**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C.  20549**

 

**FORM 10-Q**

 

**(Mark One)**
| **ý** |   | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF  THE  SECURITIES EXCHANGE ACT OF 1934**                                                                                                                                                                                                                                                                 |
|------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |   | **For the quarterly period  ended    March 31, 2004**                                                                                                                                                                                                                                                                                     |
|       |   |                                                                                                                                                                                                                                                                                                                                                               |
| **OR**     |
|       |   |                                                                                                                                                                                                                                                                                                                                                               |
| **o**      |   | **TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF  THE  SECURITIES EXCHANGE ACT OF 1934**                                                                                                                                                                                                                                                                |
|       |   | **For the transition period from                              to                           .** |

 

**Commission File Number: 0-20625**

 

**DUKE REALTYLIMITED PARTNERSHIP**

 
| State of Incorporation:                                                                                   |   | IRS Employer Identification Number: |
|-----------------------------------------------------------------------------------------------------------|--------|-------------------------------------|
| **Indiana**                                                                                               |   | **35-1898425**                      |
|                                                                                                      |   |                                |
| **600 East 96th Street, Suite 100  Indianapolis, Indiana  46240**                                    |
| **Telephone:   (317) 808-6000**                                                                      |
| (Address, including zip code and telephone  number, including area code, of principal  executive offices) |

 

 

Indicate by check mark whether the registrant (1) has filed all reportsrequired to be filed by Section 13 or 15(d) of the Securities Exchange Actof 1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days.

 

Yes      ý        No o

 

Indicate by check mark whether the registrant is an accelerated filer(as defined in Rule 12b-2 of the Securities Exchange Act).

 

Yes      o        No ý

 

The number of Common Units outstanding as of April 30, 2004 was156,037,630.

 

 

----

 

**DUKEREALTY LIMITED PARTNERSHIP**

 

**INDEX**

 
| **Part I - Financial Information**                                                                             |                                                                                                                  |
|----------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------|
|                                                                                                           |                                                                                                                  |   |
| **Item 1.  Financial Statements**                                                                         |                                                                                                                  |
|                                                                                                           |                                                                                                                  |   |
|                                                                                                           | Condensed  Consolidated Balance Sheets as of March 31, 2004 (Unaudited) and  December 31, 2003              |   |
|                                                                                                           |                                                                                                                  |   |
|                                                                                                           | Condensed Consolidated Statements of  Operations (Unaudited) for the three months ended March 31, 2004 and  2003 |   |
|                                                                                                           |                                                                                                                  |   |
|                                                                                                           | Condensed Consolidated Statements of Cash  Flows (Unaudited) for the three months ended March 31, 2004 and 2003  |   |
|                                                                                                           |                                                                                                                  |   |
|                                                                                                           | Condensed Consolidated Statement of Partners’ Equity (Unaudited) for  the three months ended March 31, 2004 |   |
|                                                                                                           |                                                                                                                  |   |
|                                                                                                           | Notes to Condensed Consolidated Financial  Statements (Unaudited)                                                     |   |
|                                                                                                           |                                                                                                                  |   |
|                                                                                                           | Independent Accountants’ Review Report                                                                           |   |
|                                                                                                           |                                                                                                                  |   |
| **Item 2.   Management’s Discussion and Analysis of Financial Condition and  Results of Operations** |                                                                                                                  |
|                                                                                                           |                                                                                                                  |   |
| **Item 3.   Quantitative and Qualitative Disclosures About Market Risk**                                  |                                                                                                                  |
|                                                                                                           |                                                                                                                  |   |
| **Item 4.   Controls and Procedures**                                                                     |                                                                                                                  |
|                                                                                                           |                                                                                                                  |   |
| **Part II - Other Information**                                                                                |                                                                                                                  |
|                                                                                                           |                                                                                                                  |   |
|                                                                                                           | Item 1.                                                                                                               | Legal Proceedings |   |
|                                                                                                           | Item 2.                                                                                                               | Changes in Securities |   |
|                                                                                                           | Item 3.                                                                                                               | Defaults Upon Senior Securities |   |
|                                                                                                           | Item 4.                                                                                                               | Submission of Matters to a Vote of Security  Holders |   |
|                                                                                                           | Item 5.                                                                                                               | Other Information |   |
|                                                                                                           | Item 6.                                                                                                               | Exhibits and Reports on Form 8-K |   |

 

----

 

