Edgar Filing: DUKE REALTY CORP

Document

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, 2017



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 96^thStreet, 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, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth 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	Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Duke Realty Limited Partnership:



Large accelerated filer o	Accelerated filer o	Non-accelerated filer x	Smaller reporting company o	Emerging growth 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 October 25, 2017
Common Stock 0.01 par value per share		356,140,850

EXPLANATORY NOTE

This report (the "Report") combines the quarterly reports on Form 10-Q for the period ended September 30, 2017 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 99.1% of the common partnership interests of the Partnership ("General Partner Units") as of September 30, 2017. The remaining 0.9% 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.

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
Part I - Financial Information

Item 1.		Financial Statements

	Duke Realty Corporation:
		Consolidated Balance Sheets - September 30, 2017 (Unaudited) and December 31, 2016	3
		Consolidated Statements of Operations and Comprehensive Income (Unaudited) - Three and Nine Months Ended September 30, 2017 and 2016	4
		Consolidated Statements of Cash Flows (Unaudited) - Nine Months Ended September 30, 2017 and 2016	5
		Consolidated Statement of Changes in Equity (Unaudited) - Nine Months Ended September 30, 2017	6

	Duke Realty Limited Partnership:
		Consolidated Balance Sheets - September 30, 2017 (Unaudited) and December 31, 2016	7
		Consolidated Statements of Operations and Comprehensive Income (Unaudited) - Three and Nine Months Ended September 30, 2017 and 2016	8
		Consolidated Statements of Cash Flows (Unaudited) - Nine Months Ended September 30, 2017 and 2016	9
		Consolidated Statement of Changes in Equity (Unaudited) - Nine Months Ended September 30, 2017	10

	Duke Realty Corporation and Duke Realty Limited Partnership:
		Notes to Consolidated Financial Statements (Unaudited)	11

Item 2.		Management's Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3.		Quantitative and Qualitative Disclosures About Market Risk	49
Item 4.		Controls and Procedures	50

Part II - Other Information

Item 1.		Legal Proceedings	51
Item 1A.		Risk Factors	51
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds	51
Item 3.		Defaults Upon Senior Securities	51
Item 4.		Mine Safety Disclosures	51
Item 5.		Other Information	51
Item 6.		Exhibits	52

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

DUKE REALTY CORPORATION AND SUBSIDIARIES

Consolidated Balance Sheets

(in thousands, except per share amounts)



	September 30, 2017			December 31, 2016
	(Unaudited)
ASSETS
Real estate investments:
Real estate assets	$	6,091,861		$	5,144,805
Construction in progress	441,005			303,644
Investments in and advances to unconsolidated companies	135,089			197,807
Undeveloped land	167,928			237,436
	6,835,883			5,883,692
Accumulated depreciation	(1,159,493		)	(1,042,944		)
Net real estate investments	5,676,390			4,840,748

Real estate investments and other assets held-for-sale	63,604			1,324,258

Cash and cash equivalents	27,315			12,639
Accounts receivable, net of allowance of $1,020 and $1,391	20,605			15,838
Straight-line rent receivable, net of allowance of $3,655 and $5,268	91,045			82,554
Receivables on construction contracts, including retentions	10,343			6,159
Deferred leasing and other costs, net of accumulated amortization of $206,242 and $186,798	279,891			258,741
Restricted cash held in escrow for like-kind exchange	512,520			40,102
Notes receivable from property sales	426,678			25,460
Other escrow deposits and assets	189,080			165,503
	$	7,297,471		$	6,772,002
LIABILITIES AND EQUITY
Indebtedness:
Secured debt, net of deferred financing costs of $699 and $969	$	312,776		$	383,725
Unsecured debt, net of deferred financing costs of $18,583 and $22,083	1,814,104			2,476,752
Unsecured line of credit	5,000			48,000
	2,131,880			2,908,477

Liabilities related to real estate investments held-for-sale	2,653			56,291

Construction payables and amounts due subcontractors, including retentions	70,432			44,250
Accrued real estate taxes	83,152			59,112
Accrued interest	24,547			23,633
Other liabilities	195,147			153,846
Tenant security deposits and prepaid rents	36,285			33,100
Total liabilities	2,544,096			3,278,709
Shareholders' equity:
Common shares ($0.01 par value); 600,000 shares authorized; 356,130 and 354,756 shares issued and outstanding, respectively	3,561			3,548
Additional paid-in capital	5,195,151			5,192,011
Accumulated other comprehensive income	—			682
Distributions in excess of net income	(488,328		)	(1,730,423		)
Total shareholders' equity	4,710,384			3,465,818
Noncontrolling interests	42,991			27,475
Total equity	4,753,375			3,493,293
	$	7,297,471		$	6,772,002

