**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C.  20549**

**FORM 10-Q**

(Mark One)
| **x**                                                                                                                                                                                                                      | ** ** | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)  OF THE SECURITIES EXCHANGE ACT OF 1934**  |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                       |
| For the  quarterly period ended**June 30, 2007**                                                                                                                                                                           |
|                                                                                                                                                                                                                       |
| **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 FileNumber: **0-20625**

**DUKEREALTY LIMITED PARTNERSHIP**(Exact Name of Registrant as Specified in Its Charter)

| **Indiana**                                                      |   | **35-1898425**                             |
|------------------------------------------------------------------|--------|--------------------------------------------|
| (State or Other  Jurisdiction  of Incorporation or Organization) |   | (I.R.S. Employer    Identification Number) |
|                                                             |   |                                       |
| **600  East 96th Street, Suite 100**                             |   | ** **                                 |
| **Indianapolis,  Indiana**                                       |   | **46240**                                  |
| (Address of  Principal Executive Offices)                        |   | (Zip Code)                                 |

 

**Registrant’s Telephone Number,Including Area Code:** (317) 808-6000

Indicate by check mark whether the registrant (1) hasfiled all reports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorter periodthat the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days.   Yes   x     No   o

Indicate by check mark whetherthe registrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer. See definition of “accelerated filer and largeaccelerated filer” in Rule 12b-2 of theExchange Act.

| Large accelerated filer o |   | Accelerated  filer o |   | Non-accelerated  filer x |
|--------------------------------|--------|---------------------------|--------|-------------------------------|

 

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act):YES   o     NO  x

Indicate the number of shares outstanding of each ofthe issuer’s classes of common stock, as of the latest practicable date:

| **Class**                              |   | **Outstanding  at August 1, 2007** |
|----------------------------------------|--------|------------------------------------|
| Common Units,  $.01 par value per unit |   | 146,715,946  units                 |

 

 

----

**DUKEREALTY LIMITED PARTNERSHIP**

**INDEX**
| **Part I - Financial Information**                                                       | ** **                                                   | ** ** | **Page**   | ** ** |
|--------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------|------------|------------|------------|
| ** **                                                                                                   | ** **                                                   | ** ** | ** ** |
| **Item 1. Financial Statements**                                                                             |                                                         |       |       |
|                                                                                                         |                                                         |       |       |
| Consolidated Balance Sheets as of  June 30, 2007 (Unaudited) and December 31, 2006                           |                                                         | 2          |       |
|                                                                                                         |                                                         |       |       |
| Consolidated Statements of Operations (Unaudited)  for the three and six months ended June 30, 2007 and 2006 |                                                         | 3          |       |
|                                                                                                         |                                                         |       |       |
| Consolidated Statements of Cash Flows (Unaudited)  for the six months ended June 30, 2007 and 2006           |                                                         | 4          |       |
|                                                                                                         |                                                         |       |       |
| Consolidated Statement of Partners’ Equity  (Unaudited) for the six months ended June 30, 2007          |                                                         | 5          |       |
|                                                                                                         |                                                         |       |       |
| Notes to Consolidated Financial Statements (Unaudited)                                                       |                                                         | 6-13       |       |
|                                                                                                         |                                                         |       |       |
| **Item 2. Management’s Discussion and Analysis of  Financial Condition and Results of Operations**      |                                                         |       |       |
|                                                                                                         |                                                         | 14-30      |       |
| **Item 3. Quantitative and Qualitative Disclosures About  Market Risk**                                      |                                                         | 30         |       |
| ** **                                                                                                   | ** **                                                   | ** ** | ** ** |
| **Item 4. Controls and Procedures**                                                                          |                                                         | 30         |       |
|                                                                                                         |                                                         |       |       |
| **Part  II - Other Information**                                                              | ** **                                                   |       |       |       |
|                                                                                                         |                                                         |       |       |
| Item  1.                                                                                                     | Legal  Proceedings                                           |       | 31         |       |
| Item  1A.                                                                                                    | Risk  Factors                                                |       | 31         |       |
| Item 2.                                                                                                      | Unregistered Sales of Equity Securities and Use of  Proceeds |       | 31-32      |       |
| Item 3.                                                                                                      | Defaults Upon Senior Securities                              |       | 32         |       |
| Item 4.                                                                                                      | Submission of Matters to a Vote of Security Holders          |       | 32-33      |       |
| Item  5.                                                                                                     | Other  Information                                           |       | 33         |       |
| Item 6.                                                                                                      | Exhibits                                                     |       | 33-34      |       |
|                                                                                                              |                                                              |            |            |            |  |  |

 

----

**PART I -FINANCIAL INFORMATION**

**Item1.  Financial Statements**

**DUKEREALTY LIMITED PARTNERSHIP AND SUBSIDIARIES**

**ConsolidatedBalance Sheets**

**(inthousands)**
| ** **                                                                                  | ** ** | **June 30,** | ** **    | **December 31,** | ** ** |
|---------------------------------------------------------------------------------------------|------------|-------------------|---------------|-----------------------|------------|
| ** **                                                                                  | ** ** | **2007**          | ** **    | **2006**              | ** ** |
| **ASSETS**                                                                                  | ** ** | **(Unaudited)**   |          |                  |       |
| Real estate  investments:                                                                   |       |              |          |                  |       |
| Land and  improvements                                                                      | ** ** | **$**             | **773,469**   |                  | $          | 844,091 |   |
| Buildings and  tenant improvements                                                          | ** ** | **4,300,028**     |          | 4,211,602             |       |
| Construction in  progress                                                                   | ** ** | **559,177**       |          | 359,765               |       |
| Investments in  and advances to unconsolidated companies                                    | ** ** | **537,547**       |          | 628,323               |       |
| Land held for  development                                                                  | ** ** | **797,983**       |          | 737,752               |       |
| ** **                                                                                  | ** ** | **6****,968,204** |          | 6,781,533             |       |
| Accumulated  depreciation                                                                   | ** ** | **(883,601**      | **)**         | (867,079              | )          |
|                                                                                        | ** ** | ** **        | ** **    |                  |       |
| Net real estate  investments                                                                | ** ** | **6,084,603**     |          | 5,914,454             |       |
|                                                                                        | ** ** | ** **        |          |                  |       |
| Real estate  investments and other assets held for sale                                     | ** ** | **374,573**       |          | 512,925               |       |
|                                                                                        | ** ** | ** **        |          |                  |       |
| Cash and cash  equivalents                                                                  | ** ** | **45,021**        |          | 68,154                |       |
| Accounts receivable,  net of allowance of $1,565 and $1,088                                 | ** ** | **19,921**        |          | 24,118                |       |
| Straight-line rent  receivable, net of allowance of $1,962 and $1,915                       | ** ** | **107,408**       |          | 105,319               |       |
| Receivables on  construction contracts, including retentions                                | ** ** | **48,911**        |          | 64,768                |       |
| Deferred financing  costs, net of accumulated amortization of $24,804 and $19,492           | ** ** | **56,984**        |          | 62,277                |       |
| Deferred leasing and  other costs, net of accumulated amortization of $134,041 and $127,155 | ** ** | **332,889**       |          | 311,553               |       |
| Escrow deposits and  other assets                                                           | ** ** | **232,146**       |          | 174,636               |       |
| ** **                                                                                  | ** ** | **$**             | **7,302,456** |                  | $          | 7,238,204 |   |
| **LIABILITIES  AND PARTNERS’ EQUITY**                                                  | ** ** | ** **        |          |                  |       |
| Indebtedness:                                                                               |       |              |          |                  |       |
| Secured debt                                                                                | ** ** | **$**             | **495,551**   |                  | $          | 515,192 |   |
| Unsecured notes                                                                             | ** ** | **3,143,351**     |          | 3,129,653             |       |
| Unsecured line  of credit                                                                   | ** ** | **440,000**       |          | 317,000               |       |
| ** **                                                                                  | ** ** | **4,078,902**     |          | 3,961,845             |       |
| Liabilities of  properties held for sale                                                    | ** ** | **40,375**        |          | 155,185               |       |
|                                                                                        | ** ** | ** **        |          |                  |       |
| Construction payables  and amounts due subcontractors, including retentions                 | ** ** | **126,397**       |          | 136,508               |       |
| Accrued expenses:                                                                           |       |              |          |                  |       |
| Real estate  taxes                                                                          | ** ** | **70,629**        |          | 59,273                |       |
| Interest                                                                                    | ** ** | **52,259**        |          | 52,106                |       |
| Other                                                                                       | ** ** | **35,772**        |          | 62,078                |       |
| Other liabilities                                                                           | ** ** | **135,589**       |          | 119,765               |       |
| Tenant security  deposits and prepaid rents                                                 | ** ** | **33,353**        |          | 31,121                |       |
| Total  liabilities                                                                          | ** ** | **4,573,276**     |          | 4,577,881             |       |
|                                                                                        | ** ** | ** **        |          |                  |       |
| Minority interest                                                                           | ** ** | **1,141**         |          | 1,080                 |       |
|                                                                                        | ** ** | ** **        |          |                  |       |
| Partners’ equity:                                                                      |       |              |          |                  |       |
| General Partner                                                                             |       |              |          |                  |       |
| Common equity                                                                               | ** ** | **1,725,736**     |          | 1,625,958             |       |
| Preferred equity  (liquidation preferences of $876,250)                                     | ** ** | **876,250**       |          | 876,250               |       |
| ** **                                                                                  | ** ** | **2,601,986**     |          | 2,502,208             |       |
| Limited  Partners’ common equity                                                       | ** ** | **109,269**       |          | 151,600               |       |
| Accumulated  other comprehensive income                                                     | ** ** | **16,784**        |          | 5,435                 |       |
| Total Partners’  equity                                                                | ** ** | **2,728,039**     |          | 2,659,243             |       |
| ** **                                                                                  | ** ** | **$**             | **7,302,456** |                  | $          | 7,238,204 |   |

 

See accompanying Notes to Consolidated FinancialStatements.

2

----

**DUKEREALTY LIMITED PARTNERSHIP AND SUBSIDIARIESConsolidated Statements of OperationsFor the three and six months ended June 30,(in thousands, except per unit amounts)(Unaudited)**
| ** **                                                                         | ** ** | **Three Months Ended** | ** **  | **Six Months Ended** | ** ** |
|------------------------------------------------------------------------------------|------------|----------------------------------|-------------|--------------------------------|------------|
| ** **                                                                         | ** ** | **2007**                         | ** **  | **2006**                       | ** ** | **2007** | ** ** | **2006** | ** ** |
| **RENTAL OPERATIONS:**                                                             |       |                             |        |                           |       |   |   |   |   |
| Revenues:                                                                          |       |                             |        |                           |       |   |   |   |   |
| Rental income  from continuing operations                                          | ** ** | **$**                            | **189,705** |                           | $          | 185,574 | ** ** | **$** | **388,008** |   | $ | 360,816 |   |
| Equity in  earnings of unconsolidated companies                                    | ** ** | **7,949**                        |        | 9,696                          | ** ** | **15,640** |   | 17,955 |   |
|                                                                               | ** ** | **197,654**                      |        | 195,270                        | ** ** | **403,648** |   | 378,771 |   |
| Operating  expenses:                                                               |       |                             |        |                           |       |   |   |   |   |
| Rental expenses                                                                    | ** ** | **41,036**                       |        | 40,945                         | ** ** | **88,625** |   | 82,298 |   |
| Real estate  taxes                                                                 | ** ** | **24,148**                       |        | 22,132                         | ** ** | **48,519** |   | 42,855 |   |
| Interest expense                                                                   | ** ** | **39,207**                       |        | 42,192                         | ** ** | **82,444** |   | 77,540 |   |
| Depreciation and  amortization                                                     | ** ** | **65,943**                       |        | 59,405                         | ** ** | **130,984** |   | 114,300 |   |
| ** **                                                                         | ** ** | **170,334**                      |        | 164,674                        | ** ** | **350,572** |   | 316,993 |   |
| Earnings from  continuing rental operations                                        | ** ** | **27,320**                       |        | 30,596                         | ** ** | **53,076** |   | 61,778 |   |
| **SERVICE OPERATIONS**                                                             |       |                             |        |                           |       |   |   |   |   |
| Revenues:                                                                          |       |                             |        |                           |       |   |   |   |   |
| General  contractor gross revenue                                                  | ** ** | **63,561**                       |        | 54,061                         | ** ** | **117,718** |   | 123,610 |   |
| General  contractor costs                                                          | ** ** | **(55,990**                      | **)**       | (48,798                        | )          | **(104,678** | **)** | (113,006 | ) |
| Net general  contractor revenue                                                    | ** ** | **7,571**                        |        | 5,263                          | ** ** | **13,040** |   | 10,604 |   |
| Service fee  revenue                                                               | ** ** | **7,655**                        |        | 4,430                          | ** ** | **14,052** |   | 8,848 |   |
| Gain on sale of  service operations properties                                     | ** ** | **6,813**                        |        | 25                             | ** ** | **9,677** |   | 272 |   |
| Total revenue                                                                      | ** ** | **22,039**                       |        | 9,718                          | ** ** | **36,769** |   | 19,724 |   |
| Operating  expenses                                                                | ** ** | **10,021**                       |        | 6,242                          | ** ** | **17,817** |   | 11,798 |   |
| Earnings from  service operations                                                  | ** ** | **12,018**                       |        | 3,476                          | ** ** | **18,952** |   | 7,926 |   |
| General and  administrative expense                                                | ** ** | **(10,606**                      | **)**       | (6,953                         | )          | **(24,065** | **)** | (20,882 | ) |
| Operating income                                                                   | ** ** | **28,732**                       |        | 27,119                         | ** ** | **47,963** |   | 48,822 |   |
| **OTHER INCOME (EXPENSE)**                                                         |       |                             |        |                           |       |   |   |   |   |
| Interest and  other income, net                                                    | ** ** | **2,566**                        |        | 1,952                          | ** ** | **4,984** |   | 3,932 |   |
| Earnings from  sale of land, net of impairment adjustment                          | ** ** | **2,411**                        |        | 554                            | ** ** | **16,408** |   | 2,445 |   |
| Other minority  interest in earnings of subsidiaries                               | ** ** | **(36**                          | **)**       | (73                            | )          | **(51** | **)** | (175 | ) |
| Income from  continuing operations                                                 | ** ** | **33,673**                       |        | 29,552                         | ** ** | **69,304** |   | 55,024 |   |
| Discontinued  operations:                                                          |       |                             |        |                           |       |   |   |   |   |
| Net income from  discontinued operations                                           | ** ** | **917**                          |        | 6,271                          | ** ** | **2,265** |   | 8,346 |   |
| Gain on sale of  properties                                                        | ** ** | **20,361**                       |        | 1,500                          | ** ** | **72,081** |   | 2,004 |   |
| Income from  discontinued operations                                               | ** ** | **21,278**                       |        | 7,771                          | ** ** | **74,346** |   | 10,350 |   |
| Net income                                                                         | ** ** | **54,951**                       |        | 37,323                         | ** ** | **143,650** |   | 65,374 |   |
| Dividends on  Preferred Units                                                      | ** ** | **(15,226**                      | **)**       | (13,255                        | )          | **(30,452** | **)** | (25,967 | ) |
| Adjustments for  redemption of Preferred Units                                     | ** ** | **—**                       |        | —                         | ** ** | **—** |   | (2,633 | ) |
| Net income  available for common unitholders                                       | ** ** | **$**                            | **39,725**  |                           | $          | 24,068 | ** ** | **$** | **113,198** |   | $ | 36,774 |   |
| Basic net income  per Common Unit:                                                 |       |                             |        |                           |       |   |   |   |   |
| Continuing  operations                                                             | ** ** | **$**                            | **.13**     |                           | $          | .11 | ** ** | **$** | **.26** |   | $ | .18 |   |
| Discontinued  operations                                                           | ** ** | **.14**                          |        | .05                            | ** ** | **.51** |   | .07 |   |
| Total                                                                              | ** ** | **$**                            | **.27**     |                           | $          | .16 | ** ** | **$** | **.77** |   | $ | .25 |   |
| Diluted net  income per Common Unit:                                               |       |                             |        |                           |       |   |   |   |   |
| Continuing  operations                                                             | ** ** | **$**                            | **.13**     |                           | $          | .11 | ** ** | **$** | **.26** |   | $ | .18 |   |
| Discontinued  operations                                                           | ** ** | **.14**                          |        | .05                            | ** ** | **.50** |   | .07 |   |
| Total                                                                              | ** ** | **$**                            | **.27**     |                           | $          | .16 | ** ** | **$** | **.76** |   | $ | .25 |   |
| Weighted average  number of Common Units outstanding                               | ** ** | **146,703**                      |        | 148,273                        | ** ** | **146,628** |   | 148,224 |   |
| Weighted average number  of Common Units and potential dilutive common equivalents | ** ** | **148,129**                      |        | 149,364                        | ** ** | **148,170** |   | 149,273 |   |