**PART I - FINANCIALINFORMATION****Item 1. Financial StatementsDUKE REALTY LIMITED PARTNERSHIP AND SUBSIDIARIESCondensed Consolidated Balance Sheets(in thousands)**

 
|                                                                                      |   | **March 31,  2004** |          | **December 31,  2003** |   |
|-------------------------------------------------------------------------------------------|--------|--------------------------|---------------|-----------------------------|--------|
|                                                                                      |   | **(Unaudited)**          |          |                        |   |
| **ASSETS**                                                                                |   |                     |          |                        |   |
|                                                                                      |   |                     |          |                        |   |
| Real estate investments:                                                                  |   |                     | ** **    |                        |   |
| Land and improvements                                                                     |   | **$**                    | **652,791**   | ** **                  | $      | 641,544 |   |
| Buildings and tenant improvements                                                         |   | **4,534,277**            | ** **    | 4,452,624                   |   |
| Construction in progress                                                                  |   | **60,543**               | ** **    | 119,441                     |   |
| Investments in unconsolidated companies                                                   |   | **292,962**              | ** **    | 295,837                     |   |
| Land held for development                                                                 |   | **301,905**              | ** **    | 314,446                     |   |
|                                                                                      |   | **5,842,478**            |          | 5,823,892                   |   |
| Accumulated depreciation                                                                  |   | **(709,921**             | **)**         | (677,357                    | )      |
|                                                                                      |   |                     | ** **    |                        |   |
| Net real estate investments                                                               |   | **5,132,557**            | ** **    | 5,146,535                   |   |
|                                                                                      |   |                     | ** **    |                        |   |
| Cash and cash equivalents                                                                 |   | **9,910**                | ** **    | 12,695                      |   |
| Accounts receivable, net of allowance of  $1,881 and $2,430                               |   | **16,431**               | ** **    | 16,215                      |   |
| Straight-line rent receivable, net of  allowance of $1,240 and $1,240                     |   | **75,969**               | ** **    | 71,049                      |   |
| Receivables on construction contracts,  including retentions                              |   | **42,922**               | ** **    | 44,905                      |   |
| Deferred financing costs, net of  accumulated amortization of $8,693 and $10,703          |   | **16,250**               | ** **    | 13,358                      |   |
| Deferred leasing and other costs, net of accumulated  amortization of $73,361 and $67,317 |   | **165,040**              | ** **    | 158,562                     |   |
| Escrow deposits and other assets                                                          |   | **165,501**              | ** **    | 95,392                      |   |
|                                                                                      |   | **$**                    | **5,624,580** |                        | $      | 5,558,711 |   |
| **LIABILITIES AND  PARTNERS’ EQUITY**                                                |   |                     | ** **    |                        |   |
|                                                                                      |   |                     | ** **    |                        |   |
| Indebtedness:                                                                             |   |                     | ** **    |                        |   |
| Secured debt                                                                              |   | **$**                    | **206,849**   | ** **                  | $      | 208,649 |   |
| Unsecured notes                                                                           |   | **1,965,821**            | ** **    | 1,775,887                   |   |
| Unsecured lines of credit                                                                 |   | **230,000**              | ** **    | 351,000                     |   |
|                                                                                      |   | **2,402,670**            |          | 2,335,536                   |   |
|                                                                                      |   |                     | ** **    |                        |   |
| Construction payables and amounts due  subcontractors, including retentions               |   | **55,854**               | ** **    | 60,789                      |   |
| Accounts payable                                                                          |   | **1,275**                | ** **    | 2,268                       |   |
| Accrued expenses:                                                                         |   |                     | ** **    |                        |   |
| Real estate taxes                                                                         |   | **59,882**               | ** **    | 52,955                      |   |
| Interest                                                                                  |   | **24,670**               | ** **    | 33,259                      |   |
| Other                                                                                     |   | **34,606**               | ** **    | 49,029                      |   |
| Other liabilities                                                                         |   | **102,862**              | ** **    | 107,321                     |   |
| Tenant security deposits and prepaid rents                                                |   | **43,849**               | ** **    | 37,975                      |   |
| Total liabilities                                                                         |   | **2,725,668**            | ** **    | 2,679,132                   |   |
|                                                                                      |   |                     | ** **    |                        |   |
| Minority interest                                                                         |   | **62**                   | ** **    | 1,259                       |   |
|                                                                                      |   |                     | ** **    |                        |   |
| Partners’ equity:                                                                    |   |                     | ** **    |                        |   |
| General Partner                                                                           |   |                     | ** **    |                        |   |
| Common equity                                                                             |   | **2,268,472**            | ** **    | 2,153,844                   |   |
| Preferred equity (liquidation preference of  $457,250)                                    |   | **423,474**              | ** **    | 511,785                     |   |
|                                                                                      |   | **2,691,946**            |          | 2,665,629                   |   |
|                                                                                      |   |                     | ** **    |                        |   |
| Limited Partner’s common equity                                                      |   | **207,022**              | ** **    | 212,691                     |   |
| Accumulated other comprehensive income                                                    |   | **(118**                 | **)**         | —                      |   |
| Total Partners’ equity                                                               |   | **2,898,850**            | ** **    | 2,878,320                   |   |
|                                                                                      |   | **$**                    | **5,624,580** |                        | $      | 5,558,711 |   |

