10-Q
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 September 30, 2015
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 November 4, 2015
Common Stock, $.01 par value per share
 
345,264,335



EXPLANATORY NOTE
This report combines the quarterly reports on Form 10-Q for the period ended September 30, 2015 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 99.0% of the common partnership interests of the Partnership ("General Partner Units") as of September 30, 2015. The remaining 1.0% 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"), to the extent the Partnership has issued 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:
 
 
 
 
 
 
 
Consolidated Statements of Cash Flows (Unaudited) - Nine Months Ended September 30, 2015 and 2014
 
 
 
 
 
 
 
Duke Realty Limited Partnership:
 
 
 
Consolidated Balance Sheets - September 30, 2015 (Unaudited) and December 31, 2014
 
 
Consolidated Statements of Operations and Comprehensive Income (Unaudited) -Three and Nine Months Ended September 30, 2015 and 2014
 
 
Consolidated Statements of Cash Flows (Unaudited) - Nine Months Ended September 30, 2015 and 2014
 
 
Consolidated Statement of Changes in Equity (Unaudited) - Nine Months Ended September 30, 2015
 
 
 
 
 
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)
 
September 30,
2015
 
December 31,
2014
 
(Unaudited)
 
 
ASSETS
 
 
 
Real estate investments:
 
 
 
Land and improvements
$
1,371,457

 
$
1,412,867

Buildings and tenant improvements
4,758,794

 
4,986,390

Construction in progress
337,173

 
246,062

Investments in and advances to unconsolidated companies
276,926

 
293,650

Undeveloped land
435,519

 
499,960

 
7,179,869

 
7,438,929

Accumulated depreciation
(1,202,585
)
 
(1,235,337
)
Net real estate investments
5,977,284

 
6,203,592

 
 
 
 
Real estate investments and other assets held-for-sale
8,920

 
725,051

 
 
 
 
Cash and cash equivalents
175,874

 
17,922

Accounts receivable, net of allowance of $1,474 and $2,742
20,985

 
26,168

Straight-line rent receivable, net of allowance of $5,997 and $8,405
116,639

 
109,657

Receivables on construction contracts, including retentions
24,822

 
36,224

Deferred financing costs, net of accumulated amortization of $32,737 and $38,863
30,428

 
38,734

Deferred leasing and other costs, net of accumulated amortization of $244,190 and $259,883
359,652

 
387,635

Escrow deposits and other assets
425,305

 
209,856

 
$
7,139,909

 
$
7,754,839

LIABILITIES AND EQUITY
 
 
 
Indebtedness:
 
 
 
Secured debt
$
764,707

 
$
942,478

Unsecured debt
2,681,313

 
3,364,161

Unsecured line of credit
—

 
106,000

 
3,446,020

 
4,412,639

 
 
 
 
Liabilities related to real estate investments held-for-sale
225

 
59,092

 
 
 
 
Construction payables and amounts due subcontractors, including retentions
66,709

 
69,470

Accrued real estate taxes
91,252

 
76,308

Accrued interest
31,330

 
55,110

Other accrued expenses
42,489

 
62,632

Other liabilities
110,611

 
95,566

Tenant security deposits and prepaid rents
39,830

 
44,142

Total liabilities
3,828,466

 
4,874,959

Shareholders' equity:
 
 
 
Common shares ($.01 par value); 600,000 shares authorized; 345,260 and 344,112 shares issued and outstanding
3,453

 
3,441

Additional paid-in capital
4,959,060

 
4,944,800

Accumulated other comprehensive income
2,066

 
3,026

Distributions in excess of net income
(1,677,314
)
 
(2,090,942
)
Total shareholders' equity
3,287,265

 
2,860,325

Noncontrolling interests
24,178

 
19,555

Total equity
3,311,443

 
2,879,880

 
$
7,139,909

 
$
7,754,839

See accompanying Notes to Consolidated Financial Statements

3

DUKE REALTY CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations and Comprehensive Income
For the three and nine months ended September 30,
(in thousands, except per share amounts)
(Unaudited)
 
Three Months Ended
 
Nine Months Ended
 
2015
 
2014
 
2015
 
2014
Revenues:
 
 
 
 
 
 
 
Rental and related revenue
$
200,938

 
$
202,067

 
$
617,549

 
$
615,493

General contractor and service fee revenue
33,599

 
59,739

 
110,320

 
185,072

 
234,537

 
261,806

 
727,869

 
800,565

Expenses:
 
 
 
 
 
 
 
Rental expenses
30,137

 
29,829

 
96,355

 
104,090

Real estate taxes
27,702

 
29,501

 
86,228

 
87,355

General contractor and other services expenses
29,694

 
52,528

 
98,455

 
163,657

Depreciation and amortization
79,898

 
85,772

 
240,135

 
262,570

 
167,431

 
197,630

 
521,173

 
617,672

Other operating activities:
 
 
 
 
 
 
 
Equity in earnings (loss) of unconsolidated companies
(5,088
)
 
19,178

 
16,281

 
82,325

Gain on sale of properties
71,259

 
47,143

 
202,153

 
133,617

Gain on land sales
1,659

 
3,167

 
24,096

 
7,208

Other operating expenses

(1,467
)
 
(1,829
)
 
(4,579
)
 
(6,032
)
Impairment charges
(2,426
)
 
(6,368
)
 
(7,896
)
 
(8,891
)
General and administrative expenses
(11,340
)
 
(10,573
)
 
(47,582
)
 
(35,632
)
 
52,597

 
50,718

 
182,473

 
172,595

Operating income
119,703

 
114,894

 
389,169

 
355,488

Other income (expenses):
 
 
 
 
 
 
 
Interest and other income, net
1,343

 
356

 
3,056

 
936

Interest expense
(41,615
)
 
(47,421
)
 
(134,576
)
 
(145,628
)
Gain (loss) on debt extinguishment
64

 
—

 
(82,589
)
 
(139
)
Acquisition-related activity
(5,660
)
 
(110
)
 
(6,993
)
 
(871
)
Income from continuing operations before income taxes
73,835

 
67,719

 
168,067

 
209,786

Income tax benefit (expense)
3,305

 
442

 
4,109

 
(2,595
)
Income from continuing operations
77,140

 
68,161

 
172,176

 
207,191

Discontinued operations:
 
 
 
 
 
 
 
Income (loss) before gain on sales
(43
)
 
2,277

 
10,546

 
6,569

Gain on sale of depreciable properties, net of tax
111

 
1,119

 
414,620

 
19,895

Income from discontinued operations
68

 
3,396

 
425,166

 
26,464

Net income
77,208

 
71,557

 
597,342

 
233,655

Dividends on preferred shares
—

 
(6,072
)
 
