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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

FORM 10-Q

 

(Mark One)

ý

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

For the quarterly period ended March 31, 2005

 

 

 

 

 

OR

 

 

 

o

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

For the transition period from                 to                .

 

Commission File Number: 0-20625

 

DUKE REALTY LIMITED PARTNERSHIP

(Exact Name of Registrant as Specified in Its Charter)

 

Indiana

 

35-1898425

(State or Other Jurisdiction of Incorporation or Organization)

 

(IRS Employer Identification Number)

 

 

 

600 East 96th Street, Suite 100
Indianapolis, Indiana

 

46240

(Address of Principal Executive Offices)

 

(Zip Code)

 

Registrant’s telephone number, including area code:  (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 ý No o

 

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act).

 

Yes o No ý

 

The number of Common Units outstanding as of April 30, 2005 was 156,969,629.

 



 

DUKE REALTY LIMITED PARTNERSHIP

 

INDEX

 

Part I - Financial Information

 

 

 

 

 

Item 1. Financial Statements

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets as of
March 31, 2005 (Unaudited) and December 31, 2004

 

 

 

 

 

 

 

Condensed Consolidated Statements of Operations (Unaudited)
for the three months ended March 31, 2005 and 2004

 

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows (Unaudited)
for the three months ended March 31, 2005 and 2004

 

 

 

 

 

 

 

Condensed Consolidated Statement of Partners’ Equity
(Unaudited) for the three months ended March 31, 2005

 

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements  (Unaudited)

 

 

 

 

 

 

 

Report of Independent Registered Public Accounting Firm

 

 

 

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

 

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

 

 

 

 

 

Item 4.

Controls and Procedures

 

 

 

 

 

 

Part II - Other Information

 

 

 

 

 

 

Item 1.

Legal Proceedings

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

 

Item 3.

Defaults Upon Senior Securities

 

 

Item 4.

Submission of Matters to a Vote of Security Holders

 

 

Item 5.

Other Information

 

 

Item 6.

Exhibits

 

 

 

 



 

 

PART I - FINANCIAL INFORMATION
Item 1.  Financial Statements
DUKE REALTY LIMITED PARTNERSHIP AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(in thousands)

 

 

 

March 31,

 

December 31,

 

ASSETS

 

2005

 

2004

 

 

 

(Unaudited)

 

 

 

Real estate investments:

 

 

 

 

 

Land and improvements

 

$

722,210

 

$

710,379

 

Buildings and tenant improvements

 

4,693,700

 

4,666,715

 

Construction in progress

 

102,853

 

109,788

 

Investments in unconsolidated companies

 

294,718

 

287,554

 

Land held for development

 

412,710

 

393,100

 

 

 

6,226,191

 

6,167,536

 

Accumulated depreciation

 

(825,902

)

(788,900

)

 

 

 

 

 

 

Net real estate investments

 

5,400,289

 

5,378,636

 

 

 

 

 

 

 

Cash and cash equivalents

 

3,181

 

5,770

 

Accounts receivable, net of allowance of $1,199 and $1,238

 

16,676

 

17,127

 

Straight-line rent receivable, net of allowance of $1,568 and $1,646

 

94,724

 

89,497

 

Receivables on construction contracts, including retentions

 

70,033

 

59,342

 

Deferred financing costs, net of accumulated amortization of $10,379 and $9,006

 

31,013

 

31,924

 

Deferred leasing and other costs, net of accumulated amortization of $97,850 and $88,888

 

205,556

 

203,882

 

Escrow deposits and other assets

 

122,591

 

108,466

 

 

 

$

5,944,063

 

$

5,894,644

 

LIABILITIES AND PARTNERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

Indebtedness:

 

 

 

 

 

Secured debt

 

$

201,188

 

$

203,081

 

Unsecured notes

 

2,150,565

 

2,315,623

 

Unsecured lines of credit

 

272,000

 

 

 

 

2,623,753

 

2,518,704

 

 

 

 

 

 

 

Construction payables and amounts due subcontractors, including retentions

 

66,335

 

67,740

 

Accounts payable

 

559

 

526

 

Accrued expenses:

 

 

 

 

 

Real estate taxes

 

60,398

 

55,745

 

Interest

 

23,796

 

36,531

 

Other

 

32,624

 

48,605

 

Other liabilities

 

107,289

 

105,838

 

Tenant security deposits and prepaid rents

 

37,984

 

39,827

 

Total liabilities

 

2,952,738

 

2,873,516

 

 

 

 

 

 

 

Partners’ equity:

 

 

 

 

 

General Partner

 

 

 

 

 

Common equity

 

2,190,656

 

2,214,473

 

Preferred equity (liquidation preference of $657,250)

 

616,780

 

616,780

 

 

 

2,807,436

 

2,831,253

 

Limited Partner’s common equity

 

192,115

 

196,422

 

Accumulated other comprehensive income

 

(8,226

)

(6,547

)

Total Partners’ equity

 

2,991,325

 

3,021,128

 

 

 

$

5,944,063

 

$

5,894,644

 

 

See accompanying Notes to Condensed Consolidated Financial Statements

 

 

2



 

DUKE REALTY LIMITED PARTNERSHIP AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
For the three months ended March 31,
(in thousands, except per unit data)
(Unaudited)

 

 

 

Three Months Ended

 

 

 

2005

 

2004

 

RENTAL OPERATIONS

 

 

 

 

 

Revenues:

 

 

 

 

 

Rental income from continuing operations

 

$

191,030

 

$

181,424

 

Equity in earnings of unconsolidated companies

 

5,206

 

4,525

 

 

 

196,236

 

185,949

 

Operating expenses:

 

 

 

 

 

Rental expenses

 

44,296

 

39,100

 

Real estate taxes

 

22,847

 

21,026

 

Interest expense

 

35,226

 

32,196

 

Depreciation and amortization

 

62,876

 

50,756

 

 

 

165,245

 

143,078

 

Earnings from continuing rental operations

 

30,991

 

42,871

 

SERVICE OPERATIONS

 

 

 

 

 

Revenues:

 

 

 

 

 

General contractor gross revenue

 

86,616

 

82,723

 

General contractor costs

 

(79,559

)

(76,036

)

Net general contractor revenue

 

7,057

 

6,687

 

Property management, maintenance and leasing fees

 

3,879

 

3,935

 

Construction management and development activity income

 

7,994

 

579

 

Other income

 

2,765

 

234­

 

Total revenue

 

21,695

 

11,435

 

Operating expenses

 

10,775

 

9,393

 

Total earnings from service operations

 

10,920

 

2,042

 

General and administrative expense

 

(7,580

)

(8,317

)

Operating income

 

34,331

 

36,596

 

OTHER INCOME (EXPENSE)

 

 

 

 

 

Interest income

 

1,320

 

1,507

 

Earnings from sale of land, net of impairment adjustments

 

143

 

4,629

 

Other expenses

 

(78

)

(3

)

Other minority interest in earnings of subsidiaries

 

(37

)

(307

)

Income from continuing operations

 

35,679

 

42,422

 

Discontinued operations:

 

 

 

 

 

Net income from discontinued operations

 

401

 

1,005

 

Gain on sale of discontinued operations, net of impairment adjustment

 

3,701

 

4,009

 

Income from discontinued operations

 

4,102

 

5,014

 

 

 

 

 

 

 

Net income

 

39,781

 

47,436

 

Dividends on preferred units

 

(11,620

)

(7,600

)

Adjustments for redemption of preferred units

 

 

(3,614

)

Net income available for common unitholders

 

$

28,161

 

$

36,222

 

Basic net income per common unit:

 

 

 

 

 

Continuing operations

 

$

.15

 

$

.21

 

Discontinued operations

 

.03

 

.03

 

Total

 

$

.18

 

$

.24

 

Diluted net income per common unit:

 

 

 

 

 

Continuing operations

 

$

.15

 

$

.20

 

Discontinued operations

 

.03

 

.03

 

Total

 

$

.18

 

$

.23

 

 

 

 

 

 

 

Weighted average number of common units outstanding

 

156,947

 

152,444

 

Weighted average number of common units and dilutive potential common units

 

157,720

 

156,913

 

 

See accompanying Notes to Consolidated Financial Statements.