See accompanying Notes to Consolidated Financial Statements

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
	2017			2016			2017			2016
Revenues:
Rental and related revenue	$	169,611		$	162,322		$	507,123		$	480,819
General contractor and service fee revenue	25,217			19,351			58,192			68,546
	194,828			181,673			565,315			549,365
Expenses:
Rental expenses	16,224			16,933			46,967			54,685
Real estate taxes	28,157			26,001			81,569			75,687
General contractor and other services expenses	24,079			17,182			54,077			60,330
Depreciation and amortization	67,992			61,820			197,028			182,489
	136,452			121,936			379,641			373,191
Other operating activities:
Equity in earnings of unconsolidated companies	1,841			12,010			58,523			37,404
Gain on dissolution of unconsolidated company	—			—			—			30,697
Promote income	—			2,212			20,007			26,299
Gain on sale of properties	21,952			82,698			93,339			137,589
Gain on land sales	5,665			1,601			8,449			2,438
Other operating expenses	(770		)	(1,424		)	(2,226		)	(3,496		)
Impairment charges	(3,622		)	(3,042		)	(4,481		)	(15,098		)
General and administrative expenses	(10,075		)	(12,534		)	(41,165		)	(42,216		)
	14,991			81,521			132,446			173,617
Operating income	73,367			141,258			318,120			349,791
Other income (expenses):
Interest and other income, net	6,404			507			9,197			3,597
Interest expense	(20,835		)	(27,283		)	(65,401		)	(87,255		)
Loss on debt extinguishment	(16,568		)	(6,243		)	(26,104		)	(8,673		)
Acquisition-related activity	—			(7		)	—			(82		)
Income from continuing operations before income taxes	42,368			108,232			235,812			257,378
Income tax (expense) benefit	(359		)	359			(7,918		)	173
Income from continuing operations	42,009			108,591			227,894			257,551
Discontinued operations:
Income before gain on sales	2,563			4,249			17,747			9,062
Gain on sale of depreciable properties	120,179			319			1,229,270			485
Income tax (expense) benefit	876			—			(10,736		)	—
Income from discontinued operations	123,618			4,568			1,236,281			9,547
Net income	165,627			113,159			1,464,175			267,098
Net income attributable to noncontrolling interests	(358		)	(1,145		)	(18,163		)	(2,710		)
Net income attributable to common shareholders	$	165,269		$	112,014		$	1,446,012		$	264,388
Basic net income per common share:
Continuing operations attributable to common shareholders	$	0.12		$	0.31		$	0.63		$	0.72
Discontinued operations attributable to common shareholders	0.34			0.01			3.43			0.03
Total	$	0.46		$	0.32		$	4.06		$	0.75
Diluted net income per common share:
Continuing operations attributable to common shareholders	$	0.12		$	0.31		$	0.63		$	0.72
Discontinued operations attributable to common shareholders	0.34			0.01			3.40			0.03
Total	$	0.46		$	0.32		$	4.03		$	0.75
Weighted average number of common shares outstanding	355,905			351,856			355,614			348,341
Weighted average number of common shares and potential dilutive securities	362,102			358,981			361,947			355,405

Comprehensive income:
Net income	$	165,627		$	113,159		$	1,464,175		$	267,098
Other comprehensive loss:
Amortization of interest contracts	—			(255		)	(682		)	(845		)
Other	—			(23		)	—			(23		)
Total other comprehensive loss	—			(278		)	(682		)	(868		)
Comprehensive income	$	165,627		$	112,881		$	1,463,493		$	266,230

See accompanying Notes to Consolidated Financial Statements

DUKE REALTY CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows

For the nine months ended September 30,

(in thousands)

(Unaudited)