—

 
(20,155
)
Adjustments for redemption/repurchase of preferred shares
—

 
(3,196
)
 
—

 
(2,713
)
Net income attributable to noncontrolling interests
(774
)
 
(756
)
 
(6,284
)
 
(2,883
)
Net income attributable to common shareholders
$
76,434

 
$
61,533

 
$
591,058

 
$
207,904

Basic net income per common share:
 
 
 
 
 
 
 
Continuing operations attributable to common shareholders
$
0.22

 
$
0.17

 
$
0.49

 
$
0.54

Discontinued operations attributable to common shareholders
—

 
0.01

 
1.22

 
0.08

Total
$
0.22

 
$
0.18

 
$
1.71

 
$
0.62

Diluted net income per common share:
 
 
 
 
 
 
 
Continuing operations attributable to common shareholders
$
0.22

 
$
0.17

 
$
0.49

 
$
0.54

Discontinued operations attributable to common shareholders
—

 
0.01

 
1.21

 
0.08

Total
$
0.22

 
$
0.18

 
$
1.70

 
$
0.62

Weighted average number of common shares outstanding
345,256

 
341,165

 
344,986

 
333,393

Weighted average number of common shares and potential dilutive securities
352,150

 
345,826

 
352,013

 
338,057

 
 
 
 
 
 
 
 
Comprehensive income:
 
 
 
 
 
 
 
Net income
$
77,208

 
$
71,557

 
$
597,342

 
$
233,655

Other comprehensive loss:
 
 
 
 
 
 
 
Amortization of interest contracts
(274
)
 
(287
)
 
(837
)
 
(861
)
Other
—

 
—

 
(123
)
 
55

Total other comprehensive loss
(274
)
 
(287
)
 
(960
)
 
(806
)
Comprehensive income
$
76,934

 
$
71,270

 
$
596,382

 
$
232,849

See accompanying Notes to Consolidated Financial Statements

4

DUKE REALTY CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the nine months ended September 30,
(in thousands)
(Unaudited)
 
2015
 
2014
Cash flows from operating activities:
 
 
 
Net income
$
597,342

 
$
233,655

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation of buildings and tenant improvements
192,135

 
216,963

Amortization of deferred leasing and other costs
51,517

 
73,942

Amortization of deferred financing costs
5,543

 
7,423

Straight-line rental income and expense, net
(18,498
)
 
(16,419
)
Impairment charges
7,896

 
8,891

Loss on debt transactions
82,589

 
139

Gains on land and depreciated property sales
(644,044
)
 
(163,689
)
Third-party construction contracts, net
(3,805
)
 
(4,397
)
Other accrued revenues and expenses, net
7,129

 
17,920

Operating distributions received in excess of (less than) equity in earnings from unconsolidated companies
414

 
(53,429
)
Net cash provided by operating activities
278,218

 
320,999

Cash flows from investing activities:
 
 
 
Development of real estate investments
(221,201
)
 
(385,088
)
Acquisition of real estate investments and related intangible assets
(28,849
)
 
(94,032
)
Acquisition of undeveloped land
(39,881
)
 
(37,579
)
Second generation tenant improvements, leasing costs and building improvements
(45,688
)
 
(69,475
)
Other deferred leasing costs
(26,940
)
 
(24,948
)
Other assets
(38,104
)
 
514

Proceeds from land and depreciated property sales, net
1,534,177

 
386,215

Capital distributions from unconsolidated companies
68,915

 
70,054

Capital contributions and advances to unconsolidated companies
(55,020
)
 
(5,874
)
Net cash provided by (used for) investing activities
1,147,409

 
(160,213
)
Cash flows from financing activities:
 
 
 
Proceeds from issuance of common shares, net
4,592

 
255,962

Payments for redemption/repurchase of preferred shares
—

 
(113,797
)
Payments on unsecured debt
(759,948
)
 
(1,556
)
Payments on secured indebtedness including principal amortization
(221,085
)
 
(93,036
)
Borrowings (repayments) on line of credit, net
(106,000
)
 
52,000

Distributions to common shareholders
(175,967
)
 
(169,917
)
Distributions to preferred shareholders
—

 
(20,789
)
Distributions to noncontrolling interests, net
(1,403
)
 
(2,044
)
Buyout of noncontrolling interests
—

 
(7,803
)
Change in book overdrafts
(7,754
)
 
(12,450
)
Deferred financing costs
(110
)
 
(499
)
Net cash used for financing activities
(1,267,675
)
 
(113,929
)
Net increase in cash and cash equivalents
157,952

 
46,857

Cash and cash equivalents at beginning of period
17,922

 
19,275

Cash and cash equivalents at end of period
$
175,874

 
$
66,132

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

 
$
54

Mortgages note receivable from buyers in property sales
$
204,428

 
$
—

Conversion of Limited Partner Units to common shares
$
2,416

 
$
56

See accompanying Notes to Consolidated Financial Statements


5

DUKE REALTY CORPORATION AND SUBSIDIARIES
Consolidated Statement of Changes in Equity
For the nine months ended September 30, 2015
(in thousands, except per share data)
(Unaudited)
 
 
Common Shareholders
 
 
 
 
 
 
Common
Stock
 
Additional
Paid-in
Capital
 
Accumulated
Other
Comprehensive
Income
 
Distributions
in Excess of
Net Income
 
Noncontrolling
Interests
 
Total
Balance at December 31, 2014
 
$
3,441

 
$
4,944,800

 
$
3,026

 
$
(2,090,942
)
 
$
19,555

 
$
2,879,880

Net income
 
—

 
—

 
—

 
591,058

 
6,284

 
597,342

Other comprehensive loss
 
—

 
—

 
(960
)
 
—

 
—

 
(960
)
Issuance of common shares
 
2

 
4,590

 
—

 
—

 
—

 
4,592

Contributions from noncontrolling interests
 
—

 
—

 
—

 
—

 
590

 
590

Stock-based compensation plan activity
 
8

 
7,256

 
—

 
(1,463
)
 
2,158

 
7,959

Conversion of Limited Partner Units
 
2

 
2,414

 
—

 
—

 
(2,416
)
 
—

Distributions to common shareholders ($0.51 per share)
 
—

 
—

 
—

 
(175,967
)
 
—

 
(175,967
)
Distributions to noncontrolling interests
 
—

 
—

 
—

 
—

 
(1,993
)
 