 

 

3



 

DUKE REALTY LIMITED PARTNERSHIP AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
For the three months ended March 31,
(in thousands)
(Unaudited)

 

 

 

2005

 

2004

 

Cash flows from operating activities:

 

 

 

 

 

Net income

 

$

39,781

 

$

47,436

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

Depreciation of buildings and tenant improvements

 

51,563

 

43,012

 

Amortization of deferred leasing and other costs

 

11,663

 

9,385

 

Amortization of deferred financing costs

 

1,544

 

1,067

 

Minority interest in earnings

 

37

 

308

 

Straight-line rent adjustment

 

(6,170

)

(5,892

)

Earnings from land and depreciated property sales

 

(3,843

)

(8,638

)

Build-for-sale operations, net

 

5,562

 

(2,672

)

Construction contracts, net

 

(9,935

)

(2,689

)

Other accrued revenues and expenses, net

 

(24,363

)

(15,146

)

Operating distributions received in excess of (less than) equity in earnings from unconsolidated companies

 

(867

)

3,399

 

Net cash provided by operating activities

 

64,972

 

69,570

 

Cash flows from investing activities:

 

 

 

 

 

Development of real estate investments

 

(29,693

)

(22,114

)

Acquisition of real estate investments

 

 

(9,606

)

Acquisition of land held for development and infrastructure costs

 

(34,742

)

 

Recurring tenant improvements

 

(13,732

)

(14,244

)

Recurring leasing costs

 

(8,811

)

(6,652

)

Recurring building improvements

 

(2,446

)

(4,555

)

Other deferred leasing costs

 

(4,401

)

(5,426

)

Other deferred costs and other assets

 

(1,786

)

(7,153

)

Tax deferred exchange escrow, net

 

 

(1,334

)

Proceeds from land and depreciated property sales, net

 

13,608

 

29,405

 

Investment in secured mortgage loan

 

 

(65,000

)

Advances to unconsolidated companies

 

(6,441

)

(701

)

Net cash used for investing activities

 

(88,444

)

(107,380

)

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

Contributions from General Partner, common units

 

633

 

8,534

 

Contributions from General Partner, preferred units

 

 

144,975

 

Payments for redemption of General Partner’s preferred equity

 

 

(102,621

)

Payments for exercise of warrants

 

 

(2,881

)

Proceeds from indebtedness

 

 

125,000

 

Payments on unsecured debt

 

(100,000

)

 

Proceeds (payments) from (on) term loan

 

(65,000

)

65,000

 

Payments on secured indebtedness including principal amortization

 

(1,697

)

(1,707

)

Borrowings (payments) on lines of credit, net

 

272,000

 

(121,000

)

Distributions to common unitholders

 

(72,971

)

(69,722

)

Distributions to preferred unitholders

 

(11,620

)

(6,381

)

Distributions to minority interest

 

 

(209

)

Deferred financing costs

 

(462

)

(3,963

)

Net cash provided by financing activities

 

20,883

 

35,025

 

Net decrease in cash and cash equivalents

 

(2,589

)

(2,785

)

 

 

 

 

 

 

Cash and cash equivalents at beginning of period

 

5,770

 

12,695

 

Cash and cash equivalents at end of period

 

$

3,181

 

$

9,910

 

 

 

 

 

 

 

Other non-cash items:

 

 

 

 

 

Conversion of Limited Partner Units to common shares of General Partner

 

$

708

 

$

1,816

 

Conversion of Series D Preferred Units to common shares of General Partner

 

$

 

$

130,665

 

Issuance of Limited Partner Units for acquisition of minority interest

 

$

15,000

 

$

 

 

See accompanying Notes to Condensed Consolidated Financial Statements

 

 

4



 

DUKE REALTY LIMITED PARTNERSHIP AND SUBSIDIARIES
Consolidated Statements of Partners’ Equity
For the three months ended March 31, 2005
(in thousands, except per unit data)
(Unaudited)

 

 

 

 

 

 

 

Limited

 

Accumulated

 

 

 

 

 

General Partner

 

Partners’

 

Other

 

 

 

 

 

Common

 

Preferred

 

Common

 

Comprehensive

 

 

 

 

 

Equity

 

Equity

 

Equity

 

Income (Loss)

 

Total

 

Balance at December 31, 2004

 

$

2,214,473

 

$

616,780

 

$

196,422

 

$

(6,547

)

$

3,021,128

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

Net income

 

25,483

 

11,620

 

2,678

 

 

39,781

 

 

 

 

 

 

 

 

 

 

 

 

 

Distributions to preferred unitholders

 

 

(11,620

)

 

 

(11,620

)

 

 

 

 

 

 

 

 

 

 

 

 

Gains (losses) on derivative instruments

 

 

 

 

(1,679

)

(1,679

)

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income available for common unitholders

 

 

 

 

 

 

 

 

 

26,482

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital contribution from General Partner

 

683

 

 

 

 

683

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisition of partnership interest for common stock of General Partner

 

16,169

 

 

(15,461

)

 

708

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisition of minority interest in exchange for Limited Partner Units

 

 

 

15,000

 

 

15,000

 

 

 

 

 

 

 

 

 

 

 

 

 

Tax benefits from Employee Stock Plans

 

25

 

 

 

 

25

 

 

 

 

 

 

 

 

 

 

 

 

 

FASB 123 Compensation Expense

 

282

 

 

 

 

282

 

 

 

 

 

 

 

 

 

 

 

 

 

Distribution to General Partner

 

(3

)

 

 

 

(3

)

 

 

 

 

 

 

 

 

 

 

 

 

Distributions to partners ($.465 per Common Unit)

 

(66,456

)

 

(6,524

)

 

(72,980

)

 

 

 

 

 

 

 

 

 

 

 

 

Balance at March 31, 2005

 

$

2,190,656

 

$

616,780

 

$

192,115

 

$

(8,226

)

$

2,991,325

 

 

See accompanying Notes to Condensed Consolidated Financial Statements

 

5



 

 

DUKE REALTY LIMITED PARTNERSHIP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1.       General Basis of Presentation

 

The interim condensed consolidated financial statements included herein have been prepared by Duke Realty Limited Partnership (the “Partnership”) without audit (except for the Balance Sheet as of December 31, 2004). The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and in accordance with Rule 10-01 of Regulation S-X of the Securities Exchange Act of 1934. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. These financial statements should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations included herein and the condensed consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2004.

 

Duke Realty Limited Partnership (the “Partnership”) was formed on October 4, 1993, when Duke Realty Corporation (the “General Partner”) contributed all of its properties and related assets and liabilities, along with the net proceeds from the issuance of additional shares of the General Partner through an 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 (“REIT”) under provisions of the Internal Revenue Code. The General Partner is the sole general partner of the Partnership, owning 91.4% of the common partnership interests as of March 31, 2005 (“General Partner Units”). The remaining 8.6% of the Partnership’s common interest is owned by limited partners (“Limited Partner Units” and, together with the General Partner Units, the “Common Units”). The Limited Partner Units are exchangeable for shares of the General Partner’s common stock on a one-for-one basis subject generally to a one-year holding period. The General Partner also owns preferred partnership interests in the Partnership (“Preferred Units”).

 

We own and operate a portfolio of industrial, office and retail properties in the midwestern and southeastern United States and provides real estate services to third-party owners. We conduct Service Operations through Duke Realty Services LLC (“DRS”), Duke Realty Services Limited Partnership (“DRSLP”) and Duke Construction Limited Partnership (“DCLP”).

 

2.       Indebtedness

 

We have one unsecured line of credit available at March 31, 2005, described as follows (in thousands):

 

Description

 

Borrowing
Capacity

 

Maturity
Date

 

Interest
Rate

 

Outstanding at March 31, 2005

 

Unsecured Line of Credit

 

$500,000

 

January 2007

 

LIBOR + .60

%

$272,000

 

 

The line of credit is used to fund development activities, acquire additional rental properties and provide working capital.

 

The line of credit provides us with an option to obtain borrowings from financial institutions that participate in the line, at rates lower than the stated interest rate, subject to certain restrictions. Amounts outstanding on the unsecured line of credit at March 31, 2005, range from LIBOR + .19 to .60 (3.00% to 3.45% at March 31, 2005).

 

6



 

The line of credit also contains financial covenants that require us to meet defined levels of performance.  As of March 31, 2005, we are in compliance with all covenants and expect to remain in compliance for the foreseeable future.

 

In January 2005, we retired our $65.0 million variable rate term loan. In March 2005, we retired $100.0 million of 6.94% senior unsecured debt that matured.

 

3.       Related Party Transactions

 

We provide property management, leasing, construction and other tenant related services to unconsolidated companies in which we have equity interests. For the three months ended March 31, 2005 and 2004, respectively, we received management fees of $1.2 million and $1.2 million, leasing fees of $922,000 and $815,000 and construction and development fees of $517,000 and $501,000 from these unconsolidated companies. These fees were recorded at market rates and we eliminated our ownership percentage of these fees in the condensed consolidated financial statements.

 

Effective as of January 1, 2005, the Partnership (“DRLP”), Duke Management, Inc. (“DMI”), an Indiana corporation, and DRSLP entered into a Contribution Agreement, pursuant to which DMI contributed to DRLP all of DMI’s limited partnership interest in DRSLP in exchange for the issuance to DMI of 435,814 DRLP limited partnership units. This transaction was at fair market value and was recorded under the purchase accounting method. As a result, we now own 100% of the partnership interests in DRSLP. On March 1, 2005, DMI merged into the Partnership.  For more details regarding this transaction, see our General Partner’s Current Report on Form 8-K filed with the SEC on January 4, 2005.

