999, the related condensed consolidated statements of operations for the three months and the six months ended June 30, 1999 and 1998, the related condensed consolidated statements of cash flows for the six months ended June 30, 1999 and 1998, and the related condensed consolidated statement of partners' equity for the six months ended June 30, 1999. 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 Realty Limited Partnership and subsidiaries as of December 31, 1998, and the related consolidated statements of operations and cash flows for the year then ended (not presented herein); and in our report dated January 28, 1999 (except as to note 12, which is as of March 1, 1999), 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, 1998 is fairly presented, in all material respects, in relation to the consolidated balance sheet from which it has been derived. KPMG LLP Indianapolis, Indiana August 3, 1999 - 11 - ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information presented in "Item 2. Management's Discussion and Analysis of Financial Condition and Result of Operations" is based on the financial position and results of operations of Duke Operating Partnership on a stand-alone basis and does not consider Weeks Operating Partnership or the combined Partnership, unless otherwise indicated, since the Merger was consummated after June 30, 1999. See further discussion below under Merger with Weeks Corporation. 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 in the Midwest have continued to offer strong and stable local economies and have provided attractive new development opportunities because of their central location, established manufacturing base, skilled work force and moderate labor costs. Consequently, the Partnership's occupancy rate of its in- service portfolio has exceeded 93.9% the last two years. The Partnership expects to continue to maintain its overall occupancy in its Midwestern markets at comparable levels and also expects to be able to increase rental rates in these markets as leases are renewed or new leases are executed. This stable occupancy as well as increasing rental rates 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 (see discussion of Weeks merger below). The following table sets forth information regarding the Partnership's in-service portfolio of rental properties as of June 30, 1999 and 1998 (in thousands, except percentages): Total Percent of Square Feet Total Square Feet Percent Occupied --------------- ----------------- ---------------- Type 1999 1998 1999 1998 1999 1998 - - -------- ------ ------ ------ ------ ------ ------ INDUSTRIAL Service Centers 6,672 5,296 11.55% 10.98% 92.71% 93.58% Bulk 34,121 28,368 59.06 58.83 93.87% 93.69% OFFICE Suburban 13,575 11,819 23.50 24.51 94.84% 96.21% CBD 861 699 1.49 1.45 93.76% 92.67% RETAIL 2,548 2,041 4.41 4.23 92.36% 95.67% ------ ------ ------ ------ Total 57,777 48,223 100.00% 100.00% 93.90% 94.37% ====== ====== ====== ====== Management expects occupancy of the in-service property portfolio to remain stable because (i) only 6.0% and 9.5% of the Partnership's occupied square footage is subject to leases expiring in the remainder of 1999 and in 2000, respectively, and (ii) the Partnership's renewal percentage averaged 69%, 81%, 80% in 1998, 1997 and 1996, respectively. - 12 - The following table reflects the Partnership's in-service portfolio lease expiration schedule as of June 30, 1999 by product type indicating square footage and annualized net effective rents under expiring leases (in thousands, except per square foot amounts): Industrial Office Retail Total Portfolio ---------------- ---------------- ---------------- ------------------ Yr.of Sq. Cont. Sq. Cont. Sq. Cont. Sq. Cont. Exp. Ft. Rent Ft. Rent Ft. Rent Ft. Rent - - ----- ----- ------ ----- ------ ----- ------ ----- -------- 1999 2,344 $ 10,934 844 $ 9,206 43 $ 472 3,231 $ 20,612 2000 3,662 15,518 1,384 17,096 121 1,494 5,167 34,108 2001 3,957 17,118 1,795 22,496 91 1,113 5,843 40,727 2002 4,767 20,552 1,753 20,460 126 1,494 6,646 42,506 2003 3,903 18,265 1,519 19,885 145 1,554 5,567 39,704 2004 3,526 15,586 1,459 20,099 79 959 5,064 36,644 2005 3,625 11,991 1,149 15,781 225 1,972 4,999 29,744 2006 2,733 10,417 787 11,385 8 108 3,528 21,910 2007 2,641 8,587 530 7,488 71 675 3,242 16,750 2008 2,841 10,364 596 7,908 46 614 3,483 18,886 2009 and There- After 4,218 17,580 1,858 26,173 1,398 12,773 7,474 56,526 ------ ------- ------ ------- ----- ------ ------ ------- Total Leased 38,217 $156,912 13,674 $177,977 2,353 $23,228 54,244 $358,117 ====== ======= ====== ======= ===== ====== ====== ======= Total Port- folio Sq. Ft. 40,793 14,436 2,548 57,777 ====== ====== ===== ====== Annualized net effective rent per Sq.Ft. $ 4.11 $ 13.02 $ 9.87 $ 6.60 ======= ======= ====== ======= This stable occupancy, along with stable rental rates in each of the Partnership's Midwestern markets, will allow the in-service portfolio to continue to provide a comparable or increasing level of earnings from rental operations. 