 

See accompanying Notes to Consolidated FinancialStatements

3

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**DUKEREALTY LIMITED PARTNERSHIP AND SUBSIDIARIESConsolidated Statements of Cash FlowsFor the six months ended June 30,(in thousands)(Unaudited)**
| ** **                                                                                                   | ** ** | **2007**     | ** **  | **2006**   | ** ** |
|--------------------------------------------------------------------------------------------------------------|------------|--------------|-------------|------------|------------|
| Cash flows from  operating activities:                                                                       |       |         |        |       |       |
| Net income                                                                                                   | ** ** | **$**        | **143,650** |       | $          | 65,374 |   |
| Adjustments to reconcile  net income to net cash provided by operating activities:                           |       |         |        |       |       |
| Depreciation of  buildings and tenant improvements                                                           | ** ** | **105,114**  |        | 103,658    |       |
| Amortization of  deferred leasing and other costs                                                            | ** ** | **31,032**   |        | 22,091     |       |
| Amortization of  deferred financing costs                                                                    | ** ** | **5,440**    |        | 3,818      |       |
| Minority  interest in earnings                                                                               | ** ** | **51**       |        | 175        |       |
| Straight-line  rent adjustment                                                                               | ** ** | **(9,592**   | **)**       | (10,207    | )          |
| Earnings from  land and depreciated property sales                                                           | ** ** | **(88,489**  | **)**       | (4,449     | )          |
| Build-for-sale  operations, net                                                                              | ** ** | **(123,267** | **)**       | (93,673    | )          |
| Construction  contracts, net                                                                                 | ** ** | **8,687**    |        | (3,878     | )          |
| Other accrued  revenues and expenses, net                                                                    | ** ** | **6,680**    |        | 12,744     |       |
| Operating  distributions received in excess of (less than) equity in earnings from  unconsolidated companies | ** ** | **2,159**    |        | (11,520    | )          |
| **Net  cash provided by operating activities**                                                               | ** ** | **81,465**   |        | 84,133     |       |
| ** **                                                                                                   | ** ** | ** **   |        |       |       |
| Cash flows from  investing activities:                                                                       |       |         |        |       |       |
| Development of  real estate investments                                                                      | ** ** | **(186,940** | **)**       | (167,746   | )          |
| Acquisition of  real estate investments and related intangible assets                                        | ** ** | **(79,661**  | **)**       | (675,723   | )          |
| Acquisition of  land held for development                                                                    | ** ** | **(125,908** | **)**       | (284,609   | )          |
| Recurring tenant  improvements                                                                               | ** ** | **(22,941**  | **)**       | (25,272    | )          |
| Recurring  leasing costs                                                                                     | ** ** | **(14,872**  | **)**       | (6,217     | )          |
| Recurring  building improvements                                                                             | ** ** | **(2,373**   | **)**       | (3,146     | )          |
| Other deferred  leasing costs                                                                                | ** ** | **(10,784**  | **)**       | (23,349    | )          |
| Other deferred  costs and other assets                                                                       | ** ** | **(2,522**   | **)**       | (20,134    | )          |
| Proceeds from  land and depreciated property sales, net                                                      | ** ** | **269,434**  |        | 29,686     |       |
| Capital  distributions from unconsolidated companies                                                         | ** ** | **195,427**  |        | 21,238     |       |
| Repayments from  (advances to) unconsolidated companies                                                      | ** ** | **(69,350**  | **)**       | 5,321      |       |
| **Net  cash used for investing activities**                                                                  | ** ** | **(50,490**  | **)**       | (1,149,951 | )          |
| Cash flows from  financing activities:                                                                       |       |         |        |       |       |
| Payments for  repurchases of Common Units                                                                    |       | —       |        | (11,883    | )          |
| Proceeds from  issuance of the General Partner’s stock options                                          | ** ** | **136**      |        | 5,607      |       |
| Proceeds from  issuance of Preferred Units, net                                                              |       | —       |        | 283,994    |       |
| Payments for  redemption of Preferred Units                                                                  |       | —       |        | (75,000    | )          |
| Proceeds from  unsecured debt issuance                                                                       | ** ** | **13,824**   |        | 150,000    |       |
| Payments on  unsecured debt                                                                                  |       | —       |        | (100,000   | )          |
| Proceeds from  issuance of secured debt                                                                      |       | —       |        | 710,450    |       |
| Payments on secured  indebtedness including principal amortization                                           | ** ** | **(19,804**  | **)**       | (19,449    | )          |
| Borrowings on  line of credit, net                                                                           | ** ** | **123,000**  |        | 287,000    |       |
| Distributions to  common unitholders                                                                         | ** ** | **(139,389** | **)**       | (139,716   | )          |
| Distributions to  preferred unitholders                                                                      | ** ** | **(30,452**  | **)**       | (25,967    | )          |
| Distributions to  minority interest, net                                                                     |       | —       |        | (71        | )          |
| Deferred  financing costs                                                                                    | ** ** | **(1,423**   | **)**       | (19,034    | )          |
| **Net  cash provided by (used for) financing activities**                                                    | ** ** | **(54,108**  | **)**       | 1,045,931  |       |
| **Net  decrease in cash and cash equivalents**                                                               | ** ** | **(23,133**  | **)**       | (19,887    | )          |
|                                                                                                         |       |         |        |       |       |
| Cash and cash  equivalents at beginning of period                                                            | ** ** | **68,154**   |        | 26,858     |       |
| Cash and cash  equivalents at end of period                                                                  | ** ** | **$**        | **45,021**  |       | $          | 6,971 |   |
| Other non-cash  items:                                                                                       |       |         |        |       |       |
| Assumption of  secured debt for real estate acquisitions                                                     | ** ** | **$**        | **—**  |       | $          | 206,020 |   |
| Conversion of  Limited Partner Units to common shares of the General Partner                                 | ** ** | **$**        | **66,635**  |       | $          | 3,047 |   |
| Contribution of  real estate investments to, net of debt assumed by, unconsolidated companies                | ** ** | **$**        | **125,353** |       | $          | 36,557 |   |
| Issuance of Limited  Partner Units for acquisition                                                           | ** ** | **$**        | **11,020**  |       | $          | — |   |

 

See accompanying Notes to Consolidated FinancialStatements

4

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**DUKEREALTY LIMI TE D PARTNERSHIP AND SUBSIDIARIESConsolidated Statement of Partners’ EquityFor the six months ended June 30, 2007(in thousands, except per unit data)(Unaudited)**
| ** **                                                               | ** ** | ** **               | ** **    | ** **         | ** ** | **Limited** | ** ** | **Accumulated**        | ** **  | ** **  | ** ** |
|--------------------------------------------------------------------------|------------|--------------------------|---------------|--------------------|------------|-------------|------------|------------------------|-------------|-------------|------------|
| ** **                                                               | ** ** | **General Partner** | ** **    | **Partners’** | ** ** | **Other**   | ** ** | ** **             | ** **  |
| ** **                                                               | ** ** | **Common**               | ** **    | **Preferred**      | ** ** | **Common**  | ** ** | **Comprehensive**      | ** **  | ** **  | ** ** |
| ** **                                                               | ** ** | **Equity**               | ** **    | **Equity**         | ** ** | **Equity**  | ** ** | **Income (Loss)** | ** **  | **Total**   | ** ** |
| **Balance at December 31, 2006**                                         | ** ** | **$**                    | **1,625,958** | ** **         | **$**      | **876,250** | ** ** | **$**                  | **151,600** | ** **  | **$**      | **5,435** | ** ** | **$** | **2,659,243** | ** ** |
| ** **                                                               | ** ** | ** **               | ** **    | ** **         | ** ** | ** **  | ** ** | ** **             | ** **  | ** **  | ** ** |
| Effect of implementing  new accounting principle                         |       | (1,717                   | )             | —             |       | —      |       | —                 |        | (1,717      | )          |
|                                                                     |       |                     |          |               |       |        |       |                   |        |        |       |
| **Balance at January 1, 2007**                                           | ** ** | **$**                    | **1,624,241** | ** **         | **$**      | **876,250** | ** ** | **$**                  | **151,600** | ** **  | **$**      | **5,435** | ** ** | **$** | **2,657,526** | ** ** |
| ** **                                                               | ** ** | ** **               | ** **    | ** **         | ** ** | ** **  | ** ** | ** **             | ** **  | ** **  | ** ** |
| Comprehensive income:                                                    |       |                     |          |               |       |        |       |                   |        |        |       |
|                                                                     |       |                     |          |               |       |        |       |                   |        |        |       |
| Net income                                                               |       | 105,639                  |          | 30,452             |       | 7,559       |       | —                 |        | 143,650     |       |
|                                                                     |       |                     |          |               |       |        |       |                   |        |        |       |
| Gains on  derivative instruments                                         |       | —                   |          | —             |       | —      |       | 11,349                 |        | 11,349      |       |
|                                                                     |       |                     |          |               |       |        |       |                   |        |        |       |
| Comprehensive  income                                                    |       |                     |          |               |       |        |       |                   |        | 154,999     |       |
|                                                                     |       |                     |          |               |       |        |       |                   |        |        |       |
| Acquisition of  Partnership interest for common stock of General Partner |       | 118,239                  |          | —             |       | (51,604     | )          | —                 |        | 66,635      |       |
|                                                                     |       |                     |          |               |       |        |       |                   |        |        |       |
| Unit Issuance                                                            |       | —                   |          | —             |       | 11,020      |       | —                 |        | 11,020      |       |
|                                                                     |       |                     |          |               |       |        |       |                   |        |        |       |
| Stock based  compensation plan activity                                  |       | 7,700                    |          | —             |       | —      |       | —                 |        | 7,700       |       |
|                                                                     |       |                     |          |               |       |        |       |                   |        |        |       |
| Distributions to  Preferred Unitholders                                  |       | —                   |          | (30,452            | )          | —      |       | —                 |        | (30,452     | )          |
|                                                                     |       |                     |          |               |       |        |       |                   |        |        |       |
| Distributions to  Partners ($.95 per Common Unit)                        |       | (130,083                 | )             | —             |       | (9,306      | )          | —                 |        | (139,389    | )          |
|                                                                     |       |                     |          |               |       |        |       |                   |        |        |       |
| **Balance at June 30, 2007**                                             | ** ** | **$**                    | **1,725,736** | ** **         | **$**      | **876,250** | ** ** | **$**                  | **109,269** | ** **  | **$**      | **16,784** | ** ** | **$** | **2,728,039** | ** ** |
| ** **                                                               | ** ** | ** **               | ** **    | ** **         | ** ** | ** **  | ** ** | ** **             | ** **  | ** **  | ** ** |
| **Common Units outstanding at June 30, 2007**                            | ** ** | **136,942**              | ** **    | ** **         | ** ** | **9,771**   |       |                   |        | **146,713** |       |

 

See accompanying Notes to Consolidated FinancialStatements

5

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**DUKEREALTY LIMITED PARTNERSHIPNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)**

**1.****                                     GeneralBasis of Presentation**

The interim consolidated financial statements includedherein have been prepared by Duke Realty Limited Partnership (the “Partnership”)without audit (except for the Balance Sheet as of December 31, 2006). Thefinancial statements have been prepared in accordance with U.S. generallyaccepted accounting principles (“GAAP”) for interim financial information andin accordance with Rule 10-01 of Regulation S-X of the Securities Exchange Actof 1934, as amended. Accordingly, they do not include all of the informationand footnotes required by GAAP for complete financial statements. In theopinion of management, all adjustments (consisting of normal recurringadjustments) considered necessary for a fair presentation have been included.GAAP requires us to make estimates and assumptions that affect the reportedamounts of assets and liabilities and revenue and expenses during the reportingperiod. Our actual results could differ from those estimates and assumptions.These financial statements should be read in conjunction with Management’sDiscussion and Analysis of Financial Condition and Results of Operationsincluded herein and the consolidated financial statements and notes theretoincluded in our Annual Report on Form 10-K for the year ended December 31,2006.

The Partnership was formed on October 4, 1993, whenDuke Realty Corporation (the “General Partner”) contributed all of itsproperties and related assets and liabilities, along with the net proceeds fromthe issuance of additional shares of the General Partner through an offering,to the Partnership. The General Partner qualifies as a real estate investmenttrust (“REIT”) under provisions of the Internal Revenue Code. The GeneralPartner is the sole general partner of the Partnership, owning 93.3% of thecommon partnership interests as of June 30, 2007 (“General Partner Units”). Theremaining 6.7% of the Partnership’s common interest is owned by limitedpartners (“Limited Partner Units” and, together with the General Partner Units,the “Common Units”). The Limited Partner Units are exchangeable for shares ofthe General Partner’s common stock on a one-for-one basis subject generally toa one-year holding period or, under certain circumstances, the General Partnermay repurchase the Limited Partner Units for cash. The General Partner alsoowns preferred partnership interests in the Partnership (“Preferred Units”).

We own and operate aportfolio primarily consisting of industrial and office properties and providereal estate services to third-party owners. We conduct our Service Operations(as defined below) through Duke Realty Services, LLC,Duke Realty ServicesLimited Partnership and Duke Construction Limited Partnership,. Theconsolidated financial statements include our accounts and our majority-ownedor controlled subsidiaries. In this Quarterly Report on Form 10-Q (this “Report”),the terms “we,” “us” and “our” refer to the Partnership and those entitiesowned or controlled by the Partnership.