 

4.       Net Income Per Common Unit

 

Basic net income per common unit is computed by dividing net income available for common units by the weighted average number of common units outstanding for the period. Diluted net income per common unit is computed by dividing the sum of net income available for common unitholders by the sum of the weighted average number of common units outstanding, including any dilutive potential common units for the period.

 

The following table reconciles the components of basic and diluted net income per common unit for the three months ended March 31, 2005 and 2004, respectively (in thousands):

 

 

 

2005

 

2004

 

Basic net income available for common unitholders

 

$

28,161

 

$

36,222

 

 

 

 

 

 

 

Weighted average number of common units outstanding

 

156,947

 

152,444

 

Weighted average conversion of Series D preferred units (1)

 

 

3,510

 

Dilutive shares for stock-based compensation plan

 

773

 

959

 

Weighted average number of common units and dilutive potential common units

 

157,720

 

156,913

 


(1)          The General Partner called for the redemption of the Series D preferred units as of March 16, 2004. Prior to the redemption date, nearly 5.3 million Series D preferred units were converted into 4.9 million common units. These units represent the weighted effect, assuming the Series D units had been converted on January 1, 2004.

 

 

7



 

5.                    Segment Reporting

 

We are engaged in four operating segments, the first three of which consist of the ownership and rental of office, industrial and retail real estate investments (collectively, “Rental Operations”). The fourth segment consists of our build-to-suit for sale operations and the providing of various real estate services such as property management, maintenance, leasing, development and construction management to third-party property owners and joint ventures (“Service Operations”). Our 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 consists mainly of equity in earnings of unconsolidated companies. Segment FFO information is calculated by subtracting operating expenses attributable to the applicable segment from segment revenues.  Non-segment assets consist of corporate assets including cash, deferred financing costs and investments in unconsolidated companies. Interest expense and other non-property specific revenues and expenses are not allocated to individual segments in determining our performance measure.

 

We assess and measure segment operating results based upon an industry performance measure referred to as Funds From Operations (“FFO”), which management believes is a useful indicator of our operating performance. Funds From Operations is used by industry analysts and investors as a supplemental operating performance measure of an equity real estate investment trust (“REIT”). FFO is calculated in accordance with the definition that was adopted by the Board of Governors of the National Association of Real Estate Investment Trusts (“NAREIT”). FFO, as defined by NAREIT, represents net income (loss) determined in accordance with accounting principles generally accepted in the United States of America (“GAAP”), excluding extraordinary items as defined under GAAP and gains or losses from sales of previously depreciated operating real estate assets, plus certain non-cash items such as real estate asset depreciation and amortization, and after similar adjustments for unconsolidated partnerships and joint ventures.

 

The revenues and FFO for each of the reportable segments for the three months ended March 31, 2005, and 2004, and the assets for each of the reportable segments as of March 31, 2005 and December 31, 2004, are summarized as follows (in thousands):

 

 

8



 

 

 

Three Months Ended March 31,

 

 

 

2005

 

2004

 

Revenues

 

 

 

 

 

Rental Operations:

 

 

 

 

 

Office

 

$

119,289

 

$

111,701

 

Industrial

 

69,583

 

67,403

 

Retail

 

1,042

 

1,161

 

Service Operations

 

21,695

 

11,435

 

Total Segment Revenues

 

211,609

 

191,700

 

Non-Segment Revenue

 

6,322

 

5,683

 

Consolidated Revenue from continuing operations

 

217,931

 

197,383

 

Discontinued Operations

 

1,535

 

5,678

 

Consolidated Revenue

 

$

219,466

 

$

203,061

 

Funds From Operations

 

 

 

 

 

Rental Operations:

 

 

 

 

 

Office

 

$

73,584

 

$

71,000

 

Industrial

 

49,555

 

49,188

 

Retail

 

803

 

915

 

Services Operations

 

10,920

 

2,042

 

Total Segment FFO

 

134,862

 

123,145

 

 

 

 

 

 

 

Non-Segment FFO:

 

 

 

 

 

Interest expense

 

(35,226

)

(32,196

)

Interest income

 

1,320

 

1,507

 

General and administrative expense

 

(7,581

)

(8,317

)

Gain on land sales

 

143

 

4,629

 

Impairment adjustments on depreciable property

 

(2,809

)

 

Other income (expenses)

 

(133

)

193

 

Minority interest in earnings of subsidiaries

 

(37

)

(307

)

Joint venture FFO

 

10,072

 

9,112

 

Dividends on preferred units

 

(11,620

)

(7,600

)

Adjustment for redemption of preferred units

 

 

(3,614

)

Discontinued operations

 

751

 

2,646

 

Consolidated FFO

 

89,742

 

89,198

 

Depreciation and amortization on continuing operations

 

(62,876

)

(50,756

)

Depreciation and amortization on discontinued operations

 

(350

)

(1,641

)

Share of joint venture adjustments

 

(4,865

)

(4,588

)

Earnings from depreciated property sales on discontinued operations

 

6,510

 

4,009

 

Net income available for common unitholders

 

$

28,161

 

$

36,222

 

 

 

 

March 31,

 

December 31,

 

 

 

2005

 

2004

 

Assets

 

 

 

 

 

Rental Operations:

 

 

 

 

 

Office

 

$

3,093,225

 

$

3,128,387

 

Industrial

 

2,239,441

 

2,211,509

 

Retail

 

111,691

 

84,625

 

Service Operations

 

154,871

 

131,218

 

Total Segment Assets

 

5,599,228

 

5,555,739

 

Non-Segment Assets

 

344,835

 

338,905

 

Consolidated Assets

 

$

5,944,063

 

$

5,894,644

 

 

9



 

In addition to revenues and FFO, we also review our recurring capital expenditures in measuring the performance of our individual Rental Operations segments. These recurring capital expenditures consist of tenant improvements, leasing commissions and building improvements. We review these expenditures to determine the costs associated with re-leasing vacant space and maintaining the condition of our properties. Our recurring capital expenditures by segment are summarized as follows for the three months ended March 31, 2005 and 2004, respectively  (in thousands):

 

 

 

2005

 

2004

 

Recurring Capital Expenditures

 

 

 

 

 

Office

 

$

13,761

 

$

15,062

 

Industrial

 

11,228

 

10,371

 

Retail

 

 

18

 

Total

 

$

24,989

 

$

25,451

 

 

6.              Real Estate Investments

 

We have classified the operations of 50 buildings as discontinued operations as of March 31, 2005. These 50 buildings consist of 41 industrial, six office and three retail properties. As a result, we classified net income from operations of $401,000 and $1.0 million as net income from discontinued operations for the three months ended March 31, 2005 and 2004, respectively. Two of the properties classified in discontinued operations were sold during the first quarter of 2005 and 41 properties were sold during 2004. The gains on disposal of these properties, net of impairment adjustments of $3.7 million and $4.0 million for the three months ended March 31, 2005 and 2004, respectively, are also reported in discontinued operations.

 

At March 31, 2005, we had five industrial properties, one office property and one retail property, which comprised approximately 660,000 square feet classified as held-for-sale. At March 31, 2005, these properties have signed contracts, but there can be no assurance that such properties classified as held-for-sale will be sold.

 

The following table illustrates the operations of the 50 buildings reflected in discontinued operations, at March 31, 2005 and 2004, respectively (in thousands):

 

 

 

Three Months Ended March 31,

 

 

 

2005

 

2004

 

Statement of Operations:

 

 

 

 

 

Revenues

 

$

1,535

 

$

5,678

 

Expenses:

 

 

 

 

 

Operating

 

522

 

1,876

 

Interest

 

261

 

1,151

 

Depreciation and Amortization

 

350

 

1,641

 

General and Administrative

 

1

 

6

 

Operating Income

 

401

 

1,004

 

Other Income

 

 

1

 

Income from discontinued operations, before gain on sale

 

401

 

1,005

 

Gain on sale of property, net of impairment adjustments

 

3,701

 

4,009

 

Income from discontinued operations

 

$

4,102

 

$

5,014

 

 

 

10



 

 

The following table illustrates the aggregate balance sheet of our seven properties identified as held-for-sale at March 31, 2005 (in thousands):

 

 

 

March 31, 2005

 

Balance Sheet:

 

 

 

Real estate investments, net

 

$

22,179

 

Other Assets

 

1,032

 

Total Assets

 

$

23,211

 

Accrued Expenses

 

$

231

 

Other Liabilities

 

196

 

Equity

 

22,784

 

Total Liabilities and Equity

 

$

23,211

 

 

We allocate interest expense to discontinued operations as permitted under EITF 87-24, “Allocation of Interest to Discontinued Operations,” and have included such interest expense in computing net income from discontinued operations. Interest expense allocable to discontinued operations includes interest on any debt on secured properties included in discontinued operations and an allocable share of our consolidated unsecured interest expense for unencumbered properties. The allocation of unsecured interest expense to discontinued operations was based upon the gross book value of the discontinued operations unencumbered population as it related to our entire unencumbered population.

