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Duke Realty 10-Q 2014
Q2 D0C 2014

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2014
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
Commission File Number: 1-9044 (Duke Realty Corporation) 0-20625 (Duke Realty Limited Partnership)
DUKE REALTY CORPORATION
DUKE REALTY LIMITED PARTNERSHIP
(Exact Name of Registrant as Specified in Its Charter)
Indiana (Duke Realty Corporation)
 
35-1740409 (Duke Realty Corporation)
Indiana (Duke Realty Limited Partnership)
 
35-1898425 (Duke Realty Limited Partnership)
(State or Other Jurisdiction
of Incorporation or Organization)
 
(I.R.S. Employer
Identification Number)
600 East 96thStreet, Suite 100
Indianapolis, Indiana
 
46240
(Address of Principal Executive Offices)
 
(Zip Code)
Registrant's Telephone Number, Including Area Code: (317) 808-6000
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Duke Realty Corporation
Yes x
 No   o
 
Duke Realty Limited Partnership
Yes x
 No   o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Duke Realty Corporation
Yes x
No  o
 
Duke Realty Limited Partnership
Yes x
No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Duke Realty Corporation:
Large accelerated filer  x
Accelerated filer  o
Non-accelerated filer  o
Smaller reporting company  o
Duke Realty Limited Partnership:
Large accelerated filer  o
Accelerated filer  o
Non-accelerated filer  x
Smaller reporting company  o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):
Duke Realty Corporation
Yes  o 
No  x
 
Duke Realty Limited Partnership
Yes  o
No  x
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:
Class
 
Outstanding Common Shares of Duke Realty Corporation at July 31, 2014
Common Stock, $.01 par value per share
 
341,162,059




EXPLANATORY NOTE
This report combines the quarterly reports on Form 10-Q for the period ended June 30, 2014 of both Duke Realty Corporation and Duke Realty Limited Partnership. Unless stated otherwise or the context otherwise requires, references to "Duke Realty Corporation" or the "General Partner" mean Duke Realty Corporation and its consolidated subsidiaries; and references to the "Partnership" mean Duke Realty Limited Partnership and its consolidated subsidiaries. The terms the "Company," "we," "us" and "our" refer to the General Partner and the Partnership, collectively, and those entities owned or controlled by the General Partner and/or the Partnership.
Duke Realty Corporation is a self-administered and self-managed real estate investment trust ("REIT") and is the sole general partner of the Partnership, owning 98.7% of the common partnership interests of the Partnership ("General Partner Units") as of June 30, 2014. The remaining 1.3% of the common partnership interests ("Limited Partner Units" and, together with the General Partner Units, the "Common Units") are owned by limited partners. As the sole general partner of the Partnership, the General Partner has full, exclusive and complete responsibility and discretion in the day-to-day management and control of the Partnership. The General Partner also owns all of the issued and outstanding preferred partnership interests in the Partnership ("Preferred Units").
The General Partner and the Partnership are operated as one enterprise. The management of the General Partner consists of the same members as the management of the Partnership. As the sole general partner with control of the Partnership, the General Partner consolidates the Partnership for financial reporting purposes, and the General Partner does not have any significant assets other than its investment in the Partnership. Therefore, the assets and liabilities of the General Partner and the Partnership are substantially the same.
We believe combining the quarterly reports on Form 10-Q of the General Partner and the Partnership into this single report results in the following benefits:
enhances investors' understanding of the General Partner and the Partnership by enabling investors to view the business as a whole in the same manner as management views and operates the business;
eliminates duplicative disclosure and provides a more streamlined and readable presentation of information since a substantial portion of the Company's disclosure applies to both the General Partner and the Partnership; and
creates time and cost efficiencies through the preparation of one combined report instead of two separate reports.
 