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 (see discussion of Weeks merger below); and (iii) the completion of the 7.3 million square feet of properties under development by the Partnership at June 30, 1999 over the next three quarters and thereafter. The 7.3 million square feet of properties under development should provide future earnings 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 ----------- ------ ------- ------- ---------- 3rd Quarter 1999 1,453 35% $100,007 11.8% 4th Quarter 1999 2,699 38% 113,573 11.3% 1st Quarter 2000 2,306 46% 178,783 10.8% Thereafter 845 23% 93,967 12.0% ----- ------- 7,303 38% $486,330 11.4% ===== ======= - 13 - RESULTS OF OPERATIONS Following is a summary of the Partnership's operating results and property statistics for the three and six months ended June 30, 1999 and 1998 (in thousands, except number of properties and per unit amounts): THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, --------------------------- ------------------------- 1999 1998 1999 1998 ---- ---- ---- ---- [S] [C] [C] [C] [C] Rental Operations revenue $107,148 $83,079 $209,135 $162,755 Service Operations revenue 8,893 7,022 21,160 11,922 Earnings from Rental Operations 39,909 30,316 76,008 61,174 Earnings from Service Operations 3,582 1,820 8,618 2,715 Operating income 39,995 29,033 77,515 58,446 Net income available for common units $ 32,702 $24,826 $ 63,631 $ 50,268 Weighted average common units outstanding 97,894 90,930 97,548 89,299 Weighted average common and dilutive potential common units 98,855 91,830 98,477 90,222 Basic income per common unit $ 0.33 $ 0.27 $ 0.65 $ 0.56 Diluted income per common unit $ 0.33 $ 0.27 $ 0.65 $ 0.56 Number of in-service properties at end of period 486 419 486 419 In-service square footage at end of period 57,777 48,223 57,777 48,223 Under development square footage at end of period 7,303 4,149 7,303 4,149 COMPARISON OF THREE MONTHS ENDED JUNE 30, 1999 TO THREE MONTHS ENDED JUNE 30, 1998 - - ---------------------------------------------------------------------- Rental Operations - - ----------------- The Partnership increased its in-service portfolio of rental properties from 419 properties comprising 48.2 million square feet at June 30, 1998 to 486 properties comprising 57.8 million square feet at June 30, 1999 through the acquisition of 33 properties totaling 3.6 million square feet and the completion of 41 properties and five building expansions totaling 6.4 million square feet developed by the Partnership. The Partnership also disposed of seven properties totaling 420,000 square feet. These 67 net additional rental properties primarily account for the $24.1 million increase in revenues from Rental Operations from 1998 to 1999. The increase from 1998 to 1999 in rental expenses, real estate taxes and depreciation and amortization expense is also a result of the additional 67 in- service rental properties. Interest expense increased by approximately $2.8 million from $14.3 million for the three months ended June 30, 1998 to $17.1 million for the three months ended June 30, 1999 primarily as a result of additional unsecured debt issued in the second quarter of 1998 to fund the development and acquisition of additional rental properties as well as $300.0 million of unsecured debt issued in the first two quarters of 1999 to fund development and acquisition activity. As a result of the above-mentioned items, earnings from rental operations increased $9.6 million from $30.3 million for the three months ended June 30, 1998 to $39.9 million for the three months ended June 30, 1999. Service Operations - - ------------------ Service Operation revenues increased by $1.9 million from $7.0 million for the three months ended June 30, 1998 to $8.9 million for the three months ended June 30, 1999 primarily as a result of increases in construction management fee revenue due to an increase in third-party construction volume. - 14 - As a result of the above-mentioned items, earnings from Service Operations increased from $1.8 million for the three months ended June 30, 1998 to $3.6 million for the three months ended June 30, 1999. Net Income Available for Common Unitholders - - ------------------------------------------- Net income available for common unitholders for the three months ended June 30, 1999 was $32.7 million compared to net income available for common unitholders of $24.8 million for the three months ended June 30, 1998. This increase results primarily from the operating result fluctuations in rental and service operations explained above. COMPARISON OF SIX MONTHS ENDED JUNE 30, 1999 TO SIX MONTHS ENDED JUNE 30, 1998 - - ---------------------------------------------------------------- Rental Operations - - ----------------- The Partnership increased its in-service portfolio of rental properties from 419 properties comprising 48.2 million square feet at June 30, 1998 to 486 properties comprising 57.8 million square feet at June 30, 1999 through the acquisition of 33 properties totaling 3.6 million square feet and the completion of 41 properties and five building expansions totaling 6.4 million square feet developed by the Partnership. The Partnership also disposed of seven properties totaling 420,000 square feet. These 67 net additional rental properties primarily account for the $46.3 million increase in revenues from Rental Operations from 1998 to 1999. The increase from 1998 to 1999 in rental expenses, real estate taxes and depreciation and amortization expense is also a result of the additional 67 in- service rental properties. Interest expense increased by approximately $5.9 million from $27.2 million for the six months ended June 30, 1998 to $33.1 million for the six months ended June 30, 1999 primarily as a result of additional unsecured debt issued in the second quarter of 1998 to fund the development and acquisition of additional rental properties as well as $300.0 million of unsecured debt issued in the first quarter of 1999 to fund development and acquisition activity. As a result of the above-mentioned items, earnings from rental operations increased $14.8 million from $61.2 million for the six months ended June 30, 1998 to $76.0 million for the six months ended June 30, 1999. Service Operations - - ------------------ Service Operation revenues increased by $9.3 million from $11.9 million for the six months ended June 30, 1998 to $21.2 million for the six months ended June 30, 1999 primarily as a result of increases in construction management fee revenue due to an increase in third- party construction volume, particularly a 265,000 square foot suburban office build-to-suit building which resulted in substantial revenue in the first quarter. Service Operations operating expenses increased from $9.2 million to $12.5 million for the six months ended June 30, 1999 as compared to the six months ended June 30, 1998 primarily as a result of an increase in construction activity and an increase in income taxes resulting from the growth in net income related to third party construction. As a result of the above-mentioned items, earnings from Service Operations increased from $2.7 million for the six months ended June 30, 1998 to $8.6 million for the six months ended June 30, 1999. - 15 - General and Administrative Expense - - ---------------------------------- General and administrative expense increased from $5.4 million for the six months ended June 30, 1998 to $7.1 million for the six months ended June 30, 1999 primarily as a result of internal acquisition costs which are no longer permitted to be capitalized being charged to general and administrative expense as well as an increase in state and local taxes due to the overall growth of the Partnership. Net Income Available for Common Unitholders - - ------------------------------------------- Net income available for common unitholders for the six months ended June 30, 1999 was $63.6 million compared to net income available for common unitholders of $50.3 million for the six months ended June 30, 1998. 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 $82.6 million and $100.2 million for the six months ended June 30, 1999 and 1998, respectively, represents the primary source of 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 $323.0 million and $351.9 million for the six months ended June 30, 1999 and 1998, 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 $401.9 million and $263.2 million for the six months ended June 30, 1999 and 1998, respectively, is comprised of debt and equity issuances, net of distributions to unitholders and minority interests and repayments of outstanding indebtedness. In the first six months of 1999, the Partnership received $37.9 million of net proceeds from the issuance of common shares by the General Partner and $96.5 million of net proceeds from a preferred stock offering by the General Partner. The Partnership also issued $300.0 million of unsecured debt. The Partnership used the net proceeds to reduce amounts outstanding under the Partnership's lines of credit and to fund the development and acquisition of additional rental properties. In the first six months of 1998, the Partnership received $102.9 million of net proceeds from the issuance of common shares by the General Partner and issued $250.0 million of unsecured debt. The Partnership used the net proceeds to reduce amounts outstanding under the Partnership's lines of credit and to fund the development and acquisition of additional rental properties. The Partnership has the following lines of credit (LOC) available: Borrowing Outstanding at Capacity Maturity Interest June 30, 1999 Description (in 000's) Date Rate (in 000's) ----------------------- ---------- --------- --------- -------------- Unsecured Line of Credit $450,000 April 2001 LIBOR + .70% $159,000 Unsecured Line of Credit $300,000 April 2001 LIBOR + .90% $ 0 - 16 - Both LOC are used to fund development and acquisition of additional rental properties and to provide working capital. Effective July 2, 1999, the interest rate on the $450 million LOC was adjusted from LIBOR + .80% to LIBOR + .70% in conjunction with the Partnership's new debt rating following the Merger (see Note 7). Additionally, the $450 million LOC allows the Partnership an option to obtain borrowings from the financial institutions that participate in the LOC at rates lower than the stated interest rate, subject to certain restrictions. Amounts outstanding on the LOC at June 30, 1999 are at LIBOR + .80%. The $300 million LOC was obtained July 2, 1999, following the Merger (see Note 7). On July 2, 1999, the Partnership repaid certain outstanding debt balances of Weeks Operating Partnership using a combination of cash on hand and the LOC. The balance on the combined LOC following these paydowns was $285 million. 