 

For the three months ended March 31, 2005 and 2004, we recorded impairment adjustments of $2.8 million and $100,000, respectively. The $2.8 million of impairment recorded in the first quarter of 2005 reflects the write-down of the carrying value of one held-for-sale office building, five held-for-sale industrial buildings and one land parcel contracted to sell in 2005. The $100,000 impairment recorded in the first quarter of 2004 reflects the write-down of the carrying value of a land parcel that was later sold in 2004.

 

Effective January 1, 2005, we have changed the estimated useful lives on building improvements from 40 years to a  10-year life. This change has been applied prospectively. The change in estimated useful lives is based upon management’s belief that a 10-year life on building improvements represents a better estimate of the asset’s useful life. These building improvements will continue to be depreciated using the straight-line method.

 

7.              Partners’ Equity

 

The General Partner periodically accesses the public equity markets to fund the development and acquisition of additional rental properties or to pay down debt. The proceeds of these offerings are contributed to us in exchange for an additional interest in the Partnership.

 

The following series of preferred units are outstanding as of March 31, 2005 (in thousands, except percentage data):

 

 

 

Units

 

Dividend

 

Redemption

 

Liquidation

 

 

 

Description

 

Outstanding

 

Rate

 

Date

 

Preference

 

Convertible

 

 

 

 

 

 

 

 

 

 

 

 

 

Series B Preferred

 

265

 

7.990

%

September 30, 2007

 

$

132,250

 

No

 

Series I Preferred

 

300

 

8.450

%

February 6, 2006

 

75,000

 

No

 

Series J Preferred

 

400

 

6.625

%

August 29, 2008

 

100,000

 

No

 

Series K Preferred

 

600

 

6.500

%

February 13, 2009

 

150,000

 

No

 

Series L Preferred

 

800

 

6.600

%

November 30, 2009

 

200,000

 

No

 

 

The dividend rate on the Series B preferred units increases to 9.99% after September 12, 2012.

 

 

11



 

All series of preferred units require cumulative distributions and have no stated maturity date (although we may redeem them on or following their optional redemption dates).

 

The Series B, Series I, Series J, Series K and Series L preferred units may be redeemed on or after the dates noted above only at our option, in whole or in part.

 

8.     Reclassifications

 

Certain 2004 balances have been reclassified to conform to the 2005 presentation.

 

9.     Financial Instruments

 

We are exposed to capital market risk, such as changes in interest rates. In order to manage the volatility relating to interest rate risk, we may enter into interest rate hedging arrangements from time to time. We do not utilize derivative financial instruments for trading or speculative purposes. We account for derivative instruments under Statement of Financial Accounting Standard No. 133, “Accounting for Derivative Instruments and Hedging Activities” as amended (“SFAS 133”).

 

In March 2005, we entered into $300.0 million of cash flow hedges through forward-starting interest rate swaps to hedge interest rates on $300.0 million of estimated debt offerings in 2006. The swaps qualify for hedge accounting under SFAS 133 with any changes in fair value recorded in Accumulated Other Comprehensive Income (“OCI”). Due to a decline in rates, the fair value at the end of the first quarter is a liability of $1.8 million.

 

In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity (“SFAS 150”). SFAS 150 establishes standards for classifying and measuring as liabilities certain financial instruments that embody obligations of the issuer and have characteristics of both liabilities and equity. SFAS 150 is effective for all financial instruments created or modified after May 31, 2003, and otherwise is effective July 1, 2003. We include the operations of one joint

venture in our condensed consolidated financial statements at March 31, 2005. This joint venture is partially owned by unaffiliated parties that have noncontrolling interests. SFAS 150 requires the disclosure of the estimated settlement value of these noncontrolling interests. As of March 31, 2005, the estimated settlement value of the noncontrolling interest in this consolidated joint venture was approximately $1.1 million as compared to the receivable asset recorded on our books for this joint venture of $105,000.

 

10.  Stock Based Compensation

 

Under the limited partnership agreement of the partnership, the Partnership is required to issue one Common Unit to the General Partner for each share of common stock issued by the General Partner. Accordingly, the issuance of common shares by the General Partner under its stock based compensation plans requires the issuance of a corresponding number of Common Units by the Partnership to the General Partner.

 

For all issuances prior to 2002, the Partnership applies the recognition and measurement provisions of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations in accounting for its stock based compensation. Effective January 1, 2002, the Partnership prospectively adopted the fair value recognition provisions of FASB Statement No. 123, Accounting for Stock-Based Compensation, to all awards granted after January 1, 2002.

 

 

12



 

 

The following table illustrates the effect on net income and earnings per unit if the fair value method had been applied to all outstanding and unvested awards in each period (in thousands except per unit data).

 

 

 

Three Months ended March 31,

 

 

 

2005

 

2004

 

Net income available for common unitholders, as reported

 

$

28,161

 

$

36,222

 

Add: Stock-based employee compensation expense included in net income determined under fair value method

 

282

 

101

 

Deduct: Total stock based compensation expense determined under fair value method for all awards

 

(415

)

(220

)

Proforma net income available for common unitholders

 

$

28,028

 

$

36,103

 

 

 

 

 

 

 

Basic net income per unit

As reported

 

$

.18

 

$

.24

 

 

Pro forma

 

$

.18

 

$

.24

 

 

 

 

 

 

 

Diluted net income per unit

As reported

 

$

.18

 

$

.24

 

 

Pro forma

 

$

.18

 

$

.23

 

 

11.  Recent Accounting Pronouncements

 

In December 2004, FASB issued SFAS No. 123 (R), Share-Based Payment, which is a revision of SFAS No. 123, Accounting for Stock Based Compensation. In April 2005, the SEC delayed the effective date on SFAS No. 123 (R) from July 2005 to January 2006. We are currently evaluating the impact on our financial position and results of operations, but do not believe that the adoption of SFAS 123 (R) will have a material impact on our financial statements.

 

12.  Subsequent Events

 

Declaration of Distributions

The General Partner’s Board of Directors declared the following distributions at its April 27, 2005, regularly scheduled Board meeting:

 

 

 

Quarterly

 

 

 

 

 

Class

 

Amount/Unit

 

Record Date

 

Payment Date

 

Common

 

$

0.465

 

May 12, 2005

 

May 31, 2005

 

Preferred (per depositary share):

 

 

 

 

 

 

 

Series B

 

$

0.99875

 

June 16, 2005

 

June 30, 2005

 

Series I

 

$

0.52813

 

June 16, 2005

 

June 30, 2005

 

Series J

 

$

0.41406

 

May 17, 2005

 

May 31, 2005

 

Series K

 

$

0.40625

 

May 17, 2005

 

May 31, 2005

 

Series L

 

$

0.41250

 

May 17, 2005

 

May 31, 2005

 

 

 

13



 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

 

The Partners

Duke Realty Limited Partnership:

 

We have reviewed the condensed consolidated balance sheet of Duke Realty Limited Partnership and subsidiaries as of March 31, 2005, the related condensed consolidated statements of operations and  cash flows for the three months ended March 31, 2005 and 2004, and the related condensed consolidated statement of partners’ equity for the three months ended March 31, 2005. These condensed consolidated financial statements are the responsibility of the Partnership’s management.

 

We conducted our review in accordance with standards of the Public Company Accounting Oversight Board (United States). 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 the standards of the Public Company Accounting Oversight Board (United States), 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 U.S. generally accepted accounting principles.

 

We have previously audited, in accordance with standards established by the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Duke Realty Limited Partnership and subsidiaries as of December 31, 2004, 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 February 28, 2005, 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, 2004, is fairly presented, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

 

 

KPMG LLP

Indianapolis, Indiana

May 13, 2005

 

 

14



 

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Cautionary Statement Regarding Forward Looking Statements

 

Certain statements in this quarterly report, including those related to our future operations, constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause our actual results, performance or achievements, or industry results, to differ materially from any predictions of future results, performance or achievements that we express or imply in this report. Some of the risks, uncertainties and other important factors that may affect future results include, among others:

 

                 Changes in general economic and business conditions, including performance of financial markets;

                 Our continued qualification as a real estate investment trust;

                 Heightened competition for tenants and potential decreases in property occupancy;

                 Potential increases in real estate construction costs;

                 Potential changes in the financial markets and interest rates;

                 Continuing ability to favorably raise debt and equity in the capital markets;

                 Inherent risks in the real estate business including tenant defaults, potential liability relating to environmental matters and liquidity of real estate investments; and

                 Other risks and uncertainties described from time-to-time in our filings with the SEC.

 

This list of risks and uncertainties, however, is not intended to be exhaustive. We have on file with the Securities and Exchange Commission (“SEC”) a Current Report on Form 8-K dated September 5, 2003, with additional risk factor information.