 

See accompanying Notes to CondensedConsolidated Financial Statements

 

2

----

 

**DUKE REALTY LIMITED PARTNERSHIP ANDSUBSIDIARIESCondensed Consolidated Statements of OperationsFor the three ended March 31, (in thousands, except per unit amounts)(Unaudited)**

 
|                                                                                                          |   | **Three  Months Ended** |        |
|---------------------------------------------------------------------------------------------------------------|--------|-------------------------|-------------|
|                                                                                                          |   | **2004**                |        | **2003** |   |
| **RENTAL OPERATIONS**                                                                                         |   |                    |        |   |   |
| Revenues:                                                                                                     |   |                    |        |   |   |
| Rental income from continuing operations                                                                      |   | **$**                   | **186,824** | ** ** | $ | 176,346 |   |
| Equity in earnings of unconsolidated  companies                                                               |   | **4,525**               | ** **  | 4,269 |   |
|                                                                                                          |   | **191,349**             |        | 180,615 |   |
|                                                                                                          |   |                    | ** **  |   |   |
| Operating expenses:                                                                                           |   |                    | ** **  |   |   |
| Rental expenses                                                                                               |   | **40,306**              | ** **  | 39,591 |   |
| Real estate taxes                                                                                             |   | **21,517**              | ** **  | 19,990 |   |
| Interest expense                                                                                              |   | **33,222**              | ** **  | 31,952 |   |
| Depreciation and amortization                                                                                 |   | **52,318**              | ** **  | 46,610 |   |
|                                                                                                          |   | **147,363**             |        | 138,143 |   |
| Earnings from continuing rental operations                                                                    |   | **43,986**              | ** **  | 42,472 |   |
| **SERVICE OPERATIONS**                                                                                        |   |                    | ** **  |   |   |
| Revenues:                                                                                                     |   |                    | ** **  |   |   |
| General contractor gross revenue                                                                              |   | **82,723**              | ** **  | 50,142 |   |
| General contractor costs                                                                                      |   | **(76,036**             | **)**       | (44,880 | ) |
| Net general contractor revenue                                                                                |   | **6,687**               | ** **  | 5,262 |   |
| Property management, maintenance and  leasing fees                                                            |   | **3,935**               | ** **  | 4,094 |   |
| Construction management and development  activity income                                                      |   | **579**                 | ** **  | (193 | ) |
| Other income                                                                                                  |   | **234**                 | ** **  | 19 |   |
| Total revenue                                                                                                 |   | **11,435**              | ** **  | 9,182 |   |
| Operating expenses                                                                                            |   | **9,393**               | ** **  | 7,300 |   |
| Total earnings from service operations                                                                        |   | **2,042**               | ** **  | 1,882 |   |
| General and administrative expense                                                                            |   | **(8,323**              | **)**       | (5,915 | ) |
| Operating income                                                                                              |   | **37,705**              | ** **  | 38,439 |   |
| **OTHER INCOME (EXPENSE)**                                                                                    |   |                    | ** **  |   |   |
| Interest income                                                                                               |   | **1,508**               | ** **  | 981 |   |
| Earnings from sale of land and ownership  interests in unconsolidated companies, net of impairment adjustment |   | **4,629**               | ** **  | 9,418 |   |
| Other revenue (expense)                                                                                       |   | **(3**                  | **)**       | (550 | ) |
| Other minority interest in earnings of  subsidiaries                                                          |   | **(307**                | **)**       | (23 | ) |
| Income from continuing operations                                                                             |   | **43,532**              | ** **  | 48,265 |   |
| Discontinued operations:                                                                                      |   |                    | ** **  |   |   |
| Net income (loss) from discontinued  operations                                                               |   | **(105**                | **)**       | 1,343 |   |
| Gain on sale of discontinued operations                                                                       |   | **4,009**               | ** **  | 2,338 |   |
| Income from discontinued operations                                                                           |   | **3,904**               | ** **  | 3,681 |   |
|                                                                                                          |   |                    | ** **  |   |   |
| Net income                                                                                                    |   | **47,436**              | ** **  | 51,946 |   |
| Dividends on preferred units                                                                                  |   | **(7,600**              | **)**       | (10,154 | ) |
| Adjustments for redemption of preferred  units                                                                |   | **(3,614**              | **)**       | — |   |
| Net income available for common unitholders                                                                   |   | **$**                   | **36,222**  | ** ** | $ | 41,792 |   |
| Basic net income per common unit:                                                                             |   |                    | ** **  |   |   |
| Continuing operations                                                                                         |   | **$**                   | **.21**     | ** ** | $ | .26 |   |
| Discontinued operations                                                                                       |   | **.03**                 | ** **  | .02 |   |
| Total                                                                                                         |   | **$**                   | **.24**     | ** ** | $ | .28 |   |
| Diluted net income per common unit:                                                                           |   |                    | ** **  |   |   |
| Continuing operations                                                                                         |   | **$**                   | **.21**     | ** ** | $ | .26 |   |
| Discontinued operations                                                                                       |   | **.02**                 | ** **  | .02 |   |
| Total                                                                                                         |   | **$**                   | **.23**     | ** ** | $ | .28 |   |
|                                                                                                          |   |                    | ** **  |   |   |
| Weighted average number of common units  outstanding                                                          |   | **152,444**             | ** **  | 149,971 |   |
| Weighted average number of common units and  dilutive potential common units                                  |   | **156,913**             | ** **  | 150,627 |   |

