-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OefVymkpssHN3x58QGQqitX+9p4s6rZpBiCg5AFXE30wF8I3BMjhDXu93qkLVvV+ gJG2CS5pcemWssGIkR+g9Q== 0000912057-97-030419.txt : 19970912 0000912057-97-030419.hdr.sgml : 19970912 ACCESSION NUMBER: 0000912057-97-030419 CONFORMED SUBMISSION TYPE: 424B5 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 19970910 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: DUKE REALTY INVESTMENTS INC CENTRAL INDEX KEY: 0000783280 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 351740409 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 424B5 SEC ACT: SEC FILE NUMBER: 333-26845 FILM NUMBER: 97678546 BUSINESS ADDRESS: STREET 1: 8888 KEYSTONE CROSSING STE 1200 CITY: INDIANAPOLIS STATE: IN ZIP: 46240 BUSINESS PHONE: 3175743531 424B5 1 424B5 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED MAY 27, 1997) 9,500,000 SHARES [LOGO] DUKE REALTY INVESTMENTS, INC. COMMON STOCK ------------------ Duke Realty Investments, Inc. (the "Company") is a self-administered and self-managed real estate investment trust that began operations through a related entity in 1972. As of June 30, 1997, the Company owned a diversified portfolio of 262 in-service industrial, office and retail properties, encompassing approximately 31.4 million square feet located in seven states, and 26 buildings and one building expansion encompassing approximately 4.1 million square feet under development. The Company also owned approximately 1,300 acres of land for future development. The Company has the largest commercial real estate operations in Indianapolis and Cincinnati and is one of the largest real estate companies in the Midwest. The Company expects to continue to pay regular quarterly dividends to its shareholders. All of the shares of Common Stock offered hereby are being sold by the Company. Of the 9,500,000 shares of Common Stock offered hereby, 1,900,000 shares of Common Stock are being offered initially outside of the United States and Canada and the remaining 7,600,000 shares of Common Stock are being offered initially inside the United States and Canada (collectively, the "Offerings"). See "Underwriting." The Common Stock is listed on the New York Stock Exchange under the symbol DRE. The last reported sale price for the Common Stock on September 9, 1997 was $21 7/16 per share. -------------------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS TO WHICH IT RELATES. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
PRICE TO UNDERWRITING PROCEEDS TO PUBLIC DISCOUNT(1) COMPANY(2) Per Share.............................................. $21.4375 $1.10 $20.3375 Total (3).............................................. $203,656,250 $10,450,000 $193,206,250
(1) The Company has agreed to indemnify the several Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended. See "Underwriting." (2) Before deducting expenses payable by the Company estimated at $400,000. (3) The Company has granted to the several International Managers an option to purchase up to an additional 285,000 shares of Common Stock to cover over-allotments, if any, and has granted the several U.S. Underwriters an option to purchase up to an additional 1,140,000 shares of Common Stock to cover over-allotments, if any. If both options are exercised in full, the total Price to Public, Underwriting Discount and Proceeds to Company will be $234,204,688, $12,017,500 and $222,187,188, respectively. See "Underwriting." -------------------------- The shares of Common Stock are offered by the several Underwriters, subject to prior sale, when, as and if delivered to and accepted by them, subject to approval of certain legal matters by counsel for the Underwriters. The Underwriters reserve the right to withdraw, cancel or modify such offer and to reject orders in whole or in part. It is expected that delivery of the shares of Common Stock will be made in New York, New York on or about September 15, 1997. -------------------------- MERRILL LYNCH INTERNATIONAL BT ALEX. BROWN INTERNATIONAL A.G. EDWARDS & SONS, INC. LEGG MASON WOOD WALKER INCORPORATED MCDONALD & COMPANY SECURITIES, INC. MORGAN STANLEY DEAN WITTER -------------------------- The date of this Prospectus Supplement is September 9, 1997. [MAP entitled "Duke Realty Investments Principal Markets" and consisting of (1) a map of the continental United States on which the states of Missouri, Wisconsin, Illinois, Indiana, Kentucky, Tennessee and Ohio are shaded and (2) a larger map of such states on which the city of Indianapolis, Indiana is shown as the Corporate Headquarters; the cities of Chicago, Illinois, St. Louis, Missouri, Columbus, Ohio, Cincinnati, Ohio and Nashville, Tennessee are shown as Regional Office locations; and the city of Milwaukee, Wisconsin is shown as Other Markets.] CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK, INCLUDING EXERCISING THE OVER-ALLOTMENT OPTION, ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING TRANSACTIONS AND IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING." S-2 PROSPECTUS SUPPLEMENT SUMMARY THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS OR DOCUMENTS INCORPORATED HEREIN AND THEREIN BY REFERENCE. UNLESS INDICATED OTHERWISE, THE INFORMATION CONTAINED IN THIS PROSPECTUS SUPPLEMENT IS PRESENTED AS OF JUNE 30, 1997. SHARE AND PER SHARE AMOUNTS IN THIS PROSPECTUS SUPPLEMENT REFLECT THE COMPANY'S TWO-FOR-ONE STOCK SPLIT WHICH OCCURRED ON AUGUST 25, 1997. SEE "--RECENT DEVELOPMENTS." ALL REFERENCES TO THE "COMPANY" IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS INCLUDE THE COMPANY AND THOSE ENTITIES OWNED OR CONTROLLED BY THE COMPANY, UNLESS THE CONTEXT INDICATES OTHERWISE. WHEN USED IN THIS PROSPECTUS SUPPLEMENT, THE WORDS "BELIEVES," "EXPECTS" 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. READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE HEREOF. THE COMPANY UNDERTAKES NO OBLIGATION TO PUBLICLY RELEASE THE RESULTS OF ANY REVISIONS TO THESE FORWARD-LOOKING STATEMENTS WHICH MAY BE MADE TO REFLECT EVENTS OR CIRCUMSTANCES AFTER THE DATE HEREOF OR TO REFLECT THE OCCURRENCE OF UNANTICIPATED EVENTS. THE COMPANY The Company is a self-administered and self-managed real estate investment trust (a "REIT") that began operations through a related entity in 1972. At June 30, 1997, the Company owned a diversified portfolio of 262 in-service industrial, office and retail properties (the "Properties"), encompassing approximately 31.4 million square feet located in seven states, and 26 buildings and one building expansion encompassing approximately 4.1 million square feet under development. The Company also owned approximately 1,300 acres of unencumbered land (the "Land") for future development, of which approximately 75% is zoned for industrial use and which is typically located adjacent to the Properties. The Company provides leasing, management, construction, development and other tenant-related services for the Properties and certain properties owned by third parties. The Company has the largest commercial real estate operations in Indianapolis and Cincinnati and is one of the largest real estate companies in the Midwest. The Company believes that the Midwest offers a relatively strong and stable economy compared to other regions of the United States and provides significant growth potential due to its central location, established manufacturing base, skilled work force and moderate labor costs. The Company has developed over 50 million square feet of commercial property since its founding including an average of approximately 4.1 million square feet per year during the last five years. In addition, the Company acquired approximately 8.9 million square feet during the three years ended December 31, 1996. During the six months ended June 30, 1997, the Company placed in service 2.6 million square feet of new development and acquired 1.8 million square feet of property. The Company manages over 43 million square feet of property, including over 8.1 million square feet owned by third parties. The Company manages approximately 35% and 29% of all competitive suburban office, warehousing and light manufacturing space in Indianapolis and Cincinnati, respectively. In addition to providing services to approximately 1,800 tenants in the Properties, the Company provides such services to over 900 tenants in 92 properties owned by third parties. Based on market data maintained by the Company, the Company believes that it was responsible in the first six months of 1997 for approximately 67% and 34% of the net absorption (gross space leased minus lease terminations and expirations) of competitive suburban office, warehousing and light manufacturing space in Indianapolis and Cincinnati, respectively. The Company believes that its dominant position in the primary markets in which it operates gives it a competitive advantage in its real estate activities. All of the Company's interests in the Properties and Land are held directly or indirectly by, and substantially all of its operations relating to the Properties are conducted through Duke Realty Limited Partnership (the "Operating Partnership"). Partnership interests ("Units") in the Operating Partnership S-3 may be exchanged by the holders thereof, other than the Company, for Common Stock of the Company on a one-for-one basis. Upon an exchange of Units for Common Stock, the Company's percentage interest in the Operating Partnership will increase. The Company controls the Operating Partnership as the sole general partner and owner, as of June 30, 1997, of approximately 90% of the Units. In addition, the senior management team of the Company owns approximately 12.5% of the Company through Common Stock and Unit ownership. The following tables provide an overview of the Properties. SUMMARY OF PROPERTIES (IN THOUSANDS, EXCEPT PERCENTAGES)
PERCENT ANNUAL OF TOTAL PERCENT NET NET EFFECTIVE OCCUPANCY SQUARE OF TOTAL EFFECTIVE ANNUAL AT TYPE OF PROPERTY FEET SQUARE FEET RENT(1) RENT(1) JUNE 30, 1997 - -------------------------------------- --------- ------------- ------------ ------------- ------------- Industrial............................ 21,753 69% $ 77,384 42% 95.5% Office................................ 7,943 25 91,739 50 96.3% Retail................................ 1,710 6 15,471 8 95.2% --------- ----- ------------ ----- Total................................. 31,406 100% $ 184,594 100% 95.7% --------- ----- ------------ ----- --------- ----- ------------ -----
- ------------------------ (1) Represents annual net effective rent due from tenants in occupancy as of June 30, 1997. Net effective rent ("Net Effective Rent") equals the average annual rental property revenue over the terms of the respective leases, excluding additional rent due as operating expense reimbursements, landlord allowances for operating expenses and percentage rents. SQUARE FOOTAGE AND ANNUAL NET EFFECTIVE RENT OF PROPERTIES (IN THOUSANDS, EXCEPT PERCENTAGES)
SQUARE FEET ANNUAL PERCENT OF ----------------------------------------------------------- NET ANNUAL PERCENT OF EFFECTIVE NET EFFECTIVE PRIMARY MARKET INDUSTRIAL OFFICE RETAIL TOTAL TOTAL RENT(1) RENT - ----------------------- ----------- ----------- --------- --------- ----------- ------------ ------------- Indianapolis........... 13,621 1,417 194 15,232 49% $ 61,635 33% Cincinnati............. 4,003 2,961 799 7,763 25 55,113 31 Columbus............... 1,749 1,481 219 3,449 11 25,759 14 St. Louis.............. 924 680 -- 1,604 5 12,626 7 Cleveland.............. 332 1,059 -- 1,391 4 13,669 7 Nashville.............. 562 -- -- 562 2 3,896 2 Chicago................ -- 345 -- 345 1 5,961 3 Other (2).............. 562 -- 498 1,060 3 5,935 3 ----------- ----- --------- --------- ----- ------------ ----- Total.................. 21,753 7,943 1,710 31,406 100% $ 184,594 100% ----------- ----- --------- --------- ----- ------------ ----- ----------- ----- --------- --------- ----- ------------ ----- Percent of Total Square feet.......... 69% 25% 6% 100% ----------- ----- --------- --------- ----------- ----- --------- ---------
- ------------------------ (1) Represents annual Net Effective Rent due from tenants in occupancy as of June 30, 1997, excluding additional rent due as a result of operating expense reimbursements, landlord allowances for operating expenses and percentage rents. (2) Represents properties not located in the Company's primary markets. These properties are located in other similar Midwestern markets. S-4 RECENT DEVELOPMENTS OPERATING PERFORMANCE, DIVIDEND INCREASE AND STOCK SPLIT For the six months ended June 30, 1997, the Company reported the following information as compared to the same period in 1996.