(1,993
)
Balance at September 30, 2015
 
$
3,453

 
$
4,959,060

 
$
2,066

 
$
(1,677,314
)
 
$
24,178

 
$
3,311,443

See accompanying Notes to Consolidated Financial Statements



6

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

 
September 30,
2015
 
December 31, 2014
 
(Unaudited)
 
 
ASSETS
 
 
 
Real estate investments:
 
 
 
     Land and improvements
$
1,371,457

 
$
1,412,867

     Buildings and tenant improvements
4,758,794

 
4,986,390

     Construction in progress
337,173

 
246,062

     Investments in and advances to unconsolidated companies
276,926

 
293,650

     Undeveloped land
435,519

 
499,960

 
7,179,869

 
7,438,929

     Accumulated depreciation
(1,202,585
)
 
(1,235,337
)
              Net real estate investments
5,977,284

 
6,203,592

 
 
 
 
Real estate investments and other assets held-for-sale
8,920

 
725,051

 
 
 
 
Cash and cash equivalents
175,874

 
17,922

Accounts receivable, net of allowance of $1,474 and $2,742
20,985

 
26,168

Straight-line rent receivable, net of allowance of $5,997 and $8,405
116,639

 
109,657

Receivables on construction contracts, including retentions
24,822

 
36,224

Deferred financing costs, net of accumulated amortization of $32,737 and $38,863
30,428

 
38,734

Deferred leasing and other costs, net of accumulated amortization of $244,190 and $259,883
359,652

 
387,635

Escrow deposits and other assets
425,305

 
209,856

 
$
7,139,909

 
$
7,754,839

LIABILITIES AND EQUITY
 
 
 
Indebtedness:
 
 
 
     Secured debt
$
764,707

 
$
942,478

     Unsecured debt
2,681,313

 
3,364,161

     Unsecured line of credit
—

 
106,000

 
3,446,020

 
4,412,639

 
 
 
 
Liabilities related to real estate investments held-for-sale
225

 
59,092

 
 
 
 
Construction payables and amounts due subcontractors, including retentions
66,709

 
69,470

Accrued real estate taxes
91,252

 
76,308

Accrued interest
31,330

 
55,110

Other accrued expenses
42,489

 
62,812

Other liabilities
110,611

 
95,566

Tenant security deposits and prepaid rents
39,830

 
44,142

     Total liabilities
3,828,466

 
4,875,139

Partners' equity:
 
 
 
 
 
 
 
General Partner's common equity (345,260 and 344,112 General Partner Units issued and outstanding)
3,285,199

 
2,857,119

 
3,285,199

 
2,857,119

     Limited Partners' common equity (3,504 and 3,717 Limited Partner Units issued and outstanding)
21,395

 
17,289

     Accumulated other comprehensive income
2,066

 
3,026

            Total partners' equity
3,308,660

 
2,877,434

Noncontrolling interests
2,783

 
2,266

     Total equity
3,311,443

 
2,879,700

 
$
7,139,909

 
$
7,754,839

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 nine months ended September 30,
(in thousands, except per unit amounts)
(Unaudited)
 
Three Months Ended
 
Nine Months Ended
 
2015
 
2014
 
2015
 
2014
Revenues:
 
 
 
 
 
 
 
Rental and related revenue
$
200,938

 
$
202,067

 
$
617,549

 
$
615,493

General contractor and service fee revenue
33,599

 
59,739

 
110,320

 
185,072

 
234,537

 
261,806

 
727,869

 
800,565

Expenses:
 
 
 
 
 
 
 
Rental expenses
30,137

 
29,829

 
96,355

 
104,090

Real estate taxes
27,702

 
29,501

 
86,228

 
87,355

General contractor and other services expenses
29,694

 
52,528

 
98,455

 
163,657

Depreciation and amortization
79,898

 
85,772

 
240,135

 
262,570

 
167,431

 
197,630

 
521,173

 
617,672

Other operating activities:
 
 
 
 
 
 
 
Equity in earnings (loss) of unconsolidated companies
(5,088
)
 
19,178

 
16,281

 
82,325

Gain on sale of properties
71,259

 
47,143

 
202,153

 
133,617

Gain on land sales
1,659

 
3,167

 
24,096

 
7,208

Other operating expenses
(1,467
)
 
(1,829
)
 
(4,579
)
 
(6,032
)
Impairment charges
(2,426
)
 
(6,368
)
 
(7,896
)
 
(8,891
)
General and administrative expenses
(11,340
)
 
(10,573
)
 
(47,582
)
 
(35,632
)
 
52,597

 
50,718

 
182,473

 
172,595

Operating income
119,703

 
114,894

 
389,169

 
355,488

Other income (expenses):
 
 
 
 
 
 
 
Interest and other income, net
1,343

 
356

 
3,056

 
936

Interest expense
(41,615
)
 
(47,421
)
 
(134,576
)
 
(145,628
)
Gain (loss) on debt extinguishment
64

 
—

 
(82,589
)
 
(139
)
Acquisition-related activity
(5,660
)
 
(110
)
 
(6,993
)
 
(871
)
Income from continuing operations before income taxes
73,835

 
67,719

 
168,067

 
209,786

Income tax benefit (expense)
3,305

 
442

 
4,109

 
(2,595
)
Income from continuing operations
77,140

 
68,161

 
172,176

 
207,191

Discontinued operations:
 
 
 
 
 
 
 
Income (loss) before gain on sales
(43
)
 
2,277

 
10,546

 
6,569

Gain on sale of depreciable properties, net of tax
111

 
1,119

 
414,620

 
19,895

           Income from discontinued operations
68

 
3,396

 
425,166

 
26,464

Net income
77,208

 
71,557

 
597,342

 
233,655

Distributions on Preferred Units
—

 
(6,072
)
 
—

 
(20,155
)
Adjustments for redemption/repurchase of Preferred Units
—

 
(3,196
)
 
—

 
(2,713
)
Net (income) loss attributable to noncontrolling interests
(23
)
 
39

 
(72
)
 
(145
)
Net income attributable to common unitholders
$
77,185

 
$
62,328

 
$
597,270

 
$
210,642

Basic net income per Common Unit:
 
 
 
 
 
 
 
Continuing operations attributable to common unitholders
$
0.22

 
$
0.17

 
$
0.49

 
$
0.54

Discontinued operations attributable to common unitholders
—

 
0.01

 
1.22

 
0.08

Total
$
0.22

 
$
0.18

 
$
1.71

 
$
0.62

Diluted net income per Common Unit:
 
 
 
 
 
 
 