 

See accompanying Notes to ConsolidatedFinancial Statements.

 

3

----

 

**DUKE REALTY LIMITED PARTNERSHIP ANDSUBSIDIARIESCondensed Consolidated Statements of Cash FlowsFor the three months ended March 31(in thousands)(Unaudited)**

 
|                                                                                                   |   | **2004**     |        | **2003**   |   |
|--------------------------------------------------------------------------------------------------------|--------|--------------|-------------|------------|--------|
| Cash flows from operating  activities:                                                                 |   |         |        |       |   |
|                                                                                                   |   |         | ** **  |       |   |
| Net income                                                                                             |   | **$**        | **47,436**  | ** ** | $      | 51,946 |   |
| Adjustments to reconcile net income to net  cash provided by operating activities:                     |   |         | ** **  |       |   |
| Depreciation of buildings and tenant  improvements                                                     |   | **43,012**   | ** **  | 41,771     |   |
| Amortization of deferred leasing and other  costs                                                      |   | **9,385**    | ** **  | 5,901      |   |
| Amortization of deferred financing costs                                                               |   | **1,067**    | ** **  | 999        |   |
| Minority interest in earnings                                                                          |   | **308**      | ** **  | 23         |   |
| Straight-line rent adjustment                                                                          |   | **(5,892**   | **)**       | (4,574     | )      |
| Earnings from land and depreciated property  sales                                                     |   | **(8,638**   | **)**       | (11,756    | )      |
| Build-for-sale operations, net                                                                         |   | **(2,672**   | **)**       | (15,257    | )      |
| Construction contracts, net                                                                            |   | **(2,689**   | **)**       | (8,491     | )      |
| Other accrued revenues and expenses, net                                                               |   | **(15,146**  | **)**       | (8,105     | )      |
| Operating distributions received in excess  of  equity in earnings from  unconsolidated companies |   | **3,399**    | ** **  | 6,408      |   |
| **Net cash provided  by operating activities**                                                         |   | **69,570**   | ** **  | 58,865     |   |
|                                                                                                   |   |         | ** **  |       |   |
| Cash flows from investing activities:                                                                  |   |         | ** **  |       |   |
| Development of real estate investments                                                                 |   | **(22,114**  | **)**       | (28,995    | )      |
| Acquisition of  real estate investments                                                           |   | **(9,606**   | **)**       | (34,602    | )      |
| Acquisition of land held for development  and infrastructure costs                                     |   | **—**   | ** **  | (7,120     | )      |
| Recurring tenant improvements                                                                          |   | **(14,244**  | **)**       | (8,258     | )      |
| Recurring leasing costs                                                                                |   | **(6,652**   | **)**       | (4,901     | )      |
| Recurring building improvements                                                                        |   | **(4,555**   | **)**       | (2,625     | )      |
| Other deferred leasing costs                                                                           |   | **(5,426**   | **)**       | (6,078     | )      |
| Other deferred costs and other assets                                                                  |   | **(7,153**   | **)**       | 2,343      |   |
| Exercise purchase option on ground lease                                                               |   | **—**   |        | (12,042    | )      |