SIX MONTHS ENDED JUNE 30 ----------------------- 1997 1996 ----------- ---------- (IN THOUSANDS) Net income available for common shareholders...... $ 29,682 $ 21,947 Revenues.......................................... 111,572 83,744 Funds From Operations............................. 48,123 34,911 Cash flow provided by (used by): Operating activities.......................... 71,462 39,116 Investing activities.......................... (175,407) (93,598) Financing activities.......................... 101,718 49,041
On July 24, 1997, the Company's Board of Directors raised its regular quarterly common dividend from $.51 per share to $.59 per share, payable on August 29, 1997 to common shareholders of record on August 15, 1997. The new dividend is an increase of $.32 per year which is a 15.7% increase over the previous amount. This dividend equals $2.36 on an annualized basis. The Board of Directors also declared a two-for-one split of the Company's common stock (the "Stock Split") to be effected as a 100% share dividend, payable on August 25, 1997 to common shareholders of record on August 18, 1997. The Company also announced that its Board of Directors anticipates the Company's regular quarterly dividend amount to be $.30 per common share on a post-Stock Split basis. This would equate to a dividend increase of 1.7% and follows the Company's 15.7% dividend increase announced July 24, 1997. The official declaration for this new dividend is expected to be on October 23, 1997, the date of the Company's next regularly scheduled Board of Directors' meeting. Share and per share amounts in this Prospectus Supplement have been restated to reflect the effect of the Stock Split. FINANCING In July 1997, the Company issued 3.0 million Depositary Shares, each representing 1/10 of a Series B Cumulative Step-Up Redeemable Preferred Share, raising net proceeds of $146.1 million. These securities are not redeemable prior to September 30, 2007 and offer a cumulative distribution of 7.99% through September 2012, and 9.99% thereafter. The proceeds of this financing were fully used to reduce the outstanding balance on the Company's unsecured line of credit and to fund the development and acquisition of additional rental properties. In August 1997, the Company issued $100 million of unsecured Pass-through Asset Trust Securities ("PATS"). The PATS bear interest at a coupon rate of 6.95% and mature on August 15, 2004. The effective rate of the PATS is 7.347%, which includes the effect of the settlement of a forward Treasury lock agreement which the Company entered into in April 1997. The Company and an affiliate of the placement agent for the PATS can effectively agree to reset the interest rate and remarket the underlying notes with a maturity of August 15, 2011. The Company reduced the interest rate on its $150.0 million unsecured line of credit from the 30-day London Interbank Offered Rate ("LIBOR") plus 1.25% to LIBOR plus 1.00% effective March 27, 1997. Effective August 28, 1997, the unsecured line of credit was increased to $200.0 million and the interest rate was reduced to LIBOR plus .80%. This line of credit also includes a "competitive bid option" and matures in April 2001. S-5 Concurrently with the Offering, the Company is considering offering approximately $20 million of Common Stock to an institutional buyer at the prevailing market price of the stock. There can be no assurance that this transaction will be consummated. DEVELOPMENT AND ACQUISITIONS During the first seven months of 1997, the Company completed development of and placed in service 10 properties and one property expansion comprising 2.6 million square feet at a total cost of $79.5 million. The Company has 27 properties and one property expansion under development at July 31, 1997 comprising 4.2 million square feet which will have a total cost of $204.1 million upon completion. Also during the first seven months of 1997, the Company acquired 9 properties with 1.9 million square feet at a total cost of $120.5 million. These property additions (the "New Properties"), totaling 8.7 million square feet, consist of 73% industrial, 23% office, and 4% retail projects. The total cost of the New Properties is expected to be $404.1 million. At July 31, 1997, the New Properties which have been placed in service are 88% leased, and the New Properties under construction are 58% pre-leased for a combined total of 73% leased. The New Properties are expected to provide a weighted average unleveraged stabilized return on cost (computed as property annual contractual net operating income ("NOI") divided by total project costs) of 11.3% with anticipated leasing activity. The annual contractual NOI to be generated from the New Properties, once placed in service, will be $45.7 million with anticipated additional leasing. The cost of the New Properties to be placed in service in the third quarter of 1997 is $47.1 million, in the fourth quarter of 1997 is $78.9 million, and in 1998 is $78.1 million. The Company's expectations of total cost and weighted average unleveraged stabilized return on cost constitute forward-looking information that is subject to risks inherent in the completion of construction of the properties under development and the leasing of any unleased portion of the properties. Such risks could cause actual results to differ materially from the Company's expectations. CHICAGO, ILLINOIS. In May 1997, the Company entered the Chicago, Illinois market. Through a joint venture with an institutional investor, the Company purchased the six-story, 345,200 square foot Central Park of Lisle 96% occupied office property in Lisle, Illinois, a western suburb of Chicago. The acquisition also included a 17-acre site, located adjacent to the existing property, for future office development. The Company is establishing a regional office in Chicago. The Company believes that the Chicago market will offer additional profitable development and acquisition opportunities in select sub-markets. While the Company does not anticipate dominating the Chicago market because of its magnitude, it believes that entry into the Chicago market is in accordance with its strategy of entering attractive Midwestern markets. S-6 The following table sets forth information regarding each of the New Properties as of July 31, 1997.
IN-SERVICE OR ANTICIPATED PROPERTY IN-SERVICE DATE PROJECT/TENANT LOCATION TYPE - ------------------------------ ------------------------------ ---------------- ---------- DEVELOPMENT COMPLETED IN 1997: 1st Qtr. 1997 Park Fletcher Building 33 Indianapolis, IN Industrial 1st Qtr. 1997 Dukeport 2 St. Louis, MO Industrial 2nd Qtr. 1997 Silver Burdett Ginn Expansion Indianapolis, IN Industrial 2nd Qtr. 1997 Vanstar Indianapolis, IN Industrial 2nd Qtr. 1997 North Airport Park Bldg. 2 Indianapolis, IN Industrial 2nd Qtr. 1997 Pamida Lebanon, IN Industrial 2nd Qtr. 1997 Skyport Building 1 Cincinnati, OH Industrial 2nd Qtr. 1997 Parkwood Place Columbus, OH Office 2nd Qtr. 1997 Sofa Express - Florence Florence, KY Retail 2nd Qtr. 1997 Purity Wholesale Lebanon, IN Industrial 3rd Qtr. 1997 Freedom Square III Cleveland, OH Office UNDER DEVELOPMENT: 3rd Qtr. 1997 Mr. Coffee Cleveland, OH Industrial 3rd Qtr. 1997 Southpointe C Columbus, OH Industrial 3rd Qtr. 1997 Three Parkwood Indianapolis, IN Office 3rd Qtr. 1997 Anthem Cincinnati, OH Office 3rd Qtr. 1997 Haywood Oaks Building 8 Nashville, TN Industrial 3rd Qtr. 1997 Fountain Place Cincinnati, OH Retail 4th Qtr. 1997 Beiersdorf Cincinnati, OH Industrial 4th Qtr. 1997 Park Fletcher Building 35 Indianapolis, IN Industrial 4th Qtr. 1997 Southpointe Building D Columbus, OH Industrial 4th Qtr. 1997 Southpointe Building E Columbus, OH Industrial 4th Qtr. 1997 Hamilton Crossing Building 2 Indianapolis, IN Office 4th Qtr. 1997 Park 100 Building 133 Indianapolis, IN Industrial 4th Qtr. 1997 Landerbrook Corporate Ctr. Cleveland, OH Office 4th Qtr. 1997 4660 Governor's Pointe Cincinnati, OH Office 4th Qtr. 1997 Mosteller II Cincinnati, OH Industrial 4th Qtr. 1997 Park Fletcher Building 34 Indianapolis, IN Industrial 4th Qtr. 1997 Compmanagement Columbus, OH Office 4th Qtr. 1997 Park 100 Building 132 Indianapolis, IN Office 4th Qtr. 1997 Lowes Cincinnati, OH Retail 4th Qtr. 1997 Dukeport 3 St. Louis, MO Industrial 4th Qtr. 1997 Biggs B-Shoppes Cincinnati, OH Retail 1st Qtr. 1998 Prentice Hall Lebanon, IN Industrial 1st Qtr. 1998 Software Artistry Indianapolis, IN Office 1st Qtr. 1998 Park 100 Building 135 Indianapolis, IN Office 2nd Qtr. 1998 Rings Road Office Building Columbus, OH Office 2nd Qtr. 1998 Sterling 4 Columbus, OH Office 2nd Qtr. 1998 MCI St. Louis, MO Office 3rd Qtr. 1998 Creekside Crossing One Nashville, TN Office 1997 ACQUISITIONS: 2nd Qtr. 1997 NGIC/Pointe 70 St. Louis, MO Office 2nd Qtr. 1997 Dyment/Johnson Controls Cleveland, OH Industrial 2nd Qtr. 1997 Central Park of Lisle Chicago, IL Office 2nd Qtr. 1997 8555 Keystone Crossing Indianapolis, IN Office 2nd Qtr. 1997 Sun TV Columbus, OH Industrial 3rd Qtr. 1997 7910 and 7920 Kentucky Drive Cincinnati, OH Industrial IN-SERVICE OR PERCENT ANTICIPATED PERCENTAGE SQUARE LEASED OR INITIAL LEASE IN-SERVICE DATE OWNERSHIP FEET PRE-LEASED(1) TERM(2) - ------------------------------ --------- --------- ------------- ------------- DEVELOPMENT COMPLETED IN 1997: 1st Qtr. 1997 50% 112,710 100% 5 years 1st Qtr. 1997 100% 244,800 65% 5 years 2nd Qtr. 1997 100% 183,950 100% 7 years 2nd Qtr. 1997 100% 415,680 100% 10 years 2nd Qtr. 1997 100% 377,280 100% 5 years 2nd Qtr. 1997 100% 200,000 100% 10 years 2nd Qtr. 1997 100% 316,800 9% Varies 2nd Qtr. 1997 100% 156,000 100% 15 years 2nd Qtr. 1997 100% 20,250 100% 10 years 2nd Qtr. 1997 100% 556,248 100% 10 years 3rd Qtr. 1997 100% 71,025 74% Varies --------- 2,654,743 85% --------- UNDER DEVELOPMENT: 3rd Qtr. 1997 100% 458,000 100% 15 years 3rd Qtr. 1997 100% 322,000 0%(3) N/A 3rd Qtr. 1997 100% 121,246 73% Varies 3rd Qtr. 1997 100% 78,240 100% 10 years 3rd Qtr. 1997 100% 71,500 0% N/A 3rd Qtr. 1997 25% 207,170 95% 20 years 4th Qtr. 1997 100% 252,000 100% 10 years 4th Qtr. 1997 50% 96,000 0% N/A 4th Qtr. 1997 100% 116,520 35% 15 years 4th Qtr. 1997 100% 82,520 0% N/A 4th Qtr. 1997 100% 32,800 77% 10 years 4th Qtr. 1997 100% 20,530 100% 15 years 4th Qtr. 1997 100% 110,148 51% Varies 4th Qtr. 1997 100% 76,465 71% Varies 4th Qtr. 1997 100% 261,440 0% N/A 4th Qtr. 1997 50% 230,400 33% 5 years 4th Qtr. 1997 100% 67,841 59% 15 years 4th Qtr. 1997 100% 27,600 44% 10 years 4th Qtr. 1997 100% 128,747 100% 20 years 4th Qtr. 1997 100% 214,400 0% N/A 4th Qtr. 1997 100% 13,000 58% 5 years 1st Qtr. 1998 100% 577,340 100% 10 years 1st Qtr. 1998 100% 108,273 75% 15 years 1st Qtr. 1998 100% 77,125 67% 10 years 2nd Qtr. 1998 100% 145,000 0% N/A 2nd Qtr. 1998 100% 94,219 100% 15 years 2nd Qtr. 1998 100% 97,356 100% 10 years 3rd Qtr. 1998 100% 112,800 0% N/A --------- 4,200,680 58% --------- 1997 ACQUISITIONS: 2nd Qtr. 1997 100% 215,549 99% Varies 2nd Qtr. 1997 100% 331,550 100% 10 years 2nd Qtr. 1997 50% 345,200 96% Varies 2nd Qtr. 1997 100% 75,545 94% Varies 2nd Qtr. 1997 100% 789,175 81% 5 years 3rd Qtr. 1997 100% 132,274 100% Varies --------- 1,889,293 91% --------- 8,744,716 73% --------- ---------
- ---------------------------------------- (1) Represents completed leasing activity through July 31, 1997. (2) Represents lease term of the building's primary tenant or tenants. (3) In August 1997, the Company signed a lease totaling 168,000 square feet with a lease term of eight years bringing this property to 52% occupancy. S-7 PENDING ACQUISITIONS The Company has entered into contracts or letters of intent to purchase certain properties in St. Louis and in the Chicago suburbs (the "Pending Acquisitions") for an aggregate purchase price of approximately $247.3 million. The Company currently expects to complete the Pending Acquisitions by October 1, 1997. However, the purchase of each of the Pending Acquisitions is subject to various closing conditions. Accordingly, no assurances can be made that the Company will close any or all of the Pending Acquisitions. In addition to the Pending Acquisitions, as part of its ongoing business, the Company continually engages in discussions with other real estate owners regarding possible portfolio or single asset acquisitions in its current and other attractive Midwestern markets. No assurances can be made that the Company will acquire any of the properties or portfolios currently being evaluated. The following describes each of the Pending Acquisitions. BAUR PROPERTIES. In August 1997, the Company entered into a letter of intent to acquire Baur Properties' existing rental properties and operations in St. Louis, Missouri. Baur Properties has been in operation in St. Louis for over 43 years and is one of the leading suburban office developers and operators in the Midwest. The Baur rental property portfolio consists of eight suburban office buildings totaling 904,000 square feet and three industrial buildings totaling 78,000 square feet. Seven of the suburban office projects are located in Maryville Centre, one of the premier suburban office parks in St. Louis. The acquisition will also include undeveloped land to accommodate approximately one million square feet of additional suburban office development and the property management and development operations of Baur Properties. Accordingly, Edward T. Baur, the Chairman of Baur Properties, will become Vice President and General Manager of the Company's St. Louis operations. The purchase price of this acquisition is expected to be paid through the assumption of $57.5 million in existing mortgage debt with a weighted average interest rate of 8.13%, the payment of approximately $25.0 million in cash and the remainder in Units. Along with its existing operations in St. Louis, the Company believes this acquisition will make it the dominant real estate developer in this market. The Company believes this acquisition is in accordance with its strategy of dominating its Midwestern markets. The following table sets forth information regarding the Baur Properties as of July 31, 1997.