Continuing operations attributable to common unitholders
$
0.22

 
$
0.17

 
$
0.49

 
$
0.54

Discontinued operations attributable to common unitholders
—

 
0.01

 
1.21

 
0.08

Total
$
0.22

 
$
0.18

 
$
1.70

 
$
0.62

Weighted average number of Common Units outstanding
348,760

 
345,545

 
348,595

 
337,777

Weighted average number of Common Units and potential dilutive securities
352,150

 
345,826

 
352,013

 
338,057

 
 
 
 
 
 
 
 
Comprehensive income:
 
 
 
 
 
 
 
Net income
$
77,208

 
$
71,557

 
$
597,342

 
$
233,655

Other comprehensive loss:
 
 
 
 
 
 
 
Amortization of interest contracts
(274
)
 
(287
)
 
(837
)
 
(861
)
Other
—

 
—

 
(123
)
 
55

Total other comprehensive loss
(274
)
 
(287
)
 
(960
)
 
(806
)
Comprehensive income
$
76,934

 
$
71,270

 
$
596,382

 
$
232,849

See accompanying Notes to Consolidated Financial Statements

8

DUKE REALTY LIMITED PARTNERSHIP AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the nine months ended September 30,
(in thousands)
(Unaudited)
 
2015
 
2014
Cash flows from operating activities:
 
 
 
Net income
$
597,342

 
$
233,655

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation of buildings and tenant improvements
192,135

 
216,963

Amortization of deferred leasing and other costs
51,517

 
73,942

Amortization of deferred financing costs
5,543

 
7,423

Straight-line rental income and expense, net
(18,498
)
 
(16,419
)
Impairment charges
7,896

 
8,891

Loss on debt transactions

82,589

 
139

Gains on land and depreciated property sales
(644,044
)
 
(163,689
)
Third-party construction contracts, net
(3,805
)
 
(4,397
)
Other accrued revenues and expenses, net
6,949

 
17,920

Operating distributions received in excess of (less than) equity in earnings from unconsolidated companies
414

 
(53,429
)
Net cash provided by operating activities
278,038

 
320,999

Cash flows from investing activities:
 
 
 
Development of real estate investments
(221,201
)
 
(385,088
)
Acquisition of real estate investments and related intangible assets
(28,849
)
 
(94,032
)
Acquisition of undeveloped land
(39,881
)
 
(37,579
)
Second generation tenant improvements, leasing costs and building improvements
(45,688
)
 
(69,475
)
Other deferred leasing costs
(26,940
)
 
(24,948
)
Other assets
(38,104
)
 
514

Proceeds from land and depreciated property sales, net
1,534,177

 
386,215

Capital distributions from unconsolidated companies
68,915

 
70,054

Capital contributions and advances to unconsolidated companies
(55,020
)
 
(5,874
)
Net cash provided by (used for) investing activities
1,147,409

 
(160,213
)
Cash flows from financing activities:
 
 
 
Contributions from the General Partner
4,772

 
255,962

Payments for redemption/repurchase of Preferred Units
—

 
(113,797
)
Payments on unsecured debt
(759,948
)
 
(1,556
)
Payments on secured indebtedness including principal amortization
(221,085
)
 
(93,036
)
Borrowings (repayments) on line of credit, net
(106,000
)
 
52,000

Distributions to common unitholders
(177,815
)
 
(172,153
)
Distributions to preferred unitholders
—

 
(20,789
)
Contributions from noncontrolling interests, net
445

 
192

Buyout of noncontrolling interests
—

 
(7,803
)
Change in book overdrafts
(7,754
)
 
(12,450
)
Deferred financing costs
(110
)
 
(499
)
Net cash used for financing activities
(1,267,495
)
 
(113,929
)
Net increase in cash and cash equivalents
157,952

 
46,857

Cash and cash equivalents at beginning of period
17,922

 
19,275

Cash and cash equivalents at end of period
$
175,874

 
$
66,132

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

 
$
54

Mortgage notes receivable from buyers in property sales
$
204,428

 
$
—

Conversion of Limited Partner Units to common shares of the General Partner
$
2,416

 
$
56

See accompanying Notes to Consolidated Financial Statements

9

DUKE REALTY LIMITED PARTNERSHIP AND SUBSIDIARIES
Consolidated Statement of Changes in Equity
For the nine months ended September 30, 2015
(in thousands, except per unit data)
(Unaudited)
 
Common Unitholders
 
 
 
 
 
General
 
Limited
 
Accumulated
 
 
 
 
 
 
 
 Partner's
 
Partners'
 
Other
 
Total
 
 
 
 
 
Common Equity
 
Common Equity
 
Comprehensive
Income
 
Partners' Equity
 
Noncontrolling
Interests
 
Total Equity
Balance at December 31, 2014
$
2,857,119

 
$
17,289

 
$
3,026

 
$
2,877,434

 
$
2,266

 
$
2,879,700

Net income
591,058

 
6,212

 
—

 
597,270

 
72

 
597,342

Other comprehensive income loss
—

 
—

 
(960
)
 
(960
)
 
—

 
(960
)
Capital contribution from the General Partner
4,772

 
—

 
—

 
4,772

 
—

 
4,772

Stock-based compensation plan activity
5,801

 
2,158

 
—

 
7,959

 
—

 
7,959

Contributions from noncontrolling interests
—

 
—

 
—

 
—

 
590

 
590

Conversion of Limited Partner Units to common shares of the General Partner
2,416

 
(2,416
)
 
—

 
—

 
—

 
—

Distributions to Partners ($0.51 per Common Unit)
(175,967
)
 
(1,848
)
 
—

 
(177,815
)
 
—

 
(177,815
)
Distributions to noncontrolling interests
—

 
—

 
—

 
—

 
(145
)
 