| Tax deferred exchange escrow, net                                                                      |   | **(1,334**   | **)**       | (8,207     | )      |
| Proceeds from land and depreciated property  sales, net                                                |   | **29,405**   | ** **  | 51,368     |   |
| Investment in secured mortgage loan                                                                    |   | **(65,000**  | **)**       | —     |   |
| Advances to unconsolidated companies                                                                   |   | **(701**     | **)**       | (1,313     | )      |
| **Net cash used by  investing activities**                                                             |   | **(107,380** | **)**       | (60,430    | )      |
|                                                                                                   |   |         | ** **  |       |   |
| Cash flows from financing activities:                                                                  |   |         | ** **  |       |   |
| Contributions from General Partner, common  units                                                      |   | **8,534**    | ** **  | 2,861      |   |
| Contributions from General Partner,  preferred units                                                   |   | **144,975**  | ** **  | —     |   |
| Payments for redemption of General  Partner’s preferred equity                                    |   | **(102,621** | **)**       | (20        | )      |
| Redemption  of warrants of General Partner                                                             |   | **(2,881**   | **)**       | —     |   |
| Proceeds from unsecured debt issuance                                                                  |   | **125,000**  | ** **  | 175,000    |   |
| Proceeds from term loan                                                                                |   | **65,000**   | ** **  |       |   |
| Proceeds from debt refinancing                                                                         |   | **—**   | ** **  | 38,340     |   |
| Payments on secured indebtedness including  principal amortization                                     |   | **(1,707**   | **)**       | (61,706    | )      |
| Payments on lines of credit, net                                                                       |   | **(121,000** | **)**       | (75,095    | )      |
| Distributions to common unitholders                                                                    |   | **(69,722**  | **)**       | (68,209    | )      |
| Distributions to preferred unitholders                                                                 |   | **(6,381**   | **)**       | (10,154    | )      |
| Distributions to minority interest                                                                     |   | **(209**     | **)**       | (710       | )      |
| Deferred financing costs                                                                               |   | **(3,963**   | **)**       | (2,701     | )      |
| **Net cash provided  (used) by financing activities**                                                  |   | **35,025**   | ** **  | (2,394     | )      |
| **Net decrease in  cash and cash equivalents**                                                         |   | **(2,785**   | **)**       | (3,959     | )      |
|                                                                                                   |   |         | ** **  |       |   |
| Cash and cash equivalents at beginning of  period                                                      |   | **12,695**   | ** **  | 17,129     |   |
| Cash and cash equivalents at end of period                                                             |   | **$**        | **9,910**   | ** ** | $      | 13,170 |   |
|                                                                                                   |   |         | ** **  |       |   |
| Other non-cash items:                                                                                  |   |         | ** **  |       |   |
| Conversion of Limited Partner Units to  common shares of General Partner                               |   | **$**        | **1,816**   | ** ** | $      | 968 |   |
| Conversion of Series D Preferred Units to  common shares of General Partner                            |   | **$**        | **130,665** | ** ** | $      | — |   |

 

See accompanying Notes to CondensedConsolidated Financial Statements

 

4

----

 