RENTABLE YEAR PERCENT PROPERTY TYPE SQUARE FEET BUILT LEASED - ------------------------------------------------------------ ------------------ ----------- --------- ----------- 500 Maryville............................................... Suburban Office 165,544 1984 100.00% 530 Maryville............................................... Suburban Office 107,957 1990 100.00% 540 Maryville............................................... Suburban Office 107,973 1990 100.00% 550 Maryville............................................... Suburban Office 97,109 1988 95.68% 625 Maryville(1)............................................ Suburban Office 101,576 1994 100.00% 635-645 Maryville........................................... Suburban Office 148,307 1987 99.86% 655 Maryville............................................... Suburban Office 90,499 1994 100.00% Twin Oaks................................................... Suburban Office 85,066 1980 100.00% Southport I................................................. Service Center 20,810 1977 100.00% Southport II................................................ Service Center 22,400 1978 100.00% Southport Commerce Center................................... Service Center 34,873 1978 100.00% ----------- TOTAL..................................................... 982,114 99.55% ----------- -----------
- ------------------------ (1) The Company currently intends to acquire a 49% interest in this property. S-8 EXECUTIVE TOWERS. On August 28, 1997, the Company purchased Executive Towers West, a three-building, 650,000 square foot, suburban office complex in Downers Grove, Illinois, a western suburb of Chicago. This property is near the Company's previously announced Central Park of Lisle acquisition. The purchase price of this acquisition was paid entirely in cash. The Company believes this acquisition is in accordance with its strategy, as discussed above, of expanding into select sub-markets in Chicago. The following table sets forth information regarding Executive Towers as of July 31, 1997.
RENTABLE YEAR PERCENT PROPERTY TYPE SQUARE FEET BUILT LEASED - ------------------------------------------------------------ ------------------ ----------- --------- ----------- Executive Towers I.......................................... Suburban Office 203,302 1983 94.00% Executive Towers II......................................... Suburban Office 224,140 1984 96.98% Executive Towers III........................................ Suburban Office 222,400 1987 100.00% ----------- TOTAL..................................................... 649,842 97.08% ----------- -----------
THE OFFERINGS Common Stock Offered.............. 9,500,000 shares (1) Common Stock to be Outstanding After the Offerings............. 72,819,230 shares (2) Use of Proceeds................... To retire the outstanding balance on the Lines of Credit (as defined herein) and to fund development and acquisition of additional rental properties, including the Pending Acquisitions. New York Stock Exchange Symbol.... DRE
- ------------------------ (1) Assumes the Underwriters' over-allotment options to purchase up to an aggregate of 1,425,000 shares of Common Stock are not exercised. See "Underwriting." (2) Excludes 6,759,846 Units issued by the Operating Partnership which are exchangeable by the holders for shares of Common Stock, 2,400 shares of Common Stock issued subsequent to June 30, 1997 as directors' compensation, 2,161,036 shares of Common Stock issuable upon exercise of outstanding employee stock options and 171,830 shares of Common Stock issued subsequent to June 30, 1997 in connection with the Company's direct stock purchase plan, all as adjusted for the Stock Split. S-9 SUMMARY CONSOLIDATED FINANCIAL DATA The following table sets forth selected consolidated financial and operating information for the Company. The information was derived from the Company's consolidated financial statements, which are incorporated by reference in the accompanying Prospectus. The following selected financial information should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" for the Company and the consolidated financial statements incorporated by reference in the accompanying Prospectus.
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31, -------------------- ------------------------------- 1997 1996 1996 1995 1994 --------- --------- --------- --------- --------- (IN THOUSANDS, EXCEPT PROPERTIES AND PER SHARE DATA) RESULTS OF OPERATIONS: Revenues: Rental Operations................................. $ 102,504 $ 74,261 $ 162,160 $ 113,641 $ 89,299 Service Operations................................ 9,068 9,483 19,929 17,777 18,473 --------- --------- --------- --------- --------- TOTAL REVENUES........................................ $ 111,572 $ 83,744 $ 182,089 $ 131,418 $ 107,772 --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- NET INCOME AVAILABLE FOR COMMON SHARES................ $ 29,682 $ 21,947 $ 50,872 $ 35,019 $ 26,216 --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- SHARE DATA (1): Net Income per Common Share....................... $ .48 $ .41 $ .91 $ .77 $ .76 Dividends Declared per Common Share............... .55 .50 1.01 .97 .93 Weighted Average Common Shares Outstanding........ 62,400 53,428 56,134 45,358 34,278 BALANCE SHEET DATA: Total Assets...................................... $1,550,879 $1,177,792 $1,361,142 $1,045,588 $ 774,901 Total Debt........................................ $ 614,857 $ 431,856 $ 525,815 $ 454,820 $ 298,640 Total Shareholders' Equity........................ $ 835,221 $ 677,846 $ 754,932 $ 534,789 $ 445,384 Total Common Shares Outstanding (1)(2)............ 63,320 58,640 58,972 48,304 40,782 OTHER DATA: Funds From Operations (3)......................... $ 48,123 $ 34,911 $ 76,079 $ 54,746 $ 38,198 Cash Flow Provided by (Used by): Operating activities.......................... $ 71,462 $ 39,116 $ 95,135 $ 78,620 $ 51,873 Investing activities.......................... $(175,407) $ (93,598) $(276,748) $(289,569) $(116,238) Financing activities.......................... $ 101,718 $ 49,041 $ 181,220 $ 176,243 $ 94,733 NUMBER OF IN-SERVICE PROPERTIES AT END OF PERIOD...... 262 219 249 202 128 IN-SERVICE SQUARE FEET AVAILABLE AT END OF PERIOD..... 31,406 23,219 27,402 20,073 12,896
- ------------------------------ (1) All share data has been restated to reflect the effect of the Stock Split. (2) Excludes Units held by persons other than the Company which are exchangeable for Common Stock. (3) Funds from Operations ("FFO") is defined by the National Association of Real Estate Investment Trusts ("NAREIT") as net income or loss excluding gains or losses from debt restructuring and sales of property plus depreciation and amortization, and after adjustments for minority interest, unconsolidated partnerships and joint ventures (adjustments for minority interests, unconsolidated partnerships and joint ventures are calculated to reflect FFO on the same basis). FFO does not represent cash flow from operations as defined by generally accepted accounting principles, should not be considered as an alternative to net income as an indicator of the Company's operating performance and is not indicative of cash available to fund all cash flow needs. S-10 THE COMPANY The Company is a self-administered and self-managed REIT that began operations through a related entity in 1972. At June 30, 1997, the Company owned a diversified portfolio of 262 in-service industrial, office and retail Properties, encompassing approximately 31.4 million square feet located in seven states, and 26 buildings and one building expansion encompassing approximately 4.1 million square feet under development. The Company also owned approximately 1,300 acres of unencumbered Land for future development, of which approximately 75% is zoned for industrial use and which is typically located adjacent to the Properties. The Company provides leasing, management, construction, development and other tenant-related services for the Properties and certain properties owned by third parties. The Company has the largest commercial real estate operations in Indianapolis and Cincinnati and is one of the largest real estate companies in the Midwest. The Company believes that the Midwest offers a relatively strong and stable economy compared to other regions of the United States and provides significant growth potential due to its central location, established manufacturing base, skilled work force and moderate labor costs. The Company has developed over 50 million square feet of commercial property since its founding including an average of approximately 4.1 million square feet per year during the last five years. In addition, the Company acquired approximately 8.9 million square feet during the three years ended December 31, 1996. Through the six months ended June 30, 1997, the Company placed in service 2.6 million square feet of new development and acquired 1.8 million square feet of property. The Company manages over 43 million square feet of property, including over 8.1 million square feet owned by third parties. The Company manages approximately 35% and 29% of all competitive suburban office, warehousing and light manufacturing space in Indianapolis and Cincinnati, respectively. In addition to providing services to approximately 1,800 tenants in the Properties, the Company provides such services to over 900 tenants in 92 properties owned by third parties. Based on market data maintained by the Company, the Company believes that it was responsible in the first six months of 1997 for approximately 67% and 34% of the net absorption (gross space leased minus lease terminations and expirations) of competitive suburban office, warehousing and light manufacturing space in Indianapolis and Cincinnati, respectively. The Company believes that its dominant position in its primary markets gives it a competitive advantage in its real estate activities. All of the Company's interests in the Properties and Land are held directly or indirectly by, and substantially all of its operations relating to the Properties are conducted through, the Operating Partnership. Units in the Operating Partnership may be exchanged by the holders thereof, other than the Company, for Common Stock of the Company on a one-for-one basis. Upon an exchange of Units for Common Stock, the Company's percentage interest in the Operating Partnership will increase. The Company controls the Operating Partnership as the sole general partner and owner, as of June 30, 1997, of approximately 90% of the Units. BUSINESS STRATEGY The Company's business objective is to increase its Funds From Operations by (i) maintaining and increasing property occupancy and rental rates through the aggressive management of its portfolio of existing properties; (ii) expanding existing properties; (iii) developing and acquiring new properties; and (iv) providing a full line of real estate services to the Company's tenants and to third parties. The Company believes that the analysis of real estate opportunities and risks can be done most effectively at regional or local levels. As a result, the Company intends to continue its emphasis on increasing its market share and effective rents in its existing markets primarily within the Midwest. The Company also expects to utilize its approximately 1,300 acres of unencumbered Land and its many business relationships with more than 2,700 commercial tenants to expand its build-to-suit business (development projects substantially pre-leased to a single tenant) and to pursue other development and S-11 acquisition opportunities in its existing markets and elsewhere, primarily in the Midwest. The Company believes that this regional focus will allow it to assess market supply and demand for real estate more effectively as well as to capitalize on its strong relationships with its tenant base. The Company's policy is to seek to develop and acquire substantially pre-leased Class A commercial properties located in markets with attractive investment potential for Fortune 500 companies and other quality regional and local firms. The Company's industrial and suburban office development focuses on business parks and mixed use developments suitable for development of multiple projects on a single site and where the Company can create and control the business environment. These business parks and mixed use developments generally include restaurants and other amenities which the Company believes create an atmosphere that is particularly efficient and desirable. The Company's retail development focuses on community, power and neighborhood centers in its existing markets. As a fully integrated real estate company, the Company is able to arrange for or provide to its industrial, office and retail tenants not only well located and well maintained facilities, but also additional services such as build-to-suit construction, tenant finish construction, expansion flexibility and advertising and marketing services. FINANCING STRATEGY The Company seeks to maintain a well-balanced, conservative and flexible capital structure by: (i) currently targeting a ratio of long-term debt to total market capitalization in the range of 25% to 40%; (ii) extending and sequencing the maturity dates of its debt; (iii) borrowing primarily at fixed rates; (iv) generally pursuing current and future long-term debt financings and refinancings on an unsecured basis; (v) maintaining conservative debt service and fixed charge coverage ratios; and (vi) maintaining a conservative dividend payout ratio. Management believes that these strategies have enabled and should continue to enable the Company to access the debt and equity capital markets for their long-term requirements such as debt refinancings and financing for development and acquisitions of additional rental properties. The Company has demonstrated its ability to access the equity and debt markets to finance the activities of the Company through recent public offerings of Common Stock, Preferred Stock and unsecured notes since October 1993 which generated aggregate net proceeds of $1.24 billion. MIDWESTERN FOCUS The Company believes that the Midwest offers a relatively strong and stable economy compared to other regions of the United States and provides attractive new opportunities due to its central location, established manufacturing base, skilled work force and moderate labor costs. In addition, the interstate highway systems serving Indianapolis, Cincinnati and Columbus, markets in which approximately 78% and 85% of the Properties, in terms of both dollar value of Net Effective Rent and square footage, respectively, are located, help make those cities prime industrial and office property locations. Employment statistics are generally a useful measure of the viability of a commercial real estate market because the demand for industrial and office space in a geographic area is usually linked to the levels