(145
)
Balance at September 30, 2015
$
3,285,199

 
$
21,395

 
$
2,066

 
$
3,308,660

 
$
2,783

 
$
3,311,443


See accompanying Notes to Consolidated Financial Statements

10

DUKE REALTY CORPORATION AND DUKE REALTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
1.    General Basis of Presentation
The interim consolidated financial statements included herein have been prepared by Duke Realty Corporation (the "General Partner") and Duke Realty Limited Partnership (the "Partnership"). In this Report, unless the context indicates otherwise, the terms "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. The 2014 year-end consolidated balance sheet data included in this Quarterly Report on Form 10-Q (this "Report") was derived from the audited financial statements in the combined Annual Report on Form 10-K of the General Partner and the Partnership for the year ended December 31, 2014, but does not include all disclosures required by accounting principles generally accepted in the United States of America ("GAAP"). The financial statements have been prepared in accordance with GAAP for interim financial information and in accordance with Rule 10-01 of Regulation S-X of the Securities Exchange Act of 1934, as amended. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and revenue and expenses during the reporting period. Our actual results could differ from those estimates and assumptions. These financial statements should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations included herein and the consolidated financial statements and notes thereto included in the combined Annual Report on Form 10-K of the General Partner and the Partnership for the year ended December 31, 2014.
The General Partner was formed in 1985, and we believe that it qualifies as a real estate investment trust ("REIT") under the provisions of the Internal Revenue Code of 1986, as amended (the "Code"). The Partnership was formed on October 4, 1993, when the General Partner contributed all of its properties and related assets and liabilities, together with the net proceeds from an offering of additional shares of its common stock, to the Partnership. Simultaneously, the Partnership completed the acquisition of Duke Associates, a full-service commercial real estate firm operating in the Midwest whose operations began in 1972.
The General Partner is the sole general partner of the Partnership, owning approximately 99.0% of the common partnership interests of the Partnership ("General Partner Units") at September 30, 2015. The remaining 1.0% 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 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.
Limited Partners have the right to redeem their Limited Partner Units, subject to certain restrictions. Pursuant to the Fifth Amended and Restated Agreement of Limited Partnership, as amended (the "Partnership Agreement"), the General Partner is obligated to redeem the Limited Partner Units in shares of its common stock, unless it determines in its reasonable discretion that the issuance of shares of its common stock could cause it to fail to qualify as a REIT. Each Limited Partner Unit shall be redeemed for one share of the General Partner's common stock, or, in the event that the issuance of shares could cause the General Partner to fail to qualify as a REIT, cash equal to the fair market value of one share of the General Partner's common stock at the time of redemption, in each case, subject to certain adjustments described in the Partnership Agreement. The Limited Partner Units are not required, per the terms of the Partnership Agreement, to be redeemed in registered shares of the General Partner. The General Partner also owns preferred partnership interests in the Partnership ("Preferred Units"), to the extent the Partnership has issued Preferred Units.

11

As of September 30, 2015, we owned and operated a portfolio primarily consisting of industrial, medical office and office properties and provided real estate services to third-party owners. Substantially all of our Rental Operations (see Note 10) are conducted through the Partnership. We conduct our Service Operations (see Note 10) through Duke Realty Services, LLC, Duke Realty Services Limited Partnership and Duke Construction Limited Partnership ("DCLP"), which are consolidated entities that are 100% owned by a combination of the General Partner and the Partnership. DCLP is owned through a taxable REIT subsidiary. The consolidated financial statements include our accounts and the accounts of our majority-owned or controlled subsidiaries.  
2.    New Accounting Pronouncements
Revenue Recognition
In May 2014, the Financial Accounting Standards Board ("FASB") issued ASU 2014-09, Revenue from Contracts with Customers ("ASU 2014-09"). ASU 2014-09 is a comprehensive revenue recognition standard that will supersede nearly all existing GAAP revenue recognition guidance as well as impact the existing GAAP guidance governing the sale of nonfinancial assets. The standard’s core principle is that a company will recognize revenue when it satisfies performance obligations, by transferring promised goods or services to customers, in an amount that reflects the consideration to which the company expects to be entitled in exchange for fulfilling those performance obligations. In doing so, companies will need to exercise more judgment and make more estimates than under existing GAAP guidance.
ASU 2014-09 will be effective for public entities for annual and interim reporting periods beginning after December 15, 2017 and early adoption is permitted in periods ending after December 15, 2016. ASU 2014-09 allows for either recognizing the cumulative effect of application (i) at the start of the earliest comparative period presented (with the option to use any or all of three practical expedients) or (ii) at the date of initial application, with no restatement of comparative periods presented.
We have not yet selected a transition method nor have we determined the effect of ASU 2014-09 on our consolidated financial statements.
Consolidation
In February 2015, the FASB issued ASU 2015-02, Amendments to the Consolidation Analysis ("ASU 2015-02"). ASU 2015-02 makes targeted amendments to the current consolidation guidance and ends the deferral granted to investment companies from applying the existing variable interest entity guidance. ASU 2015-02 will be effective for public entities for annual and interim reporting periods beginning after December 15, 2015 with early adoption allowed in any interim period. We have not yet selected a transition method and are currently assessing the effect of ASU 2015-02 on our consolidated financial statements.
Debt Issuance Costs
In April 2015, the FASB issued ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs ("ASU 2015-03"). ASU 2015-03 will require that debt issuance costs related to a recognized debt liability, which are currently presented as deferred charges (assets), be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. ASU 2015-03 will be effective for financial statements issued for fiscal years beginning after December 15, 2015, and for interim periods within those fiscal years. We do not expect ASU 2015-03 to have a material effect on our consolidated financial statements.
Business Combinations
In September 2015, the FASB issued ASU 2015-16, Business Combinations - Simplifying the Accounting for Measurement-Period Adjustments ("ASU 2015-16"). ASU 2015-16 amends the retroactive requirement to apply adjustments made to provisional amounts recognized in a business combination. The update requires that the acquirer record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. ASU 2015-16 will be effective for financial statements

12

issued for fiscal years beginning after December 15, 2015, and for interim periods within those fiscal years. We do not expect ASU 2015-16 to have a material effect on our consolidated financial statements.
3.    Reclassifications
Certain amounts in the accompanying consolidated financial statements for 2014 have been reclassified to conform to the 2015 consolidated financial statement presentation.
4.    Variable Interest Entities

We have equity interests in unconsolidated joint ventures that primarily own and operate rental properties or hold land for development. We consolidate those joint ventures that are considered to be variable interest entities ("VIE"s) where we are the primary beneficiary. We analyze our investments in joint ventures to determine if the joint venture is considered a VIE and would require consolidation. We (i) evaluate the sufficiency of the total equity investment at risk, (ii) review the voting rights and decision-making authority of the equity investment holders as a group and whether there are any guaranteed returns, protection against losses, or capping of residual returns within the group and (iii) establish whether activities within the venture are on behalf of an investor with disproportionately few voting rights in making this VIE determination.
To the extent that we own interests in a VIE and we (i) are the sole entity that has the power to direct the activities of the VIE and (ii) have the obligation or rights to absorb the VIE's losses or receive its benefits, then we would be determined to be the primary beneficiary and would consolidate the VIE. To the extent we own interest in a VIE, then at each reporting period, we re-assess our conclusions as to which, if any, party within the VIE is considered the primary beneficiary.
There were no consolidated or unconsolidated joint ventures, in which we have any recognized assets or liabilities or have retained any economic exposure to loss at September 30, 2015 that met the criteria to be considered VIEs. Our maximum loss exposure for guarantees of joint venture indebtedness, for joint ventures that are not VIEs, totaled $80.2 million at September 30, 2015.
5.    Acquisitions and Dispositions