 

The words “believe,” “estimate,” “expect,” “anticipate,” “intend,” “plan,” “seek” and similar expressions or statements regarding future periods are intended to identify forward-looking statements. Although we believe that the plans, expectations and results expressed in or suggested by the forward-looking statements are reasonable, all forward-looking statements are inherently uncertain as they involve substantial risks and uncertainties beyond our control. New factors emerge from time to time, and it is not possible for us to predict the nature or assess the potential impact of each new factor on our business. Given these uncertainties, we caution you not to place undue reliance on these forward-looking statements. We undertake no obligation to update or revise any of our forward-looking statements for events or circumstances that arise after the statement is made.

 

Business Overview

 

As of March 31, 2005, we:

 

                 Owned or controlled 898 industrial, office and retail properties (including properties under development), consisting of approximately 115.2 million square feet located in 13 operating platforms; and

                 Owned or controlled approximately 4,400 acres of land with an estimated future development potential of approximately 65 million square feet of industrial, office and retail properties.

 

15



 

 

We provide the following services for our properties and for certain properties owned by third parties and joint ventures:

 

                 Property leasing;

                 Property management;

                 Construction;

                 Development; and

                 Other tenant-related services.

 

Key Performance Indicators

 

Our operating results depend primarily upon rental income from our office, industrial and retail properties (“Rental Operations”). The following highlights the areas of Rental Operations that we consider critical for future revenue growth (all square footage totals and occupancy percentages reflect both wholly-owned properties and properties in joint ventures):

 

Occupancy Analysis: Our ability to maintain occupancy rates is a principal driver of our results of operations. The following table sets forth occupancy information regarding our in-service portfolio of rental properties as of March 31, 2005 and 2004 (in thousands, except percentage data):

 

 

 

Total
Square Feet

 

Percent of
Total Square Feet

 

Percent Occupied

 

Type

 

2005

 

2004

 

2005

 

2004

 

2005

 

2004

 

Industrial

 

 

 

 

 

 

 

 

 

 

 

 

 

Service Centers

 

12,889

 

13,200

 

11.5

%

12.2

%

86.4

%

84.9

%

Bulk

 

70,324

 

66,850

 

62.8

%

62.1

%

92.4

%

91.3

%

Office

 

28,201

 

26,891

 

25.2

%

25.0

%

87.5

%

86.9

%

Retail

 

596

 

738

 

0.5

%

0.7

%

96.8

%

98.5

%

Total

 

112,010

 

107,679

 

100.0

%

100.0

%

90.5

%

89.5

%

 

Lease Expiration and Renewal: Our ability to maintain and grow occupancy rates primarily depends upon our continuing ability to re-lease expiring space. The following table reflects our in-service portfolio lease expiration schedule as of March 31, 2005, by property type. The table indicates square footage and annualized net effective rents (based on March 2005 rental revenue) under expiring leases (in thousands):

 

 

 

Total
Portfolio

 

Industrial

 

Office

 

Retail

 

Year of

 

Square

 

Ann. Rent

 

Percent of

 

Square

 

Ann. Rent

 

Square

 

Ann. Rent

 

Square

 

Ann. Rent

 

Expiration

 

Feet

 

Revenue

 

Revenue

 

Feet

 

Revenue

 

Feet

 

Revenue

 

Feet

 

Revenue

 

2005

 

9,362

 

$

58,286

 

9

%

7,628

 

$

34,694

 

1,728

 

$

23,509

 

6

 

$

83

 

2006

 

12,001

 

79,305

 

12

%

9,546

 

45,672

 

2,455

 

33,633

 

 

-

 

2007

 

12,761

 

82,213

 

12

%

9,984

 

45,994

 

2,768

 

36,096

 

9

 

123

 

2008

 

13,328

 

83,274

 

12

%

10,367

 

45,915

 

2,942

 

37,024

 

19

 

335

 

2009

 

12,877

 

86,373

 

13

%

9,440

 

41,899

 

3,429

 

44,344

 

8

 

130

 

2010

 

10,185

 

78,968

 

12

%

7,113

 

36,408

 

3,064

 

42,399

 

8

 

161

 

2011

 

5,631

 

43,964

 

6

%

3,854

 

18,520

 

1,758

 

25,105

 

19

 

339

 

2012

 

6,178

 

37,334

 

5

%

4,683

 

18,065

 

1,488

 

18,936

 

7

 

333

 

2013

 

4,849

 

44,083

 

6

%

2,640

 

11,296

 

2,177

 

32,282

 

32

 

505

 

2014

 

4,353

 

21,243

 

3

%

3,690

 

12,732

 

663

 

8,511

 

 

 

2015 and Thereafter

 

9,822

 

65,607

 

10

%

7,161

 

29,614

 

2,193

 

33,152

 

468

 

2,841

 

Total Leased

 

101,347

 

$

680,650

 

100

%

76,106

 

$

340,809

 

24,665

 

$

334,991

 

576

 

$

4,850

 

Total Portfolio Square Feet

 

112,010

 

 

 

 

 

83,213

 

 

 

28,201

 

 

 

596

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Percent Occupied

 

90.5

%

 

 

 

 

91.1

%

 

 

87.5

%

 

 

96.8

%

 

 

 

We renewed 75.4% and 73.1% of leases up for renewal totaling approximately 1.8 million and 3.0 million square feet on which we attained a 2.5% and 3.6% growth in net effective rents in the three months ended

 

 

16



 

 

March 31, 2005 and 2004, respectively. The decline in rental rate growth is indicative of excess vacancies in many of our markets requiring competitive pricing strategies to retain current tenants. Our lease renewal percentages over the past three years have remained relatively consistent at a 70-75% success rate despite the relatively weak market conditions.

 

The average term of renewals decreased from 4.4 years as of March 31, 2004 to 3.5 years as of March 31, 2005.

 

Future Development: Another source of growth in earnings is the development of additional properties. These properties should provide future earnings through Service Operations income upon sale or from Rental Operations growth as they are placed in service. At March 31, 2005, we had 3.2 million square feet of property under development with total costs of $200.0 million which was 52% pre-leased. This compares to 2.1 million square feet with a total cost of $98.2 million, which was 88% pre-leased at March 31, 2004. We have increased our held-for-rental development volume as a result of improving market conditions. This increase includes additional speculative developments that generally result in lower pre-leased levels.

 

A summary of properties under development as of March 31, 2005, follows (in thousands, except percentage data):

 

Anticipated

 

 

 

 

 

 

 

Anticipated

 

In-Service

 

Square

 

Percent

 

Project

 

Stabilized

 

Date

 

Feet

 

Leased

 

Costs

 

Return

 

Held for Rental:

 

 

 

 

 

 

 

 

 

2nd Quarter 2005

 

978

 

70

%

$

40,871

 

9.8

%

3rd Quarter 2005

 

450

 

29

%

28,536

 

10.2

%

4th Quarter 2005

 

835

 

17

%

37,826

 

10.4

%

Thereafter

 

561

 

65

%

64,338

 

10.3

%

 

 

2,824

 

47

%

$

171,571

 

10.2

%

Held-for-sale:

 

 

 

 

 

 

 

 

 

2nd Quarter 2005

 

200

 

100

%

$

6,216

 

9.3

%

3rd Quarter 2005

 

83

 

78

%

13,129

 

9.5

%

4th Quarter 2005

 

69

 

100

%

9,037

 

9.7

%

Thereafter

 

 

 

 

 

 

 

352

 

95

%

$

28,382

 

9.5

%

Total

 

3,176

 

52

%

$

199,953

 

10.1

%

 

Acquisition and Disposition Activity: Sales proceeds from dispositions of held-for-rental properties for the first quarter of 2005 and 2004 were $13.6 and $16.9 million, respectively. The disposition proceeds were used to fund acquisitions during 2005 and 2004 of $12.5 million and $15.4 million, respectively. We will continue to pursue both disposition and acquisition opportunities that arise and are in line with our business plan.

 

Funds From Operations

 

Funds From Operations (“FFO”) is used by industry analysts and investors as a supplemental operating performance measure of an equity real estate investment trust (“REIT”). FFO is calculated in accordance with the definition that was adopted by the Board of Governors of the National Association of Real Estate Investment Trusts (“NAREIT”). FFO, as defined by NAREIT, represents net income (loss) determined in accordance with accounting principles generally accepted in the United States of America (“GAAP”), excluding extraordinary items as defined under GAAP and gains or losses from sales of previously depreciated operating real estate assets, plus certain non-cash items such as real estate asset depreciation and amortization, and after similar adjustments for unconsolidated partnerships and joint ventures.

 

 

17



 

 

Historical cost accounting for real estate assets in accordance with GAAP implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values instead have historically risen or fallen with market conditions, many industry investors and analysts have considered presentation of operating results for real estate companies that use historical cost accounting to be insufficient by themselves. Thus, NAREIT created FFO as a supplemental measure of REIT operating performance that excludes historical cost depreciation, among other items, from GAAP net income. Management believes that the use of FFO, combined with the required primary GAAP presentations, has improved the understanding of operating results of REITs among the investing public and made comparisons of REIT operating results more meaningful. Management considers FFO to be a useful measure for reviewing comparative operating and financial performance (although FFO should be reviewed in conjunction with net income which remains the primary measure of performance) because, by excluding gains or losses related to sales of previously depreciated operating real estate assets and excluding real estate asset depreciation and amortization, FFO assists in comparing the operating performance of a company’s real estate between periods or as compared to different companies.