	2017				2016
Cash flows from operating activities:
Net income	$	1,464,175			$	267,098
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of buildings and tenant improvements	179,918				191,554
Amortization of deferred leasing and other costs	42,996				47,093
Amortization of deferred financing costs	4,049				3,998
Straight-line rental income and expense, net	(12,021		)		(10,832		)
Impairment charges	4,481				15,098
Loss on debt extinguishment	26,104				8,673
Gain on dissolution of unconsolidated company	—				(30,697		)
Gains on land and depreciated property sales	(1,331,058		)		(140,512		)
Third-party construction contracts, net	2,679				5,601
Other accrued revenues and expenses, net	24,474				21,832
Equity in earnings in excess of operating distributions received from unconsolidated companies	(45,298		)		(24,476		)
Net cash provided by operating activities	360,499				354,430
Cash flows from investing activities:
Development of real estate investments	(421,702		)		(308,199		)
Acquisition of real estate investments and related intangible assets	(620,869		)		(16,029		)
Acquisition of undeveloped land	(127,662		)		(77,593		)
Second generation tenant improvements, leasing costs and building improvements	(34,350		)		(39,169		)
Other deferred leasing costs	(22,399		)		(25,949		)
Other assets	(492,982		)		164,450
Proceeds from land and depreciated property sales, net	2,282,419				369,118
Capital distributions from unconsolidated companies	111,635				52,514
Capital contributions and advances to unconsolidated companies	(6,303		)		(54,853		)
Net cash provided by investing activities	667,787				64,290
Cash flows from financing activities:
Proceeds from issuance of common shares, net	7,309				217,513
Proceeds from unsecured debt	—				375,000
Payments on unsecured debt	(691,492		)		(285,339		)
Payments on secured indebtedness including principal amortization	(71,154		)		(352,723		)
Repayments of line of credit, net	(43,000		)		(71,000		)
Distributions to common shareholders	(202,770		)		(187,885		)
Distributions to noncontrolling interests	(8,407		)		(1,955		)
Tax payments on stock-based compensation awards	(14,868		)		(7,059		)
Change in book overdrafts	11,245				(11,025		)
Deferred financing costs	(16		)		(6,569		)
Redemption of Limited Partner Units	(457		)		—
Net cash used for financing activities	(1,013,610		)		(331,042		)
Net increase in cash and cash equivalents	14,676				87,678
Cash and cash equivalents at beginning of period	12,639				22,533
Cash and cash equivalents at end of period	$	27,315			$	110,211

Non-cash investing and financing activities:
Notes receivable from buyers in property sales	$	404,846			$	1,685
Conversion of Limited Partner Units to common shares	$	1,714		—	$	1,015

See accompanying Notes to Consolidated Financial Statements

DUKE REALTY CORPORATION AND SUBSIDIARIES

Consolidated Statement of Changes in Equity

For the nine months ended September 30, 2017

(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, 2016		$	3,548	$	5,192,011		$	682		$	(1,730,423	)	$	27,475		$	3,493,293
Net income		—		—			—			1,446,012			18,163			1,464,175
Other comprehensive loss		—		—			(682		)	—			—			(682		)
Issuance of common shares		3		7,306			—			—			—			7,309
Stock-based compensation plan activity		9		(5,510		)	—			(1,147		)	7,562			914
Conversion/redemption of Limited Partner Units		1		1,344			—			—			(1,802		)	(457		)
Distributions to common shareholders ($0.57 per share)		—		—			—			(202,770		)	—			(202,770		)
Distributions to noncontrolling interests		—		—			—			—			(8,407		)	(8,407		)
Balance at September 30, 2017		$	3,561	$	5,195,151		$	—		$	(488,328	)	$	42,991		$	4,753,375

See accompanying Notes to Consolidated Financial Statements

DUKE REALTY LIMITED PARTNERSHIP AND SUBSIDIARIES

Consolidated Balance Sheets

(in thousands)



	September 30, 2017			December 31, 2016
	(Unaudited)
ASSETS
Real estate investments:
Real estate assets	$	6,091,861		$	5,144,805
Construction in progress	441,005			303,644
Investments in and advances to unconsolidated companies	135,089			197,807
Undeveloped land	167,928			237,436
	6,835,883			5,883,692
Accumulated depreciation	(1,159,493		)	(1,042,944		)
Net real estate investments	5,676,390			4,840,748