We believe it is important to understand the few differences between the General Partner and the Partnership in the context of how we operate as an interrelated consolidated company. The General Partner's only material asset is its ownership of partnership interests in the Partnership. As a result, the General Partner does not conduct business itself, other than acting as the sole general partner of the Partnership and issuing public equity from time to time. The General Partner does not issue any indebtedness, but does guarantee some of the unsecured debt of the Partnership. The Partnership holds substantially all the assets of the business, directly or indirectly, and holds the ownership interests related to certain of the Company's investments. The Partnership conducts the operations of the business and has no publicly traded equity. Except for net proceeds from equity issuances by the General Partner, which are contributed to the Partnership in exchange for General Partner Units or Preferred Units, the Partnership generates the capital required by the business through its operations, its incurrence of indebtedness and the issuance of Limited Partner Units to third parties.
Noncontrolling interests, shareholders' equity and partners' capital are the main areas of difference between the consolidated financial statements of the General Partner and those of the Partnership. The noncontrolling interests in the Partnership's financial statements include the interests in consolidated investees not wholly owned by the Partnership. The noncontrolling interests in the General Partner's financial statements include the same noncontrolling interests at the Partnership level, as well as the common limited partnership interests in the Partnership, which are accounted for as partners' capital by the Partnership.
In order to highlight the differences between the General Partner and the Partnership, there are separate sections in this report, as applicable, that separately discuss the General Partner and the Partnership, including separate financial statements and separate Exhibit 31 and 32 certifications. In the sections that combine disclosure of the General Partner and the Partnership, this report refers to actions or holdings as being actions or holdings of the collective Company.




DUKE REALTY CORPORATION/DUKE REALTY LIMITED PARTNERSHIP
INDEX
 
 
 
 
 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
Duke Realty Corporation:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Duke Realty Limited Partnership:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Duke Realty Corporation and Duke Realty Limited Partnership:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

2


PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
DUKE REALTY CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands, except per share amounts)
 
June 30,
2014
 
December 31,
2013
 
(Unaudited)
 
 
 
 
 
 
ASSETS
 
 
 
Real estate investments:
 
 
 
Land and improvements
$
1,460,568

 
$
1,438,007

Buildings and tenant improvements
5,610,890

 
5,531,726

Construction in progress
367,813

 
256,895

Investments in and advances to unconsolidated companies
334,473

 
342,947

Undeveloped land
541,227

 
590,052

 
8,314,971

 
8,159,627

Accumulated depreciation
(1,430,006
)
 
(1,368,406
)
Net real estate investments
6,884,965

 
6,791,221

 
 
 
 
Real estate investments and other assets held-for-sale
29,780

 
57,466

 
 
 
 
Cash and cash equivalents
21,225

 
19,275

Accounts receivable, net of allowance of $2,629 and $1,576
33,642

 
26,173

Straight-line rent receivable, net of allowance of $6,088 and $9,350
128,949

 
118,251

Receivables on construction contracts, including retentions
37,708

 
19,209

Deferred financing costs, net of accumulated amortization of $41,764 and $37,016
30,949

 
36,250

Deferred leasing and other costs, net of accumulated amortization of $305,870 and $394,049
451,515

 
466,979

Escrow deposits and other assets
243,771

 
217,790

 
$
7,862,504

 
$
7,752,614

LIABILITIES AND EQUITY
 
 
 
Indebtedness:
 
 
 
Secured debt
$
1,008,662

 
$
1,100,124

Unsecured debt
3,065,223

 
3,066,252

Unsecured line of credit
60,000

 
88,000

 
4,133,885

 
4,254,376

 
 
 
 
Liabilities related to real estate investments held-for-sale
538

 
2,075

 
 
 
 
Construction payables and amounts due subcontractors, including retentions
101,792

 
69,380

Accrued real estate taxes
84,634

 
74,696

Accrued interest
56,736

 
52,824

Other accrued expenses
61,836

 
67,495

Other liabilities
122,143

 
142,589

Tenant security deposits and prepaid rents
49,080

 
44,550

Total liabilities
4,610,644

 
4,707,985

Shareholders' equity:
 
 
 
Preferred shares ($.01 par value); 5,000 shares authorized; 1,716 and 1,791 shares issued and outstanding
428,926