**DUKE REALTY LIMITED PARTNERSHIP ANDSUBSIDIARIESConsolidated Statements of Partners’ Equity(in thousands, except per unit data)**

 
|                                                                     |   |                  |          |       |   | **Limited  Partners’  Common  Equity** |       | **Accumulated  Other  Comprehensive  Income (Loss)** |        | **Total**  |   |
|--------------------------------------------------------------------------|--------|-----------------------|---------------|------------|--------|---------------------------------------------|------------|------------------------------------------------------|-------------|------------|--------|
| **General  Partner**                                                     |   |
| **Common  Equity**                                                       |   | **Preferred  Equity** |          |
| **Balance at December 31, 2003**                                    |   | **$**                 | **2,153,844** | ** ** | **$**  | **511,785**                                 | ** ** | **$**                                                | **212,691** | ** ** | **$**  | **—** | ** ** | **$** | **2,878,320** | ** ** |
|                                                                     |   |                  |          |       |   |                                        |       |                                                 |        |       |   |
| Comprehensive  income:                                                   |   |                  |          |       |   |                                        |       |                                                 |        |       |   |
| Net income                                                               |   | 36,500                |          | 7,600      |   | 3,336                                       |       | —                                               |        | 47,436     |   |
|                                                                     |   |                  |          |       |   |                                        |       |                                                 |        |       |   |
| Distributions to preferred unitholders                                   |   | —                |          | (7,600     | )      | —                                      |       | —                                               |        | (7,600     | )      |
|                                                                     |   |                  |          |       |   |                                        |       |                                                 |        |       |   |
| Gains (losses) on derivative instruments                                 |   | —                |          | —     |   | —                                      |       | (118                                                 | )           | (118       | )      |
|                                                                     |   |                  |          |       |   |                                        |       |                                                 |        |       |   |
| Comprehensive income available for common  unitholders                   |   |                  |          |       |   |                                        |       |                                                 |        | 39,718     |   |
|                                                                     |   |                  |          |       |   |                                        |       |                                                 |        |       |   |
| Capital contribution from General Partner                                |   | 8,575                 |          | 144,975    |   | —                                      |       | —                                               |        | 153,550    |   |
|                                                                     |   |                  |          |       |   |                                        |       |                                                 |        |       |   |
| Acquisition of partnership interest for  common stock of General Partner |   | 4,358                 |          | —     |   | (2,542                                      | )          | —                                               |        | 1,816      |   |
|                                                                     |   |                  |          |       |   |                                        |       |                                                 |        |       |   |
| Redemption of Series E Preferred units                                   |   | —                |          | (100,028   | )      | —                                      |       | —                                               |        | (100,028   | )      |
|                                                                     |   |                  |          |       |   |                                        |       |                                                 |        |       |   |
| General Partner’s redemption of Series D  Preferred units           |   | —                |          | (2,593     | )      | —                                      |       | —                                               |        | (2,593     | )      |
|                                                                     |   |                  |          |       |   |                                        |       |                                                 |        |       |   |
| General Partner’s conversion of Series D  Preferred units           |   | 130,665               |          | (130,665   | )      | —                                      |       | —                                               |        | —     |   |
|                                                                     |   |                  |          |       |   |                                        |       |                                                 |        |       |   |
| Tax benefits from Employee Stock Plans                                   |   | 573                   |          | —     |   | —                                      |       | —                                               |        | 573        |   |
|                                                                     |   |                  |          |       |   |                                        |       |                                                 |        |       |   |
| Redemption of General Partner Warrants                                   |   | (2,881                | )             | —     |   | —                                      |       | —                                               |        | (2,881     | )      |
|                                                                     |   |                  |          |       |   |                                        |       |                                                 |        |       |   |
| FASB 123 Compensation Expense                                            |   | 101                   |          | —     |   | —                                      |       | —                                               |        | 101        |   |
|                                                                     |   |                  |          |       |   |                                        |       |                                                 |        |       |   |
| Distribution to General Partner                                          |   | (4                    | )             | —     |   | —                                      |       | —                                               |        | (4         | )      |
|                                                                     |   |                  |          |       |   |                                        |       |                                                 |        |       |   |
| Distributions to partners  ($.46 per Common Unit)                   |   | (63,259               | )             | —     |   | (6,463                                      | )          | —                                               |        | (69,722    | )      |
|                                                                     |   |                  |          |       |   |                                        |       |                                                 |        |       |   |
| **Balance at March 31, 2004**                                       |   | **$**                 | **2,268,472** | ** ** | **$**  | **423,474**                                 | ** ** | **$**                                                | **207,022** | ** ** | **$**  | **(118** | **)** | **$** | 2,898,850 | ** ** |

 

See accompanying Notes to CondensedConsolidated Financial Statements

 

5

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**DUKE REALTY LIMITED PARTNERSHIPNOTES TO CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS(Unaudited)**

 