**2.****                                      Reclassifications**

Certain 2006 balanceshave been reclassified to conform to the 2007 presentation.

6

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**3.****                                      Acquisitions**

In February 2007, we closed on the acquisition ofBremner Healthcare Real Estate (“Bremner”), a national health care developmentand management firm. The primary reason for the acquisition was to expand ourdevelopment capabilities within the health care real estate market.

The initial consideration paid to the sellers totaled$47.1 million and the sellers will be eligible for further contingent paymentsover the next three years.

Approximately $39.1million of the total purchase price is allocated to goodwill, which isattributable to the value of Bremner’s overall development capabilities and itsin-place workforce. The results of operations for Bremner since the date ofacquisition have been included in continuing operations in our consolidatedfinancial statements.

**4.****                                      Indebtedness**

We had an unsecured line of credit available as ofJune 30, 2007, described as follows (dollars in thousands):
| ** **                | ** ** | **Borrowing** | ** ** | **Maturity**  | ** ** | **Interest**   | ** ** | **Outstanding Balance**        | ** ** |
|---------------------------|------------|---------------|------------|---------------|------------|----------------|------------|-------------------------------------|------------|
| **Description**           | ** ** | **Capacity**  | ** ** | **Date**      | ** ** | **Rate**       | ** ** | **at June 30, 2007** | ** ** |
| Unsecured Line  of Credit |       | $1,000,000    |       | January  2010 |       | LIBOR  + .525% |       | $440,000                            |       |

 

We use this line of credit to fund development activities, acquireadditional rental properties and provide working capital.

The line of credit provides us with an option to obtain borrowings fromfinancial institutions that participate in the line, at rates lower than thestated interest rate, subject to certain restrictions. Interest rates on theamounts outstanding on the unsecured line of credit as of June 30, 2007 rangefrom LIBOR +.16% to LIBOR +.525% (equal to 5.480% and 5.845% as of June 30,2007).

The line of credit also containsfinancial covenants that require us to meet financial ratios and defined levelsof performance, including those related to variable rate indebtedness,consolidated net worth and debt-to-market capitalization. As of June 30, 2007,we were in compliance with all covenants under our line of credit.

**5.****                                      RelatedParty Transactions**

We provide propertymanagement, leasing, construction and other tenant related services tounconsolidated companies in which we have equity interests. For the six monthsended June 30, 2007 and 2006, we received management fees of $3.3 million and$2.2 million, leasing fees of $1.4 million and $1.6 million and constructionand development fees of $6.5 million and $3.2 million, respectively, from thesecompanies.  These fees approximate marketrates for these types of services and we have eliminated our ownershippercentage of these fees in the condensed consolidated financial statements.

**6.****                                      NetIncome Per Common Unit**

Basic net income per Common Unit is computed by dividing net incomeavailable for common unitholders by the weighted average number of Common Unitsoutstanding for the period. Diluted net income per Common Unit is computed bydividing net income available for common unitholders by the sum of the weightedaverage number of Common Units outstanding and any potential dilutive commonequivalents for the period.

7

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The following table reconciles the components of basic and diluted netincome per Common Unit for the three and six months ended June 30, 2007 and2006, respectively (in thousands):
| ** **                                                                         | ** ** | **Three Months Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
|------------------------------------------------------------------------------------|------------|-----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                                         | ** ** | **2007**                                            | ** ** | **2006**                                          | ** ** | **2007** | ** ** | **2006** | ** ** |
| Basic and  diluted net income available for common unitholders                     | ** ** | **$**                                               | **39,725** |                                              | $          | 24,068 | ** ** | **$** | **113,198** |   | $ | 36,774 |   |
|                                                                               | ** ** | ** **                                          |       |                                              | ** ** | ** ** |   |   |   |
| Weighted average  number of Common Units outstanding                               | ** ** | **146,703**                                         |       | 148,273                                           | ** ** | **146,628** |   | 148,224 |   |
| Dilutive units  for stock-based compensation plans(1)                              | ** ** | **1,426**                                           |       | 1,091                                             | ** ** | **1,542** |   | 1,049 |   |
| Weighted average number  of Common Units and potential dilutive common equivalents | ** ** | **148,129**                                         |       | 149,364                                           | ** ** | **148,170** |   | 149,273 |   |
|                                                                                    |            |                                                     |            |                                                   |            |  |  |  |  |  |  |  |  |

----

(1)                                  Excludesthe effect of outstanding stock options, as well as Exchangeable Senior Notes (“ExchangeableNotes”) issued in 2006, that have an anti-dilutive effect on earnings per unitfor the three and six-month periods ended June 30, 2007 and 2006.  Additionally, a partner in one of ourunconsolidated joint ventures has the option to convert a portion of itsownership in the joint venture to the General Partner’s common shares.  The effect of this option on earnings perunit is anti-dilutive for the three and six-month periods ended June 30, 2007and 2006.

**7.****                                      SegmentReporting**

We are engaged in threereportable operating segments, the first two of which consist of the ownershipand rental of office and industrial real estate investments (collectively, “RentalOperations”). The third reportable segment consists of our build-to-suit forsale operations and providing of various real estate services such as propertymanagement, maintenance, leasing, development and construction management tothird-party property owners and joint ventures (“Service Operations”). Ourreportable segments offer different products or services and are managedseparately because each segment requires different operating strategies andmanagement expertise.

The assets of the ServiceOperations business segment generally include properties underdevelopment.  During the period betweenthe completion of development, rehabilitation or repositioning of a ServiceOperations property and the date the property is contributed to a property fundor sold to a third party, the property and its associated rental income andrental expenses are included in the applicable Rental Operations segmentbecause the primary activity associated with the Service Operations propertyduring that period is rental activities. Upon contribution or sale, theresulting gain or loss is part of the income of the Service Operations businesssegment.

Non-segmentrevenue consists mainly of equity in earnings of unconsolidated companies andother insignificant rental operations such as retail and medical officeproperties. Segment FFO information (FFO is defined below) is calculated bysubtracting operating expenses attributable to the applicable segment fromsegment revenues. Non-segment assets consist of corporate assets, includingcash, deferred financing costs and investments in unconsolidated companies.Interest expense and other non-property specific revenues and expenses are notallocated to individual segments in determining our performance measure.

8

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We assess andmeasure segment operating results based upon an industry performance measurereferred to as Funds From Operations (“FFO”), which management believes is auseful indicator of our operating performance. FFO is used by industry analysts and investors as a supplementaloperating performance measure of an equity real estate investment trust (“REIT”)like our General Partner. FFO is calculated in accordance with the definitionthat was adopted by the Board of Governors of the National Association of RealEstate Investment Trusts (“NAREIT”). NAREIT created FFO as a supplemental measure of REIT operatingperformance that excludes historical cost depreciation, among other items, fromnet income determined in accordance with GAAP. FFO is a non-GAAP financialmeasure developed by NAREIT to compare the operating performance of REITs. Themost comparable GAAP measure is net income (loss).  FFO should not be considered as a substitutefor net income or any other measures derived in accordance with GAAP and may notbe comparable to other similarly titled measures of other companies.

Historical cost accounting for real estate assets inaccordance with GAAP implicitly assumes that the value of real estate assetsdiminishes predictably over time.  Sincereal estate values instead have historically risen or fallen with marketconditions, many industry analysts and investors have considered presentationof operating results for real estate companies that use historical costaccounting to be insufficient by themselves.  FFO, as defined by NAREIT, represents GAAP netincome (loss), excluding extraordinary items as defined under GAAP and gains orlosses from sales of previously depreciated operating real estate assets, pluscertain non-cash items such as real estate asset depreciation and amortization,and after similar adjustments for unconsolidated partnerships and jointventures.

Management believes that the use of FFO, combined withthe required primary GAAP presentations, improves the understanding ofoperating results of REITs among the investing public and makes comparisons ofREIT operating results more meaningful. Management believes FFO is a useful measure for reviewing comparativeoperating and financial performance (although FFO should be reviewed inconjunction with net income which remains the primary measure of performance)because by excluding gains or losses related to sales of previously depreciatedoperating real estate assets and excluding real estate asset depreciation andamortization, FFO provides a useful comparison of the operating performance ofour real estate between periods or as compared to different companies.

9

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The following table shows (i) the revenues and FFO foreach of the reportable segments and (ii) a reconciliation of net incomeavailable for common unitholders to the calculation of FFO for the three andsix months ended June 30, 2007 and 2006, respectively (in thousands):
| ** **                                                          | ** ** | **Three Months Ended June 30,** | ** **  | **Six Months Ended June 30,** | ** ** |
|---------------------------------------------------------------------|------------|-----------------------------------------------------|-------------|---------------------------------------------------|------------|
| ** **                                                          | ** ** | **2007**                                            | ** **  | **2006**                                          | ** ** | **2007** | ** ** | **2006** | ** ** |
| Revenues                                                            |       |                                                |        |                                              |       |   |   |   |   |
| Rental  Operations:                                                 |       |                                                |        |                                              |       |   |   |   |   |
| Office                                                              | ** ** | **$**                                               | **129,490** |                                              | $          | 133,597 | ** ** | **$** | **269,028** |   | $ | 260,678 |   |
| Industrial                                                          | ** ** | **54,140**                                          |        | 48,227                                            | ** ** | **108,840** |   | 93,739 |   |
| Service Operations                                                  | ** ** | **22,039**                                          |        | 9,718                                             | ** ** | **36,769** |   | 19,724 |   |
| Total Segment Revenues                                              | ** ** | **205,669**                                         |        | 191,542                                           | ** ** | **414,637** |   | 374,141 |   |
| Non-Segment Revenue                                                 | ** ** | **14,024**                                          |        | 13,446                                            | ** ** | **25,780** |   | 24,354 |   |
| Consolidated Revenue from continuing operations                     | ** ** | **$**                                               | **219,693** |                                              | $          | 204,988 | ** ** | **$** | **440,417** |   | $ | 398,495 |   |
| Discontinued Operations                                             | ** ** | **10,152**                                          |        | 22,738                                            | ** ** | **25,041** |   | 42,102 |   |
| Consolidated Revenue                                                | ** ** | **$**                                               | **229,845** |                                              | $          | 227,726 | ** ** | **$** | **465,458** |   | $ | 440,597 |   |
| Funds  From Operations                                              |       |                                                |        |                                              |       |   |   |   |   |
| Rental  Operations:                                                 |       |                                                |        |                                              |       |   |   |   |   |
| Office                                                              | ** ** | **$**                                               | **80,133**  |                                              | $          | 83,037 | ** ** | **$** | **164,120** |   | $ | 161,291 |   |
| Industrial                                                          | ** ** | **42,505**                                          |        | 37,274                                            | ** ** | **83,615** |   | 71,020 |   |
| Services Operations                                                 | ** ** | **12,018**                                          |        | 3,476                                             | ** ** | **18,952** |   | 7,926 |   |
| Total Segment FFO                                                   | ** ** | **134,656**                                         |        | 123,787                                           | ** ** | **266,687** |   | 240,237 |   |
| Non-Segment FFO:                                                    |       |                                                |        |                                              |       |   |   |   |   |
| Interest expense                                                    | ** ** | **(39,207**                                         | **)**       | (42,192                                           | )          | **(82,444** | **)** | (77,540 | ) |
| Interest and other income, net                                      | ** ** | **2,566**                                           |        | 1,952                                             | ** ** | **4,984** |   | 3,932 |   |
| General and  administrative expense                                 | ** ** | **(10,606**                                         | **)**       | (6,953                                            | )          | **(24,065** | **)** | (20,882 | ) |
| Gain on land  sales, net of impairment                              | ** ** | **2,411**                                           |        | 554                                               | ** ** | **16,408** |   | 2,445 |   |
| Other  non-segment income                                           | ** ** | **1,882**                                           |        | 2,155                                             | ** ** | **3,129** |   | 3,321 |   |
| Minority  interest                                                  | ** ** | **(36**                                             | **)**       | (73                                               | )          | **(51** | **)** | (175 | ) |
|                                                                | ** ** | ** **                                          | ** **  |                                              |       | ** ** | ** ** |   |   |
| Joint venture FFO                                                   | ** ** | **13,689**                                          |        | 8,721                                             | ** ** | **24,387** |   | 18,719 |   |
| Dividends on  Preferred Units                                       | ** ** | **(15,226**                                         | **)**       | (13,255                                           | )          | **(30,452** | **)** | (25,967 | ) |
| Adjustment for  redemption of Preferred Units                       |       | —                                              |        | —                                            | ** ** | **—** |   | (2,633 | ) |
| Discontinued  operations                                            | ** ** | **3,381**                                           |        | 12,033                                            | ** ** | **7,427** |   | 19,795 |   |
| Consolidated basic FFO                                              | ** ** | **$**                                               | **93,510**  |                                              | $          | 86,729 | ** ** | **$** | **186,010** |   | $ | 161,252 |   |
| Depreciation and  amortization on continuing operations             | ** ** | **(65,943**                                         | **)**       | (59,405                                           | )          | **(130,984** | **)** | (114,300 | ) |
| Depreciation and  amortization on discontinued operations           | ** ** | **(2,464**                                          | **)**       | (5,762                                            | )          | **(5,162** | **)** | (11,449 | ) |
| Partnership’s  share of joint venture adjustments              | ** ** | **(5,610**                                          | **)**       | (4,425                                            | )          | **(10,578** | **)** | (9,127 | ) |
| Earnings from depreciated property sales on discontinued operations | ** ** | **20,361**                                          |        | 1,531                                             | ** ** | **72,081** |   | 2,036 |   |
| Earnings from depreciated property sales- share of joint venture    | ** ** | **(129**                                            | **)**       | 5,400                                             | ** ** | **1,831** |   | 8,362 |   |
|                                                                | ** ** | ** **                                          | ** **  |                                              | ** ** | ** ** |   |   |   |
| Net  income available for common unitholders                        | ** ** | **$**                                               | **39,725**  |                                              | $          | 24,068 | ** ** | **$** | **113,198** |   | $ | 36,774 |   |

 

10

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The assets for each of the reportable segments as of June 30, 2007 andDecember 31, 2006, respectively, are as follows (in thousands):

|                      | ** ** | **June 30,** | ** **    | **December 31,** | ** ** |
|----------------------|------------|-------------------|---------------|-----------------------|------------|
| ** **           | ** ** | **2007**          | ** **    | **2006**              | ** ** |
| Assets               |       |              |          |                  |       |
| Rental Operations:   |       |              |          |                  |       |
| Office               | ** ** | **$**             | **3,768,044** |                  | $          | 4,061,806 |   |
| Industrial           | ** ** | **2,012,178**     |          | 1,942,992             |       |
| Service Operations   | ** ** | **441,401**       |          | 301,886               |       |
| Total Segment Assets | ** ** | **6,221,623**     |          | 6,306,684             |       |
| Non-Segment Assets   | ** ** | **1,080,833**     |          | 931,520               |       |
| Consolidated Assets  | ** ** | **$**             | **7,302,456** |                  | $          | 7,238,204 |   |

 

In addition to revenues and FFO, we also review our recurring capitalexpenditures in measuring the performance of our individual Rental Operationssegments. These recurring capital expenditures consist of tenant improvements,leasing commissions and building improvements. We review these expenditures todetermine the costs associated with re-leasing vacant space and maintaining thecondition of our properties. Our recurring capital expenditures by segment aresummarized as follows for the six months ended June 30, 2007 and 2006,respectively  (in thousands):

|                                 | ** ** | **Six Months Ended June 30,** | ** ** |
|---------------------------------|------------|---------------------------------------------------|------------|
| ** **                      | ** ** | **2007**                                          | ** ** | **2006** | ** ** |
| Recurring Capital  Expenditures |       |                                              |       |   |   |
| Office                          | ** ** | **$**                                             | **33,647** |   | $ | 24,632 |   |
| Industrial                      | ** ** | **6,386**                                         |       | 9,685 |   |
| Non-segment                     | ** ** | **153**                                           |       | 318 |   |
| Total                           | ** ** | **$**                                             | **40,186** |   | $ | 34,635 |   |

 

**8.             Discontinued Operations**

We classified the operations of 66 buildings asdiscontinued operations as of June 30, 2007. These 66 buildings consist of 31industrial and 35 office properties. Of these properties, 15 were sold duringthe first six months of 2007, 21 were sold during 2006 and 30 operatingproperties are classified as held-for-sale at June 30, 2007.