Real estate investments and other assets held-for-sale	63,604			1,324,258

Cash and cash equivalents	27,315			12,639
Accounts receivable, net of allowance of $1,020 and $1,391	20,605			15,838
Straight-line rent receivable, net of allowance of $3,655 and $5,268	91,045			82,554
Receivables on construction contracts, including retentions	10,343			6,159
Deferred leasing and other costs, net of accumulated amortization of $206,242 and $186,798	279,891			258,741
Restricted cash held in escrow for like-kind exchange	512,520			40,102
Notes receivable from property sales	426,678			25,460
Other escrow deposits and other assets	189,080			165,503
	$	7,297,471		$	6,772,002
LIABILITIES AND EQUITY
Indebtedness:
Secured debt, net of deferred financing costs of $699 and $969	$	312,776		$	383,725
Unsecured debt, net of deferred financing costs of $18,583 and $22,083	1,814,104			2,476,752
Unsecured line of credit	5,000			48,000
	2,131,880			2,908,477

Liabilities related to real estate investments held-for-sale	2,653			56,291

Construction payables and amounts due subcontractors, including retentions	70,432			44,250
Accrued real estate taxes	83,152			59,112
Accrued interest	24,547			23,633
Other liabilities	195,147			153,846
Tenant security deposits and prepaid rents	36,285			33,100
Total liabilities	2,544,096			3,278,709
Partners' equity:
Common equity (356,130 and 354,756 General Partner Units issued and outstanding, respectively)	4,710,384			3,465,136
Limited Partners' common equity (3,288 and 3,408 Limited Partner Units issued and outstanding, respectively)	41,994			24,691
Accumulated other comprehensive income	—			682
Total partners' equity	4,752,378			3,490,509
Noncontrolling interests	997			2,784
Total equity	4,753,375			3,493,293
	$	7,297,471		$	6,772,002

See accompanying Notes to Consolidated Financial Statements

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
	2017			2016			2017			2016
Revenues:
Rental and related revenue	$	169,611		$	162,322		$	507,123		$	480,819
General contractor and service fee revenue	25,217			19,351			58,192			68,546
	194,828			181,673			565,315			549,365
Expenses:
Rental expenses	16,224			16,933			46,967			54,685
Real estate taxes	28,157			26,001			81,569			75,687
General contractor and other services expenses	24,079			17,182			54,077			60,330
Depreciation and amortization	67,992			61,820			197,028			182,489
	136,452			121,936			379,641			373,191
Other operating activities:
Equity in earnings of unconsolidated companies	1,841			12,010			58,523			37,404
Gain on dissolution of unconsolidated company	—			—			—			30,697
Promote income	—			2,212			20,007			26,299
Gain on sale of properties	21,952			82,698			93,339			137,589
Gain on land sales	5,665			1,601			8,449			2,438
Other operating expenses	(770		)	(1,424		)	(2,226		)	(3,496		)
Impairment charges	(3,622		)	(3,042		)	(4,481		)	(15,098		)
General and administrative expenses	(10,075		)	(12,534		)	(41,165		)	(42,216		)
	14,991			81,521			132,446			173,617
Operating income	73,367			141,258			318,120			349,791
Other income (expenses):
Interest and other income, net	6,404			507			9,197			3,597
Interest expense	(20,835		)	(27,283		)	(65,401		)	(87,255		)
Loss on debt extinguishment	(16,568		)	(6,243		)	(26,104		)	(8,673		)
Acquisition-related activity	—			(7		)	—			(82		)
Income from continuing operations before income taxes	42,368			108,232			235,812			257,378
Income tax (expense) benefit	(359		)	359			(7,918		)	173
Income from continuing operations	42,009			108,591			227,894			257,551
Discontinued operations:
Income before gain on sales	2,563			4,249			17,747			9,062
Gain on sale of depreciable properties	120,179			319			1,229,270			485
Income tax (expense) benefit	876			—			(10,736		)	—
Income from discontinued operations	123,618			4,568			1,236,281			9,547
Net income	165,627			113,159			1,464,175			267,098
Net loss (income) attributable to noncontrolling interests	1,177			(14		)	(4,736		)	(40		)
Net income attributable to common unitholders	$	166,804		$	113,145		$	1,459,439		$	267,058
Basic net income per Common Unit:
Continuing operations attributable to common unitholders	$	0.12		$	0.31		$	0.63		$	0.72
Discontinued operations attributable to common unitholders	0.34			0.01			3.43			0.03
Total	$	0.46		$	0.32		$	4.06		$	0.75
Diluted net income per Common Unit:
Continuing operations attributable to common unitholders	$	0.12		$	0.31		$	0.63		$	0.72
Discontinued operations attributable to common unitholders	0.34			0.01			3.40			0.03
Total	$	0.46		$	0.32		$	4.03		$	0.75
Weighted average number of Common Units outstanding	359,206			355,351			358,921			351,840
Weighted average number of Common Units and potential dilutive securities	362,102			358,981			361,947			355,405