Acquisitions and dispositions for the periods presented were completed in accordance with our strategy to reposition our investment concentration among product types and further diversify our geographic presence. With the exception of certain properties that have been sold or classified as held for sale, the results of operations for all acquired properties have been included in continuing operations within our consolidated financial statements since their respective dates of acquisition.
Acquisitions

We acquired two industrial properties during the nine months ended September 30, 2015. One of the acquired properties had in place leases at the date of acquisition and was accounted for as a business combination, while there were no in place leases in the other property, which was accounted for as an asset acquisition. The following table summarizes amounts recognized for each major class of asset and liability (in thousands) for these acquisitions:
Real estate assets
$
26,276

Lease related intangible assets
2,001

Total acquired assets
28,277

Other liabilities
319

Total assumed liabilities
319

Fair value of acquired net assets
$
27,958

Acquired leases had an average remaining life at acquisition of approximately 9.2 years.


13

We have included $450,000 in rental revenues and $69,000 in income from continuing operations during the nine months ended September 30, 2015 for the properties since their respective dates of acquisition.

Fair Value Measurements

The fair value estimates used in allocating the aggregate purchase price of an acquisition, to the extent accounted for as a business combination, among the individual components of real estate assets and liabilities were determined primarily through calculating the "as-if vacant" value of a building, using the income approach, and relied significantly upon internally determined assumptions. We have determined that these estimates primarily rely upon Level 3 inputs, which are unobservable inputs based on our own assumptions. The most significant assumptions utilized in making the lease-up and future disposition estimates used in calculating the "as-if vacant" value for acquisition activity during the nine months ended September 30, 2015 are as follows: 
Discount rate
7.07%
Exit capitalization rate
5.57%
Lease-up period (months)
12
Net rental rate per square foot - Industrial
$4.85
Acquisition-Related Activity
The acquisition-related activity in our consolidated Statements of Operations and Comprehensive Income consisted of adjustments to the fair value of contingent consideration from acquisitions after the measurement period was complete and transaction costs for completed acquisitions.
Dispositions
Dispositions of buildings (see Note 11 for the number of buildings sold as well as for their classification between continuing and discontinued operations) and undeveloped land generated net cash proceeds of $1.53 billion and $386.2 million during the nine months ended September 30, 2015 and 2014, respectively.
On April 1, 2015, we completed the previously announced suburban office portfolio sale (the "Suburban Office Portfolio Sale") to a joint venture with affiliates of Starwood Capital Group, Vanderbilt Partners and Trinity Capital Advisors for approximately $1.07 billion in proceeds and recorded a gain on sale of $398.6 million. The Suburban Office Portfolio Sale included all of our wholly-owned, in-service suburban office properties located in Nashville, Raleigh, South Florida and St. Louis. The portfolio included approximately 6.7 million square feet across 61 buildings and 57 acres of undeveloped land. Additionally, an office asset currently under construction in Raleigh is expected to be sold upon completion in late 2015 or early 2016.
A portion of the purchase price for the Suburban Office Portfolio Sale was financed through a $200.0 million first mortgage on certain of the properties in the Suburban Office Portfolio that we provided to the seller. The first mortgage matures on December 31, 2016, is prepayable after January 1, 2016, and bears interest at LIBOR plus 1.5%. We have reviewed the creditworthiness of the entities with which we hold this first mortgage and have concluded it is probable that we will be able to collect all amounts due according to its contractual terms.
On April 8, 2015, we completed the sale of 51 non-strategic industrial properties for $270.0 million in proceeds and recorded a gain on sale of $107.3 million. These properties totaled 5.2 million square feet and were located in primarily Midwest markets.
6.    Indebtedness
All debt is held directly or indirectly by the Partnership. The General Partner does not have any indebtedness, but does guarantee some of the unsecured debt of the Partnership. The following table summarizes the book value and changes in the fair value, of our debt for the nine months ended September 30, 2015 (in thousands):

14

 
Book Value at 12/31/2014
 
Book Value at 9/30/2015
 
Fair Value at 12/31/2014
 
Payments/Payoffs
 
Adjustments
to Fair Value
 
Fair Value at 9/30/2015
Fixed rate secured debt
$
979,842

 
$
761,607

 
$
1,065,301

 
$
(216,532
)
 
$
(21,995
)
 
$
826,774

Variable rate secured debt
3,400

 
3,100

 
3,400

 
(300
)
 
—

 
3,100

Unsecured debt
3,364,161

 
2,681,313

 
3,603,475

 
(682,848
)
 
(120,237
)
 
2,800,390

Unsecured line of credit
106,000

 
—

 
106,000

 
(106,000
)
 
—

 
—

Total
$
4,453,403

 
$
3,446,020

 
$
4,778,176

 
$
(1,005,680
)
 
$
(142,232
)
 
$
3,630,264

Less secured debt related to real estate assets held-for-sale
40,764

 
—

 
 
 
 
 
 
 
 
Total indebtedness as reported on consolidated balance sheets
$
4,412,639

 
$
3,446,020

 
 
 
 
 
 
 
 