The following table illustrates the operations of the buildingsreflected in discontinued operations for the three and six months ended June30, 2007 and 2006, respectively (in thousands):
| ** **                                                 | ** ** | **Three Months Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
|------------------------------------------------------------|------------|-----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                 | ** ** | **2007**                                            | ** ** | **2006**                                          | ** ** | **2007** | ** ** | **2006** | ** ** |
| Statement of  Operations:                                  |       |                                                |       |                                              |       |   |   |   |   |
| Revenues                                                   | ** ** | **$**                                               | **10,152** |                                              | $          | 22,738 | ** ** | **$** | **25,041** |   | $ | 42,102 |   |
| Expenses:                                                  |       |                                                |       |                                              |       |   |   |   |   |
| Operating                                                  | ** ** | **4,005**                                           |       | 6,822                                             | ** ** | **10,855** |   | 14,782 |   |
| Interest                                                   | ** ** | **2,754**                                           |       | 3,861                                             | ** ** | **6,735** |   | 7,474 |   |
| Depreciation and Amortization                              | ** ** | **2,464**                                           |       | 5,762                                             | ** ** | **5,162** |   | 11,449 |   |
| General and Administrative                                 | ** ** | **12**                                              |       | 22                                                | ** ** | **24** |   | 51 |   |
| Income from discontinued operations, before gain on  sales | ** ** | **917**                                             |       | 6,271                                             | ** ** | **2,265** |   | 8,346 |   |
| Gain on sale of property                                   | ** ** | **20,361**                                          |       | 1,500                                             | ** ** | **72,081** |   | 2,004 |   |
|                                                       | ** ** | ** **                                          |       |                                              | ** ** | ** ** |   |   |   |
| Income from  discontinued operations                       | ** ** | **$**                                               | **21,278** |                                              | $          | 7,771 | ** ** | **$** | **74,346** |   | $ | 10,350 |   |

 

11

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At June 30, 2007, we classified 30 properties asheld-for-sale and included in discontinued operations. Additionally, we haveclassified 14 in-service properties as held-for-sale, but have included theresults of operations of these properties in continuing operations, eitherbased on our present intention to sell the majority of our ownership interestin the properties to entities in which we will retain a minority equityownership interest or because the results of operations for the properties areimmaterial. The following table illustrates the aggregate balance sheet of theaforementioned properties included in discontinued operations, as well as the14 held-for-sale properties whose results are included in continuingoperations, at June 30, 2007 (in thousands):

|                                  | ** ** | **Properties**       | ** ** | **Properties**       | ** ** | ** **        | ** ** |
|----------------------------------|------------|----------------------|------------|----------------------|------------|-------------------|------------|
| ** **                       | ** ** | **Included in** | ** ** | **Included in** | ** ** | **Total**         | ** ** |
| ** **                       | ** ** | **Discontinued**     | ** ** | **Continuing**       | ** ** | **Held-for-Sale** | ** ** |
| ** **                       | ** ** | **Operations**       | ** ** | **Operations**       | ** ** | **Properties**    | ** ** |
| Balance Sheet:                   |       |                 |       |                 |       |              |       |
| Real estate  investments, net    |       | $                    | 187,582    |                 | $          | 157,625           |       | $ | 345,207 |   |
| Other assets                     |       | 13,836               |       | 15,530               |       | 29,366            |       |
| Total assets                     |       | $                    | 201,418    |                 | $          | 173,155           |       | $ | 374,573 |   |
|                             |       |                 |       |                 |       |              |       |
| Accrued expenses                 |       | $                    | 4,272      |                 | $          | 1,167             |       | $ | 5,439 |   |
| Other liabilities                |       | 1,574                |       | 7,517                |       | 9,091             |       |
| Secured debt                     |       | —               |       | 25,845               |       | 25,845            |       |
| Total liabilities  held-for-sale |       | $                    | 5,846      |                 | $          | 34,529            |       | $ | 40,375 |   |

 

We allocate interest expense to discontinued operationsand have included such interest expense in computing net income fromdiscontinued operations. Interest expense allocable to discontinued operationsincludes interest on any debt on secured properties included in discontinuedoperations and an allocable share of our consolidated unsecured interestexpense for unencumbered properties. The allocation of unsecured interestexpense to discontinued operations was based upon the gross book value of thediscontinued operations unencumbered population as it related to our entireunencumbered population.

**9.****                                      FinancialInstruments**

We are exposed to capital market risk, such as changesin interest rates. In order to manage the volatility relating to interest raterisk, we may enter into interest rate hedging arrangements from time to time.We do not utilize derivative financial instruments for trading or speculativepurposes.

In August 2005, we entered into $300.0 million of cashflow hedges through forward-starting interest rate swaps to hedge interestrates on $300.0 million of estimated debt offerings in 2007. The swaps qualifyfor hedge accounting, with any change in fair value recorded in AccumulatedOther Comprehensive Income (“OCI”). At June 30, 2007, the fair value of theseswaps was approximately $21.2 million in an asset position as the effectiverates of the swaps were lower than current interest rates at June 30,2007.  The ineffective portion of thehedge was insignificant.

The effectiveness of ourhedges will be evaluated throughout their lives using the hypotheticalderivative method under which the change in fair value of the actual swapdesignated as the hedging instrument is compared to the change in fair value ofa hypothetical swap.

**10.****                               RecentAccounting Pronouncements**

We adopted Financial Accounting Standards Board (“FASB”)Interpretation No. 48, *Accounting forUncertainty in Income Taxes, an Interpretation of FASB Statement No. 109*(“FIN 48”) on January 1, 2007.  Theadoption of FIN 48 resulted in an additional tax exposure of approximately $1.7million recorded as an adjustment to the opening balance of Distributions inExcess of Net Income. Our uncertain tax positions are immaterial bothindividually and in the aggregate primarily due to the General Partner’s taxstatus as a REIT.

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In September 2006, the FASB issued Statement ofFinancial Accounting Standard (“SFAS”) No. 157, *Fair Value Measurements*(“SFAS 157”)*.* SFAS 157 defines fair value, establishes a framework for measuring fairvalue in accordance with GAAP and expands disclosure about fair valuemeasurements. SFAS No. 157 is effective for fiscal years beginning afterNovember 15, 2007. Management is currently evaluating the impact the adoptionof this statement will have on the Partnership.

In January 2007, the FASBissued SFAS No. 159, *The Fair Value Optionsfor Financial Assets and Financial Liabilities*(“SFAS 159”).  SFAS 159 provides a “Fair Value Option” underwhich a company may irrevocably elect fair value as the initial and subsequentmeasurement attribute for certain financial assets and liabilities.  This Fair Value Option will be available on acontract-by-contract basis with changes in fair value recognized in earnings asthose changes occur. The effective date for SFAS 159 is the beginning of eachreporting entity’s first fiscal year end that begins after November 15, 2007.Management is currently evaluating the impact that the adoption of SFAS 159will have on the Partnership.

**11.****                               SubsequentEvents**

*Declarationof Distributions*

The General Partner’s board of directors declared thefollowing dividends at its July 27, 2007, regularly scheduled board meeting:

|                                   | ** ** | **Quarterly**   | ** ** | ** **           | ** **          | ** **            | ** **          |
|-----------------------------------|------------|-----------------|------------|----------------------|---------------------|-----------------------|---------------------|
| **Class**                         | ** ** | **Amount/Unit** | ** ** | **Record Date** | ** **          | **Payment Date** | ** **          |
| Common                            |       | $               | 0.48       |                 | August  14, 2007    |                  | August  31, 2007    |   |
| Preferred (per  depositary unit): |       |            |       |                 |                |                  |                |
| Series B                          |       | $               | 0.998750   |                 | September  14, 2007 |                  | September  28, 2007 |   |
| Series J                          |       | $               | 0.414063   |                 | August  17, 2007    |                  | August  31, 2007    |   |
| Series K                          |       | $               | 0.406250   |                 | August  17, 2007    |                  | August  31, 2007    |   |
| Series L                          |       | $               | 0.412500   |                 | August  17, 2007    |                  | August  31, 2007    |   |
| Series M                          |       | $               | 0.434375   |                 | September  14, 2007 |                  | September  28, 2007 |   |
| Series N                          |       | $               | 0.453125   |                 | September 14, 2007  |                  | September 28, 2007  |   |

 

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

**Cautionary Statement Regarding Forward Looking Statements**

Certain statements contained inthis Report, including, without limitation, those related to our futureoperations, constitute “forward-looking statements” within the meaning ofSection 27A of the Securities Act of 1933, as amended, and Section 21E of theSecurities Exchange Act of 1934, as amended. The words “believe,” “estimate,” “expect,” “anticipate,” “intend,” “plan,”“seek,” “may,” and similar expressions or statements regarding future periodsare intended to identify forward-looking statements. These forward-lookingstatements involve known and unknown risks, uncertainties and other importantfactors that could cause our actual results, performance or achievements, orindustry results, to differ materially from any predictions of future results, performance or achievementsthat we express or imply in this Report. Some of the risks, uncertainties and otherimportant factors that may affect future results include, among others:

·                 Changes in general economic and businessconditions, including the performance of financial markets;

·                 The General Partner’s continued qualification asa real estate investment trust, or “REIT”, for U.S. federal income taxpurposes;

·                 Heightened competition for tenants and potentialdecreases in property occupancy;

·                 Potential increases in real estate constructioncosts;

·                 Potential changes in the financial markets andinterest rates;

·                 Our continuing ability to raise funds onfavorable terms through the issuance of debt and equity in the capital markets;

·                 Our ability to successfully identify, acquire,develop and/or manage properties on terms that are favorable to us;

·                 Our ability to successfully dispose of propertieson terms that are favorable to us;

·                 Inherent risks in the real estate business,including, but not limited to, tenant defaults, potential liability relating toenvironmental matters and liquidity of real estate investments; and

·                 Other risks and uncertainties described herein,as well as those risks and uncertainties discussed from time to time in ourother reports and filings with the Securities and Exchange Commission (“SEC”).

This list of risks anduncertainties, however, is only a summary of some of the most important factorsand is not intended to be exhaustive. Additional information regarding riskfactors that may affect us is included under the caption “Risk Factors” in ourAnnual Report on Form 10-K for the fiscal year ended December 31, 2006, whichwe filed with the SEC on March 13, 2007, and is updated by us from time to timein Quarterly Reports on Form 10-Q and other public filings.

Although we presently believethat the plans, expectations and results expressed in or suggested by theforward-looking statements are reasonable, all forward-looking statements areinherently uncertain and subject to change, as they involve substantial risksand uncertainties beyond our control. New factors emerge from time to time, andit is not possible for us to predict the nature, or assess the potentialimpact, of each new factor on our business. Given these uncertainties, wecaution you not to place undue reliance on these forward-looking statements. Weundertake no obligation to update or revise any of our forward-lookingstatements for events or circumstances that arise after the statement is made,except as required by law.

14

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**Business Overview**

We are a limited partnershipformed under the laws of the State of Indiana in 1993.  We own and operate a portfolio primarilyconsisting of industrial and office properties and provide real estate servicesto third-party owners.  We conduct ourService Operations through Duke Realty Services, LLC, Duke Realty ServicesLimited Partnership and Duke Construction Limited Partnership. As of June 30,2007, we:

·                 Owned or jointly controlled 726 industrial,office and retail properties (including properties under development),consisting of approximately 116.9 million square feet; and

·                 Owned or jointly controlled approximately 7,500acres of land with an estimated future development potential of more than 111million square feet of industrial, office and retail properties.

We provide the followingservices for our properties and for certain properties owned by third partiesand joint ventures:

·                 Property leasing;

·                 Property management;

·                 Construction;

·                 Development; and

·                 Other tenant-related services.

**Acquisitions**

In February 2007, we closed on the acquisition ofBremner Healthcare Real Estate (“Bremner”), a national health care developmentand management firm. The primary reason for the acquisition was to expand ourdevelopment capabilities within the health care real estate market.

The initial consideration paid to the sellers totaled$47.1 million and the sellers will be eligible for further contingent paymentsover the next three years.

Approximately $39.1 million of the total purchaseprice is allocated to goodwill, which is attributable to the value of Bremner’soverall development capabilities and its in-place workforce.

**Key Performance Indicators**

Our operating results dependprimarily upon rental income from our office and industrial properties (“RentalOperations”). The following highlights the areas of Rental Operations that weconsider critical for future revenue growth. All square footage totals andoccupancy percentages reflect both wholly owned properties and properties injoint ventures.