 

The following table summarizes the calculation of FFO for the three months ended March 31, 2005 and 2004 , respectively (in thousands):

 

 

 

2005

 

2004

 

Net income available for common unitholders

 

$

28,161

 

$

36,222

 

Add back (deduct):

 

 

 

 

 

Depreciation and amortization

 

63,226

 

52,397

 

Share of joint venture adjustments

 

4,865

 

4,588

 

Earnings from depreciable property dispositions

 

(6,510

)

(4,009

)

Funds From Operations

 

$

89,742

 

$

89,198

 

 

Results of Operations

 

A summary of our operating results and property statistics for the three months ended March 31, 2005 and 2004, is as follows (in thousands, except number of properties and per unit data):

 

 

 

2005

 

2004

 

Rental Operations revenues from Continuing Operations

 

$

 196,236

 

$

 185,949

 

Service Operations revenues from Continuing Operations

 

21,695

 

11,435

 

Earnings from Continuing Rental Operations

 

30,991

 

42,871

 

Earnings from Continuing Service Operations

 

10,920

 

2,042

 

Operating income

 

34,331

 

36,596

 

Net income available for common units

 

$

28,161

 

$

36,222

 

Weighted average common units outstanding

 

156,947

 

152,444

 

Weighted average common and dilutive potential common units

 

157,720

 

156,913

 

Basic income per common unit:

 

 

 

 

 

Continuing operations

 

$

.15

 

$

.21

 

Discontinued operations

 

$

.03

 

$

.03

 

Diluted income per common unit:

 

 

 

 

 

Continuing operations

 

$

.15

 

$

.20

 

Discontinued operations

 

$

.03

 

$

.03

 

Number of in-service properties at end of period

 

898

 

899

 

In-service square footage at end of period

 

112,010

 

107,679

 

Under development square footage at end of period

 

3,176

 

2,061

 

 

Comparison of Three Months Ended March 31, 2005 to Three Months Ended March 31, 2004

 

Rental Income From Continuing Operations

 

Overall, rental income from continuing operations increased from $181.4 million for the three months ended March 31, 2004 to $191.0 million for the same period in 2005. The following table reconciles rental income

 

 

18



 

 

 

from continuing operations by reportable segment to our total reported rental income from continuing operations for the three months ended March 31, 2005 and 2004, respectively (in thousands):

 

 

 

2005

 

2004

 

Office

 

$

119,289

 

111,701

 

Industrial

 

69,583

 

67,403

 

Retail

 

1,042

 

1,161

 

Non-segment

 

1,116

 

1,159

 

Total

 

$

191,030

 

$

181,424

 

 

Our three reportable segments comprising Rental Operations (office, industrial and retail) are all within the real estate industry; however, the same economic and industry conditions do not necessarily affect each segment. The primary causes of the increase in rental income from continuing operations, with specific references to a particular segment when applicable, are summarized below:

                 We acquired 18 properties and placed 17 developments in service from April 1, 2004 to March 31, 2005. These acquisitions and developments are the primary factor in the overall $9.6 million increase in rental revenue for the first quarter of 2005 compared to the same period in 2004. Acquisitions and developments placed in service in the last three quarters of 2004 and the first quarter of 2005 provided revenues of $10.1 million in the first quarter of 2005. The $10.1 million includes $5.5 million from two large acquisitions of office buildings in Atlanta and Cincinnati.

                 Lease termination fees totaled $1.8 million for the first quarter of 2005 compared to $4.3 million for the same period in 2004. The decrease in termination fees continues a downward trend associated with an improving economy.

 

Rental Expenses and Real Estate Taxes

 

The following table reconciles rental expenses and real estate taxes by reportable segment to our total reported amounts in the statement of operations for the three months ended March 31, 2005 and 2004, respectively (in thousands):

 

 

 

2005

 

2004

 

Rental Expenses:

 

 

 

 

 

Office

 

$

32,732

 

$

28,553

 

Industrial

 

11,308

 

10,215

 

Retail

 

155

 

152

 

Non-segment

 

101

 

180

 

Total

 

$

44,296

 

$

39,100

 

 

 

 

 

 

 

Real Estate Taxes:

 

 

 

 

 

Office

 

$

12,973

 

$

11,848

 

Industrial

 

8,720

 

8,001

 

Retail

 

84

 

92

 

Non-segment

 

1,070

 

1,085

 

Total

 

$

22,847

 

$

21,026

 

 

The overall increase in rental expenses and real estate taxes is the result of our increased real estate assets associated with the acquisitions and developments as noted above.

 

Interest Expense

 

Interest expense increased from $32.2 million in the first quarter of 2004 to $35.2 million in the first quarter of 2005 resulting primarily from a net increase in unsecured long-term debt. Our long-term unsecured debt increased by a net $185 million since March 31, 2004, resulting in an increase in interest expense of $2.7 million.

 

 

19



 

 

Depreciation and Amortization

 

Depreciation and amortization expense increased from $50.8 million during the three months ended March 31, 2004 to $62.9 million for the same period in 2005.

 

The following highlights the significant changes in depreciation expense for these time periods:

                 Building depreciation expense increased by $4.1 million due to increases in our held-for-rental asset base from acquisitions and developments.

                 Depreciation expense on tenant improvements increased by $4.4 million and lease commission amortization increased by $2.3 million due to increased leasing activity and the effect of SFAS 141, Business Combinations (“SFAS 141”) on acquisitions. SFAS 141 requires the allocation of a portion of a property’s purchase price to existing tenant improvements and intangible assets for leases acquired and in-place at the time of acquisition. We amortize these assets over the remaining life of the leases.

 

Service Operations

 

Service Operations primarily consist of our merchant building sales and the leasing, management, construction and development services for joint venture properties and properties owned by third parties. These operations are heavily influenced by the current state of the economy as leasing and management fees are dependent upon occupancy while construction and development services rely on businesses expanding operations. Service Operations earnings increased from $2.0 million for the three months ended March 31, 2004 to $10.9 million for the three months ended March 31, 2005, primarily as a result of the following:

                 Our merchant building development and sales program, whereby a building is developed and then sold, is a significant component of construction and development income. During the first quarter of 2005, we sold two such properties for a gain of $4.6 million compared to one property in the first quarter of 2004 for a gain of $382,000.

                 During the first quarter of 2005, we recognized $2.7 million of a deferred gain associated with the sale of our landscaping operations in 2001. The gain was deferred as a result of future performance provisions contained in the original sale agreement. As a result of contract renegotiations effective in the first quarter of 2005, all future performance provisions were removed and the gain was recognized.

 

General and Administrative Expense

 

General and administrative expenses decreased from $8.3 million to $7.6 million for the three months ended March 31, 2004, compared to the same period in 2005. General and administrative expenses are comprised of two components. The first is direct expenses that are not attributable to specific assets such as legal fees, external audit fees, marketing costs, investor relation expenses and other corporate overhead. The second component is the unallocated overhead costs associated with the operation of our owned properties and Service Operations, including construction, leasing and maintenance operations. Those overhead costs not allocated to these operations are charged to general and administrative expenses. The overall decrease in general and administrative expenses is primarily the result of an increase in levels of construction for the first quarter of 2005, resulting in more overhead costs applied to projects versus expensed in general and administrative expenses.

 

 

20



 

 

Other Income and Expenses

 

Earnings from sale of land, net of impairment adjustments, are comprised of the following amounts for the three months ended March 31, 2005 and 2004, respectively (in thousands):

 

 

 

2005

 

2004

 

Gain on land sales

 

$

177

 

$

4,729

 

Impairment adjustment for land

 

(34

)

(100

)

Total

 

$

143

 

$

4,629

 

 

Gain on land sales are derived from sales of undeveloped land owned by us. Gains from land sales decreased $4.6 million from the first quarter of 2004 compared to the first quarter of 2005. In the first quarter of 2004, we sold six parcels of land versus only one parcel in the first quarter of 2005. We pursue opportunities to dispose of land in markets with a high concentration of undeveloped land and those markets where the land no longer meets our strategic development plans.

 

We recorded a $34,000 impairment charge in the first quarter of 2005 and $100,000 for the same period in 2004 associated with the contracted sale of land parcels. The land parcel with the $100,000 impairment was later sold in 2004 and the land parcel with the $34,000 impairment is scheduled to be sold later in 2005.