Secured Debt
Because our fixed rate secured debt is not actively traded in any marketplace, we utilized a discounted cash flow methodology to determine its fair value. Accordingly, we calculated fair value by applying an estimate of the current market rate to discount the debt's remaining contractual cash flows. Our estimate of a current market rate, which is the most significant input in the discounted cash flow calculation, is intended to replicate debt of similar maturity and loan-to-value relationship. The estimated rates ranged from 2.20% to 3.60%, depending on the attributes of the specific loans. The current market rates we utilized were internally estimated; therefore, we have concluded that our determination of fair value for our fixed rate secured debt was primarily based upon Level 3 inputs.
During the nine months ended September 30, 2015, we repaid sixteen secured loans, totaling $208.9 million. These loans had a weighted average stated interest rate of 5.36%. Certain of these secured loans were repaid prior to their scheduled maturity date, which resulted in a $3.7 million loss on extinguishment, which included both prepayment penalties as well as the write-off of unamortized deferred loan and mark to market costs.
Unsecured Debt
At September 30, 2015, with the exception of one variable rate term note, all of our unsecured debt bore interest at fixed rates and primarily consisted of unsecured notes that are publicly traded. We utilized broker estimates in estimating the fair value of our fixed rate unsecured debt. Our unsecured notes are thinly traded and, in certain cases, the broker estimates were not based upon comparable transactions. The broker estimates took into account any recent trades within the same series of our fixed rate unsecured debt, comparisons to recent trades of other series of our fixed rate unsecured debt, trades of fixed rate unsecured debt from companies with profiles similar to ours, as well as overall economic conditions. We reviewed these broker estimates for reasonableness and accuracy, considering whether the estimates were based upon market participant assumptions within the principal and most advantageous market and whether any other observable inputs would be more accurate indicators of fair value than the broker estimates. We concluded that the broker estimates were representative of fair value. We have determined that our estimation of the fair value of our fixed rate unsecured debt was primarily based upon Level 3 inputs. The estimated trading values of our fixed rate unsecured debt, depending on the maturity and coupon rates, ranged from 98.00% to 120.00% of face value.
We utilize a discounted cash flow methodology in order to estimate the fair value of our $250.0 million variable rate term loan. The net present value of the difference between future contractual interest payments and future interest payments based on our estimate of a current market rate represents the difference between the book value and the fair value. Our estimate of a current market rate was based on estimated market spreads and the quoted yields on federal government treasury securities with similar maturity dates. Our estimate of the current market rate for our variable rate term loan was 1.35% and was based primarily upon Level 3 inputs.
In February 2015, we repaid a $250.0 million senior unsecured note at its maturity date. This loan had a stated interest rate of 7.38% and an effective rate of 7.50%.
In April 2015, the Partnership completed a tender offer (the "Tender Offer") to purchase, for a combined aggregate purchase price (exclusive of accrued and unpaid interest) of up to $500.0 million, certain of its outstanding series of

15

unsecured notes. A portion of the proceeds from the Suburban Office Portfolio Sale were used to fund the Tender Offer, which resulted in the repurchase of notes having a face value of $424.9 million, for a cash payment of $500.0 million. The repurchased notes had contractual maturity dates ranging between February 2017 and March 2020 and bore interest at stated rates ranging between 5.95% and 8.25%. Additionally, in May 2015, we repurchased unsecured notes with a face value of $6.3 million, for a cash payment of $7.1 million. These notes had a stated interest rate of 6.50% and an effective rate of 6.08%. The early repayment of unsecured notes, either through the Tender Offer or repurchase, resulted in an aggregate loss on extinguishment of $78.9 million, which included applicable repurchase premiums as well as the write-off of unamortized deferred loan costs.
The indentures (and related supplemental indentures) governing our outstanding series of notes also require us to comply with financial ratios and other covenants regarding our operations. We were in compliance with all such covenants at September 30, 2015.
Unsecured Line of Credit
Our unsecured line of credit at September 30, 2015 is described as follows (in thousands):
Description
Maximum
Capacity
 
Maturity Date
 
Outstanding Balance at September 30, 2015
Unsecured Line of Credit - Partnership
$
1,200,000

 
January 2019
 
$
—


The Partnership's unsecured line of credit has an interest rate on borrowings of LIBOR plus 1.05% and a maturity date of January 2019. Subject to certain conditions, the terms also include an option to increase the facility by up to an additional $400.0 million, for a total of up to $1.6 billion. This line of credit provides us with an option to obtain borrowings from financial institutions that participate in the line at rates that may be lower than the stated interest rate, subject to certain restrictions.
This line of credit contains financial covenants that require us to meet certain financial ratios and defined levels of performance, including those related to fixed charge coverage, unsecured interest expense coverage and debt-to-asset value (with asset value being defined in the Partnership's unsecured line of credit agreement). At September 30, 2015, we were in compliance with all covenants under this line of credit.
7.    Shareholders' Equity of the General Partner and Partners' Capital of the Partnership
General Partner
During the nine months ended September 30, 2015, the General Partner issued 233,000 common shares pursuant to its at the market equity program, generating gross proceeds of approximately $5.0 million and, after deducting commissions and other costs, net proceeds of approximately $4.6 million. The proceeds from these offerings were contributed to the Partnership and used for general corporate purposes.
Partnership
For each common share or preferred share that the General Partner issues, the Partnership issues a corresponding General Partner Unit or Preferred Unit, as applicable, to the General Partner in exchange for the contribution of the proceeds from the stock issuance. Similarly, when the General Partner redeems or repurchases common shares or preferred shares, the Partnership redeems the corresponding Common Units or Preferred Units held by the General Partner at the same price.
8.    Related Party Transactions
We provide property management, asset management, leasing, construction and other tenant-related services to unconsolidated companies in which we have equity interests. We recorded the corresponding fees based on contractual terms that approximate market rates for these types of services and have eliminated our ownership percentage of these fees in the consolidated financial statements. The following table summarizes the fees earned

16

from these companies, prior to the elimination of our ownership percentage, for the three and nine months ended September 30, 2015 and 2014, respectively (in thousands): 
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
Management fees
$
1,835

 
$
2,233

 
$
5,388

 
$
6,569

Leasing fees
692

 
572

 
1,714

 
3,085

Construction and development fees
2,247

 
1,529

 
3,377

 
4,911

9.    Net Income (Loss) Per Common Share or Common Unit
Basic net income (loss) per common share or Common Unit is computed by dividing net income (loss) attributable to common shareholders or common unitholders, less dividends or distributions on share-based awards expected to vest (referred to as "participating securities" and primarily composed of unvested restricted stock units), by the weighted average number of common shares or Common Units outstanding for the period.
Diluted net income (loss) per common share is computed by dividing the sum of basic net income (loss) attributable to common shareholders and the noncontrolling interest in earnings allocable to Limited Partner Units (to the extent the Limited Partner Units are dilutive) by the sum of the weighted average number of common shares outstanding and, to the extent they are dilutive, Units outstanding and any potential dilutive securities for the period. Diluted net income (loss) per Common Unit is computed by dividing the basic net income (loss) attributable to common unitholders by the sum of the weighted average number of Common Units outstanding and any potential dilutive securities for the period. The following table reconciles the components of basic and diluted net income per common share or Common Unit for the three and nine months ended September 30, 2015 and 2014, respectively (in thousands):
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
General Partner
 
 
 
 
 
 
 
Net income attributable to common shareholders
$
76,434

 
$
61,533

 
$
591,058

 
$
207,904

Less: Dividends on participating securities
(593
)
 
(651
)
 
(1,803
)
 