 
447,683

Common shares ($.01 par value); 600,000 and 400,000 shares authorized; 338,093 and 326,399 shares issued and outstanding
3,381

 
3,264

Additional paid-in capital
4,820,944

 
4,620,964

Accumulated other comprehensive income
3,600

 
4,119

Distributions in excess of net income
(2,031,957
)
 
(2,062,787
)
Total shareholders' equity
3,224,894

 
3,013,243

Noncontrolling interests
26,966

 
31,386

Total equity
3,251,860

 
3,044,629

 
$
7,862,504

 
$
7,752,614

See accompanying Notes to Consolidated Financial Statements

3


DUKE REALTY CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations and Comprehensive Income
For the three and six months ended June 30,
(in thousands, except per share amounts)
(Unaudited)
 
Three Months Ended
 
Six Months Ended
 
2014
 
2013
 
2014
 
2013
Revenues:
 
 
 
 
 
 
 
Rental and related revenue
$
233,518

 
$
215,308

 
$
470,868

 
$
425,187

General contractor and service fee revenue
69,512

 
50,793

 
125,332

 
98,197

 
303,030

 
266,101

 
596,200

 
523,384

Expenses:
 
 
 
 
 
 
 
Rental expenses
39,938

 
37,431

 
90,205

 
76,291

Real estate taxes
31,964

 
29,569

 
64,431

 
58,609

General contractor and other services expenses
63,857

 
45,192

 
111,128

 
83,533

Depreciation and amortization
97,641

 
95,322

 
195,700

 
188,316

 
233,400

 
207,514

 
461,464

 
406,749

Other operating activities:
 
 
 
 
 
 
 
Equity in earnings of unconsolidated companies
60,826

 
1,091

 
63,147

 
50,469

Gain on sale of properties
70,318

 
940

 
86,171

 
1,108

Gain on land sales
3,889

 

 
4,041

 

Undeveloped land carrying costs
(1,858
)
 
(2,531
)
 
(3,982
)
 
(4,729
)
Impairment charges
(2,523
)
 
(3,777
)
 
(2,523
)
 
(3,777
)
Other operating expenses
(129
)
 
(35
)
 
(221
)
 
(103
)
General and administrative expenses
(10,365
)
 
(9,707
)
 
(25,059
)
 
(22,852
)
 
120,158

 
(14,019
)
 
121,574

 
20,116

Operating income
189,788

 
44,568

 
256,310

 
136,751

Other income (expenses):
 
 
 
 
 
 
 
Interest and other income, net
229

 
921

 
580

 
1,074

Interest expense
(54,872
)
 
(57,019
)
 
(110,129
)
 
(114,343
)
Loss on debt extinguishment
(139
)
 

 
(139
)
 

Acquisition-related activity
(747
)
 
(2,423
)
 
(761
)
 
(1,780
)
Income (loss) from continuing operations before income taxes
134,259

 
(13,953
)
 
145,861

 
21,702

Income tax expense
(364
)
 

 
(3,038
)
 

Income (loss) from continuing operations
133,895

 
(13,953
)
 
142,823

 
21,702

Discontinued operations:
 
 
 
 
 
 
 
Income (loss) before gain on sales
327

 
128

 
195

 
(358
)
Gain on sale of depreciable properties, net of tax
2,305

 
83,657

 
19,080

 
92,611

Income from discontinued operations
2,632

 
83,785

 
19,275

 
92,253

Net income
136,527

 
69,832

 
162,098

 
113,955

Dividends on preferred shares
(7,046
)
 
(7,355
)
 
(14,083
)
 
(16,905
)
Adjustments for redemption/repurchase of preferred shares

 

 
483

 
(5,932
)
Net income attributable to noncontrolling interests
(1,793
)
 
(983
)
 
(2,127
)
 
(1,581
)
Net income attributable to common shareholders
$
127,688

 
$
61,494

 
$
146,371

 
$
89,537

Basic net income (loss) per common share:
 