of business activity and disposable income. According to the United States Department of Labor's Bureau of Labor Statistics, the unemployment rate for June 1997 was 2.6%, 3.6% and 2.8% in the Indianapolis, Cincinnati and Columbus metropolitan areas, respectively, compared to 5.0% for the United States. Additionally, total non-farm employment has increased 15.5%, 11.4% and 16.5% from December 1989 to December 1996 for the Indianapolis, Cincinnati and Columbus metropolitan areas, respectively, as compared to 11.0% for the United States. Management believes that the Company's assets are located in strong real estate markets with good investment potential. The Spring 1997 issue of MarketScore, a National Real Estate Index and Ernst & Young Kenneth Leventhal Real Estate Group publication ("MarketScore"), rated 64 metropolitan areas in the United States in terms of their real estate investment potential for the succeeding two years. The study S-12 segmented each metropolitan area by property type and considered real estate, economic and demographic variables such as vacancy rates, construction, rental trends, job growth, population and household growth, and household income. Approximately 34.4 million square feet of the Company's in-service and under-development Properties are in markets considered by MarketScore to have good or excellent investment potential. INDIANAPOLIS, INDIANA. With more than 1.5 million residents, Indianapolis is Indiana's largest metropolitan area. With a central location at the intersection of four interstate highways, Indianapolis continues to attract new growth by offering a skilled work force and stable economic base. Indianapolis' economic base includes distribution, government, manufacturing, retail trade, service and tourism related industries. According to CB Commercial Real Estate Group, Inc. ("CB Commercial"), the industrial vacancy rate was 9.5% as of December 31, 1996. The Indianapolis suburban office market strengthened over the 24-month period ending March 31, 1997. According to CB Commercial, at March 31, 1997, Indianapolis had an 8.5% suburban office vacancy rate compared to a national average of 10.6%. CINCINNATI, OHIO. Cincinnati is the second largest metropolitan area in Ohio with a population of 1.6 million. With an unemployment rate which is below the national average, Cincinnati's economic base is healthy and diverse. Balanced between major Fortune 500 employers and entrepreneurial enterprises, Cincinnati's economic base includes banking, distribution, manufacturing, retail trade and service related industries. Relatively low taxes, an expanding airport (a major North American hub for Delta Airlines) and aggressive state and local incentive packages designed to attract new business have contributed to major corporate relocations in Cincinnati. Indicative of the economic strength in Cincinnati, the industrial vacancy rate as reported by CB Commercial declined by 0.7% over the 24 months ended December 31, 1996 to 3.0%, less than half the national average of 7.3%. As reported by CB Commercial, the Cincinnati suburban office market vacancy rate declined by 6.1% over the twenty-four month period ended March 31, 1997 to 8.4%, compared to the national average of 10.6%, and the Cincinnati downtown office vacancy rate declined 1.2% over the same period to 13.7%. COLUMBUS, OHIO. The Columbus metropolitan area has a population of approximately 1.4 million and is the third largest metropolitan area in Ohio. The city's central location, well-trained work force and high quality of life have established Columbus as a major transportation and distribution center. Columbus' economic base includes distribution, government, manufacturing, retail trade and service-related industries. As reported by CB Commercial, as of December 31, 1996, the industrial vacancy rate in Columbus was 6.1% compared to the national average of 7.3%. As of March 31, 1997, the suburban office vacancy rate in Columbus was 10.6%, equal to the national average. CLEVELAND, OHIO. Cleveland is the largest metropolitan area in Ohio with a population of 2.2 million. The city is a major center for industry, technology, and service industries, including banking, health, research and development and the legal and accounting professions. Twenty-eight Fortune 500 companies have located their headquarters in Cleveland. As reported by CB Commercial, as of December 31, 1996 the industrial vacancy rate in Cleveland was 7.3%, equal to the national average and, as of March 31, 1997, the suburban office vacancy rate was 8.4% compared to the national average of 10.6%. ST. LOUIS, MISSOURI. St. Louis is Missouri's largest metropolitan area with a population of 2.5 million. With its central location, St. Louis is within 500 miles of one-third of the U.S. population and businesses and it has the lowest total mileage from the 24 largest metro areas in the mid-U.S. to the same 24 metro areas. Twenty-three Fortune 500 companies have located their headquarters in St. Louis. As reported by CB Commercial, as of December 31, 1996 the industrial vacancy rate in St. Louis was 2.5% compared to the national average of 7.3% and, as of March 31, 1997, the suburban office vacancy rate was 6.2% compared to the national average of 10.6%. S-13 The following table summarizes important economic and performance statistics for the Company's principal markets and for the United States.
MARCH 1997 JUNE 1997 DECEMBER 1996 SUBURBAN UNEMPLOYMENT JOB GROWTH INDUSTRIAL PROPERTY OFFICE RATE (1) SINCE 1989 (1) VACANCY RATE (2) VACANCY RATE (2) ------------------- ----------------- ----------------------- ------------------- Cincinnati, Ohio............................. 3.6% 11.4% 3.0% 8.4% Cleveland, Ohio.............................. 4.2% 5.7% 7.3% 8.4% Columbus, Ohio............................... 2.8% 16.5% 6.1% 10.6% Indianapolis, Indiana........................ 2.6% 15.5% 9.5% 8.5% St. Louis, Missouri.......................... 4.0% 7.2% 2.5% 6.2% United States................................ 5.0% 11.0% 7.3% 10.6%
- -------------------------- (1) Source: United States Department of Labor's Bureau of Labor Statistics. (2) Source: CB Commercial. QUALITY TENANT BASE The Company's Properties have a diverse and stable base of approximately 1,800 tenants. Many of the tenants are Fortune 500 companies and engage in a wide variety of businesses, including manufacturing, retailing, wholesale trade, distribution, and professional services. Approximately 50% of the square footage of the Properties is occupied by tenants with a net worth based on book value of $100 million or greater. Approximately 75% of the gross leasable area of the Properties is occupied by tenants who have been in business for more than 10 years. The Company renewed 84% of the square feet of tenants up for renewal in the first six months of 1997 on approximately 1.3 million square feet up for renewal. No single tenant accounts for more than 2.5% of the Company's total gross effective rent (computed using the average annual rental property revenue over the terms of the respective leases including landlord operating expense allowances but excluding additional rent due as operating expense reimbursements). The following table sets forth information regarding the 10 largest tenants of the Properties based upon annualized gross effective rents as of June 30, 1997.
ANNUALIZED PERCENTAGE OF YEAR OF PERCENTAGE OF GROSS ANNUALIZED LEASE SQUARE TOTAL SQUARE EFFECTIVE GROSS EFFECTIVE TENANT PRIMARY LOCATION EXPIRATION(1) FOOTAGE FEET RENT(2) RENT - ---------------------- ---------------- ------------ --------- --------------- -------------- ----------------- LCI Communications, Inc................. Columbus 2001 - 2012 370,320 1.23% $ 5,054,129 2.47% Budget Rent-A-Car Corporation......... Chicago 2006 160,488 0.53 3,780,095 1.85 Sterling Commerce..... Columbus 2000 - 2012 228,460 0.76 3,595,084 1.76 Nationwide Mutual Ins. Co.................. Columbus 1997 - 2006 317,799 1.06 3,446,602 1.69 National General Insurance........... St. Louis 2005 112,000 0.37 2,935,249 1.44 General Electric...... Cincinnati 1997 - 2001 223,872 0.74 2,859,326 1.40 Anheuser-Busch........ St. Louis 1997 - 2002 155,568 0.52 2,687,656 1.31 Lenscrafter........... Cincinnati 1998 - 2005 284,761 0.95 2,535,349 1.24 SDRC.................. Cincinnati 1997 - 2011 221,215 0.74 2,426,142 1.19 Associated Group...... Indianapolis 1997 - 1999 264,897 0.88 2,351,341 1.15 --------- --- -------------- ----- 2,339,380 7.78% $ 31,670,973 15.50% --------- --- -------------- ----- --------- --- -------------- -----
- -------------------------- (1) Where multiple years are listed, the tenant represents more than one lease with maturities during the indicated range of years. (2) Represents annual gross effective rents due from tenants in service as of June 30, 1997. Annual gross effective rents equals the average annual rental property revenue over the terms of the respective leases including landlord operating expense allowance and excluding additional rent due as operating expense reimbursements. S-14 USE OF PROCEEDS The net proceeds to the Company from the sale of the Common Stock offered hereby are expected to be approximately $192.8 million (approximately $221.8 million if the Underwriters' over-allotment options are exercised in full). The Company presently intends to use the net proceeds as well as the net proceeds of its PATS offering of approximately $100.0 million to retire the outstanding balance on its lines of credit (the "Lines of Credit") and to fund development and acquisition of additional rental properties, including the cash portion of the Pending Acquisitions, expected to total in excess of $120 million. The remaining costs to be funded on the 4.2 million square feet of property under development at July 31, 1997 total $108.8 million with $73.7 million expected to be spent by December 31, 1997. See "Prospectus Supplement Summary--Recent Developments." The Lines of Credit are expected to have an outstanding balance of approximately $65.0 million on September 15, 1997, bearing interest at LIBOR plus .75% to .80%. PRICE RANGE OF COMMON STOCK AND DIVIDEND HISTORY The Common Stock is listed on the New York Stock Exchange under the symbol DRE. The following table sets forth the high and low sale prices of the Common Stock for the periods indicated and the dividend paid per share during each such period. All share price and dividend information has been adjusted to reflect the effect of the Stock Split.
CLOSING PRICES PER SHARE -------------------- DIVIDENDS QUARTERLY PERIOD HIGH LOW PER SHARE - ----------------------------------------------------------------------------------- --------- --------- ----------- 1995 First Quarter.................................................................... $ 13.94 $ 12.57 $ 0.235 Second Quarter................................................................... 14.63 13.13 0.235 Third Quarter.................................................................... 15.82 13.82 0.245 Fourth Quarter................................................................... 15.88 13.82 0.245 1996 First Quarter.................................................................... 16.25 14.57 0.245 Second Quarter................................................................... 15.25 14.19 0.245 Third Quarter.................................................................... 16.63 14.50 0.255 Fourth Quarter................................................................... 19.25 16.38 0.255 1997 First Quarter.................................................................... 21.44 19.13 0.255 Second Quarter................................................................... 20.81 17.44 0.255 Third Quarter (through September 9, 1997)........................................ 22.75 19.88 0.295
The last reported sale price of the Common Stock on the New York Stock Exchange on September 9, 1997 was $21 7/16 per share. As of September 9, 1997, there were 4,102 registered holders of Common Stock. On July 24, 1997, the Company's Board of Directors raised its regular quarterly common dividend from $.255 per share to $.295 per share, payable on August 29, 1997 to common shareholders of record on August 15, 1997. The new dividend is an increase of $.16 per year which is a 15.7% increase over the previous amount. This dividend equals $1.18 on an annualized basis. The Company has announced that its Board of Directors anticipates the Company's regular quarterly dividend amount to be $.30 per common share on a post Stock-Split basis. This would equate to a dividend increase of 1.7% and follows the Company's 15.7% dividend increase announced July 24, 1997. The official declaration for this new dividend is expected to be on October 23, 1997, the date of the Company's next regularly scheduled Board of Directors' meeting. S-15 Since its organization in 1986, the Company has paid regular and uninterrupted dividends. The Company intends to continue to declare quarterly dividends on its Common Stock. However, no assurances can be given as to the amounts of future dividends as such dividends are subject to the Company's cash flow from operations, earnings, financial condition, capital requirements and such other factors as the Board of Directors deems relevant. The Company has determined that approximately 1% of the per share distribution for 1996 represented return of capital to the shareholders for income tax purposes. No assurance can be given that such percentage will not change in future years. DIVIDEND REINVESTMENT PLAN The Company has an Automatic Dividend Reinvestment Plan (the "Plan") which allows shareholders to acquire additional shares of Common Stock by automatically reinvesting cash dividends. Common Stock is acquired pursuant to the Plan at a price equal to the prevailing market price of such Common Stock less a 4% discount, without payment of any brokerage commission or service charge. The Plan also allows persons to purchase Common Stock at a price equal to the prevailing market price of such Common Stock (without any discount but without payment of any brokerage commission or service charge) in the same manner as cash dividends are invested in amounts of not less than $100 ($25 for automated funds transfers) and not more than $5,000 per month for participating shareholders and in amounts of not less than $250 and more than $5,000 per month for initial investments by persons who are not shareholders. Shareholders who do not participate in the Plan continue to receive cash dividends, as declared. S-16 CAPITALIZATION The following table sets forth the capitalization of the Company and its subsidiaries as of June 30, 1997 and as adjusted to give effect to the Offerings and the application of the net proceeds thereof as described under "Use of Proceeds." The table should be read in conjunction with the Company's consolidated financial statements incorporated herein by reference.