***Occupancy Analysis: ***Our ability to maintain occupancy rates is aprincipal driver of our results of operations. The following table sets forthoccupancy information regarding our in-service portfolio of rental properties(excluding in-service properties developed or acquired with the intent to sell)as of June 30, 2007 and 2006, respectively (in thousands, except percentagedata):

|                | ** ** | **Total**            | ** ** | **Percent of**             | ** ** | ** **                | ** ** | ** ** | ** ** |
|----------------|------------|----------------------|------------|---------------------------------|------------|---------------------------|------------|------------|------------|
| ** **     | ** ** | **Square Feet** | ** ** | **Total Square Feet** | ** ** | **Percent Occupied** | ** ** |
| **Type**       | ** ** | **2007**             | ** ** | **2006**                        | ** ** | **2007**                  | ** ** | **2006**   | ** ** | **2007** | ** ** | **2006** | ** ** |
| **Industrial** | ** ** | **75,699**           |       | 73,691                          | ** ** | **69.7**                  | **%**      | 69.4       | %          | 94.5 | % | 93.3 | % |
| **Office**     | ** ** | **31,479**           |       | 31,934                          | ** ** | **29.0**                  | **%**      | 30.0       | %          | 92.1 | % | 90.4 | % |
| **Other**      | ** ** | **1,378**            |       | 684                             | ** ** | **1.3**                   | **%**      | 0.6        | %          | 87.3 | % | 99.3 | % |
| Total          | ** ** | **108,556**          |       | 106,309                         | ** ** | **100.0**                 | **%**      | 100.0      | %          | 93.7 | % | 92.5 | % |

 

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***Lease Expiration and Renewal: ***Our ability to maintain and grow occupancy ratesprimarily depends upon our continuing ability to re-lease expiring space.******The following tablereflects our in-service lease expiration schedule by property type as of June30, 2007. The table indicates square footage and annualized net effective rents(based on June 2007 rental revenue) under expiring leases (in thousands, exceptpercentage data):
| ** **                   | ** ** | **Total**     | ** ** | ** **         | ** ** | ** **    | ** ** | ** ** | ** ** | ** **         | ** ** | ** ** | ** ** | ** **         | ** ** |
|------------------------------|------------|---------------|------------|--------------------|------------|---------------|------------|------------|------------|--------------------|------------|------------|------------|--------------------|------------|
| ** **                   | ** ** | **Portfolio** | ** ** | **Industrial**     | ** ** | **Office**    | ** ** | **Other**  | ** ** |
| **Year of**             | ** ** | **Square**    | ** ** | **Ann. Rent** | ** ** | **% of** | ** ** | **Square** | ** ** | **Ann. Rent** | ** ** | **Square** | ** ** | **Ann. Rent** | ** ** | **Square** | ** ** | **Ann. Rent** | ** ** |
| **Expiration**               | ** ** | **Feet**      | ** ** | **Revenue**        | ** ** | **Revenue**   | ** ** | **Feet**   | ** ** | **Revenue**        | ** ** | **Feet**   | ** ** | **Revenue**        | ** ** | **Feet** | ** ** | **Revenue** | ** ** |
| 2007                         |       | 4,736         |       | $                  | 25,482     |          | 4          | %          | 3,755      |               | $          | 13,656     |       | 933                |       | $ | 11,199 |   | 48 |   | $ | 627 |   |
| 2008                         |       | 13,235        |       | 76,449             |       | 11            | %          | 10,155     |       | 38,135             |       | 3,052      |       | 37,915             |       | 28 |   | 399 |   |
| 2009                         |       | 11,680        |       | 76,430             |       | 11            | %          | 8,380      |       | 33,991             |       | 3,236      |       | 41,848             |       | 64 |   | 591 |   |
| 2010                         |       | 12,506        |       | 97,093             |       | 14            | %          | 8,295      |       | 37,672             |       | 4,198      |       | 59,234             |       | 13 |   | 187 |   |
| 2011                         |       | 13,505        |       | 85,423             |       | 12            | %          | 10,053     |       | 38,624             |       | 3,360      |       | 45,364             |       | 92 |   | 1,435 |   |
| 2012                         |       | 10,193        |       | 71,914             |       | 10            | %          | 6,877      |       | 27,135             |       | 3,272      |       | 43,925             |       | 44 |   | 854 |   |
| 2013                         |       | 7,769         |       | 68,999             |       | 10            | %          | 4,168      |       | 18,133             |       | 3,551      |       | 50,110             |       | 50 |   | 756 |   |
| 2014                         |       | 6,183         |       | 36,553             |       | 5             | %          | 4,719      |       | 17,113             |       | 1,431      |       | 18,930             |       | 33 |   | 510 |   |
| 2015                         |       | 7,243         |       | 55,437             |       | 8             | %          | 5,071      |       | 19,706             |       | 2,172      |       | 35,731             |       | — |   | — |   |
| 2016                         |       | 3,889         |       | 27,304             |       | 4             | %          | 2,723      |       | 9,728              |       | 918        |       | 14,438             |       | 248 |   | 3,138 |   |
| 2017 and  Thereafter         |       | 10,810        |       | 80,503             |       | 11            | %          | 7,350      |       | 30,736             |       | 2,877      |       | 43,134             |       | 583 |   | 6,633 |   |
| Total Leased                 |       | 101,749       |       | $                  | 701,587    |          | 100        | %          | 71,546     |               | $          | 284,629    |       | 29,000             |       | $ | 401,828 |   | 1,203 |   | $ | 15,130 |   |
|                         |       |          |       |               |       |          |       |       |       |               |       |       |       |               |       |   |   |   |   |
| Total Portfolio Square  Feet |       | 108,556       |       |               |       |          |       | 75,699     |       |               |       | 31,479     |       |               |       | 1,378 |   |   |   |
| Percent Occupied             |       | 93.7          | %          |               |       |          |       | 94.5       | %          |               |       | 92.1       | %          |               |       | 87.3% |   |   |   |

Note:  Excludesbuildings that are in the held-for-sale portfolio.

We renewed 85.2% and 84.0% of our leases up for renewal in the threeand six months ended June 30, 2007, totaling approximately 3.7 million and 5.6million square feet, respectively. This compares to renewals of 80.9% and 78.6%for the three and six months ended June 30, 2006, totaling approximately 1.9million and 3.8 million square feet, respectively. We attained 3.7% and 4.2%growth in net effective rents on these renewals in the three and six monthsended June 30, 2007, respectively.

The average term of renewals for the three and six months ended June30, 2007 was 4.8 and 4.4 years, respectively, compared to an average term of4.0 and 3.5 years for the three and six months ended June 30, 2006,respectively.

***Future Development: ***Another source of growth in earnings is thedevelopment of additional properties. These properties should provide futureearnings through income upon sale or from Rental Operations growth as they areplaced in service. We had 12.7 million square feet of property underdevelopment with total estimated costs of $1.2 billion at June 30, 2007compared to 8.7 million square feet with total costs of $772.9 million at June30, 2006.

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The followingtable summarizes our properties under development as of June 30, 2007 (inthousands, except percentage data):

|                                   | ** ** | ** ** | ** ** | ** **       | ** ** | **Total**           | ** ** | ** **                    | ** ** |
|-----------------------------------|------------|------------|------------|------------------|------------|---------------------|------------|-------------------------------|------------|
| **Anticipated  In-Service  Date** | ** ** | ** ** | ** ** | **Square  Feet** | ** ** | **Percent  Leased** | ** ** | **Estimated  Project  Costs** | ** ** | **Anticipated  Stabilized  Return** | ** ** |
| Held-for-Rental  Buildings:       |       |       |       |             |       |                |       |                          |       |
| 3rd Quarter 2007             |       | 2,724      |       | 5                | %          | $                   | 189,028    |                          | 9.4        | % |
| 4th Quarter 2007             |       | 3,102      |       | 17               | %          | 231,639             |       | 9.4                           | %          |
| 1st Quarter 2008             |       | 1,934      |       | 25               | %          | 106,956             |       | 9.4                           | %          |
| Thereafter                        |       | 567        |       | 50               | %          | 94,108              |       | 9.3                           | %          |
|                              |       | 8,327      |       | 17               | %          | $                   | 621,731    |                          | 9.4        | % |
| Service Operations  Buildings:    |       |       |       |             |       |                |       |                          |       |
| 3rdQuarter 2007                   |       | 2,353      |       | 64               | %          | $                   | 277,704    |                          | 8.3        | % |
| 4th Quarter 2007             |       | 1,431      |       | 48               | %          | 216,932             |       | 8.2                           | %          |
| 1st Quarter 2008             |       | 304        |       | 0                | %          | 18,743              |       | 9.1                           | %          |
| Thereafter                        |       | 240        |       | 47               | %          | 47,874              |       | 8.3                           | %          |
|                              |       | 4,328      |       | 53               | %          | $                   | 561,253    |                          | 8.3        | % |
| Total                             |       | 12,655     |       | 30               | %          | $                   | 1,182,984  |                          | 8.9        | % |
|                                   |            |            |            |                  |            |                     |            |                               |            |  |  |  |

 

***Acquisition and Disposition Activity: ***We continued toselectively dispose of non-strategic properties during the six months endedJune 30, 2007.  Gross sales proceedsrelated to the dispositions of wholly owned held-for-rental properties were$213.0 million for the six months ended June 30, 2007, which included thedisposition of a portfolio of eight office properties in the Clevelandmarket.  Our share of proceeds from salesof properties within unconsolidated joint ventures, in which we have a lessthan 100% interest, totaled $5.1 million for the six months ended June 30,2007. For the six months ended June 30, 2006, proceeds from the disposition ofwholly owned held-for-rental properties totaled $25.3 million, as well asproceeds of $72.6 million for our share of property sales from unconsolidatedjoint ventures. Dispositions of wholly owned properties developed for salerather than rental resulted in $78.3 million in proceeds for the six monthsended June 30, 2007, and no dispositions of wholly owned properties developedfor sale took place in the six months ended June 30, 2006.

For the six months ended June 30, 2007, inaddition to the acquisition of Bremner, we acquired $46.1 million of incomeproducing properties and also acquired $125.9 million of undeveloped land,compared to acquisitions of $886.3 million of income producing properties and$284.2 million of undeveloped land in the six months ended June 30, 2006.

**Funds From Operations**

Funds From Operations (“FFO”) is used by industry analysts andinvestors as a supplemental operating performance measure of an equity REITlike our General Partner. FFO is calculated in accordance with the definitionthat was adopted by the Board of Governors of the National Association of RealEstate Investment Trusts (“NAREIT”). NAREIT created FFO as a supplementalmeasure of REIT operating performance that excludes historical costdepreciation, among other items, from net income determined in accordance withU.S. generally accepted accounting principles (“GAAP”). FFO is a non-GAAPfinancial measure developed by NAREIT to compare the operating performance ofREITs. The most comparable GAAP measure is net income (loss).  FFO should not be considered as a substitutefor net income or any other measures derived in accordance with GAAP and maynot be comparable to other similarly titled measure of other companies.

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Historical cost accounting for real estate assets in accordance withGAAP implicitly assumes that the value of real estate assets diminishespredictably over time. Since real estate values instead have historically risenor fallen with market conditions, many industry analysts and investors haveconsidered presentation of operating results for real estate companies that usehistorical cost accounting to be insufficient by themselves. FFO, as defined byNAREIT, represents GAAP net income (loss), excluding extraordinary items asdefined under GAAP and gains or losses from sales of previously depreciatedoperating real estate assets, plus certain non-cash items such as real estatedepreciation and amortization, and after similar adjustments for unconsolidatedpartnerships and joint ventures.

Management believes that the use of FFO, combined with the requiredprimary GAAP presentations, improves the understanding of operating results ofREITs among the investing public and makes comparisons of REIT operating resultsmore meaningful. Management believes FFO is a useful measure for reviewingcomparative operating and financial performance (although FFO should bereviewed in conjunction with net income which remains the primary measure ofperformance) because by excluding gains or losses related to sales ofpreviously depreciated operating real estate assets and excluding real estateasset depreciation and amortization, FFO provides a useful comparison of theoperating performance of our real estate between periods or as compared todifferent companies.

The following table shows a reconciliation of net income available forcommon unitholders to the calculation of FFO for the three and six months endedJune 30, 2007 and 2006, respectively (in thousands):
| ** **                                                               | ** ** | **Three Months Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
|--------------------------------------------------------------------------|------------|-----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                               | ** ** | **2007**                                            | ** ** | **2006**                                          | ** ** | **2007** | ** ** | **2006** | ** ** |
| Net income available  for common unitholders                             | ** ** | **$**                                               | **39,725** |                                              | $          | 24,068 | ** ** | **$** | **113,198** |   | $ | 36,774 |   |
| Adjustments:                                                             |       |                                                |       |                                              |       |   |   |   |   |
| Depreciation and  amortization                                           | ** ** | **68,407**                                          |       | 65,167                                            | ** ** | **136,146** |   | 125,749 |   |
| Partnership’s  share of joint venture depreciation and amortization | ** ** | **5,610**                                           |       | 4,425                                             | ** ** | **10,578** |   | 9,127 |   |
| Earnings from  depreciable property sales—wholly owned              | ** ** | **(20,361**                                         | **)**      | (1,531                                            | )          | **(72,081** | **)** | (2,036 | ) |
| Earnings from  depreciable property sales—share of joint venture    | ** ** | **129**                                             |       | (5,400                                            | )          | **(1,831** | **)** | (8,362 | ) |
|                                                                     | ** ** | ** **                                          |       |                                              |       | ** ** | ** ** |   |   |
| **Funds From Operations**                                                | ** ** | **$**                                               | **93,510** |                                              | $          | 86,729 | ** ** | **$** | **186,010** |   | $ | 161,252 |   |

 

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**Results of Operations**

A summary of our operating results and property statistics for thethree and six months ended June 30, 2007 and 2006, respectively, is as follows(in thousands, except number of properties and per unit data):
| ** **                                                               | ** ** | **Three Months Ended June 30,** | ** **  | **Six Months Ended June 30,** | ** ** |
|--------------------------------------------------------------------------|------------|-----------------------------------------------------|-------------|---------------------------------------------------|------------|
| ** **                                                               | ** ** | **2007**                                            | ** **  | **2006**                                          | ** ** | **2007** | ** ** | **2006** | ** ** |
| Rental  Operations revenue from Continuing Operations                    | ** ** | **$**                                               | **197,654** |                                              | $          | 195,270 | ** ** | **$** | **403,648** |   | $ | 378,771 |   |
| Service Operations revenues from Continuing Operations                   | ** ** | **22,039**                                          |        | 9,718                                             | ** ** | **36,769** |   | 19,724 |   |
| Earnings from  Continuing Rental Operations                              | ** ** | **27,320**                                          |        | 30,596                                            | ** ** | **53,076** |   | 61,778 |   |
| Earnings from  Continuing Service Operations                             | ** ** | **12,018**                                          |        | 3,476                                             | ** ** | **18,952** |   | 7,926 |   |
| Operating income                                                         | ** ** | **28,732**                                          |        | 27,119                                            | ** ** | **47,963** |   | 48,822 |   |
| Net income  available for common unitholders                             | ** ** | **39,725**                                          |        | 24,068                                            | ** ** | **113,198** |   | 36,774 |   |
| Weighted average  Common Units outstanding                               | ** ** | **146,703**                                         |        | 148,273                                           | ** ** | **146,628** |   | 148,224 |   |
| Weighted average  Common Units and potential dilutive common equivalents | ** ** | **148,129**                                         |        | 149,364                                           | ** ** | **148,170** |   | 149,273 |   |
| Basic income per  Common Unit:                                           |       |                                                |        |                                              |       |   |   |   |   |
| Continuing  operations                                                   | ** ** | **$**                                               | **.13**     |                                              | $          | .11 | ** ** | **$** | **.26** |   | $ | .18 |   |
| Discontinued  operations                                                 | ** ** | **$**                                               | **.14**     |                                              | $          | . 05 | ** ** | **$** | **.51** |   | $ | .07 |   |
| Diluted income  per Common Unit:                                         |       |                                                |        |                                              |       |   |   |   |   |
| Continuing operations                                                    | ** ** | **$**                                               | **.13**     |                                              | $          | .11 | ** ** | **$** | **.26** |   | $ | .18 |   |
| Discontinued operations                                                  | ** ** | **$**                                               | **.14**     |                                              | $          | .05 | ** ** | **$** | **.50** |   | $ | .07 |   |
|                                                                     | ** ** | ** **                                          |        |                                              | ** ** | ** ** |   |   |   |
| Number of  in-service properties at end of period                        | ** ** | **692**                                             |        | 711                                               | ** ** | **692** |   | 711 |   |
| In-service square  footage at end of period                              | ** ** | **108,556**                                         |        | 106,309                                           | ** ** | **108,556** |   | 106,309 |   |

 

**Comparison of Three Months Ended June 30, 2007 to Three Months EndedJune 30, 2006**

Rental Income From Continuing Operations

Overall, rentalincome from continuing operations increased from $185.6 million for the quarterended June 30, 2006 to $189.7 million for the same period in 2007. Thefollowing table reconciles rental income from continuing operations byreportable segment to our total reported rental income from continuingoperations for the three months ended June 30, 2007 and 2006, respectively (inthousands):

|               | ** ** | **2007**   | ** **  | **2006** | ** ** |
|---------------|------------|------------|-------------|----------|------------|
| Rental Income | ** ** | ** ** |        |     |       |
| Office        | ** ** | **$**      | **129,490** |     | $          | 133,597 |   |
| Industrial    | ** ** | **54,140** |        | 48,227   |       |
| Non-segment   | ** ** | **6,075**  |        | 3,750    |       |
| Total         | ** ** | **$**      | **189,705** |     | $          | 185,574 |   |

 

The following factors contributed to these results:

·                  Leasetermination fees decreased from $6.1 million in the second quarter of 2006 to$1.8 million in the second quarter of 2007.