(1,941
)
Basic net income attributable to common shareholders
75,841

 
60,882

 
589,255

 
205,963

Add back dividends on dilutive participating securities
593

 
—

 
1,803

 
—

Noncontrolling interest in earnings of common unitholders
751

 
795

 
6,212

 
2,738

Diluted net income attributable to common shareholders
$
77,185

 
$
61,677

 
$
597,270

 
$
208,701

Weighted average number of common shares outstanding
345,256

 
341,165

 
344,986

 
333,393

Weighted average Limited Partner Units outstanding
3,504

 
4,380

 
3,609

 
4,384

Other potential dilutive shares
3,390

 
281

 
3,418

 
280

Weighted average number of common shares and potential dilutive securities
352,150

 
345,826

 
352,013

 
338,057

 
 
 
 
 
 
 
 
Partnership
 
 
 
 
 
 
 
Net income attributable to common unitholders
$
77,185

 
$
62,328

 
$
597,270

 
$
210,642

Less: Distributions on participating securities
(593
)
 
(651
)
 
(1,803
)
 
(1,941
)
Basic net income attributable to common unitholders
$
76,592

 
$
61,677

 
$
595,467

 
$
208,701

Add back distributions on dilutive participating securities
593

 
—

 
1,803

 
—

Diluted net income attributable to common unitholders
$
77,185

 
$
61,677

 
$
597,270

 
$
208,701

Weighted average number of Common Units outstanding
348,760

 
345,545

 
348,595

 
337,777

Other potential dilutive units
3,390

 
281

 
3,418

 
280

Weighted average number of Common Units and potential dilutive securities
352,150

 
345,826

 
352,013

 
338,057


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The following table summarizes the data that is excluded from the computation of net income per common share or Common Unit as a result of being anti-dilutive (in thousands): 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
General Partner and Partnership
 
 
 
 
 
 
 
Potential dilutive shares or units:
 
 
 
 
 
 
 
Anti-dilutive outstanding potential shares or units under fixed stock option and other stock-based compensation plans
997

 
1,215

 
997

 
1,215

Outstanding participating securities
—

 
3,867

 
—

 
3,867

10.    Segment Reporting
Reportable Segments
We had four reportable operating segments at September 30, 2015, the first three of which consist of the ownership and rental of (i) industrial, (ii) medical office and (iii) office real estate investments. The operations of our industrial, medical office and office properties, along with our retail properties, are collectively referred to as "Rental Operations." Properties not included in our reportable segments, which do not by themselves meet the quantitative thresholds for separate presentation as a reportable segment, are referred to as non-reportable Rental Operations. The fourth reportable segment consists of various real estate services such as property management, asset management, maintenance, leasing, development, general contracting and construction management to third-party property owners and joint ventures, and is collectively referred to as "Service Operations." Our reportable segments offer different products or services and are managed separately because each segment requires different operating strategies and management expertise.
Revenues by Reportable Segment
The following table shows the revenues for each of the reportable segments, as well as a reconciliation to consolidated revenues, for the three and nine months ended September 30, 2015 and 2014, respectively (in thousands): 
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2015
 
2014
 
2015
 
2014
Revenues
 
 
 
 
 
 
 
 
Rental Operations:
 
 
 
 
 
 
 
 
Industrial
 
$
136,276

 
$
130,495

 
$
419,391

 
$
392,048

Medical Office
 
39,911

 
36,715

 
120,213

 
104,979

Office
 
23,277

 
32,134

 
72,103

 
109,700

Non-reportable Rental Operations
 
—

 
1,698

 
—

 
5,414

Service Operations
 
33,599

 
59,739

 
110,320

 
185,072

Total segment revenues
 
233,063

 
260,781

 
722,027

 
797,213

Other revenue (loss)
 
1,474

 
1,025

 
5,842

 
3,352

Consolidated revenue from continuing operations
 
234,537

 
261,806

 
727,869

 
800,565

Discontinued operations
 
7

 
29,709

 
32,171

 
89,112

Consolidated revenue
 
$
234,544

 
$
291,515

 
$
760,040

 
$
889,677

Supplemental Performance Measure
Property level net operating income on a cash basis ("PNOI") is the non-GAAP supplemental performance measure that we use to evaluate the performance of, and to allocate resources among, the real estate investments in the reportable and operating segments that comprise our Rental Operations. PNOI for our Rental Operations segments is comprised of rental revenues from continuing operations less rental expenses and real estate taxes from continuing operations, along with certain other adjusting items (collectively referred to as "Rental Operations

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revenues and expenses excluded from PNOI," as shown in the following table). Additionally, we do not allocate interest expense, depreciation expense and certain other non-property specific revenues and expenses (collectively referred to as "Non-Segment Items," as shown in the following table) to our individual operating segments.
We evaluate the performance of our Service Operations reportable segment using net income or loss, as allocated to that segment ("Earnings from Service Operations").
The following table shows a reconciliation of our segment-level measures of profitability to consolidated income from continuing operations before income taxes for the three and nine months ended September 30, 2015 and 2014, respectively (in thousands and excluding discontinued operations): 
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2015
 
2014
 
2015
 
2014
PNOI
 
 
 
 
 
 
 
 
Industrial
 
$
99,236

 
$
88,654

 
$
291,987

 
$
258,863

Medical Office
 
25,827

 
23,456

 
76,878

 
65,820

Office
 
11,791

 
13,688

 
36,364

 
37,851

Non-reportable Rental Operations
 
—

 
970

 
—

 
3,275

PNOI, excluding all sold/held for sale properties

 
136,854

 
126,768

 
405,229

 
365,809

PNOI from sold/held-for-sale properties included in continuing operations
 
2,711

 
13,162

 
17,471

 
47,270

PNOI, continuing operations

 
139,565

 
139,930

 
422,700

 
413,079

 
 
 
 
 
 
 
 
 
Earnings from Service Operations
 
3,905

 
7,211

 
11,865

 
21,415

 
 

 

 

 

Rental Operations revenues and expenses excluded from PNOI:
Straight-line rental income and expense, net
 
5,723

 
5,466

 
16,830

 
16,183

Revenues related to lease buyouts
 
408

 
145

 
1,366

 
4,365

Amortization of lease concessions and above and below market rents
 
(357
)
 
(919
)
 
(2,559
)
 
(4,820
)
Intercompany rents and other adjusting items
 
(434
)
 
(1,616
)
 
(1,306
)
 
(3,718
)
Non-Segment Items:
 
 
 
 
 
 
 
 
Equity in earnings (loss) of unconsolidated companies
 
(5,088
)
 
19,178

 
16,281

 
82,325

Interest expense
 
(41,615
)