JUNE 30, 1997 -------------------------- HISTORICAL AS ADJUSTED ------------ ------------ (IN THOUSANDS) Debt: Secured Debt (1).................................................................... $ 271,857 $ 261,857 Unsecured Debt (2).................................................................. 240,000 340,000 Unsecured Line of Credit (3)........................................................ 103,000 -- ------------ ------------ Total Debt.......................................................................... $ 614,857 $ 601,857 ------------ ------------ Minority Interest..................................................................... 18,867 18,867 ------------ ------------ Shareholders' Equity: Preferred Stock ($.01 par value), 5,000 shares authorized: 9.10% Series A Cumulative Redeemable Preferred Shares, liquidation preference $250 per share, 300 shares issued and outstanding.................................... 72,288 72,288 7.99% Series B Cumulative Step-Up Premium Rate-SM- Preferred Shares, liquidation preference $500 per share, 300 shares issued and outstanding..................................................................... -- 146,050 Common Stock and Paid-in Capital ($.01 par value), 150,000 shares authorized; 63,319 outstanding; 72,819 outstanding as adjusted (4)................................... 813,625 1,006,431 Distributions in excess of net income............................................... (50,692) (50,692) ------------ ------------ Total Shareholders' Equity.......................................................... $ 835,221 $ 1,174,077 ------------ ------------ Total Capitalization.................................................................. $ 1,468,945 $ 1,794,801 ------------ ------------ ------------ ------------
- ------------------------ (1) The Company had the full amount outstanding on its $10 million secured line of credit at June 30, 1997. (2) In August 1997, the Company issued $100 million of unsecured Pass-Through Asset Trust Securities ("PATS"). These PATS bear interest at a coupon rate of 6.95% and mature on August 15, 2004. The effective rate of the PATS is 7.347%, which includes the effect of the settlement of a forward Treasury lock agreement which the Company entered into in April 1997. The Company and an affiliate of the placement agent for the PATS can effectively agree to reset the interest rate and remarket the underlying notes with a maturity of August 15, 2011. (3) The Company paid down the $103 million outstanding on its unsecured line of credit at June 30, 1997 with a portion of the proceeds of the $146.1 million Series B Cumulative Step-Up Premium Rate Preferred Shares which were issued in July 1997. (4) Does not include 6,760 shares reserved for issuance upon exchange of issued and outstanding Units. Shares issued and outstanding have been adjusted to reflect the effect of the Stock Split. S-17 SELECTED CONSOLIDATED FINANCIAL DATA The following table sets forth selected financial and operating information for the Company on a historical basis. The information was derived from the Company's financial statements, which are incorporated by reference in the accompanying Prospectus. The following selected financial information should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" for the Company and the financial statements incorporated by reference in the accompanying Prospectus.
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31, ---------------------- ---------------------------------- 1997 1996 1996 1995 1994 ---------- ---------- ---------- ---------- ---------- (IN THOUSANDS) OPERATING DATA: RENTAL OPERATIONS: Revenues: Rental Income..................................... $ 98,860 $ 71,714 $ 156,392 $ 112,931 $ 88,243 Equity in earnings of unconsolidated companies.... 3,644 2,547 5,768 710 1,056 ---------- ---------- ---------- ---------- ---------- 102,504 74,261 162,160 113,641 89,299 ---------- ---------- ---------- ---------- ---------- Operating expenses: Rental expenses................................... 18,022 13,814 29,669 20,922 17,074 Real estate taxes................................. 9,115 6,507 14,244 9,683 8,256 Interest expense.................................. 17,951 14,617 31,344 21,424 18,920 Depreciation and amortization..................... 20,241 16,157 32,571 24,337 18,036 ---------- ---------- ---------- ---------- ---------- 65,329 51,095 107,828 76,366 62,286 ---------- ---------- ---------- ---------- ---------- Earnings from rental operations................... 37,175 23,166 54,332 37,275 27,013 ---------- ---------- ---------- ---------- ---------- SERVICE OPERATIONS: Revenues: Property management, maintenance and leasing fees............................................ 5,855 5,662 11,496 11,138 11,084 Construction management and development fees...... 2,711 3,153 6,895 5,582 6,107 Other income...................................... 502 668 1,538 1,057 1,282 ---------- ---------- ---------- ---------- ---------- 9,068 9,483 19,929 17,777 18,473 ---------- ---------- ---------- ---------- ---------- Operating expenses: Payroll........................................... 4,885 4,617 9,176 7,606 8,141 Maintenance....................................... 916 717 1,526 1,344 1,069 Office and other.................................. 1,093 1,339 2,791 2,258 2,188 ---------- ---------- ---------- ---------- ---------- 6,894 6,673 13,493 11,208 11,398 ---------- ---------- ---------- ---------- ---------- Earnings from service operations.................. 2,174 2,810 6,436 6,569 7,075 ---------- ---------- ---------- ---------- ---------- General and administrative expense................ (2,890) (2,263) (4,719) (3,536) (3,261) ---------- ---------- ---------- ---------- ---------- Operating income.................................. 36,459 23,713 56,049 40,308 30,827 OTHER INCOME (EXPENSE): Interest income..................................... 427 613 1,194 1,900 1,115 Earnings from property sales........................ 382 1,604 4,532 283 2,198 Other expense....................................... (419) (67) (174) (31) (84) Other minority interest in earnings of subsidiaries...................................... (425) (430) (986) (911) (1,088) Minority interest in earnings of unitholders........ (3,330) (3,486) (7,184) (6,530) (6,752) ---------- ---------- ---------- ---------- ---------- Net income............................................ 33,094 21,947 53,431 35,019 26,216 Dividends on preferred shares......................... (3,412) -- (2,559) -- -- ---------- ---------- ---------- ---------- ---------- Net income available for common shares................ $ 29,682 $ 21,947 $ 50,872 $ 35,019 $ 26,216 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
S-18
AS OF JUNE 30, AS OF DECEMBER 31, ---------------------------- ----------------------------------------- 1997 1996 1996 1995 1994 ------------- ------------- ------------- ------------- ----------- (IN THOUSANDS) BALANCE SHEET DATA: Real estate investments................. $ 1,459,765 $ 1,110,108 $ 1,290,676 $ 963,499 $ 723,713 Accumulated depreciation................ (96,491) (69,250) (82,207) (56,335) (38,058) ------------- ------------- ------------- ------------- ----------- Net real estate investments........... 1,363,274 1,040,858 1,208,469 907,164 685,655 Cash.................................... 3,107 286 5,334 5,727 40,433 Investments in unconsolidated companies............................. 112,837 73,164 79,362 67,771 8,418 Other assets............................ 71,661 63,484 67,977 64,926 40,395 ------------- ------------- ------------- ------------- ----------- Total assets.......................... 1,550,879 1,177,792 1,361,142 $ 1,045,588 $ 774,901 ------------- ------------- ------------- ------------- ----------- ------------- ------------- ------------- ------------- ----------- Secured debt............................ 271,857 281,856 $ 261,815 $ 259,820 $ 298,640 Unsecured debt.......................... 240,000 150,000 240,000 150,000 -- Unsecured line of credit................ 103,000 -- 24,000 45,000 -- ------------- ------------- ------------- ------------- ----------- Total debt............................ 614,857 431,856 525,815 454,820 298,640 Other liabilities....................... 81,934 55,310 67,312 51,243 29,543 ------------- ------------- ------------- ------------- ----------- Total liabilities..................... 696,791 487,166 593,127 506,063 328,183 ------------- ------------- ------------- ------------- ----------- Minority interest....................... 18,867 12,780 13,083 4,736 1,334 ------------- ------------- ------------- ------------- ----------- Shareholders' equity.................... 835,221 677,846 754,932 534,789 445,384 ------------- ------------- ------------- ------------- ----------- Total liabilities and shareholders' equity.............................. $ 1,550,879 $ 1,177,792 $ 1,361,142 $ 1,045,588 $ 774,901 ------------- ------------- ------------- ------------- ----------- ------------- ------------- ------------- ------------- -----------
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31, ------------------------ ------------------------------------- 1997 1996 1996 1995 1994 ----------- ----------- ----------- ----------- ----------- (IN THOUSANDS, EXCEPT PROPERTIES DATA) OTHER DATA: Funds from Operations Available to Common Shareholders (1)............ $ 48,123 $ 34,911 $ 76,079 $ 54,746 $ 38,198 Cash flow provided by (used in): Operating activities.......................... 71,462 39,116 95,135 78,620 51,873 Investing activities.......................... (175,407) (93,598) (276,748) (289,569) (116,238) Financing activities.......................... 101,718 49,041 181,220 176,243 94,733 Weighted average common shares outstanding (2)........................................... 62,400 53,428 56,134 45,358 34,278 Number of in-service Properties at end of period........................................ 262 219 249 202 128 In-service square feet available at end of period........................................ 31,406 23,219 27,402 20,073 12,896
- ------------------------ (1) FFO is defined by NAREIT as net income or loss excluding gains or losses from debt restructuring and sales of property plus depreciation and amortization, and after adjustments for minority interest, unconsolidated partnerships and joint ventures (adjustments for minority interests, unconsolidated partnerships and joint ventures are calculated to reflect FFO on the same basis). FFO does not represent cash flow from operations as defined by generally accepted accounting principles, should not be considered as an alternative to net income as an indicator of the Company's operating performance and is not indicative of cash available to fund all cash flow needs. (2) Adjusted to reflect the effect of the Stock Split. S-19 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The Company's operating results depend primarily upon income from the rental operations of its industrial, office and retail properties located in its primary markets. This income from rental operations is substantially influenced by the supply and demand for the Company's rental space in its primary markets. In addition, the Company's continued growth is dependent upon its ability to maintain occupancy rates and increase rental rates of its in-service portfolio and to continue development and acquisition of additional rental properties. The Company'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 Company's occupancy rate of its in-service portfolio has exceeded 92% the last two years and was at 95.7% at June 30, 1997. The Company expects to continue to maintain its overall occupancy levels at comparable levels and also expects to be able to increase rental rates as leases are renewed or new leases are executed. This stable occupancy as well as increasing rental rates should improve the Company's results of operations from its in-service properties. The Company's strategy for continued growth also includes developing and acquiring additional rental properties in its primary markets and expanding into other attractive Midwestern markets. The following table sets forth information regarding the Company's in-service portfolio of rental properties as of June 30, 1997 and 1996 (in thousands, except percentages):
TOTAL PERCENT OF PERCENT OCCUPIED SQUARE FEET TOTAL SQUARE FEET -------------------- -------------------- -------------------- TYPE 1997 1996 1997 1996 1997 1996 - --------------------------------------------- --------- --------- --------- --------- --------- --------- INDUSTRIAL Service Centers............................ 3,051 2,971 9.7% 12.8% 94.9% 93.6% Bulk....................................... 18,702 12,926 59.5 55.7 95.6% 90.5% OFFICE Suburban................................... 6,875 4,684 21.9 20.2 96.9% 97.1% CBD........................................ 699 699 2.2 3.0 91.1% 81.3% Medical.................................... 369 333 1.2 1.4 95.8% 90.3% RETAIL....................................... 1,710 1,606 5.5 6.9 95.2% 93.0% --------- --------- --------- --------- Total...................................... 31,406 23,219 100.0% 100.0% 95.7% 92.1% --------- --------- --------- --------- --------- --------- --------- ---------