·                  Weacquired 35 properties and placed 34 developments in service from January 1,2006 to June 30, 2007that provided incremental revenues of $11.1 million in thesecond quarter of 2007, as compared to the same period in 2006.

·                  Weacquired an additional 30 properties in the first six months of 2006 and latercontributed them to an unconsolidated joint venture, resulting in a $13.7million reduction in revenues in the second quarter of 2007, as compared to thesame period in 2006. Of these properties, 23 were contributed in the fourthquarter of 2006 and seven were contributed in the second quarter of 2007.

·                  Theremaining net increase in rental revenues in the second quarter of 2007 isprimarily the result of an increase in average occupancy from the secondquarter of 2006 as well as an increase in revenue from reimbursable rentalexpenses.

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Rental Expensesand Real Estate Taxes

The followingtable reconciles rental expenses and real estate taxes by reportable segment toour total reported amounts in the statement of operations for the three monthsended June 30, 2007 and 2006, respectively (in thousands):

|                     | ** ** | **2007**   | ** ** | **2006** | ** ** |
|---------------------|------------|------------|------------|----------|------------|
| Rental Expenses:    |       |       |       |     |       |
| Office              | ** ** | **$**      | **33,511** |     | $          | 35,632 |   |
| Industrial          | ** ** | **5,259**  |       | 5,164    |       |
| Non-segment         | ** ** | **2,266**  |       | 149      |       |
| Total               | ** ** | **$**      | **41,036** |     | $          | 40,945 |   |
|                | ** ** | ** ** |       |     |       |
| Real Estate  Taxes: |       |       |       |     |       |
| Office              | ** ** | **$**      | **15,846** |     | $          | 14,927 |   |
| Industrial          | ** ** | **6,375**  |       | 5,790    |       |
| Non-segment         | ** ** | **1,927**  |       | 1,415    |       |
| Total               | ** ** | **$**      | **24,148** |     | $          | 22,132 |   |

 

The overall$91,000 increase in rental expenses was driven by the offsetting effects of anincrease in rental expenses of $1.8 million from properties acquired anddevelopments placed in service from January 1, 2006 to June 30, 2007 and areduction in rental expenses resulting from the contribution of 30 propertiesto an unconsolidated joint venture.

Of the overall$2.0 million increase in real estate taxes, $1.3 million was attributable toproperties acquired and developments placed in service from January 1, 2006 toJune 30, 2007. The remaining increase in real estate taxes was driven byincreases in assessments by municipal authorities in some of our markets.

Interest Expense

Interest expensedecreased from $42.2 million in the second quarter of 2006 to $39.2 million inthe second quarter of 2007 primarily as a result of a decrease in borrowings onour unsecured line of credit, in addition to assigning secured debt tounconsolidated companies on property that was contributed to those entitiesduring the quarter. This was offset to an extent by borrowings that occurred inthe last half of 2006, including $575.0 million of exchangeable senior notesissued in November 2006 and $319.0 million of secured debt issued in November2006. These increased borrowings were used mainly to fund acquisitions anddevelopment.

Depreciation and Amortization

Depreciation andamortization expense increased from $59.4 million during the second quarter of2006 to $65.9 million for the same period in 2007 due to increases in ourheld-for-rental asset base from acquisitions and developments during 2006 and2007.

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Service Operations

Service Operationsprimarily consist of sales of properties developed or acquired with the intentto sell within a short period of time and the leasing, management, constructionand development services for joint venture properties and properties owned bythird parties. These operations are heavily influenced by the current state ofthe economy, as leasing and management fees are dependent upon occupancy whileconstruction and development services rely on the expansion of businessoperations. Service Operations earnings increased from $3.5 million for thethree months ended June 30, 2006 to $12.0 million for the three months endedJune 30, 2007, primarily as a result of gains on the sale of three propertiestotaling $6.6 million in the three months ended June 30, 2007, compared to nosuch sales during the same period in 2006.

General and Administrative Expense

General andadministrative expenses increased from $7.0 million for the three months endedJune 30, 2006 to $10.6 million for the same period in 2007. General andadministrative expenses are comprised of two components. The first component isdirect expenses that are not attributable to specific assets such as legalfees, external audit fees, marketing costs, investor relations expenses andother corporate overhead. The second component is the unallocated overheadcosts associated with the operation of our owned properties and ServiceOperations, including construction, leasing and maintenance operations. Thoseoverhead costs not allocated to these operations are charged to general andadministrative expenses.  The overallincrease in general and administrative expenses is a result of an increase inthe overall pool of overhead costs necessitated by our overall growth, offsetin part by an increase in the amount of overhead allocated to other areas in2007, primarily construction and leasing due to increases in wholly-owned and third-partyactivity in these areas.

Other Income and Expenses

We pursueopportunities to dispose of land in markets with a high concentration ofundeveloped land and those markets where the land no longer meets our strategicdevelopment plans.

Earnings from saleof land, net of impairment adjustments, are comprised of the following amountsfor the three months ended June 30, 2007 and 2006, respectively (in thousands):

|                                 | ** ** | **2007**   | ** ** | **2006** | ** ** |
|---------------------------------|------------|------------|------------|----------|------------|
| Gain on land  sales             | ** ** | **$**      | **2,411**  |     | $          | 862 |   |
| Impairment adjustment  for land | ** ** | **—** |       | (308     | )          |
| Total                           | ** ** | **$**      | **2,411**  |     | $          | 554 |   |

 

We sold sevenparcels of undeveloped land in the second quarter of 2007 with overall highermargins than the four land sales in the second quarter of 2006.

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Discontinued Operations

The results of operations for properties sold during theyear or designated as held-for-sale to unrelated parties at the end of theperiod are required to be classified as discontinued operations. The propertyspecific components of net earnings that are classified as discontinuedoperations include rental revenues, rental expenses, real estate taxes,allocated interest expense and depreciation expense, as well as the net gain orloss on the disposition of properties.

We classified the operations of 66 buildings asdiscontinued operations as of June 30, 2007. These 66 buildings consist of 31industrial and 35 office properties. As a result, we classified net income fromoperations of $917,000 and $6.3 million as net income from discontinuedoperations for each of the three months ended June 30, 2007 and 2006,respectively.

Of these properties, five were sold during the secondquarter of 2007 and three were sold during the second quarter of 2006. Thegains on disposal of these properties of $20.4 million and $1.5 million for thethree months ended June 30, 2007 and 2006, respectively, are also reported indiscontinued operations.

**Comparison of Six Months Ended June 30, 2007 to Six Months Ended June30, 2006**

Rental Income From Continuing Operations

Overall, rentalincome from continuing operations increased from $360.8 million for the sixmonths ended June 30, 2006 to $388.0 million for the same period in 2007. Thefollowing table reconciles rental income from continuing operations by reportablesegment to our total reported rental income from continuing operations for thesix months ended June 30, 2007 and 2006, respectively (in thousands):

|               | ** ** | **2007**    | ** **  | **2006** | ** ** |
|---------------|------------|-------------|-------------|----------|------------|
| Rental Income |       |        |        |     |       |
| Office        | ** ** | **$**       | **269,028** |     | $          | 260,678 |   |
| Industrial    | ** ** | **108,840** |        | 93,739   |       |
| Non-segment   | ** ** | **10,140**  |        | 6,399    |       |
| Total         | ** ** | **$**       | **388,008** |     | $          | 360,816 |   |

 

The followingfactors contributed to these results:

·                  Leasetermination fees decreased from $10.2 million for the first six months of 2006to $5.2 million for the same period in 2007.

·                  Weacquired 35 properties and placed 34 developments in service from January 1,2006 to June 30, 2007 that provided incremental revenues of $24.5 million forthe first six months of 2007, as compared to the same period in 2006.

·                  Weacquired an additional 30 properties in the first six months of 2006 and latercontributed them to an unconsolidated joint venture, resulting in an $11.6million reduction in revenues for the six months ended June 30, 2007, ascompared to the same period in 2006. Of these properties, 23 were contributedin the fourth quarter of 2006 and seven were contributed in the second quarterof 2007.

·                  Theremaining increase in rental revenues from the first six months of 2006 isprimarily the result of an increase in average occupancy from the first sixmonths of 2006 as well as an increase in revenues from reimbursable rentalexpenses.

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Rental Expensesand Real Estate Taxes

The followingtable reconciles rental expenses and real estate taxes by reportable segment toour total reported amounts in the statement of operations for the six monthsended June 30, 2007 and 2006, respectively (in thousands):

|                    | ** ** | **2007**   | ** ** | **2006** | ** ** |
|--------------------|------------|------------|------------|----------|------------|
| Rental Expenses:   |       |       |       |     |       |
| Office             | ** ** | **$**      | **72,520** |     | $          | 70,273 |   |
| Industrial         | ** ** | **12,588** |       | 11,720   |       |
| Non-segment        | ** ** | **3,517**  |       | 305      |       |
| Total              | ** ** | **$**      | **88,625** |     | $          | 82,298 |   |
|               | ** ** | ** ** |       |     |       |
| Real Estate Taxes: |       |       |       |     |       |
| Office             | ** ** | **$**      | **32,388** |     | $          | 29,112 |   |
| Industrial         | ** ** | **12,637** |       | 11,001   |       |
| Non-segment        | ** ** | **3,494**  |       | 2,742    |       |
| Total              | ** ** | **$**      | **48,519** |     | $          | 42,855 |   |

 

Of the overall$6.3 million increase in rental expenses, $4.0 million was attributable toproperties acquired and developments placed in service from January 1, 2006 toJune 30, 2007. This increase was slightly offset by a reduction in rentalexpenses of $1.7 million resulting from the contribution of 30 properties to anunconsolidated joint venture. Inclement weather conditions in the first quarterof 2007 and normal inflationary factors triggered the remaining increase inrental expenses.

Of the overall$5.7 million increase in real estate taxes, $2.6 million was attributable toproperties acquired and developments placed in service from January 1, 2006 toJune 30, 2007. The remaining increase in real estate taxes was driven byincreases in assessments by municipal authorities in some of our markets.

Interest Expense

Interest expenseincreased from $77.5 million for the first six months ended June 30, 2006 to$82.4 million for the same period in 2007 primarily due to borrowings thatoccurred in the last half of 2006, including $575.0 million of exchangeablesenior notes issued in November 2006 and $319.0 million of secured debt issuedin November 2006. These increased borrowings were used mainly to fundacquisitions and development.

Depreciation andAmortization

Depreciation andamortization expense increased from $114.3 million for the first half of 2006to $131.0 million for the same period in 2007 due to increases in theheld-for-rental asset base from acquisitions and developments during 2006 and2007.

Service Operations

Service Operationsprimarily consist of sales of properties developed or acquired with the intentto sell within a short period of time and the leasing, management, constructionand development services for joint venture properties and properties owned bythird parties. These operations are heavily influenced by the current state ofthe economy, as leasing and management fees are dependent upon occupancy whileconstruction and development services rely on the expansion of businessoperations. Service Operations earnings increased from $7.9 million for the sixmonths ended June 30, 2006 to $19.0 million for the six months ended June 30,2007, primarily as a result of gains on the sale of five properties totaling$9.7 million in the six months ended June 30, 2007 compared to no such salesduring the six months ended June 30, 2006.

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General andAdministrative Expense

General andadministrative expenses increased from $20.9 million for the six months endedJune 30, 2006 to $24.1 million for the same period in 2007. General andadministrative expenses are comprised of two components. The first component isdirect expenses that are not attributable to specific assets such as legalfees, external audit fees, marketing costs, investor relation expenses andother corporate overhead. The second component is the unallocated overheadcosts associated with the operation of our owned properties and ServiceOperations, including construction, leasing and maintenance operations. Thoseoverhead costs not allocated to these operations are charged to general andadministrative expenses. The overall increase in general and administrativeexpenses is a result of an increase in the overall pool of overhead costsnecessitated by our overall growth, offset in part by an increase in the amountof overhead allocated to other areas in 2007, primarily construction andleasing due to increases in wholly-owned and third-party activity in theseareas.

Other Income and Expenses

We pursue opportunities to dispose of land in marketswith a high concentration of undeveloped land and those markets where the landno longer meets our strategic development plans.

Earnings from saleof land, net of impairment adjustments, are comprised of the following amountsfor the six months ended June 30, 2007 and 2006, respectively (in thousands):

|                                 | ** ** | **2007** | ** ** | **2006** | ** ** |
|---------------------------------|------------|----------|------------|----------|------------|
| Gain on land sales              | ** ** | **$**    | **16,503** |     | $          | 2,753 |   |
| Impairment adjustment  for land | ** ** | **(95**  | **)**      | (308     | )          |
| Total                           | ** ** | **$**    | **16,408** |     | $          | 2,445 |   |

 

We sold 13 parcels of undeveloped land in the firstsix months of 2007 with overall higher margins than the nine land sales in thefirst six months of 2006. In addition, we recognized a deferred gain ofapproximately $1.7 million in the first quarter of 2007 on a property soldduring 2006.