 
 
 
 
 
 
Continuing operations attributable to common shareholders
$
0.37

 
$
(0.07
)
 
$
0.38

 
$
(0.01
)
Discontinued operations attributable to common shareholders
0.01

 
0.26

 
0.06

 
0.29

Total
$
0.38

 
$
0.19

 
$
0.44

 
$
0.28

Diluted net income (loss) per common share:
 
 
 
 
 
 
 
Continuing operations attributable to common shareholders
$
0.37

 
$
(0.07
)
 
$
0.38

 
$
(0.01
)
Discontinued operations attributable to common shareholders
0.01

 
0.26

 
0.06

 
0.29

Total
$
0.38

 
$
0.19

 
$
0.44

 
$
0.28

Weighted average number of common shares outstanding
331,753

 
322,489

 
329,442

 
318,733

Weighted average number of common shares and potential dilutive securities
336,414

 
327,098

 
334,102

 
323,350

 
 
 
 
 
 
 
 
Comprehensive income:
 
 
 
 
 
 
 
Net income
$
136,527

 
$
69,832

 
$
162,098

 
$
113,955

Other comprehensive income (loss):
 
 
 
 
 
 
 
Amortization of interest contracts
(287
)
 
226

 
(574
)
 
683

Other
55

 
496

 
55

 
576

Total other comprehensive income (loss)
(232
)
 
722

 
(519
)
 
1,259

Comprehensive income
$
136,295

 
$
70,554

 
$
161,579

 
$
115,214

See accompanying Notes to Consolidated Financial Statements

4


DUKE REALTY CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the six months ended June 30,
(in thousands)
(Unaudited)
 
2014
 
2013
Cash flows from operating activities:
 
 
 
Net income
$
162,098

 
$
113,955

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation of buildings and tenant improvements
144,618

 
141,353

Amortization of deferred leasing and other costs
51,287

 
57,686

Amortization of deferred financing costs
5,042

 
6,867

Straight-line rental income and expense, net
(10,892
)
 
(8,789
)
Impairment charges
2,523

 
3,777

Gain on acquisitions

 
(962
)
Gains on land and depreciated property sales, net of tax
(107,164
)
 
(93,719
)
Third-party construction contracts, net
(10,209
)
 
8,922

Other accrued revenues and expenses, net
11,181

 
9,564

Operating distributions received less than equity in earnings from unconsolidated companies
(44,454
)
 
(40,449
)
Net cash provided by operating activities
204,030

 
198,205

Cash flows from investing activities:
 
 
 
Development of real estate investments
(226,575
)
 
(224,202
)
Acquisition of real estate investments and related intangible assets
(85,182
)
 
(334,287
)
Acquisition of undeveloped land
(11,800
)
 
(23,234
)
Second generation tenant improvements, leasing costs and building improvements
(44,367
)
 
(37,133
)
Other deferred leasing costs
(14,980
)
 
(17,633
)
Other assets
3,954

 
(7,774
)
Proceeds from land and depreciated property sales, net
213,040

 
259,169

Capital distributions from unconsolidated companies
40,293

 
89,237

Capital contributions and advances to unconsolidated companies
(4,165
)
 
(13,260
)
Net cash used for investing activities
(129,782
)
 
(309,117
)
Cash flows from financing activities:
 
 
 
Proceeds from issuance of common shares, net
191,107

 
601,927

Payments for redemption/repurchase of preferred shares
(17,656
)
 
(177,955
)
Proceeds from unsecured debt

 
500,000

Payments on unsecured debt
(1,029
)
 
(425,967
)
Proceeds from secured debt financings

 
1,933

Payments on secured indebtedness including principal amortization
(88,898
)
 
(30,349
)
Payments on line of credit, net
(28,000
)
 
(197,000
)
Distributions to common shareholders
(111,919
)
 
(109,554
)
Distributions to preferred shareholders
(14,186
)
 
(16,905
)
Distributions to noncontrolling interests, net
(1,304
)
 