Management expects occupancy of the in-service property portfolio to remain stable because (i) only 5.5% and 10.8% of the Company's occupied square footage is subject to leases expiring in the remainder of 1997 and in 1998, respectively, and (ii) the Company's renewal percentage averaged 80%, 65% and 73% in 1996, 1995 and 1994, respectively. For the first six months of 1997, the renewal percentage was 84%. S-20 The following table reflects the Company's in-service portfolio lease expiration schedule as of June 30, 1997 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 ---------------------- ------------------------ ------------------------ ---------------------- YEAR OF SQUARE CONTRACTUAL CONTRACTUAL CONTRACTUAL SQUARE CONTRACTUAL EXPIRATION FEET RENT SQUARE FEET RENT SQUARE FEET RENT FEET RENT - ----------------------- --------- ----------- ----------- ----------- ----------- ----------- --------- ----------- 1997................... 1,334 $ 5,285 299 $ 3,111 25 $ 277 1,658 $ 8,673 1998................... 2,357 9,029 769 8,348 111 1,182 3,237 18,559 1999................... 2,217 9,568 1,036 11,164 117 1,191 3,370 21,923 2000................... 2,112 8,862 788 9,513 107 1,290 3,007 19,665 2001................... 2,644 10,248 874 9,688 88 1,061 3,606 20,997 2002................... 2,604 9,161 1,002 10,787 157 1,669 3,763 21,617 2003................... 301 1,816 249 2,849 40 342 590 5,007 2004................... 934 3,810 213 2,609 13 125 1,160 6,544 2005................... 1,440 4,586 698 9,736 177 1,507 2,315 15,829 2006................... 2,284 7,141 509 8,078 5 67 2,798 15,286 2007 and Thereafter.... 2,555 7,878 1,213 15,856 787 6,760 4,555 30,494 --------- ----------- ----- ----------- ----- ----------- --------- ----------- Total Leased........... 20,782 $ 77,384 7,650 $ 91,739 1,627 $ 15,471 30,059 $ 184,594 --------- ----------- ----- ----------- ----- ----------- --------- ----------- --------- ----------- ----- ----------- ----- ----------- --------- ----------- Total Portfolio Square Feet............ 21,753 7,943 1,710 31,406 --------- ----- ----- --------- --------- ----- ----- --------- Annualized net effective rent per square foot.......... $ 3.72 $ 11.99 $ 9.51 $ 6.14 ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
This stable occupancy, along with stable rental rates in each of the Company's markets, will allow the in-service portfolio to continue to provide a comparable or increasing level of earnings from rental operations. The Company also expects to realize growth in earnings from rental operations through (i) the development and acquisition of additional rental properties in its primary markets; (ii) the expansion into other attractive Midwestern markets; and (iii) the completion of the 4.1 million square feet of properties under development at June 30, 1997 over the next five quarters. The 4.1 million square feet of properties under development should provide future earnings from rental operations growth for the Company as they are placed in service as follows (in thousands, except percent leased and stabilized returns):
ANTICIPATED PERCENT PROJECT STABILIZED ANTICIPATED IN-SERVICE DATE SQUARE FEET LEASED COSTS RETURN - ----------------------------------------------------------------------- ----------- ------------- ---------- ------------- 3rd Quarter 1997....................................................... 1,329 65% $ 54,840 11.3% 4th Quarter 1997....................................................... 1,717 37% 77,353 11.5% 1st Quarter 1998....................................................... 699 95% 25,086 11.3% Thereafter............................................................. 352 27% 38,151 11.9% ----- ---------- 4,097 55% $ 195,430 11.5% ----- ---------- ----- ----------
S-21 RESULTS OF OPERATIONS Following is a summary of the Company's operating results and property statistics for the six months ended June 30, 1997 and 1996 (in thousands, except number of properties and per share amounts):
SIX MONTHS ENDED JUNE 30, ----------------------- 1997 1996 ----------- ---------- Rental Operations revenue................................................................ $ 102,504 $ 74,261 Service Operations revenue............................................................... 9,068 9,483 Earnings from Rental Operations.......................................................... 37,175 23,166 Earnings from Service Operations......................................................... 2,174 2,810 Operating income......................................................................... 36,459 23,713 Net income available for common shares................................................... $ 29,682 $ 21,947 Weighted average common shares outstanding (1)........................................... 62,400 53,428 Net income per common share (1).......................................................... $ .48 $ .41 Number of in-service properties at end of period......................................... 262 219 In-service square footage at end of period............................................... 31,406 23,219 Under development square footage at end of period........................................ 4,097 3,400
- ------------------------ (1) All share and per share data has been restated to reflect the effect of the Stock Split. COMPARISON OF SIX MONTHS ENDED JUNE 30, 1997 TO SIX MONTHS ENDED JUNE 30, 1996 RENTAL OPERATIONS. The Company increased its in-service portfolio of rental properties from 219 properties comprising 23.2 million square feet at June 30, 1996 to 262 properties comprising 31.4 million square feet at June 30, 1997 through the acquisition of 28 properties totaling 3.6 million square feet and the completion of 19 properties and four building expansions totaling 5.1 million square feet developed by the Company. The Company also disposed of four properties totaling 495,000 square feet. These 43 net additional rental properties primarily account for the $28.2 million increase in revenues from Rental Operations from 1996 to 1997. The Company also received a $1.2 million net lease termination payment made by a tenant in one of the Company's office properties which is included in rental income for the six months ended June 30, 1997. The increase from 1996 to 1997 in rental expenses, real estate taxes and depreciation and amortization expense is also a result of the additional 43 in-service rental properties. Interest expense increased by approximately $3.3 million from $14.6 million for the six months ended June 30, 1996 to $17.9 million for the six months ended June 30, 1997 due to additional unsecured debt issued in its medium-term note program in the last two quarters of 1996 to fund the development and acquisition of additional rental properties. As a result of the above-mentioned items, earnings from rental operations increased $14.0 million from $23.2 million for the six months ended June 30, 1996 to $37.2 million for the six months ended June 30, 1997. SERVICE OPERATIONS. Service Operation revenues decreased to $9.1 million for the six months ended June 30, 1997 as compared to $9.5 million for the six months ended June 30, 1996. This decrease was primarily the result of a decrease in construction management fees caused by certain higher profit third-party construction projects that were in process during the six months ended June 30, 1996 which resulted in higher revenue margins. Service Operation operating expenses increased from $6.7 million to $6.9 million for the six months ended June 30, 1997 as compared to the six months ended June 30, 1996 primarily as a result of an increase in operating expenses resulting from the overall growth of the Company. S-22 As a result of the above-mentioned items, earnings from Service Operations decreased from $2.8 million for the six months ended June 30, 1996 to $2.2 million for the six months ended June 30, 1997. GENERAL AND ADMINISTRATIVE EXPENSE. General and administrative expense increased from $2.3 million for the six months ended June 30, 1996 to $2.9 million for the six months ended June 30, 1997 primarily as a result of increased state and local taxes due to the growth in revenues and net income of the Company. OTHER INCOME (EXPENSE). Interest income decreased from $613,000 for the six months ended June 30, 1996 to $427,000 for the six months ended June 30, 1997 primarily as a result of interest income which was earned on certain escrows during the six months ended June 30, 1996 which were refunded later in 1996. Other expense consists of the write-off of costs incurred during the pursuit of various build-to-suit development projects or the acquisition of real estate assets. During the six months ended June 30, 1997, approximately $312,000 of costs were written-off in connection with the decision to terminate the pursuit of the acquisition of a large real estate portfolio. NET INCOME AVAILABLE FOR COMMON SHARES. Net income available for common shares for the six months ended June 30, 1997 was $29.7 million compared to net income available for common shares of $21.9 million for the six months ended June 30, 1996. 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 $71.5 million and $39.1 million for the six months ended June 30, 1997 and 1996, respectively, represents the primary source of liquidity to fund distributions to shareholders, unitholders and the other minority interests and to fund recurring costs associated with the renovation and re-letting of the Company's properties. This increase is primarily a result of, as discussed above under "Results of Operations," the increase in net income resulting from the expansion of the in-service portfolio through development and acquisitions of additional rental properties. Net cash used by investing activities totaling $175.4 million and $93.6 million for the six months ended June 30, 1997 and 1996, respectively, represents the investment of funds by the Company to expand its portfolio of rental properties through the development and acquisition of additional rental properties net of proceeds received from property sales. In 1997, $153.3 million was invested in the development and acquisition of additional rental properties and the acquisition of land held for development. In 1996, the investment in the development and acquisition of additional rental properties and land held for development was $132.7 million. During the six months ended June 30, 1997, the Company invested over $30 million in a newly formed joint venture with an institutional investor which allowed the joint venture to purchase a 345,000 square foot office property in Chicago, Illinois which was over 95% occupied. Net cash provided by financing activities totaling $101.2 million and $49.0 million for the six months ended June 30, 1997 and 1996, respectively, represents the source of funds from equity and debt offerings and borrowings on the lines of credit to fund the Company's investing activities. Also included in financing activities are the distribution of funds to shareholders and minority interests. In 1996, the Company received $126.1 million of net proceeds from a common equity offering which was used to pay down amounts outstanding on the unsecured line of credit and to fund current development and acquisition activity. In January 1997, the Company received $56.7 million of net proceeds from a common equity offering which was used to pay down amounts outstanding on the unsecured line of credit and to fund current development activity. During the six months ended June 30, 1997, the Company also received $7.0 million of net proceeds from the issuance of common stock under its Direct Stock Purchase and Dividend Reinvestment Plan and the exercise of employee stock options. The Company has a $200 million unsecured line of credit which matures in April 2001. In January 1996, the borrowing rate was LIBOR plus 1.625%. In September 1996, the borrowing rate was reduced to LIBOR plus 1.25%. On March 27, 1997, the borrowing rate was further reduced to LIBOR plus 1.00%. S-23 On August 28, 1997, the borrowing rate was reduced to LIBOR plus .80%. The line of credit also includes a "competitive bid option" and matures in April 2001. The Company also has a demand $10 million secured revolving credit facility which is available to provide working capital. This facility bears interest payable at the 30-day LIBOR rate plus .75%. The Company currently has on file Form S-3 Registration Statements with the Securities and Exchange Commission ("Shelf Registrations") which, after completion of the Offerings, will have remaining availability of approximately $556 million to issue common stock, preferred stock or unsecured debt securities. The Company intends 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 Company intends to maintain a conservative capital structure. The Company's debt to total market capitalization ratio at June 30, 1997 was 29.1%. Following the Offerings, the Company's debt to total market capitalization ratio will be 23.7% based on a market price of the Company's Common Stock of $21 7/16 per share. The total debt outstanding at June 30, 1997 consists of notes totaling $614.9 million with a weighted average interest rate of 7.44% maturing at various dates through 2017. The Company has $343.0 million of unsecured debt and $271.9 million of secured debt outstanding at June 30, 1997. Scheduled principal amortization of such debt totaled $1.5 million for the six months ended June 30, 1997. Following is a summary of the scheduled future amortization and maturities of the Company's indebtedness at June 30, 1997 (in thousands):
WEIGHTED AVERAGE SCHEDULED INTEREST RATE OF YEAR AMORTIZATION MATURITIES TOTAL FUTURE REPAYMENTS - ------------------------------------------------------- ------------ ----------- ----------- ------------------- 1997................................................... $ 2,033 $ 10,000 $ 12,033 6.61% 1998................................................... 4,574 149,590 154,164 6.84% 1999................................................... 5,323 28,470 33,793 6.17% 2000................................................... 3,418 44,853 48,271 7.39% 2001................................................... 3,137 59,954 63,091 8.71% 2002................................................... 3,412 50,000 53,412 7.37% 2003................................................... 1,144 68,216 69,360 8.48% 2004................................................... 1,239 50,000 51,239 7.15% 2005................................................... 1,346 100,000 101,346 7.48% 2006................................................... 1,465 - 1,465 7.58% Thereafter............................................. 17,391 9,292 26,683 7.71% ------------ ----------- ----------- Total $ 44,482 $ 570,375 $ 614,857 7.44% ------------ ----------- ----------- ------------ ----------- -----------