DiscontinuedOperations

The results of operations for properties sold during theyear or designated as held-for-sale to unrelated parties at the end of theperiod are required to be classified as discontinued operations. The propertyspecific components of net earnings that are classified as discontinuedoperations include rental revenues, rental expenses, real estate taxes,allocated interest expense and depreciation expense, as well as the net gain orloss on the disposition of properties.

We classified the operations of 66 buildings asdiscontinued operations as of June 30, 2007. These 66 buildings consist of 31industrial and 35 office properties. As a result, we classified net income fromoperations of $2.3 million and $8.3 million as net income from discontinuedoperations for the six months ended June 30, 2007 and 2006, respectively.

Of these properties, 15 were sold during the first sixmonths of 2007 and five were sold during the first six months of 2006. Thegains on disposal of these properties of $72.1 million and $2.0 million for thesix months ended June 30, 2007 and 2006, respectively, are also reported indiscontinued operations.

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**Liquidity and Capital Resources**

Sources of Liquidity

We expect tocontinue to meet our short-term liquidity requirements over the next 12 months,including payments of dividends anddistributions, as well as recurring capital expenditures relating tomaintaining our current real estate assets, primarily through the following:

·            working capital;

·            net cash provided byoperating activities; and

·            proceeds received fromreal estate dispositions.

Although wehistorically have not used any other sources of funds to pay for recurringcapital expenditures on our current real estate investments, we may rely on thetemporary use of borrowings or property disposition proceeds to fund suchexpenditures during periods of high leasing volume.

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

·            issuance of additionalGeneral Partner equity, including common and preferred shares;

·            issuance of additionaldebt securities, including convertible debt instruments;

·            undistributed cashprovided by operating activities, if any; and

·            proceedsreceived from real estate dispositions.  

### ***Rental Operations***

Webelieve our principal source of liquidity, cash flows from Rental Operations,provides a stable source of cash to fund operational expenses. We believe thatthis cash-based revenue stream is substantially aligned with revenuerecognition (except for periodic straight-line rental income accruals andamortization of above or below market rents) as cash receipts from the leasingof rental properties are generally received in advance of or a short timefollowing the actual revenue recognition.

Weare subject to risks of decreased occupancy through market conditions, as wellas tenant defaults and bankruptcies, and potential reduction in rental ratesupon renewal or re-letting of properties, each of which would result in reducedcash flow from operations. However, we believe that these risks may bemitigated by our relatively strong market presence in most of our locations andthe fact that we perform in-house credit review and analysis on major tenantsand all significant leases before they are executed.

*Credit Facilities*

We had an unsecured line of credit available as ofJune 30, 2007, described as follows (dollars in thousands):
| ** **                | ** ** | **Borrowing** | ** ** | **Maturity**  | ** ** | **Interest**  | ** ** | **Outstanding Balance**        | ** ** |
|---------------------------|------------|---------------|------------|---------------|------------|---------------|------------|-------------------------------------|------------|
| **Description**           | ** ** | **Capacity**  | ** ** | **Date**      | ** ** | **Rate**      | ** ** | **at June 30, 2007** | ** ** |
| Unsecured Line of  Credit |       | $1,000,000    |       | January  2010 |       | LIBOR  +.525% |       | $440,000                            |       |

 

We use this line of credit to fund development activities, acquireadditional rental properties and provide working capital.

The line of credit provides us with an option to obtain borrowings fromfinancial institutions that participate in the line, at rates lower than thestated interest rate, subject to certain restrictions. Interest rates on theamounts outstanding on the unsecured line of credit as of June 30, 2007 rangefrom LIBOR + .16% to LIBOR + .525% (equal to 5.480% and 5.845% as of June 30,2007).

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The line of credit also contains financial covenants that require us tomeet financial ratios and defined levels of performance, including thoserelated to variable rate indebtedness, consolidated net worth anddebt-to-market capitalization. As of June 30, 2007, we were in compliance withall financial covenants under our line of credit.

*Debtand Equity Securities*

At June 30, 2007, we had on file with the SEC anautomatic shelf registration statement on Form S-3, relating to the offer andsale, from time to time, of an indeterminate amount of debt securities(including guarantees thereof). From time to time, we and the General Partnerexpect to issue additional securities under this new automatic registrationstatement to fund development and acquisition of additional rental propertiesand to fund the repayment of the credit facility and other long-term debt uponmaturity.

The indenture governing our unsecured notes alsorequires us to comply with financial ratios and other covenants regarding ouroperations. We were in compliance with all such covenants as of June 30, 2007.

*Sale ofReal Estate Assets*

We utilize sales of real estate assets as anadditional source of liquidity. We pursue opportunities to sell real estateassets at favorable prices to capture value created by us, as well as toimprove the overall quality of our portfolio by recycling sales proceeds intonew properties with greater value creation opportunities.

Uses of Liquidity

Our principal uses of liquidity include the following:

·                 property investments;

·                 recurring leasing/capital costs;

·                 distributions to unitholders;

·                 long-term debt maturities; and

·                 other contractual obligations.

*PropertyInvestment*

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

*RecurringExpenditures*

One of ourprincipal uses of our liquidity is to fund the development, acquisition andrecurring leasing/capital expenditures of our real estate investments. Thefollowing is a summary of our recurring capital expenditures for the six monthsended June 30, 2007 and 2006, respectively (in thousands):

|                       | ** ** | **2007** | ** ** | **2006** | ** ** |
|-----------------------|------------|----------|------------|----------|------------|
| Tenant improvements   |       | $        | 22,941     |     | $          | 25,272 |   |
| Leasing costs         |       | 14,872   |       | 6,217    |       |
| Building improvements |       | 2,373    |       | 3,146    |       |
| Totals                |       | $        | 40,186     |     | $          | 34,635 |   |

 

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*DebtMaturities*

Debt outstandingat June 30, 2007 totaled $4.1 billion with a weighted average interest rate of5.74% maturing at various dates through 2028. We had $3.1 billion of unsecureddebt, $440.0 million outstanding on our unsecured line of credit andapproximately $521.4 million of secured debt outstanding at June 30, 2007.Scheduled principal amortization and maturities of such debt totaled $5.0million for the six months ended June 30, 2007.

The following is asummary of the scheduled future amortization and maturities of our indebtednessat June 30, 2007 (in thousands, except percentage data):

|            | ** ** | **Future Repayments** | ** ** | **Weighted Average** | ** ** |
|------------|------------|----------------------------|------------|---------------------------|------------|
| ** ** | ** ** | **Scheduled**              | ** ** | ** **                | ** ** | ** ** | ** ** | **Interest Rate of** | ** ** |
| **Year**   | ** ** | **Amortization**           | ** ** | **Maturities**            | ** ** | **Total** | ** ** | **Future Repayments** | ** ** |
| 2007       |       | 5,648                      |       | 200,000                   |       | 205,648 |   | 5.57 | % |
| 2008       |       | 10,264                     |       | 287,289                   |       | 297,553 |   | 5.11 | % |
| 2009       |       | 9,833                      |       | 275,000                   |       | 284,833 |   | 7.37 | % |
| 2010       |       | 9,457                      |       | 615,000                   |       | 624,457 |   | 5.67 | % |
| 2011       |       | 9,339                      |       | 1,012,139                 |       | 1,021,478 |   | 5.10 | % |
| 2012       |       | 7,110                      |       | 201,216                   |       | 208,326 |   | 5.89 | % |
| 2013       |       | 6,929                      |       | 150,000                   |       | 156,929 |   | 4.71 | % |
| 2014       |       | 6,669                      |       | 294,534                   |       | 301,203 |   | 6.44 | % |
| 2015       |       | 4,276                      |       | —                    |       | 4,276 |   | 6.16 | % |
| 2016       |       | 4,351                      |       | 468,976                   |       | 473,327 |   | 6.17 | % |
| 2017       |       | 3,666                      |       | 450,000                   |       | 453,666 |   | 5.95 | % |
| Thereafter |       | 23,051                     |       | 50,000                    |       | 73,051 |   | 6.80 | % |
|       |       | $100,593                   |       | $                         | 4,004,154  |   | $ | 4,104,747 |   | 5.74 | % |
|            |            |                            |            |                           |            |  |  |  |  |  |  |

 

Historical Cash Flows

Cash and cashequivalents were $45.0 million and $7.0 million at June 30, 2007 and 2006,respectively. The following highlights significant changes in net cashassociated with our operating, investing and financing activities (inmillions):

|                                                      | ** ** | **Six Months Ended June 30,** | ** ** |
|------------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                           | ** ** | **2007**                                          | ** ** | **2006** | ** ** |
| Net Cash Provided by Operating  Activities           |       | $                                                 | 81.5       |   | $ | 84.1 |   |
|                                                 |       |                                              |       |   |   |
| Net Cash Used for  Investing Activities              |       | $                                                 | (50.5      | ) | $ | (1,150.0 | ) |
|                                                 |       |                                              |       |   |   |
| Net Cash Provided by (used for) Financing Activities |       | $                                                 | (54.1      | ) | $ | 1,045.9 |   |

 

*Operating Activities*

Cash flows fromoperating activities provide the cash necessary to meet normal operationalrequirements of our Rental Operations and Service Operation activities. Thereceipt of rental income from Rental Operations continues to provide theprimary source of our revenues and operating cash flows. In addition, wedevelop buildings with the intent to sell them at or soon after completion, whichprovides another significant source of operating cash flow activity.  Highlights of such activity are as follows:

·                  Duringthe six month period ended June 30, 2007, we incurred Service Operationsbuildings development costs of $188.8 million, compared to $93.9 millionfor the same period ended June 30, 2006. The difference is reflective of theincreased activity in our held-for-sale pipeline. The pipeline of held-for-saleprojects under construction as of June 30, 2007 has anticipated total costsupon completion of $561.3 million.

·                  We had no Service Operation sales in the firstsix months of 2006. We sold five Service Operations buildings in the first sixmonths of 2007, receiving net proceeds of $76.6 million and recognized pre-taxgains of $9.2 million.

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*Investing Activities*

Investing activities areone of the primary uses of our liquidity. Development and acquisitionactivities typically generate additional rental revenues and provide cash flowsfor operational requirements. Highlights of significant cash sources and usesare as follows:

·                  Development costs increased to $186.9million for the six-month period ended June 30, 2007 from  $167.7 million for the same period in 2006 asa result of an increase in development activity in 2007.

·                  During the first six months of 2007,we paid cash of $81.1 million for real estate acquisitions, including $36.1million for the Bremner acquisition (with the remaining $11.0 million paidthrough the issuance of units of the Partnership) and $125.9 million forundeveloped land acquisitions compared to $675.7 million in real estateacquisitions and $284.6 million in acquisitions of undeveloped land in the sameperiod in 2006. The most significant activity in the first six months of 2006consisted of the purchase of a portfolio of suburban office and lightindustrial properties and undeveloped land in the Washington, D.C. area for$865.6 million (of which $713.8 million was paid in cash) and the purchase ofthe majority of a portfolio of industrial properties in Savannah, Georgia for$178.1 million (of which $119.3 million was paid in cash).

·                  Sales of land and depreciatedproperty provided $269.4 million in net proceeds for the period ended June 30,2007, compared to $29.7 million for the same period in 2006. We continue to disposeof non-strategic and older properties as part of our capital recycling programto fund acquisitions and new development while improving the overall quality ofour investment portfolio.

·                  Wereceived financing distributions (as a result of the sale of properties orrecapitalization) of $195.4 million from unconsolidated companies for thesix-month period ended June 30, 2007, compared to $21.2 million for the sameperiod in 2006.

*FinancingActivities*

The overall decline incash provided by (used for) financing activities is a result of the short-termfinancing that was required for the significant acquisitions in the firstquarter of 2006.  Specifically, thefollowing items highlight major fluctuations in net cash flow related tofinancing activities in the first quarter of 2007 compared to the same periodin 2006:

·                  We had nosignificant new borrowings in the first six months of 2007, compared to a$700.0 million secured term loan obtained in the same period in 2006, which waspriced at LIBOR +.525% and was paid in full later in 2006.

·                  Similarly, whilein the first six months of 2006 we received net proceeds of approximately$177.7 million and $106.3 million, respectively, from the General Partner’sissuances of its Series M and Series N Cumulative Redeemable Preferred Shares,we had no new preferred equity issuances in the same period in 2007.

·                  Weincreased net borrowings on our $1.0 billion line of credit by $123.0 millionand $287.0 million for the six months ended June 30, 2007 and 2006,respectively.

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Financial Instruments

We are exposed to capital market risk, such as changesin interest rates. In order to manage the volatility relating to interest raterisk, we may enter into interest rate hedging arrangements from time to time.We do not utilize derivative financial instruments for trading or speculativepurposes.

In August 2005, we entered into $300.0 million of cashflow hedges through forward-starting interest rate swaps to hedge interestrates on $300.0 million of estimated debt offerings in 2007. The swaps qualifyfor hedge accounting, with any changes in fair value recorded in AccumulatedOther Comprehensive Income (“OCI”). At June 30, 2007, the fair value of theseswaps was approximately $21.2 million in an asset position as the effectiverates of the swaps were lower than current interest rates at June 30, 2007. Theineffective portion of the hedge was insignificant.

The effectiveness of our hedges will be evaluatedthroughout their lives using the hypothetical derivative method under which thechange in fair value of the actual swap designated as the hedging instrument iscompared to the change in the fair value of a hypothetical swap.

RecentAccounting Pronouncements

We adopted Financial Accounting Standards Board (“FASB”)Interpretation No. 48, *Accounting forUncertainty in Income Taxes, an Interpretation of FASB Statement No. 109*(“FIN 48”) on January 1, 2007.  Theadoption of FIN 48 resulted in an additional tax exposure of approximately $1.7million recorded as an adjustment to the opening balance of Distributions inExcess of Net Income. Our uncertain tax positions are immaterial bothindividually and in the aggregate primarily due to the General Partner’s taxstatus as a REIT.

In September 2006, the FASB issued Statement ofFinancial Accounting Standard (“SFAS”) No. 157, *Fair Value Measurements*(“SFAS 157”)*.* SFAS 157 defines fair value, establishes a framework for measuring fairvalue in accordance with GAAP and expands disclosure about fair valuemeasurements. SFAS No. 157 is effective for fiscal years beginning afterNovember 15, 2007. Management is currently evaluating the impact the adoptionof this statement will have on the Partnership.

In January 2007, the FASB issued SFAS No. 159, *The Fair Value Options for Financial Assets and FinancialLiabilities*(“SFAS 159”). SFAS 159 provides a “Fair Value Option” under which a company mayirrevocably elect fair value as the initial and subsequent measurementattribute for certain financial assets and liabilities. This Fair Value Optionwill be available on a contract-by-contract basis with changes in fair valuerecognized in earnings as those changes occur. The effective date for SFAS 159 is the beginning of each reportingentity’s first fiscal year end that begins after November 15, 2007. Managementis currently evaluating the impact that the adoption of SFAS 159 will have onthe Partnership.