(1,846
)
Buyout of noncontrolling interests
(7,717
)
 

Change in book overdrafts
7,659

 
(38,921
)
Deferred financing costs
(355
)
 
(6,938
)
Net cash provided by (used for) financing activities
(72,298
)
 
98,425

Net increase (decrease) in cash and cash equivalents
1,950

 
(12,487
)
Cash and cash equivalents at beginning of period
19,275

 
33,889

Cash and cash equivalents at end of period
$
21,225

 
$
21,402

 
 
 
 
Non-cash investing and financing activities:
 
 
 
Assumption of indebtedness and other liabilities in real estate acquisitions
$
54

 
$
106,320

Carrying amount of pre-existing ownership interest in acquired property
$

 
$
630

Conversion of Limited Partner Units to common shares
$
56

 
$
338

See accompanying Notes to Consolidated Financial Statements


5


DUKE REALTY CORPORATION AND SUBSIDIARIES
Consolidated Statement of Changes in Equity
For the six months ended June 30, 2014
(in thousands, except per share data)
(Unaudited)
 
 
Common Shareholders
 
 
 
 
 
Preferred
Stock
 
Common
Stock
 
Additional
Paid-in
Capital
 
Accumulated
Other
Comprehensive
Income
 
Distributions
in Excess of
Net Income
 
Non-
Controlling
Interests
 
Total
Balance at December 31, 2013
$
447,683

 
$
3,264

 
$
4,620,964

 
$
4,119

 
$
(2,062,787
)
 
$
31,386

 
$
3,044,629

Net income

 

 

 

 
159,971

 
2,127

 
162,098

Other comprehensive income (loss)

 

 

 
(519
)
 

 

 
(519
)
Issuance of common shares

 
110

 
190,997

 

 

 

 
191,107

Stock-based compensation plan activity

 
7

 
8,309

 

 
(1,092
)
 

 
7,224

Conversion of Limited Partner Units

 

 
56

 

 

 
(56
)
 

Distributions to preferred shareholders

 

 

 

 
(14,083
)
 

 
(14,083
)
Repurchase of preferred shares
(18,757
)
 

 
618

 

 
483

 

 
(17,656
)
Distributions to common shareholders ($0.34 per share)

 

 

 

 
(111,919
)
 

 
(111,919
)
Distributions to noncontrolling interests, net

 

 

 

 

 
(1,304
)
 
(1,304
)
Buyout of noncontrolling interests

 

 

 

 
(2,530
)
 
(5,187
)
 
(7,717
)
Balance at June 30, 2014
$
428,926

 
$
3,381

 
$
4,820,944

 
$
3,600

 
$
(2,031,957
)
 
$
26,966

 
$
3,251,860

See accompanying Notes to Consolidated Financial Statements



6


DUKE REALTY LIMITED PARTNERSHIP AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands)

 
June 30, 2014
 
December 31, 2013
 
(Unaudited)
 
 
 
 
 
 
ASSETS
 
 
 
Real estate investments:
 
 
 
     Land and improvements
$
1,460,568

 
$
1,438,007

     Buildings and tenant improvements
5,610,890

 
5,531,726

     Construction in progress
367,813

 
256,895

     Investments in and advances to unconsolidated companies
334,473

 
342,947

     Undeveloped land
541,227

 
590,052

 
8,314,971

 
8,159,627

     Accumulated depreciation
(1,430,006
)
 
(1,368,406
)
              Net real estate investments
6,884,965

 
6,791,221

 
 
 
 
Real estate investments and other assets held-for-sale
29,780

 
57,466

 
 
 
 
Cash and cash equivalents
21,225

 
19,275

Accounts receivable, net of allowance of $2,629 and $1,576
33,642

 
26,173

Straight-line rent receivable, net of allowance of $6,088 and $9,350
128,949

 
118,251

Receivables on construction contracts, including retentions
37,708

 
19,209

Deferred financing costs, net of accumulated amortization of $41,764 and $37,016
30,949