 

Discontinued Operations

 

We have classified the operations of 50 buildings as discontinued operations as of March 31, 2005. These 50 buildings consist of 41 industrial, six office and three retail properties. As a result, we classified net income from operations of $401,000 and $1.0 million as net income from discontinued operations for the three months ended March 31, 2005 and 2004, respectively. In addition, two of the properties classified in discontinued operations were sold during the first quarter of 2005 and 41 properties were sold during 2004. The gains on disposal of these properties, net of impairment adjustments of $3.7 million and $4.0 million for the three months ended March 31, 2005 and 2004, respectively, are also reported in discontinued operations.

 

Liquidity and Capital Resources

 

Sources of Liquidity

 

We expect to meet our short-term liquidity requirements over the next twelve months, including payments of dividends and distributions as well as recurring capital expenditures relating to maintaining our current real estate assets, primarily through the following:

 

                 working capital; and

                 net cash provided by operating activities.

 

Although we historically have not used any other sources of funds to pay for recurring capital expenditures on our current real estate investments, the use of borrowings or property disposition proceeds may be temporarily needed to fund such expenditures during periods of high leasing volume.

 

We expect to meet long-term liquidity requirements, such as scheduled mortgage debt maturities, refinancing of long-term debt, preferred share redemptions, the retirement of unsecured notes and amounts outstanding under the unsecured credit facility, property acquisitions, financing of development activities and other non-recurring capital improvements, primarily through the following sources:

                 issuance of additional unsecured notes;

                 issuance of additional General Partner preferred equity;

                 undistributed cash provided by operating activities, if any; and

                 proceeds received from real estate dispositions. 

 

 

21



 

 

Rental Operations

We believe that our principal source of liquidity, cash flows from Rental Operations, provides a stable source of cash to fund operational expenses. We believe that this cash-based revenue stream is substantially aligned with revenue recognition (except for periodic straight-line rental income accruals and amortization of above or below market rents) as cash receipts from the leasing of rental properties are generally received in advance of or in a short time following the actual revenue recognition. We are subject to risks of decreased occupancy through market conditions as well as tenant defaults and bankruptcies, and potential reduction in rental rates upon renewal or re-letting of properties, which would result in reduced cash flow from operations. However, we believe that these risks are mitigated by our strong market presence in most of our locations and the fact that we perform in-house credit review and analysis on major tenants and all significant leases before they are executed.

Credit Facilities

We have one unsecured line of credit available at March 31, 2005, described as follows (in thousands):

 

 

Borrowing

 

Maturity

 

Interest

 

Outstanding Balance

 

Description

 

Capacity

 

Date

 

Rate

 

at March 31, 2005

 

Unsecured Line of Credit

 

$

500,000

 

January 2007

 

LIBOR + .60

%

$

272,000

 

 

The line of credit is used to fund development activities, acquire additional rental properties and provide working capital.

 

The line of credit provides us with an option to obtain borrowings from financial institutions that participate in the line at rates lower than the stated interest rate, subject to certain restrictions. Amounts outstanding on the unsecured line of credit at March 31, 2005, range from LIBOR + .19% to .60% (3.00% to 3.45% at March 31, 2005).

 

The line of credit also contains financial covenants that require us to meet defined levels of performance.  As of March 31, 2005, we are in compliance with all covenants and expect to remain in compliance for the foreseeable future.

 

Debt and Equity Securities

 

At March 31, 2005, we have on file with the SEC an effective shelf registration statement that permits us to sell up to an additional $795.0 million of unsecured debt securities. In addition, the General Partner has on file with the SEC an effective shelf registration statement that permits the General Partner to sell up to an additional $350.7 million of common and preferred stock as of March 31, 2005. From time-to-time, we expect to issue additional securities under these registration statements to fund development and acquisition of additional rental properties and to fund the repayment of the credit facilities and other long-term debt upon maturity.

 

The indenture governing our unsecured notes also requires us to comply with financial ratios and other covenants regarding our operations. We are currently in compliance with all such covenants as of March 31, 2005 and expect to remain in compliance for the foreseeable future.

 

Sale of Real Estate Assets

We utilize sales of real estate assets as an additional source of liquidity. We pursue opportunities to sell real estate assets and prune our older portfolio properties when beneficial to our long-term strategy.

 

 

22



 

Uses of Liquidity

 

Our principal uses of liquidity include the following:

 

                 Property investments;

                 Recurring leasing/capital costs;

                 Distributions to unitholders;

                 Long-term debt maturities; and

                 Other contractual obligations.

 

Property Investment

 

We evaluate development and acquisition opportunities based upon market outlook, supply and long-term growth potential.

 

Recurring Expenditures

 

One of our principal uses of our liquidity is to fund the development, acquisition and recurring leasing/capital expenditures of our real estate investments.

 

A summary of our recurring capital expenditures for the three months ended March 31, 2005 and 2004, respectively, is as follows (in thousands):

 

 

2005

 

2004

 

Tenant improvements

 

$

13,732

 

$

14,244

 

Leasing costs

 

8,811

 

6,652

 

Building improvements

 

2,446

 

4,555

 

Totals

 

$

24,989

 

$

25,451

 

 

Debt Maturities

Debt outstanding at March 31, 2005, totaled $2.6 billion with a weighted average interest rate of 5.53% maturing at various dates through 2028. We had $2.2 billion of unsecured debt and approximately $201 million of secured debt outstanding at March 31, 2005. Scheduled principal amortization of such debt totaled $1.7 million for the three months ended March 31, 2005.

 

Following is a summary of the scheduled future amortization and maturities of our indebtedness at March 31, 2005 (in thousands, except percentage data):

 

 

 

Future Repayments

 

Weighted Average

 

 

 

Scheduled

 

 

 

 

 

Interest Rate of

 

Year

 

Amortization

 

Maturities

 

Total

 

Future Repayments

 

2005

 

$

6,734

 

$

105,979

 

$

112,713

 

7.39

%

2006

 

8,318

 

415,186

 

423,504

 

4.62

%

2007

 

6,891

 

486,615

 

493,506

 

4.29

%

2008

 

6,031

 

259,028

 

265,059

 

4.52

%

2009

 

5,867

 

275,000

 

280,867

 

7.37

%

2010

 

5,313

 

175,000

 

180,313

 

5.39

%

2011

 

4,647

 

175,000

 

179,647

 

6.94

%

2012

 

3,332

 

200,000

 

203,332

 

5.86

%

2013

 

3,050

 

150,000

 

153,050

 

4.64

%

2014

 

3,800

 

273,197

 

276,997

 

6.23

%

Thereafter

 

4,765

 

50,000

 

54,765

 

7.01

%

 

 

$

58,748

 

$

2,565,005

 

$

2,623,753

 

5.53

%

 

23



 

 

Historical Cash Flows

Cash and cash equivalents were $3.7 million and $11.9 million at March 31, 2005 and 2004, respectively. The following highlights significant changes in net cash, associated with our operating, investing and financing activities (in millions):

 

 

 

Three Months Ended March 31,

 

 

 

2005

 

2004

 

Net Cash Provided by
Operating Activities

 

$

65.0

 

$

69.6

 

Net Cash Used for
Investing Activities

 

$

(88.4

)

$

(107.4

)

Net Cash Provided by
Financing Activities

 

$

20.9

 

$

35.0

 

 

Operating Activities

Cash flows from operating activities provide the cash necessary to meet normal operational requirements of our rental operations and merchant building activities. The receipt of rental income from rental operations continues to provide the primary source of our revenues and operating cash flows. In addition, we also develop buildings with the intent to sell, which provides another significant source of operating cash flow activity.

                 During the period ended March 31, 2005, we incurred merchant building development costs of $13.6 million compared to $8.8 million for the period ended March 31, 2004. The difference is reflective of the timing of activity in our held-for-sale pipeline. The pipeline of held-for-sale projects under construction as of March 31, 2005, has anticipated costs of $28.4 million. In addition to the development costs noted above, we also acquired a building for $6.0 million during the first quarter of 2005 on which we intend to make minor improvements and sell later in 2005.

                 We sold two merchant buildings in the first quarter of 2005 compared to one sale of a merchant building for the same period in 2004, for net after tax gains of $4.6 million and $382,000, respectively.

 

Investing Activities

Investing activities are one of the primary uses of our liquidity. Development and acquisition activities typically generate additional rental revenues and provide cash flows for operational requirements. Highlights of significant cash uses are as follows:

                 Development costs increased to $29.7 million for the period March 31, 2005 from $22.1 million for the same period in 2004.

                 During the first quarter of 2005, we increased our acquisition of land held for development.  We acquired $34.5 million of land in the first quarter of 2005. The significant increase is primarily attributable to the acquisition of over 40 acres of land at a cost of over $23 million in our South Florida market. This acquisition is associated with a retail development we are planning for this market.

                 Sales of land and depreciated property provided $13.6 million in net proceeds for the period ended March 31, 2005, compared to $29.4 million for the same period in 2004. Sales of non-strategic and older properties will continue to be utilized as part of our capital recycling program to fund acquisitions and new development while improving the overall quality of our investment portfolio.

 

24



 

 

Financing Activities

The following significant items highlight fluctuations in net cash provided by financing activities:

                 In January 2005, we retired a $65.0 million variable rate term loan.