**1.**              **Financial Statements**

 

The interim condensed consolidated financial statements included hereinhave been prepared by Duke Realty Limited Partnership (the “Partnership”)without audit (except for the Balance Sheet as of December 31, 2003). Thefinancial statements have been prepared in accordance with accounting principlesgenerally accepted in the United States of America for interim financialinformation and in accordance with Rule 10-01 of Regulation S-X of theSecurities Exchange Act of 1934. Accordingly, they do not include all of theinformation and footnotes required by accounting principles generally acceptedin the United States of America for complete financial statements. In theopinion of management, all adjustments (consisting of normal recurringadjustments) considered necessary for a fair presentation have been included.These financial statements should be read in conjunction with the consolidatedfinancial statements and notes thereto included in the Partnership’s AnnualReport on Form 10-K for the year ended December 31, 2003.

 

**ThePartnership**

 

Duke Realty Limited Partnership (the “Partnership”) was formed onOctober 4, 1993, when Duke Realty Corporation (the “General Partner”)contributed all of its properties and related assets and liabilities, alongwith the net proceeds from the issuance of additional shares of the GeneralPartner through an offering, to the Partnership. Simultaneously, thePartnership completed the acquisition of Duke Associates, a full-servicecommercial real estate firm operating in the Midwest. The General Partner wasformed in 1985 and qualifies as a Real Estate Investment Trust (“REIT”) underprovisions of the Internal Revenue Code. The General Partner is the solegeneral partner of the Partnership, owning 91.0% of the common partnershipinterests as of March 31, 2004 (“General Partner Units”). The remaining9.0% of the Partnership’s common interest is owned by limited partners(“Limited Partner Units” and, together with the General Partner Units, the“Common Units”). The Limited Partner Units are exchangeable for shares of the GeneralPartner’s common stock on a one-for-one basis subject generally to a one-yearholding period. The General Partner also owns preferred partnership interestsin the Partnership (“Preferred Units”).

 

The Partnership owns and operates a portfolio of industrial, office andretail properties in the midwestern and southeastern United States and providesreal estate services to third-party owners. The Partnership conducts ServiceOperations through Duke Realty Services Limited Partnership (“DRSLP”) and Duke ConstructionLimited Partnership (“DCLP”).

 

**2.****              Lineof Credit**

 

The Partnership has one unsecured line of credit available atMarch 31, 2004, described as follows (in thousands):

 
| **Description**          |   | **Borrowing  Capacity** |    | **Maturity  Date** |              | **Interest  Rate** |        | **Outstanding  at March 31, 2004** |   |
|--------------------------|--------|-------------------------|---------|--------------------|-------------------|--------------------|-------------|-----------------------------------------|--------|
| Unsecured Line of Credit |   | $                       | 500,000 |               | January 2007 |               | LIBOR + .60 | %                                       | $      | 230,000 |   |
|                          |        |                         |         |                    |                   |                    |             |                                         |        |  |  |

 

The line of credit is used to fund development activities, acquireadditional rental properties and provide working capital.

 

The line of credit provides the Partnership with an option to obtainborrowings from the financial institutions that participate at rates lower thanthe stated interest rate, subject to certain restrictions. Amounts outstandingon the unsecured line of credit at March 31, 2004, range from LIBOR + .30%to .60% (1.39% to 1.70% at March 31, 2004).

 

6

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The line of credit also contains financial covenants that require thePartnership to meet defined levels of performance. As of March 31, 2004,the Partnership is in compliance with all covenants and expects to remain incompliance for the foreseeable future.

 

**3.****              RelatedParty Transactions**

 

The Partnership provides property management, leasing, construction,and other tenant related services to properties in which certain executiveshave ownership interests. The Partnership received fees totaling approximately$172,000 and $364,000 for services provided to these properties for the threemonths ended March 31, 2004 and 2003, respectively. The fees charged bythe Partnership for such services are equivalent to those charged tothird-party owners for similar services.

 

The Partnership provides property management, leasing, construction andother tenant related services to unconsolidated companies in which thePartnership has an equity interest. For the three months ended March 31,2004 and 2003, respectively, the Partnership received management fees of $1.2million and $1.2 million, leasing fees of $815,000 and $327,000 andconstruction and development fees of $501,000 and $231,000 from theseunconsolidated companies. These fees were recorded at market rates and thePartnership eliminates its ownership percentage of these fees in theconsolidated financial statements.