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 June 30, 1999 of approximately $567.9 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 June 30, 1999 consists of notes totaling $1.4 billion with a weighted average interest rate of 7.16% maturing at various dates through 2028. The Partnership has $1.0 billion of unsecured debt and $341.6 million of secured debt outstanding at June 30, 1999. Scheduled principal amortization of such debt totaled $3.9 million for the six months ended June 30, 1999. Following is a summary of the scheduled future amortization and maturities of the Partnership's indebtedness at June 30, 1999 (in thousands): Future Repayments -------------------------------------------- Weighted Average Scheduled Interest Rate of Year Amortization Maturities Total Future Repayments ---- ------------ ---------- --------- ----------------- 1999 $ 4,530 $ 28,430 $ 32,960 5.92% 2000 6,592 64,850 71,442 6.94% 2001 6,909 249,829 256,738 6.47% 2002 7,179 50,000 57,179 7.40% 2003 5,285 241,144 246,429 7.63% 2004 4,330 177,035 181,365 7.41% 2005 4,678 100,000 104,678 7.50% 2006 5,061 100,000 105,061 7.09% 2007 4,616 14,939 19,555 7.81% 2008 4,071 100,000 104,071 6.77% Thereafter 36,078 175,000 211,078 6.82% ------ --------- --------- Total $89,329 $1,301,227 $1,390,556 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 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. - 17 - The following table reflects the calculation of the Partnership'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, --------------------------- ------------------------- 1999 1998 1999 1998 ---- ---- ---- ---- Net income available for common units $ 32,702 $ 24,826 $ 63,631 $ 50,268 Add back: Depreciation and amortization 20,935 16,525 41,389 30,785 Share of joint venture adjustments 1,241 968 2,756 1,550 Earnings from operating property sales (1,084) (368) (3,398) (954) ------- ------- ------- ------- Funds From Operations $ 53,794 $ 41,951 $104,378 $ 81,649 ======= ======= ======= ======= Cash flow provided by (used by): Operating activities $ 50,502 $ 61,614 $ 82,570 $100,234 Investing activities (155,907) (242,850) (322,976) (351,901) Financing activities 238,520 174,380 401,876 263,203 The increase in FFO for the three and six months ended June 30, 1999 compared to the three and six months ended June 30, 1998 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. MERGER WITH WEEKS CORPORATION On June 18, 1999, the shareholders of both the General Partner and Weeks approved a merger transaction which was consummated in July 1999, 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 Operating Partnership, were merged with and into the General Partner and its consolidated subsidiary, Duke Operating Partnership. The combined Operating Partnership has continued under the name Duke- Weeks Realty Limited. In accordance with the terms of the Merger, each outstanding Weeks Operating Partnership common unit was converted into the right to receive 1.38 common units of the Partnership and each outstanding Weeks Operating Partnership Series A preferred equity was converted into the right to receive one unit of a new class of the Partnership Series F preferred equity. In addition, the Partnership assumed Weeks Operating Partnership debt and other liabilities upon consummation of the Merger. The Merger was structured as a tax-free merger and was accounted for under the purchase method. Based on the in-service properties of Duke Operating Partnership and Weeks Operating Partnership at June 30, 1999, the Partnership would have had 882 in-service properties totaling 86.1 million square feet, which were approximately 93% leased. The Partnership has operations in 15 cities in the midwestern and southeastern United States. YEAR 2000 The Year 2000 problem refers to the inability of certain computer programs to recognize the year 2000 and other key dates thus resulting in a variety of possible problems including data corruption and total system failures. Commonly thought of as a mainframe computer problem, the Year 2000 problem can - 18 - also affect software and embedded microchips which run systems that control building functions, such as elevators, security (including access), heating, ventilation and air conditioning and fire protection. The terms "Year 2000 ready" and "Year 2000 readiness" are often used to describe a computer system that will continue to operate properly prior to, during and after January 1, 2000 (taking into account that the Year 2000 is a leap year) and is thus not affected by the Year 2000 problem. The Partnership is committed to ensuring the highest level of tenant satisfaction reasonably possible and clearly recognizes the importance to our tenants, as well as our unitholders, of having in place a Year 2000 readiness plan. In February 1998, the Partnership formed a Year 2000 Task