                 In March 2005, we retired $100.0 million of 6.94% senior unsecured debt that matured in March 2005.

                 During the first quarter of 2005, we had net borrowings on our $500.0 million line of credit of $272.0 million. These borrowings were used to retire the above-mentioned debt and to support operations.

 

Financial Instruments

We are exposed to capital market risk, such as changes in interest rates. In order to manage the volatility relating to interest rate risk, we may enter into interest rate hedging arrangements from time to time. We do not utilize derivative financial instruments for trading or speculative purposes. We account for derivative instruments under Statement of Financial Accounting Standard No. 133, “Accounting for Derivative Instruments and Hedging Activities” as amended (“SFAS 133”).

 

In March 2005, we entered into $300.0 million of cash flow hedges through forward-starting interest rate swaps to hedge interest rates on $300.0 million of estimated debt offerings in 2006. The swaps qualify for hedge accounting under SFAS 133 with any changes in fair value recorded in Accumulated Other Comprehensive Income (“OCI”). Due to the decline in rates, the fair value at the end of the first quarter is a liability of $1.8 million

 

In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity (“SFAS 150”). SFAS 150 establishes standards for classifying and measuring as liabilities certain financial instruments that embody obligations of the issuer and have characteristics of both liabilities and equity. SFAS 150 is effective for all financial instruments created or modified after May 31, 2003, and otherwise is effective July 1, 2003. We include the operations of one joint venture in our condensed consolidated financial statements at March 31, 2005. This joint venture is partially owned by unaffiliated parties that have non-controlling interests. SFAS 150 requires the disclosure of the estimated settlement value of these non-controlling interests. As of March 31, 2005, the estimated settlement value of the non-controlling interest in this consolidated joint venture was approximately $1.1 million as compared to the receivable asset recorded on our books for this joint venture of $105,000.

 

Recent Accounting Pronouncements

 

In December 2004, FASB issued SFAS No. 123 (R), Share-Based Payment, which is a revision of SFAS No. 123, Accounting for Stock Based Compensation. In April 2005, the SEC delayed the effective date on SFAS No. 123 (R) from July 2005 to January 2006. We are currently evaluating the impact on our financial position and results of operations, but do not believe that the adoption of SFAS 123 (R) will have a material impact on our financial statements.

 

Investments in Unconsolidated Companies

 

We analyze our investments in joint ventures under Financial Accounting Standards Board (“FASB”) Interpretation No. 46(R) (FIN 46(R)), Consolidation of Variable Interest Entities, to determine if the joint venture is a variable interest entity and would require consolidation. As of March 31, 2005, none of our joint ventures qualified as a variable interest entity under FIN 46(R). To the extent that our joint ventures do not qualify as variable interest entities, we further assess under the guidelines of SOP 78-9, ARB 51 and FASB 94 to determine if the venture should be consolidated. We have equity interests in unconsolidated

 

25



 

partnerships and joint ventures that own and operate rental properties and hold land for development. The equity method of accounting is used for these investments in which we have the ability to exercise significant influence, but not control, over operating and financial policies. As a result, the assets and liabilities of these joint ventures are not included on our balance sheet. Our investment in unconsolidated companies represents less than 5% of our total assets as of March 31, 2005. These investments provide several benefits to us, including increased market share and an additional source of capital to fund real estate projects.

 

Item 3.  Quantitative and Qualitative Disclosure About Market Risk

 

We are exposed to interest rate changes primarily as a result of our line of credit and long-term debt used to maintain liquidity and fund capital expenditures and expansion of our real estate investment portfolio and operations. Our interest rate risk management objective is to limit the impact of interest rate changes on earnings and cash flows and to lower our overall borrowing costs. To achieve our objectives, we borrow primarily at fixed rates and may enter into derivative financial instruments such as interest rate swaps, caps and treasury locks in order to mitigate our interest rate risk on a related financial instrument. We do not enter into derivative or interest rate transactions for speculative purposes. For a discussion of the market risk with respect to our outstanding cash flow hedges, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Financial Instruments.”

 

Item 4.  Controls and Procedures

 

(a)          Evaluation of disclosure controls and procedures

 

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in annual and periodic reports filed with the SEC is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. These disclosure controls and procedures are further designed to ensure that such information is accumulated and communicated to management, including the chief executive officer and the chief financial officer to allow timely decisions regarding required disclosure.

 

(b)  Changes in internal control over financial reporting

 

Based on the most recent evaluation, which was completed as of March 31, 2005, the chief executive officer and chief financial officer believe that our disclosure controls and procedures are effective. There have been no changes in our internal control over financial reporting during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

Part II - Other Information

Item 1.  Legal Proceedings

 

None

 

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

 

On March 1, 2005, DMI merged into the Partnership. At the effective time of the merger, our General Partner issued an aggregate of 501,349 shares of our common stock in exchange for an equal amount of DRLP partnership units to John W. Wynne, Thomas L. Hefner, Darell E. Zink, Jr., Daniel C. Staton, Gary A. Burk, David R. Mennel and Michael Coletta, who were former shareholders of DMI. The shares were privately issued pursuant to Section 4(2) of the Securities Act of 1933. Each of the persons who acquired shares in the merger is an accredited investor. We exercised reasonable care to assure that these persons were not purchasing the shares with a view to their distribution. For more details regarding this transaction, see our Current Report on Form 8-K filed with the SEC on January 4, 2005.

 

26



 

 

Item 3.  Defaults upon Senior Securities

 

None

 

Item 4.  Submission of Matters to a Vote of Security Holders

 

None

 

Item 5.  Other Information

 

None

 

Item 6.  Exhibits

 

(a)           Exhibits

 

Exhibit 10.1

 

Duke Realty Corporation 2005 Long-Term Incentive Plan (incorporated herein by reference to Appendix A of the General Partner’s Definitive Proxy Statement on Schedule 14A (File No. 001-09044) filed with the Securities and Exchange Commission on March 15, 2005)

 

 

 

Exhibit 10.2

 

Duke Realty Corporation Shareholder Value Plan, a subplan of the 2005 Long-Term Incentive Plan (incorporated herein by reference to Exhibit 99.2 of the General Partner’s Current Report on Form 8-K filed with the Securities and Exchange Commission on May 3, 2005).

 

 

 

Exhibit 10.3

 

Duke Realty Corporation Non-Employee Directors Compensation Plan, a subplan of the 2005 Long-Term Incentive Plan (incorporated herein by reference to Exhibit 99.3 of the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on May 3, 2005).

 

 

 

Exhibit 10.4

 

Form of 2005 Long-Term Incentive Plan Stock Option Award Certificate (incorporated herein by reference to Exhibit 99.4 of the General Partner’s Current Report on Form 8-K filed with the Securities and Exchange Commission on May 3, 2005).

 

 

 

Exhibit 10.5

 

Form of 2005 Long-Term Incentive Plan Award Certificate for Restricted Stock Units and Shareholder Value Plan Awards (incorporated herein by reference to Exhibit 99.5 of the General Partner’s Current Report on Form 8-K filed with the Securities and Exchange Commission on May 3, 2005).

 

 

 

Exhibit 10.6

 

Form of 2005 Long-Term Incentive Plan Restricted Stock Unit Award Certificate for Non-Employee Directors (incorporated herein by reference to Exhibit 99.6 of the General Partner’s Current Report on Form 8-K filed with the Securities and Exchange Commission on May 3, 2005).

 

 

 

Exhibit 10.7

 

Amendments to Previously Existing Long-Term Incentive Plans (incorporated herein by reference to Appendix B of the General Partner’s Definitive Proxy Statement on Schedule 14A (File No. 001-09044) filed with the Securities and Exchange Commission on March 15, 2005).

 

 

 

Exhibit 11.1

 

Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends.

 

 

 

Exhibit 11.2

 

Ratio of Earnings to Debt Service.

 

 

 

 

27



 

Exhibit 15

 

Letter regarding unaudited interim financial information.

 

 

 

Exhibit 31.1

 

Rule 13a-14(a) Certification of the General Partner’s Chief Executive Officer.

 

 

 

Exhibit 31.2

 

Rule 13a-14(a) Certification of the General Partner’s Chief Financial Officer.

 

 

 

Exhibit 32.1

 

Section 1350 Certification of the General Partner’s Chief Executive Officer.

 

 

 

Exhibit 32.2

 

Section 1350 Certification of the General Partner’s Chief Financial Officer.

 

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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 REALTY LIMITED PARTNERSHIP

 

By:

DUKE REALTY CORPORATION

 

 

Its General Partner

 

 

 

Date: May 16, 2005

 

/s/ DENNIS D. OKLAK

 

 

Dennis D. Oklak

 

 

Chairman and Chief Executive Officer
of the General Partner

 

 

 

 

 

/s/ MATTHEW A. COHOAT

 

 

Matthew A. Cohoat

 

 

Executive Vice President and Chief Financial Officer
of the General Partner

 

29