The 1997 maturities consist of the outstanding balance on the Company's $10 million demand secured line of credit. The 1998 maturities consist mainly of the outstanding balance on the Company's $150 million unsecured line of credit. This outstanding balance was repaid with a portion of the proceeds of the $146.1 million Series B Cumulative Step-Up Premium Rate Preferred Shares which were issued in July 1997. The Company intends to pay regular quarterly dividends from net cash provided by operating activities. A quarterly dividend of $.59 per Common Share was declared on July 24, 1997 payable on August 29, 1997 to shareholders of record on August 15, 1997, which represents an annualized dividend of $2.36 per share. A quarterly dividend of $.56875 per depositary share of Series A Preferred Shares was declared on July 24, 1997 which is payable on August 29, 1997 to preferred shareholders of record on July 24, 1997. On July 24, 1997, the Board of Directors declared a dividend of $.88778 per depositary share S-24 on the Series B Cumulative Step-up Redeemable Preferred Shares. The dividend is payable on September 30, 1997 to preferred shareholders of record on September 16, 1997 and is applicable to the period beginning July 11, 1997 and ending September 30, 1997. FUNDS FROM OPERATIONS Management believes that FFO, which is defined by NAREIT as net income or loss excluding gains or losses from debt restructuring and sales of property plus depreciation and amortization, and after adjustments for minority interest, unconsolidated partnerships and joint ventures (adjustments for minority interest, unconsolidated partnerships and joint ventures are calculated to reflect FFO on the same basis), is the industry standard for reporting the operations of real estate investment trusts. The following table reflects the calculation of the Company's FFO for the six months ended June 30 as follows (in thousands):
SIX MONTHS ENDED JUNE 30, ---------------------- 1997 1996 ---------- ---------- Net income available for common shares.................................................... $ 29,682 $ 21,947 Add back: Depreciation and amortization........................................................... 19,551 15,554 Share of joint venture depreciation and amortization.................................... 1,314 883 Earnings from property sales............................................................ (382) (1,604) Minority interest share of add-backs.................................................... (2,042) (1,869) ---------- ---------- Funds From Operations..................................................................... $ 48,123 $ 34,911 ---------- ---------- ---------- ---------- Cash flow provided by (used by): Operating activities.................................................................... $ 71,462 $ 39,116 Investing activities.................................................................... (175,407) (93,598) Financing activities.................................................................... 101,718 49,041
The increase in FFO for the six months ended June 30, 1997 compared to the six months ended June 30, 1996 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 Company's operating performance, such amount does not represent cash flow from operations as defined by generally accepted accounting principles, should not be considered as an alternative to net income as an indicator of the Company's operating performance, and is not indicative of cash available to fund all cash flow needs. S-25 PROPERTIES GENERAL The Company owns a diversified portfolio of properties which includes (i) the in-service Properties, consisting of 262 industrial, office and retail properties located in Indiana, Ohio, Illinois, Tennessee, Kentucky, Wisconsin and Missouri; (ii) 26 buildings and one building expansion currently under development; and (iii) the Land, consisting of approximately 1,300 acres of unencumbered land for future development in Indiana, Ohio, Missouri, Illinois, Kentucky, and Tennessee. The Company owns the entire equity interest in 219 of the Properties, including property under development, and a partial interest in the remainder of the Properties. The Properties are comprised of a broad range of product types which include bulk and medium bulk warehouse and distribution facilities, light manufacturing facilities, multi-tenant flex space buildings, suburban office buildings, downtown office buildings, and neighborhood, power and community shopping centers. The Company believes that its Properties are of the highest quality available to tenants in its markets. The total square footage of the in-service Properties is approximately 31.4 million, consisting of approximately 21.8 million square feet of industrial space, approximately 7.9 million square feet of office space and approximately 1.7 million square feet of retail space. The total square footage of the 26 buildings and one building expansion currently under development is approximately 4.1 million square feet, consisting of approximately 2.7 million square feet of industrial space, approximately 1.0 million square feet of office space and approximately 350,000 square feet of retail space. The current development projects are 55% leased as of June 30, 1997. The total annual Net Effective Rental income of the Properties based upon tenants in occupancy as of June 30, 1997 is approximately $184.6 million, with $77.4 million relating to the industrial Properties, $91.7 million relating to the office Properties and $15.5 million relating to the retail Properties. At June 30, 1997, the Properties were approximately 95.7% leased. The following table provides an overview of the Properties. SUMMARY OF PROPERTIES (IN THOUSANDS, EXCEPT PERCENTAGES)
PERCENT OF PERCENT OF ANNUAL NET TOTAL NET SQUARE TOTAL SQUARE EFFECTIVE EFFECTIVE OCCUPANCY AT TYPE OF PROPERTY FEET FEET RENT(1) ANNUAL RENT JUNE 30, 1997 - ------------------------------------------------ --------- --------------- ------------ --------------- --------------- Industrial...................................... 21,753 69% $ 77,384 42% 95.5% Office.......................................... 7,943 25 91,739 50 96.3% Retail.......................................... 1,710 6 15,471 8 95.2% --------- --- ------------ --- Total........................................... 31,406 100% $ 184,594 100% 95.7% --------- --- ------------ --- --------- --- ------------ ---
- ------------------------ (1) Represents annual Net Effective Rent due from tenants in occupancy as of June 30, 1997. Net Effective Rent equals the average annual rental property revenue over the terms of the respective leases, excluding additional rent due as operating expense reimbursements, landlord allowances for operating expenses and percentage rents. S-26 The following table sets forth the aggregate average percent leased for all of the Properties during the indicated periods.
AVERAGE OCCUPANCY (ALL PROPERTIES) SQUARE FEET AVERAGE YEAR AVAILABLE OCCUPANCY - ---------------------------------------------------------------------------------------- ------------ ------------- June 30, 1997........................................................................... 31,406,042 95.4% 1996.................................................................................... 27,402,150 95.2% 1995.................................................................................... 20,072,666 95.1% 1994.................................................................................... 12,894,603 93.8%
The following table shows lease expirations for leases in place as of June 30, 1997 for each of the ten years beginning with 1997 for the Properties, assuming none of the tenants exercises early termination or renewal options. LEASE EXPIRATIONS (ALL PROPERTIES)
ANNUAL NET PERCENT OF PERCENT OF EFFECTIVE ANNUAL NET TOTAL RENT PER EFFECTIVE LEASED NET RENTABLE ANNUAL NET SQ. FT. RENT SQ. FT. NUMBER OF AREA (IN SQ. EFFECTIVE RENT UNDER REPRESENTED REPRESENTED LEASES FT.) SUBJECT TO UNDER EXPIRING EXPIRING BY EXPIRING BY EXPIRING YEAR OF LEASE EXPIRATION EXPIRING EXPIRING LEASES LEASES (1) LEASES (1) LEASES LEASES - -------------------------------- ----------- --------------- -------------- ----------- ----------- ----------- (IN THOUSANDS) (IN THOUSANDS) 1997............................ 199 1,658 $ 8,673 $ 5.23 4.70% 5.52% 1998............................ 330 3,237 18,559 $ 5.73 10.05 10.77 1999............................ 336 3,370 21,923 $ 6.51 11.88 11.21 2000............................ 290 3,007 19,665 $ 6.54 10.65 10.00 2001............................ 294 3,606 20,997 $ 5.82 11.37 12.00 2002............................ 196 3,763 21,617 $ 5.74 11.71 12.52 2003............................ 35 590 5,007 $ 8.49 2.71 1.96 2004............................ 28 1,160 6,544 $ 5.64 3.55 3.86 2005............................ 47 2,315 15,829 $ 6.84 8.58 7.70 2006............................ 42 2,798 15,286 $ 5.46 8.28 9.31 2007 and thereafter...................... 59 4,555 30,494 $ 6.69 16.52 15.15 ----- ------ -------------- ----------- ----------- Total........................... 1,856 30,059 $ 184,594 $ 6.14 100.00% 100.00% ----- ------ -------------- ----------- ----------- ----- ------ -------------- ----------- -----------
- ------------------------ (1) Represents annual Net Effective Rent due from tenants in occupancy as of June 30, 1997. INDUSTRIAL PROPERTIES The 157 industrial Properties are primarily located in industrial or business parks that have been developed by the Company and consist of 109 bulk distribution facilities and 48 service center facilities. Approximately 86% of the square footage of the industrial Properties is contained in bulk distribution facilities. The bulk distribution facilities accommodate the needs of large warehouse and distribution users with ceiling clear heights of 20 feet or more while providing leased space to many large tenants including users of more than 500,000 square feet. The service center facilities are also known as flex buildings or light industrial properties which generally have 12 to 18 foot ceiling heights and a combination of drive-up and dock loading access. These service center facilities accommodate users of 1,200 square feet and up. The S-27 diversity of the industrial buildings allows the Company to cater to many segments of the industrial market and renders the Company less dependent upon any specific market segment. Over 89% of the industrial Properties are in the Company's markets of Indianapolis, Cincinnati and Columbus. OFFICE PROPERTIES The Company owns a portfolio of 81 office Properties, including 72 suburban office buildings which range from single-story to mid-rise and are located in developed business parks and mixed use developments with excellent interstate access and visibility. Six of the suburban office buildings are medical buildings, including a single tenant facility with a 20 year lease and two multi-tenant properties attached to a hospital. In addition, the Company owns three downtown office buildings consisting of two new high-rise buildings and one rehabilitated building. The Company believes that these primarily Class A office Properties are among the highest quality available to tenants in its markets. This diverse mix of office buildings is occupied by tenants spanning all segments of the office market. RETAIL PROPERTIES The retail Properties, which cater to a variety of retail markets, include one regional shopping center, 12 neighborhood shopping centers, three shopping centers designed primarily to serve the business parks in which they are located and eight free-standing single-tenant buildings. The regional and neighborhood shopping centers either have well known anchor tenants such as Wal-Mart and Pet Food Supermarket, or are located adjacent to major retailers such as Kroger or in areas where other large commercial facilities draw consumers. The retail Properties are generally located in upscale suburban and high growth areas. LAND Substantially all of the approximately 1,300 acres of unencumbered Land is located adjacent to the Properties in industrial or business parks that have been developed by the Company. Approximately 75% of the Land is zoned for industrial use, with the remainder zoned for either office or retail use. All of the Land is unencumbered, has available to it appropriate utilities and is ready for immediate development. The Company believes that approximately 17 million square feet of commercial development can be constructed on the Land. The Company believes that the Land gives it a competitive advantage over other real estate companies operating in its markets. S-28 MANAGEMENT The directors and senior officers of the Company are as follows:
NAME AGE PRINCIPAL OCCUPATIONS AND POSITIONS - --------------------------- --- ------------------------------------------------------------------------------- John W. Wynne 64 Director and Chairman of the Board. Thomas L. Hefner 50 Director and President and Chief Executive Officer. Darell E. Zink, Jr. 50 Director and Executive Vice President and Chief Financial Officer. Geoffrey Button 48 Director; Independent real estate and financing consultant. Ngaire E. Cuneo 46 Director; Executive Vice President, Corporate Development, Conseco, Inc. Howard L. Feinsand 49 Director; Principal, Choir Capital Ltd. L. Ben Lytle 50 Director; President and Chief Executive Officer of Anthem, Inc. John D. Peterson 64 Director; Chairman of City Securities Corporation. James E. Rogers 49 Director; Vice Chairman, President and Chief Operating Officer of CINergy. Daniel C. Staton 44 Director; Principal, Walnut Capital Partners. Jay J. Strauss 61 Director; Chairman and Chief Executive Officer of Regent Realty Group, Inc. Gary A. Burk 45 President of Construction Services and Executive Vice President of Duke Services, Inc. Richard W. Horn 39 Executive Vice President, Office. William E. Linville, III 42 Executive Vice President, Industrial. David R. Mennel 43 General Manager of Services Operations and President of Duke Services, Inc. Dennis D. Oklak 43 Vice President and Treasurer. John R. Gaskin 36 Vice President, General Counsel and Secretary. John M. Nemecek 42 President of Asset/Property Management.