Force to address the Year 2000 problem on a company-wide basis, including properties and information systems. The Task Force is comprised of representatives from senior management in the areas of Property and Asset Management, Construction, Information Systems and Legal. The Board of Directors and Audit Committee of the Partnership are advised quarterly of the status of the activities undertaken by the Task Force. The Partnership adopted a Year 2000 readiness plan for its buildings in April 1998 following the basic framework recommended by the Building Owners and Managers Association. This Year 2000 readiness plan consists of eight (8) steps focusing on the identification, prioritization and remediation of potential Year 2000 problems arising from software and embedded chips located within the building systems at the Partnership's properties. The Partnership recognizes that the Year 2000 problem could affect its operations as well as the property functioning of the embedded systems included in the Partnership's properties. In any particular property, the problem could affect the functioning of elevators, heating and air conditioning systems, security systems, and other automated building systems. Management has identified and inventoried the building systems and equipment at the Partnership's existing properties to determine which systems or equipment could be affected by the Year 2000 problem. The inventory has been entered into a data base containing a readiness status of each such system. This data base allows Management to quickly monitor ongoing progress related to the Year 2000 readiness of all affected building systems and equipment. Under the direction of the Year 2000 Task Force, the property manager of each building has contacted in writing each building system manufacturer or supplier that has supplied an active and affected building system. Each manufacturer or supplier was sent a comprehensive questionnaire designed to assess the manufacturer's effort in assuring that the affected building systems are or, in sufficient time prior to January 1, 2000, will be Year 2000 ready. Based on the responses received from the manufacturers and suppliers of the building systems, Management developed a work plan detailing the tasks and resources required to ready the operations and systems of the Partnership's properties for the Year 2000. In many cases the Partnership will be relying on these statements from outside vendors as to the Year 2000 readiness of their systems, and will not, in most circumstances, attempt any independent verification. The work plan includes prioritization and appropriate timetables for the necessary remediation and testing of affected building systems, as well as the preparation of contingency plans if Year 2000 readiness can not be achieved. The contingency planning process is ongoing and such plans continue to be refined as new information is obtained. The contingency plans generally provide for obtaining or allowing alternative access, limited electrical and telephone service and, security and other basic services. The Partnership has made Year 2000 readiness an important aspect of its building acquisition due diligence and inspection process. The Partnership endeavors to obtain Year 2000 representations from sellers and conducts inspections of critical systems. Newly acquired facilities are promptly subjected to the Partnership's eight-step plan and results are added to the database. - 19 - Based upon a cost assessment prepared by the Task Force, the Partnership has budgeted approximately $125,000 of non-reimbursable expenses for the upgrade and replacement of certain building systems and internal software having potential Year 2000 related problems and attorney's fees. In addition to assessing the readiness of the building systems of the Partnership's properties, the Partnership continues to actively contact and monitor the compliance efforts of utility companies and telecommunication providers which provide services to the Partnership's properties. The Partnership has contacted the various municipalities where the Partnership's properties are located to assess the readiness of these municipalities to provide fire, police and other necessary services upon the Year 2000. The readiness of these providers and municipalities has been taken into consideration in preparing contingency plans for the Partnership and its properties. The Partnership does not anticipate that the other services provided for the benefit of our tenants such as janitorial, tenant finish, monthly itemized billing, and other tenant services will be affected by the Year 2000 problem. The Partnership is proactively contacting those types of suppliers, vendors and service providers to make sure that there is no interruption or discontinuance of any services or products provided for the benefit of our tenants at the Year 2000. Any negative responses to such inquiries have been and continue to be added to the contingency plans. The Partnership retained a third-party consultant to identify and assess the Year 2000 readiness of the Partnership's information systems. Such systems include, but are not limited