 
36,250

Deferred leasing and other costs, net of accumulated amortization of $305,870 and $394,049
451,515

 
466,979

Escrow deposits and other assets
243,771

 
217,790

 
$
7,862,504

 
$
7,752,614

LIABILITIES AND EQUITY
 
 
 
Indebtedness:
 
 
 
     Secured debt
$
1,008,662

 
$
1,100,124

     Unsecured debt
3,065,223

 
3,066,252

     Unsecured line of credit
60,000

 
88,000

 
4,133,885

 
4,254,376

 
 
 
 
Liabilities related to real estate investments held-for-sale
538

 
2,075

 
 
 
 
Construction payables and amounts due subcontractors, including retentions
101,792

 
69,380

Accrued real estate taxes
84,634

 
74,696

Accrued interest
56,736

 
52,824

Other accrued expenses
62,080

 
67,739

Other liabilities
122,143

 
142,589

Tenant security deposits and prepaid rents
49,080

 
44,550

     Total liabilities
4,610,888

 
4,708,229

Partners' equity:
 
 
 
  General Partner:
 
 
 
     Common equity (338,093 and 326,399 General Partner Units issued and outstanding)
2,796,297

 
2,565,370

     Preferred equity (1,716 and 1,791 Preferred Units issued and outstanding)
428,926

 
447,683

 
3,225,223

 
3,013,053

     Limited Partners' common equity (4,381 and 4,387 Limited Partner Units issued and outstanding)
20,554

 
20,158

     Accumulated other comprehensive income
3,600

 
4,119

            Total partners' equity
3,249,377

 
3,037,330

Noncontrolling interests
2,239

 
7,055

     Total equity
3,251,616

 
3,044,385

 
$
7,862,504

 
$
7,752,614

See accompanying Notes to Consolidated Financial Statements

7


DUKE REALTY LIMITED PARTNERSHIP AND SUBSIDIARIES
Consolidated Statements of Operations and Comprehensive Income
For the three and six months ended June 30,
(in thousands, except per unit amounts)
(Unaudited)
 
Three Months Ended
 
Six Months Ended
 
2014
 
2013
 
2014
 
2013
Revenues:
 
 
 
 
 
 
 
Rental and related revenue
$
233,518

 
$
215,308

 
$
470,868

 
$
425,187

General contractor and service fee revenue
69,512

 
50,793

 
125,332

 
98,197

 
303,030

 
266,101

 
596,200

 
523,384

Expenses:
 
 
 
 
 
 
 
Rental expenses
39,938

 
37,431

 
90,205

 
76,291

Real estate taxes
31,964

 
29,569

 
64,431

 
58,609

General contractor and other services expenses
63,857

 
45,192

 
111,128

 
83,533

Depreciation and amortization
97,641

 
95,322

 
195,700

 
188,316

 
233,400

 
207,514

 
461,464

 
406,749

Other operating activities:
 
 
 
 
 
 
 
Equity in earnings of unconsolidated companies
60,826

 
1,091

 
63,147

 
50,469

Gain on sale of properties
70,318

 
940

 
86,171

 
1,108

Gain on land sales
3,889

 

 
4,041

 

Undeveloped land carrying costs
(1,858
)
 
(2,531
)
 
(3,982
)
 
(4,729
)
Impairment charges
(2,523
)
 
(3,777
)
 
(2,523
)
 
(3,777
)
Other operating expenses
(129
)
 
(35
)
 
(221
)
 
(103
)
General and administrative expenses
(10,365
)
 
(9,707
)
 
(25,059
)
 
(22,852
)
 
120,158

 
(14,019
)
 
121,574

 
20,116

Operating income
189,788

 
44,568

 
256,310

 
136,751

Other income (expenses):
 
 
 
 
 
 
 
Interest and other income, net
229

 
921

 
580

 
1,074

Interest expense
(54,872
)
 
(57,019
)
 
(110,129
)
 
(114,343
)
Loss on debt extinguishment
(139
)
 