Comprehensive income:
Net income	$	165,627		$	113,159		$	1,464,175		$	267,098
Other comprehensive loss:
Amortization of interest contracts	—			(255		)	(682		)	(845		)
Other	—			(23		)	—			(23		)
Total other comprehensive loss	—			(278		)	(682		)	(868		)
Comprehensive income	$	165,627		$	112,881		$	1,463,493		$	266,230

See accompanying Notes to Consolidated Financial Statements

DUKE REALTY LIMITED PARTNERSHIP AND SUBSIDIARIES

Consolidated Statements of Cash Flows

For the nine months ended September 30,

(in thousands)

(Unaudited)



	2017			2016
Cash flows from operating activities:
Net income	$	1,464,175		$	267,098
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of buildings and tenant improvements	179,918			191,554
Amortization of deferred leasing and other costs	42,996			47,093
Amortization of deferred financing costs	4,049			3,998
Straight-line rental income and expense, net	(12,021		)	(10,832		)
Impairment charges	4,481			15,098
Loss on debt extinguishment	26,104			8,673
Gain on dissolution of unconsolidated company	—			(30,697		)
Gains on land and depreciated property sales	(1,331,058		)	(140,512		)
Third-party construction contracts, net	2,679			5,601
Other accrued revenues and expenses, net	24,474			21,832
Equity in earnings in excess of operating distributions received from unconsolidated companies	(45,298		)	(24,476		)
Net cash provided by operating activities	360,499			354,430
Cash flows from investing activities:
Development of real estate investments	(421,702		)	(308,199		)
Acquisition of real estate investments and related intangible assets	(620,869		)	(16,029		)
Acquisition of undeveloped land	(127,662		)	(77,593		)
Second generation tenant improvements, leasing costs and building improvements	(34,350		)	(39,169		)
Other deferred leasing costs	(22,399		)	(25,949		)
Other assets	(492,982		)	164,450
Proceeds from land and depreciated property sales, net	2,282,419			369,118
Capital distributions from unconsolidated companies	111,635			52,514
Capital contributions and advances to unconsolidated companies	(6,303		)	(54,853		)
Net cash provided by investing activities	667,787			64,290
Cash flows from financing activities:
Contributions from the General Partner	7,309			217,513
Proceeds from unsecured debt	—			375,000
Payments on unsecured debt	(691,492		)	(285,339		)
Payments on secured indebtedness including principal amortization	(71,154		)	(352,723		)
Repayments of line of credit, net	(43,000		)	(71,000		)
Distributions to common unitholders	(204,654		)	(189,764		)
Distributions to noncontrolling interests	(6,523		)	(76		)
Tax payments on stock-based compensation awards	(14,868		)	(7,059		)
Change in book overdrafts	11,245			(11,025		)
Deferred financing costs	(16		)	(6,569		)
Redemption of Limited Partner Units	(457		)	—
Net cash used for financing activities	(1,013,610		)	(331,042		)
Net increase in cash and cash equivalents	14,676			87,678
Cash and cash equivalents at beginning of period	12,639			22,533
Cash and cash equivalents at end of period	$	27,315		$	110,211

Non-cash investing and financing activities:
Notes receivable from buyers in property sales	$	404,846		$	1,685
Conversion of Limited Partner Units to common shares of the General Partner	$	1,714		$	1,015

See accompanying Notes to Consolidated Financial Statements

DUKE REALTY LIMITED PARTNERSHIP AND SUBSIDIARIES

Consolidated Statement of Changes in Equity

For the nine months ended September 30, 2017

(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, 2016	$	3,465,136		$	24,691	$	682		$	3,490,509		$	2,784	$	3,493,293
Net income	1,446,012			13,427		—			1,459,439			4,736		1,464,175
Other comprehensive loss	—			—		(682		)	(682		)	—		(682		)
Capital contribution from the General Partner	7,309			—		—			7,309			—		7,309
Stock-based compensation plan activity	(6,648		)	7,562		—			914			—		914
Conversion/redemption of Limited Partner Units	1,345