**Investments in Unconsolidated Companies**

We analyze ourinvestments in joint ventures under FASB Interpretation No. 46(R), *Consolidation of Variable Interest Entities*(“FIN 46(R)”)*,*to determine ifeach joint venture is a variable interest entity (a “VIE”, as defined by FIN46(R)) and would require consolidation. To the extent that our joint venturesdo not qualify as VIEs, we further assess under the guidelines of EmergingIssues Task Force (“EITF”) No. 04-5, *DeterminingWhether a General Partner, or the General Partners as a Group, Controls aLimited Partnership or Similar Entity when the Limited Partners Have CertainRights* (“EITF 04-5”); Statement of Position 78-9, *Accounting for Investments in Real Estate Ventures;*Accounting Research Bulletin No. 51*,**Consolidated Financial Statements*and FASB No. 94, *Consolidation of AllMajority-Owned Subsidiaries,* to determine if the venture should beconsolidated.

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We have equity interestsin unconsolidated partnerships and joint ventures that own and operate rentalproperties and hold land for development. The equity method of accounting isused for these investments in which we have the ability to exercise significantinfluence, but not control, over operating and financial policies. As a result,the assets and liabilities of these joint ventures are not included on ourbalance sheet. Our investment in unconsolidated companies representsapproximately 7% of our total assets as of June 30, 2007.

**Item3.  Quantitative and QualitativeDisclosure About Market Risk**

We are exposed to interest rate changes primarily as a result of ourline of credit, preferred shares and long-term debt used to maintain liquidityand fund capital expenditures and expansion of our real estate investmentportfolio and operations. Our interest rate risk management objective is tolimit the impact of interest rate changes on earnings and cash flows and tolower our overall borrowing costs. To achieve our objectives, we borrowprimarily at fixed rates and may enter into derivative financial instrumentssuch as interest rate swaps, caps and treasury locks in order to mitigate ourinterest rate risk on a related financial instrument. We do not enter intoderivative or interest rate transactions for speculative purposes. For adiscussion of the market risk with respect to our outstanding cash flow hedges,see “Management’s Discussion and Analysis of Financial Condition and Results ofOperations — Liquidity and Capital Resources — Financial Instruments.”

**Item4.  Controls and Procedures**

(a)   Evaluation of Disclosure Controls andProcedures

We maintain disclosure controls and procedures thatare designed to ensure that information required to be disclosed by us in thereports that we file or submit under the Securities and Exchange Act of 1934,as amended, is recorded, processed, summarized and reported within the timeperiods specified in the SEC’s rules and forms. These disclosure controls andprocedures are further designed to ensure that such information is accumulatedand communicated to management, including the General Partner’s Chief ExecutiveOfficer and Chief Financial Officer, to allow timely decisions regardingrequired disclosure.

We carried out an evaluation, under the supervisionand with the participation of management, including the General Partner’s ChiefExecutive Officer and Chief Financial Officer, of the effectiveness of thedesign and operation of our disclosure controls and procedures pursuant toExchange Act Rules 13a-15 and 15d-15. Based upon the foregoing, the GeneralPartner’s Chief Executive Officer and Chief Financial Officer concluded that,as of the end of the period covered by this Report, our disclosure controls andprocedures are effective in all material respects.

(b)  Changesin Internal Control over Financial Reporting

During the six months ended June 30, 2007, there havebeen no changes in our internal control over financial reporting during theperiod covered by this report that have materially affected, or are reasonablylikely to materially affect, our internal control over financial reporting.

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**Part II - Other Information**

**Item 1.  Legal Proceedings**

From time to time, we are parties to a variety oflegal proceedings and claims arising in the ordinary course of our businesses.While these matters generally are covered by insurance, there is no assurancethat our insurance will cover any particular proceeding or claim. We presentlybelieve that all of these proceedings to which we were subject as of June 30,2007, taken as a whole, will not have a material adverse effect on ourliquidity, business, financial condition or results of operations.

**Item 1A. Risk Factors**

In addition to theinformation set forth in this Report, you also should carefully review andconsider the information contained in our other reports and periodic filingsthat we make with the SEC, including, without limitation, the informationcontained under the caption “Item 1A. Risk Factors” in our Annual Report onForm 10-K for the year ended December 31, 2006, and in our Quarterly Reports onForm 10-Q filed after the date of such Annual Report.  Those risk factors could materially affectour business, financial condition and results of operations.

The risks that we describein our public filings are not the only risks that we face.  Additional risks and uncertainties notcurrently known to us, or that we presently deem to be immaterial, also maymaterially adversely affect our business, financial condition and results ofoperations.

**Item 2.  Unregistered Sales of Equity Securities andUse of Proceeds**

**(a)Unregistered Sales of Equity Securities**

None

**(b) Useof Proceeds**

None

**(c)Issuer Purchases of Equity Securities**

From time to time, the General Partner may repurchaseits common shares under a $750 million repurchase program that initially wasapproved by the General Partner’s board of directors and publicly announced inOctober 2001 (the “Repurchase Program”). In July 2005, the General Partner’sboard of directors authorized management to purchase up to $750 million of theGeneral Partner’s common shares pursuant to this plan. Under the RepurchaseProgram, the General Partner also executes share repurchases on an ongoingbasis associated with certain employee elections under the General Partner’scompensation and benefit programs.

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The followingtable shows the General Partner’s share repurchase activity for each of thethree months in the quarter ended June 30, 2007:
| ** ** | ** ** | **Total Number of** | ** ** | ** **                   | ** ** | **Total Number of  Shares Purchased as  Part of Publicly** | ** ** | **Maximum Number  (or Approximate  Dollar Value) of  Shares that May  Yet be Purchased** | ** ** |
|------------|------------|-------------------------------|------------|------------------------------|------------|------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------|------------|
| ** ** | ** ** | **Shares**                    | ** ** | **Average Price**       | ** ** | **Announced Plans or**                                                         | ** ** | **Under the Plans or**                                                                                            | ** ** |
| **Month**  | ** ** | **Purchased(1)**              | ** ** | **Paid per Share** | ** ** | **Programs**                                                                             | ** ** | **Programs(2)**                                                                                                                  | ** ** |
| April      |       | 13,019                        |       | $                            | 43.49      |                                                                                     | 13,019     |                                                                                                                             | ** ** | ** ** |
| May        |       | 8,604                         |       | $                            | 40.63      |                                                                                     | 8,604      |                                                                                                                             | ** ** | ** ** |
| June       |       | 7,631                         |       | $                            | 37.77      |                                                                                     | 7,631      |                                                                                                                             | ** ** | ** ** |
| Total      |       | 29,254                        |       | $                            | 41.16      |                                                                                     | 29,254     | ** **                                                                                                                       | ** ** | ** ** |

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(1)             Includes20,006 common shares of the General Partner repurchased under its EmployeeStock Purchase Plan and 9,248 common shares of the General Partner swapped topay the exercise price of stock options.

(2)             Thenumber of common shares of the General Partner that may yet be repurchased inthe open market to fund common shares purchased under its Employee StockPurchase Plan, as amended, was 114,043 as of June 30, 2007. The approximatedollar value of common shares of the General Partner that may yet be repurchasedunder the General Partner’s Repurchase Program was $361.0 million as of June30, 2007.

**Item 3.  Defaults upon Senior Securities**

During the period covered by this Report, we did notdefault under the terms of any of our material indebtedness, nor has there beenany material arrearage of dividends or other material uncured delinquency withrespect to any class of our preferred equity.

**Item 4.  Submission of Matters to a Vote of SecurityHolders**

On April 25, 2007,the General Partner held its 2007 annual meeting of shareholders (the “AnnualMeeting”). The General Partner’s shareholders were asked to take action to (a)elect directors to serve on the board of directors until the General Partner’sannual meeting of shareholders in 2008, and (b) ratify the appointment of KPMGLLP to serve as our independent auditors for the fiscal year ending December31, 2007.

At the AnnualMeeting, the General Partner’s shareholders elected each of Barrington H.Branch, Geoffrey Button, William Cavanaugh, III, Ngaire E. Cuneo, Charles R.Eitel, Dr. R. Glenn Hubbard, Dr. Martin C. Jischke, L. Ben Lytle, William O.McCoy, Dennis D. Oklak, Jack R. Shaw, and Robert J. Woodward, Jr. to serve asdirectors for a one-year term. The number of votes cast for and withheld fromeach of the director nominees was as follows:

| NOMINEE                 | ** ** | **FOR**     | ** ** | **WITHHELD** | ** ** |
|-------------------------|------------|-------------|------------|--------------|------------|
| Barrington H.  Branch   |       | 124,560,235 |       | 805,557      |       |
| Geoffrey Button         |       | 124,687,763 |       | 678,029      |       |
| William  Cavanaugh III  |       | 124,842,195 |       | 523,597      |       |
| Ngaire E. Cuneo         |       | 123,621,983 |       | 1,743,809    |       |
| Charles R. Eitel        |       | 124,571,069 |       | 794,723      |       |
| Dr. R. Glenn  Hubbard   |       | 123,975,841 |       | 1,389,951    |       |
| Dr. Martin C.  Jischke  |       | 124,172,089 |       | 1,193,703    |       |
| L. Ben Lytle            |       | 124,088,391 |       | 1,277,401    |       |
| William O. McCoy        |       | 124,761,969 |       | 603,823      |       |
| Dennis D. Oklak         |       | 124,660,136 |       | 705,656      |       |
| Jack R. Shaw            |       | 124,861,294 |       | 504,498      |       |
| Robert J. Woodward, Jr. |       | 124,866,049 |       | 499,743      |       |

 

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The holders of124,866,926 shares of the General Partner’s common stock voted **FOR** the ratification of the appointment ofKPMG LLP to serve as our independent auditors for the fiscal year endingDecember 31, 2007, the holders of 295,239 shares voted **AGAINST** such appointment, and the holdersof 203,627 shares **ABSTAINED**fromvoting on such matters. As a result, this proposal was approved.

**Item 5.  Other Information**

During the period covered by this Report, there was noinformation required to be disclosed by us in a Current Report on Form 8-K thatwas not so reported, nor were there any material changes to the procedures bywhich our security holders may recommend nominees to the General Partner’sboard of directors.

**Item6.  Exhibits**

**(a)             Exhibits**

3.1             Certificate of Limited Partnership of Duke RealtyLimited Partnership, dated September 17, 1993 (filed as Exhibit 3.1 to thePartnership’s Annual Report on Form 10-K for the fiscal year ended December 31,2006, as filed with the SEC on March 13, 2007, File No. 000-20625, andincorporated herein by this reference).

 

3.2(i)         Second Amended and Restated Agreementof Limited Partnership of the Partnership (filed as Exhibit 4.1 to thePartnership’s Current Report on Form 8-K, as filed with the SEC on July 16,1999, File No. 000-20625, and incorporated herein by this reference).

 

3.2(ii)        Second Amendment to the Second Amendedand Restated Agreement of Limited Partnership of the Partnership (filed asExhibit 10.3 to the General Partner’s Annual Report on Form 10-K for the fiscalyear ended December 31, 2001, as filed with the SEC on March 15, 2002, File No.001-09044, and incorporated herein by this reference).

 

3.2(iii)       Third Amendment to the Second Amended andRestated Agreement of Limited Partnership of the Partnership (filed as Exhibit10.4 to the General Partner’s Annual Report on Form 10-K for the fiscal yearended December 31, 2001, as filed with the SEC on March 15, 2002, File No.001-09044, and incorporated herein by this reference).

 

3.2(iv)       Fourth Amendment to the Second Amendedand Restated Agreement of Limited Partnership of the Partnership (filed asExhibit 10.5 to the General Partner’s Annual Report on Form 10-K for the fiscalyear ended December 31, 2001, as filed with the SEC on March 15, 2002, File No.001-09044, and incorporated herein by this reference).

 

3.2(v)        Fifth Amendment to the Second Amendedand Restated Agreement of Limited Partnership of the Partnership (filed asExhibit 10.6 to the General Partner’s Annual Report on Form 10-K for the fiscalyear ended December 31, 2005, as filed with the SEC on March 7, 2006, File No.001-09044, and incorporated herein by this reference).

 

3.2(vi)       Sixth Amendment to the Second Amended andRestated Agreement of Limited Partnership of the Partnership (filed as Exhibit10.7 to the General Partner’s Annual Report on Form 10-K for the fiscal yearended December 31, 2005, as filed with the SEC on March 7, 2006, File No.001-09044, and incorporated herein by this reference).

 

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3.2(vii)      Seventh Amendment to the Second Amendedand Restated Agreement of Limited Partnership of the Partnership (filed asExhibit 10.8 to the General Partner’s Annual Report on Form 10-K for the fiscalyear ended December 31, 2005, as filed with the SEC on March 7, 2006, File No.001-09044, and incorporated herein by this reference).

 

3.2(viii)     Eighth Amendment to the Second Amended andRestated Agreement of Limited Partnership of the Partnership (filed as Exhibit3.1 to the Partnership’s Current Report on Form 8-K, as filed with the SEC onFebruary 6, 2006, File No. 000-20625, and incorporated herein by thisreference).

 

3.2(ix)       Ninth Amendment to the Second Amended andRestated Agreement of Limited Partnership of the Partnership (filed as Exhibit3.1 to the Partnership’s Current Report on Form 8-K, as filed with the SEC onJuly 5, 2006, and incorporated herein by this reference).

 

3.2(x)        Tenth Amendment to the Second Amendedand Restated Agreement of Limited Partnership of the Partnership, deletingExhibits A, D, E, F, H and I and de-designating the related series of preferredunits.*

 

11.1           Statement Regarding Computation ofEarnings.**

 

12.1           Ratio of Earnings to Combined FixedCharges and Preferred Stock Distributions.*

 

12.2           Ratio of Earnings to Debt Service.*

 

31.1           Rule 13a-14(a) Certification of theGeneral Partner’s Chief Executive Officer.*

 

31.2           Rule 13a-14(a) Certification of theGeneral Partner’s Chief Financial Officer.*

 

32.1           Section 1350 Certification of theGeneral Partner’s Chief Executive Officer.*

 

32.2           Section 1350 Certification of theGeneral Partner’s Chief Financial Officer.*

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*                    Filedherewith.

**             Datarequired by Statement of Financial Accounting Standard No.128, *Earnings per Share*, is provided in Note 6to the Consolidated Financial Statements included in this report.

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**SIGNATURES**

Pursuant to the requirements of the SecuritiesExchange Act of 1934, the registrant has duly caused this report to be signedon its behalf by the undersigned thereunto duly authorized.
|                       |   | DUKE REALTY LIMITED PARTNERSHIP      |
|-----------------------|--------|--------------------------------------|
|                  |   |                                 |
|                  |   |                                 |
| Date: August 13, 2007 |   | /s/ Dennis D. Oklak                  |
|                  |   | Dennis D. Oklak                      |
|                  |   | Chairman and Chief Executive Officer |
|                  |   | of the General Partner               |
|                  |   |                                 |
|                  |   |                                 |
|                  |   | /s/ Matthew A. Cohoat                |
|                  |   | Matthew A. Cohoat                    |
|                  |   | Executive Vice President and         |
|                  |   | Chief Financial Officer              |
|                  |   | of the General Partner               |

 

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