 
(139
)
 

Acquisition-related activity
(747
)
 
(2,423
)
 
(761
)
 
(1,780
)
Income (loss) from continuing operations before income taxes
134,259

 
(13,953
)
 
145,861

 
21,702

Income tax expense
(364
)
 

 
(3,038
)
 

Income (loss) from continuing operations
133,895

 
(13,953
)
 
142,823

 
21,702

Discontinued operations:
 
 
 
 
 
 
 
Income (loss) before gain on sales
327

 
128

 
195

 
(358
)
Gain on sale of depreciable properties, net of tax
2,305

 
83,657

 
19,080

 
92,611

           Income from discontinued operations
2,632

 
83,785

 
19,275

 
92,253

Net income
136,527

 
69,832

 
162,098

 
113,955

Distributions on Preferred Units
(7,046
)
 
(7,355
)
 
(14,083
)
 
(16,905
)
Adjustments for redemption/repurchase of Preferred Units

 

 
483

 
(5,932
)
Net income attributable to noncontrolling interests
(100
)
 
(141
)
 
(184
)
 
(347
)
Net income attributable to common unitholders
$
129,381

 
$
62,336

 
$
148,314

 
$
90,771

Basic net income (loss) per Common Unit:
 
 
 
 
 
 
 
Continuing operations attributable to common unitholders
$
0.37

 
$
(0.07
)
 
$
0.38

 
$
(0.01
)
Discontinued operations attributable to common unitholders
0.01

 
0.26

 
0.06

 
0.29

Total
$
0.38

 
$
0.19

 
$
0.44

 
$
0.28

Diluted net income (loss) per Common Unit:
 
 
 
 
 
 
 
Continuing operations attributable to common unitholders
$
0.37

 
$
(0.07
)
 
$
0.38

 
$
(0.01
)
Discontinued operations attributable to common unitholders
0.01

 
0.26

 
0.06

 
0.29

Total
$
0.38

 
$
0.19

 
$
0.44

 
$
0.28

Weighted average number of Common Units outstanding
336,139

 
326,877

 
333,828

 
323,130

Weighted average number of Common Units and potential dilutive securities
336,414

 
327,098

 
334,102

 
323,350

 
 
 
 
 
 
 
 
Comprehensive income:
 
 
 
 
 
 
 
Net income
$
136,527

 
$
69,832

 
$
162,098

 
$
113,955

Other comprehensive income (loss):
 
 
 
 
 
 
 
Amortization of interest contracts
(287
)
 
226

 
(574
)
 
683

Other
55

 
496

 
55

 
576

Total other comprehensive income (loss)
(232
)
 
722

 
(519
)
 
1,259

Comprehensive income
$
136,295

 
$
70,554

 
$
161,579

 
$
115,214

See accompanying Notes to Consolidated Financial Statements

8


DUKE REALTY LIMITED PARTNERSHIP AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the six months ended June 30,
(in thousands)
(Unaudited)
 
2014
 
2013
Cash flows from operating activities:
 
 
 
Net income
$
162,098

 
$
113,955

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation of buildings and tenant improvements
144,618

 
141,353

Amortization of deferred leasing and other costs
51,287

 
57,686

Amortization of deferred financing costs
5,042

 
6,867

Straight-line rental income and expense, net
(10,892
)
 
(8,789
)
Impairment charges
2,523

 
3,777

Gain on acquisitions

 
(962
)
Gains on land and depreciated property sales, net of tax
(107,164
)
 
(93,719
)
Third-party construction contracts, net
(10,209
)
 
8,922

Other accrued revenues and expenses, net
11,181

 
9,601

Operating distributions received less than equity in earnings from unconsolidated companies
(44,454
)
 
(40,449
)
Net cash provided by operating activities
204,030

 
198,242

Cash flows from investing activities:
 
 
 
Development of real estate investments
(226,575
)
 
(224,202
)
Acquisition of real estate investments and related intangible assets
(85,182
)
 