to, accounting and property management, network operations, desktop and software applications, internally developed software and other general information systems and software utilized for payroll, human resources, budgeting and tenant services. The initial phase of identification and assessment of the Partnership's information systems was completed April 1, 1999 at a cost of $50,000. A budget and timetable for replacement, upgrade of or contingencies for the foregoing systems that are not Year 2000 ready has been developed and is being implemented. The estimated cost associated with such replacement and upgrade is budgeted to be $25,000. There can be no assurance that the Partnership will be able to identify and correct all aspects of the Year 2000 problem that affect it in sufficient time, that its contingency plans or that the costs of achieving Year 2000 readiness will not be material. However, based on the information prepared by the Partnership or received to date, Management does not currently expect that the Year 2000 problem will have a material impact on the Partnership's business, operations or financial condition. This expectation is based on Management's analysis related to the Year 2000 readiness of the building systems of the Partnership's properties, its vendors, suppliers, service providers and tenants, and the Partnership's information systems. PART II - OTHER INFORMATION Item 1. Legal Proceedings - - --------------------------- None Item 2. Changes in Securities - - ------------------------------ None - 20 - 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 General Partner held on June 18, 1999, there were 86,751,130 common shares and 1,540,000 preferred shares outstanding and the following matters received the following votes: 1. Proposal to Approve the Merger of Weeks, a Georgia Corporation, with and into General Partner and the Agreement and Plan of Merger by and between Weeks and General Partner dated as of February 28, 1999: Votes For Votes Against Votes Abstained - - --------- ------------- --------------- 70,166,716 1,000,878 248,211 2. Proposal to Consider and Vote upon an Amendment to General Partner's Articles of Incorporation in connection with the Proposed Merger which would increase the maximum size of General Partner's Board of Directors from 15 to 23: Votes For Votes Against Votes Abstained - - ---------- ------------- --------------- 70,135,510 4,135,678 522,813 3. Proposal to Consider and Vote upon two additional amendments to General Partner's Articles of Incorporation which would (1) change the existing requirement that 80% of the shares of capital stock of General Partner approve certain amendments to General Partner's Articles of Incorporation to require the approval of 80% of the common shares of General Partner and (2) change the existing requirement that 80% of the shares of Capital Stock approve any amendment to the provisions of the Articles of Incorporation relating to the number, classes, terms of office and qualifications of directors, to require the approval of a majority of the common shares of General Partner. Votes For Votes Against Votes Abstained - - ---------- ------------- --------------- 66,816,928 4,796,741 719,684 4. Election of three Directors to serve until the earlier to occur of (1) the effective time of the merger, or (2) if the merger is not approved or completed, the ordinary expiration of their terms in 2002: Votes For Votes Against ---------- ------------- Thomas L. Hefner 79,215,105 4,431,333 L. Ben Lytle 79,202,755 4,443,687 Edward T. Baur 79,205,150 4,441,289 5. Proposal to Consider and Approve the 1999 Directors' Stock Option and Dividend Increase Plan of General Partner: Votes For Votes Against Votes Abstained - - ---------- ------------- --------------- 73,959,876 6,568,491 666,606 - 21 - 6. Proposal to Consider and Approve the 1999 Salary Replace Stock Option and Dividend Increase Unit Plan of General Partner: Votes For Votes Against Votes Abstained - - ----------- ------------- --------------- 80,163,592 2,735,735 747,101 7. Proposal to Consider and Approve an Amendment to General Partner's 1996 Directors' Stock Payment Plan authorizing the issuance of an additional 100,000 shares of General Partner Common Shares under the Plan: Votes For Votes Against Votes Abstained - - ---------- ------------- --------------- 80,629,760 2,245,786 770,875 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 28, 1996 for additional information concerning these risks. Item 6. Exhibits and Reports on Form 8-K - - ----------------------------------------- Exhibits The Following exhibits are filed or incorporated by reference as a part of this report: Exhibit 15. Letter regarding unaudited interim financial information Exhibit 27. Financial Data Schedule (EDGAR Filing Only) Reports on Form 8-K The Partnership filed Form 8-K on June 29, 1999, to file exhibits in connection with an unsecured debt offering -22 - 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 ------------------------------------- By: Duke Realty Investments, Inc., General Partner Registrant Date: August 16, 1999 /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 - 23 -