S-29 CERTAIN FEDERAL INCOME TAX CONSIDERATIONS For a discussion of material federal income tax consequences applicable to distributions to shareholders and the Company's election to be taxed as a REIT, see "Federal Income Tax Considerations" in the accompanying Prospectus. Prospective purchasers should be aware that the recently enacted Taxpayer Relief Act of 1997 (the "1997 Act") made numerous changes to the Code, including reducing the maximum tax imposed on net capital gains from the sale of assets held for more than 18 months by individuals, trusts and estates. The 1997 Act also makes certain changes to the requirements to qualify as a REIT and to the taxation of REITs and their shareholders. The 1997 Act contains significant changes to the taxation of capital gains of individuals, trusts and estates and certain changes to the REIT Requirements and the taxation of REITs. For gains realized after July 28, 1997, and subject to certain exceptions, the maximum rate of tax on net capital gains of individuals, trusts and estates from the sale or exchange of assets held for more than 18 months has been reduced to 20%, and the maximum rate is reduced to 18% for assets acquired after December 31, 2000 and held for more than five years. For taxpayers who would be subject to a maximum tax rate of 15%, the rate on net capital gains is reduced to 10%, and effective for taxable years commencing after December 31, 2000, the rate is reduced to 8% for assets held for more than five years. The maximum rate for net capital gains attributable to the sale of depreciable real property held for more than 18 months is 25% to the extent of the deductions for depreciation with respect to such property. Long-term capital gain allocated to a shareholder by the Company will be subject to the 25% rate to the extent that the gain does not exceed depreciation on real property sold by the Company. The maximum rate of capital gains tax for capital assets held more than one year but not more than 18 months remains at 28%. The taxation of capital gains of corporations was not changed by the 1997 Act. The 1997 Act also includes several provisions that are intended to simplify the taxation of REITs. These provisions are effective for taxable years beginning after the date of enactment of the 1997 Act which, as to the Company, is its taxable year commencing January 1, 1998. First, in determining whether a REIT satisfies the income tests, a REIT's rental income from a property will not cease to qualify as "rents from real property" merely because the REIT performs services for a tenant other than permitted customary services if the amount that the REIT is deemed to have received as a result of performing impermissible services does not exceed one percent of all amounts received directly or indirectly by the REIT with respect to such property. The amount that a REIT will be deemed to have received for performing impermissible services is at least 150% of the direct cost to the REIT of providing those services. Second, certain non-cash income, including income from cancellation of indebtedness and original issue discount will be excluded from income in determining the amount of dividends that a REIT is required to distribute. Third, a REIT may elect to retain and pay income tax on any net long-term capital gains and require its shareholders to include such undistributed net capital gains in their income. If a REIT makes such an election, the REIT's shareholders would receive a tax credit attributable to their share of capital gains tax paid by a REIT on the undistributed net capital gains that was included in the shareholders' income, and such shareholders will receive an increase in the basis of their shares in the amount of undistributed net capital gain included in their income reduced by the amount of the credit. Fourth, the 1997 Act repeals the requirement that a REIT receive less than 30% of its gross income from the sale or disposition of stock or securities held for less than one year, gain from prohibited transactions, and gain from certain sales of real property held less than four years. Finally, the 1997 Act contains a number of technical provisions that reduce the risk that a REIT will inadvertently cease to qualify as a REIT. S-30 UNDERWRITING Subject to the terms and conditions contained in the international terms agreement and related international underwriting agreement (collectively, the "International Underwriting Agreement"), the Company has agreed to sell to each of the underwriters named below (the "International Managers"), and each of the International Managers for whom Merrill Lynch International, BT Alex. Brown International Division of Bankers Trust International PLC, A.G. Edwards & Sons, Inc., Legg Mason Wood Walker, Incorporated, McDonald & Company Securities, Inc. and Morgan Stanley & Co. International Limited are acting as lead managers, has severally agreed to purchase from the Company, the respective number of shares of Common Stock set forth after its name below.
NUMBER OF SHARES UNDERWRITER OF COMMON STOCK - ---------------------------------------------------------------------------- ---------------- Merrill Lynch International................................................. 316,670 BT Alex. Brown International Division of Bankers Trust International PLC............................... 316,666 A.G. Edwards & Sons, Inc.................................................... 316,666 Legg Mason Wood Walker, Incorporated........................................ 316,666 McDonald & Company Securities, Inc.......................................... 316,666 Morgan Stanley & Co. International Limited.................................. 316,666 ---------------- Total............................................................. 1,900,000 ---------------- ----------------
The Company has also entered into a U.S. terms agreement and related U.S. underwriting agreement (the "U.S. Underwriting Agreement" and, together with the International Underwriting Agreement, the "Underwriting Agreements") with certain underwriters in the United States and Canada (the "U.S. Underwriters" and, together with the International Managers, the "Underwriters") for whom Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), BT Alex. Brown Incorporated, A.G. Edwards & Sons, Inc., Legg Mason Wood Walker, Incorporated, McDonald & Company Securities, Inc. and Morgan Stanley & Co. Incorporated are acting as representatives (the "U.S. Representatives"). Subject to the terms and conditions set forth in the U.S. Underwriting Agreement, and concurrently with the sale of 1,900,000 shares of Common Stock to the International Managers pursuant to the International Underwriting Agreement, the Company has agreed to sell to the U.S. Underwriters, and the U.S. Underwriters have severally agreed to purchase from the Company, an aggregate of 7,600,000 shares of Common Stock. The public offering price per share and the underwriting discount per share are identical under the U.S. Underwriting Agreement and the International Underwriting Agreement. In each Underwriting Agreement, the U.S. Underwriters and the International Managers have agreed, subject to the terms and conditions set forth therein, to purchase all of the shares being sold pursuant to each such Underwriting Agreement if any of such shares of Common Stock are purchased. Under certain circumstances, the commitments of nondefaulting U.S. Underwriters or International Managers may be increased. The closings with respect to the sale of the shares to be purchased by the International Managers and the U.S. Underwriters are conditioned one upon the other. The International Managers have advised the Company that they propose initially to offer the Common Stock to the public at the public offering price set forth on the cover page of this Prospectus Supplement, and to certain dealers at such price less a concession not in excess of $.63 per share. The International Managers may allow, and such dealers may reallow, a discount not in excess of $.10 to certain other dealers. After the Offerings, the public offering price, concession and discounts may be changed. The Company has been informed that the U.S. Underwriters and the International Managers have entered into an intersyndicate agreement (the "Intersyndicate Agreement") that provides for the coordination of their activities. Under the terms of the Intersyndicate Agreement, the U.S. Underwriters and the International Managers are permitted to sell shares of Common Stock to each other for purposes of resale S-31 at the price per share to the public on the cover page of this Prospectus Supplement, less an amount not greater than the selling concession. Under the terms of the Intersyndicate Agreement, the International Managers and any dealer to whom they sell shares of Common Stock will not offer to sell or sell shares of Common Stock to persons who are United States persons or Canadian persons or to persons they believe intend to resell to persons who are United States persons or Canadian persons, and the U.S. Underwriters and any dealer to whom they sell shares of Common Stock will not offer to sell or sell shares of Common Stock to persons who are non-United States and non-Canadian persons or to persons they believe intend to resell to persons who are non-United States and non-Canadian persons, except in each case for transactions pursuant to the Intersyndicate Agreement. Each International Manager has agreed that (i) it has not offered or sold, and it will not offer or sell, directly or indirectly, any shares of Common Stock offered hereby in the United Kingdom by means of any document except in circumstances which do not constitute an offer to the public within the meaning of the Companies Act 1985, (ii) it has complied and will comply with all applicable provisions of the Financial Services Act 1986 with respect to anything done by it in relation to the shares of Common Stock in, from or otherwise involving the United Kingdom, and (iii) it has only issued or passed on and will only issue or pass on in the United Kingdom any document received by it in connection with the issuance of shares of Common Stock to a person who is of a kind described in Article 11(3) of the Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1996 or is a person to whom the document may otherwise lawfully be issued or passed on. Purchasers of shares of Common Stock offered hereby may be required to pay stamp taxes and other charges in accordance with the laws and practices of the country of purchase, in addition to the price per share to the public set forth on the cover page of this Prospectus Supplement. The Company has granted an option to the International Managers, exercisable during the 30-day period after the date of this Prospectus Supplement, to purchase up to 285,000 additional shares of Common Stock at the price to the public set forth on the cover page of this Prospectus Supplement, less the underwriting discount. The International Managers may exercise this option only to cover over-allotments, if any. If the International Managers exercise this option, each of the International Managers will have a firm commitment, subject to certain conditions, to purchase approximately the same percentage thereof which the number of shares of Common Stock to be purchased by it shown in the foregoing table bears to the 1,900,000 shares of Common Stock offered hereby. The Company has granted an option to the U.S. Underwriters, exercisable during the 30-day period after the date of this Prospectus Supplement, to purchase up to 1,140,000 additional shares of Common Stock solely to cover over-allotments, if any, on terms similar to those granted to the International Managers. The Company has agreed to indemnify the several Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended, or to contribute to payments the Underwriters may be required to make in respect thereof. The Company and the executive officers of the Company and the Directors have agreed that for a period of 90 days from the date of this Prospectus Supplement they will not, without prior and written consent of the International Managers, offer, sell or otherwise dispose of any shares of Common Stock or any other security convertible into or exercisable for shares of Common Stock (except pursuant to the Company's stock option or dividend reinvestment plans and certain other agreements). In connection with the Offerings, the rules of the Securities and Exchange Commission permit the U.S. Representatives and the International Managers to engage in certain transactions that stabilize the price of the Common Stock. Such transactions may consist of bids or purchases for the purpose of pegging, fixing or maintaining the price of the Common Stock. If the U.S. Underwriters or International Managers create a short position in the Common Stock in connection with the Offerings (I.E., if they sell more shares of Common Stock than are set forth on the S-32 cover page of this Prospectus Supplement), the U.S. Representatives and the International Managers, respectively, may reduce that short position by purchasing Common Stock in the open market. The U.S. Representatives and the International Managers, respectively, also may elect to reduce any short position by exercising all or part of the over-allotment options described herein. The U.S. Representatives and the International Managers also may impose a penalty bid on certain Underwriters and selling group members. This means that if the U.S. Representatives and the International Managers purchase shares of Common Stock in the open market to reduce the U.S. Underwriters' or International Managers' short position or to stabilize the price of the Common Stock, they may reclaim the amount of the selling concession from the Underwriters and selling group members who sold those shares as part of the Offerings. In general, purchases of a security for the purpose of stabilization or to reduce a syndicate short position could cause the price of the security to be higher than it might otherwise be in the absence of such purchases. The imposition of a penalty bid might have an effect on the price of a security to the extent that it were to discourage resales of the security by purchasers in the Offerings. Neither the Company nor any of the Underwriters makes any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of the Common Stock. In addition, neither the Company nor any of the Underwriters makes any representation that the U.S. Representatives or the International Managers will engage in such transactions or that such transactions, once commenced, will not be discontinued without notice. Merrill Lynch from time to time provides investment banking and financial advisory services to the Company. Merrill Lynch also acted as representative of various underwriters in connection with public offerings of the Company's Common Stock, Depositary Shares and debt securities in 1993 through 1997. LEGAL MATTERS In addition to the legal opinions referred to under "Legal Opinions" in the accompanying Prospectus, the description of Federal income tax matters contained in this Prospectus Supplement entitled "Certain Federal Income Tax Considerations" is based upon the opinion of Bose McKinney & Evans. S-33 - ------------------------------------------------ ------------------------------------------------ - ------------------------------------------------ ------------------------------------------------ NO DEALER, SALESMAN OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS IN CONNECTION WITH THE OFFERING MADE BY THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS NOR ANY SALE MADE HEREUNDER AND THEREUNDER SHALL, UNDER ANY CIRCUMSTANCE, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS SUPPLEMENT OR IN THE PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY STATE IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. ---------------- TABLE OF CONTENTS
PAGE --------- PROSPECTUS SUPPLEMENT Prospectus Supplement Summary.................. S-3 The Company.................................... S-11 Use of Proceeds................................ S-15 Price Range of Common Stock and Dividend History....................................... S-15 Capitalization................................. S-17 Selected Consolidated Financial Data........... S-18 Management's Discussion and Analysis of Financial Condition and Results of Operations.................................... S-20 Properties..................................... S-26 Management..................................... S-29 Certain Federal Income Tax Considerations...... S-30 Underwriting................................... S-31 Legal Matters.................................. S-33 PROSPECTUS Available Information.......................... 2 Incorporation of Certain Documents by Reference..................................... 2 The Company and the Operating Partnership...... 3 Use of Proceeds................................ 3 Ratios of Earnings to Fixed Charges............ 4 Description of Debt Securities................. 4 Description of Preferred Stock................. 15 Description of Depositary Shares............... 21 Description of Common Stock.................... 24 Federal Income Tax Considerations.............. 26 Plan of Distribution........................... 33 Legal Opinions................................. 34 Experts........................................ 34
9,500,000 SHARES [LOGO] COMMON STOCK ------------------- PROSPECTUS SUPPLEMENT ------------------- MERRILL LYNCH INTERNATIONAL BT ALEX. BROWN INTERNATIONAL A.G. EDWARDS & SONS, INC. LEGG MASON WOOD WALKER INCORPORATED MCDONALD & COMPANY SECURITIES, INC. MORGAN STANLEY DEAN WITTER SEPTEMBER 9, 1997 - ------------------------------------------------ ------------------------------------------------ - ------------------------------------------------ ------------------------------------------------ -----END PRIVACY-ENHANCED MESSAGE-----