(334,287
)
Acquisition of undeveloped land
(11,800
)
 
(23,234
)
Second generation tenant improvements, leasing costs and building improvements
(44,367
)
 
(37,133
)
Other deferred leasing costs
(14,980
)
 
(17,633
)
Other assets
3,954

 
(7,774
)
Proceeds from land and depreciated property sales, net
213,040

 
259,169

Capital distributions from unconsolidated companies
40,293

 
89,237

Capital contributions and advances to unconsolidated companies
(4,165
)
 
(13,260
)
Net cash used for investing activities
(129,782
)
 
(309,117
)
Cash flows from financing activities:
 
 
 
Contributions from the General Partner
191,107

 
601,927

Payments for redemption/repurchase of Preferred Units
(17,656
)
 
(177,955
)
Proceeds from unsecured debt

 
500,000

Payments on unsecured debt
(1,029
)
 
(425,967
)
Proceeds from secured debt financings

 
1,933

Payments on secured indebtedness including principal amortization
(88,898
)
 
(30,349
)
Payments on line of credit, net
(28,000
)
 
(197,000
)
Distributions to common unitholders
(113,410
)
 
(111,088
)
Distributions to preferred unitholders
(14,186
)
 
(16,905
)
Contributions from (distributions to) noncontrolling interests, net
187

 
(349
)
Buyout of noncontrolling interests
(7,717
)
 

Change in book overdrafts
7,659

 
(38,921
)
Deferred financing costs
(355
)
 
(6,938
)
Net cash provided by (used for) financing activities
(72,298
)
 
98,388

Net increase (decrease) in cash and cash equivalents
1,950

 
(12,487
)
Cash and cash equivalents at beginning of period
19,275

 
33,889

Cash and cash equivalents at end of period
$
21,225

 
$
21,402

 
 
 
 
Non-cash investing and financing activities:
 
 
 
Assumption of indebtedness and other liabilities in real estate acquisitions
$
54

 
$
106,320

Carrying amount of pre-existing ownership interest in acquired property
$

 
$
630

Conversion of Limited Partner Units to common shares of the General Partner
$
56

 
$
338

See accompanying Notes to Consolidated Financial Statements

9


DUKE REALTY LIMITED PARTNERSHIP AND SUBSIDIARIES
Consolidated Statement of Changes in Equity
For the six months ended June 30, 2014
(in thousands, except per unit data)
(Unaudited)
 
Common Unitholders
 
 
 
 
 
 
 
 
 
Limited
 
Accumulated
 
 
 
 
 
 
 
General Partner
 
Partners'
 
Other
 
Total
 
 
 
 
 
Common Equity
 
Preferred Equity
 
Common Equity
 
Comprehensive
Income
 
Partners' Equity
 
Noncontrolling
Interests
 
Total Equity
Balance at December 31, 2013
$
2,565,370

 
$
447,683

 
$
20,158

 
$
4,119

 
$
3,037,330

 
$
7,055

 
$
3,044,385

Net income
145,888

 
14,083

 
1,943

 

 
161,914

 
184

 
162,098

Other comprehensive income (loss)

 

 

 
(519
)
 
(519
)
 

 
(519
)
Capital contribution from the General Partner
191,107

 

 

 

 
191,107

 

 
191,107

Stock-based compensation plan activity
7,224

 

 

 

 
7,224

 

 
7,224

Conversion of Limited Partner Units to common shares of the General Partner
56

 

 
(56
)
 

 

 

 

Distributions to Preferred Unitholders

 
(14,083
)
 

 

 
(14,083
)
 

 
(14,083
)
Repurchase of Preferred Units
1,101

 
(18,757
)
 

 

 
(17,656
)
 

 
(17,656
)
Distributions to Partners ($0.34 per Common Unit)
(111,919
)
 

 
(1,491
)
 

 
(113,410
)
 

 
(113,410
)
Contributions from noncontrolling interests, net

 

 

 

 

 
187

 
187

Buyout of noncontrolling interests
(2,530
)