 

The Partnership has other related party transactions that areinsignificant and are at terms that management considers to be at arm’s-lengthand equal to those negotiated with independent parties.

 

**4.     Net Income Per Common Unit**

 

Basic net income per common unit is computed by dividing net incomeavailable for common units 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, including any dilutive potentialCommon Units for the  period.

 

The following table reconciles the components of basic and diluted netincome per common unit for the three months ended March 31 (in thousands):

 
|                                                                         |   | **2004**    |       | **2003** |   |
|------------------------------------------------------------------------------|--------|-------------|------------|----------|--------|
|                                                                         |   |        |       |     |   |
| Basic and diluted net income available for  common unitholders               |   | **$**       | **36,222** |     | $      | 41,792 |   |
|                                                                         |   |        |       |     |   |
| Weighted average number of common units  outstanding                         |   | **152,444** |       | 149,972  |   |
| Weighted average conversion of Series D  preferred units (1)                 |   | **3,510**   |       | —   |   |
| Dilutive shares for stock based  compensation plan                           |   | **959**     |       | 655      |   |
| Weighted average number of common units and  dilutive potential common units |   | **156,913** |       | 150,627  |   |
|                                                                              |        |             |            |          |        |  |  |

 

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(1)          Inconnection with the redemption of its Series D Preferred Stock, the GeneralPartner called for the redemption of the Series D Preferred Units as ofMarch 16, 2004. Prior to the redemption date, nearly 5.3 million Series DPreferred Units were converted into 4.9 million Common Units. The convertedunits are assumed to have been outstanding for the entire period and areassumed to be dilutive for the calculation of diluted EPS.

 

**5.****              SegmentReporting**

 

The Partnership is engaged in four operating segments: the first threesegments consist of the ownership and rental of office, industrial and retailreal estate investments (collectively, “Rental Operations”), and the fourthsegment consists of providing of various real estate services such as propertymanagement, maintenance, leasing, development and construction management tothird-party property owners (“Service Operations”). The Partnership’sreportable segments offer different products or services and are managed

 

7

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separately because each requires different operating strategies andmanagement expertise. There are no material intersegment sales or transfers.

 

Non-segment revenue consists mainly of equity in earnings ofunconsolidated companies. Non-segment assets consist of corporate assetsincluding cash, deferred financing costs and investments in unconsolidatedcompanies. Interest expense and other non-property specific revenues andexpenses are not allocated to individual segments in determining thePartnership’s performance measure.

 

The Partnership assesses and measures segment operating results basedupon an industry performance measure referred to as Funds From Operations(“FFO”), which management believes is a useful indicator of the Partnership’soperating performance. Funds From Operations is used by industry analysts andinvestors as a supplemental operating performance measure of an equity realestate investment trust (“REIT”). FFO is calculated in accordance with thedefinition that was adopted by the Board of Governors of the National

 

Association of Real Estate Investment Trusts (“NAREIT”). FFO, asdefined by NAREIT, represents net

 

income (loss) determined in accordance with accounting principlesgenerally accepted in the United States of America (“GAAP”), excludingextraordinary items as defined under GAAP and gains or losses from sales of previouslydepreciated operating real estate assets, plus certain non-cash items such asreal estate asset depreciation and amortization, and after adjustment forunconsolidated partnerships and joint ventures.

 

The revenues and FFO for each of the reportable segments for the threemonths ended March 31, 2004 and 2003, and the assets for each of thereportable segments as of March 31, 2004 and December 31, 2003, aresummarized as follows (in thousands):

 
|                                                                 |   | **Three Months Ended March 31,** |        |
|----------------------------------------------------------------------|--------|---------------------------------------|-------------|
|                                                                 |   | **2004**                              |        | **2003** |   |
| Revenues                                                             |   |                                  | ** **  |   |   |
| Rental Operations:                                                   |   |                                  | ** **  |   |   |
| Office                                                               |   | **$**                                 | **112,299** | ** ** | $ | 106,030 |   |
| Industrial                                                           |   | **71,419**                            | ** **  | 67,080 |   |
| Retail                                                               |   | **1,748**                             | ** **  | 2,084 |   |
| Service  Operations                                                  |   | **11,435**                            | ** **  | 9,182 |   |
| Total Segment  Revenues                                              |   | **196,901**                           | ** **  | 184,376 |   |
| Non-Segment  Revenue                                                 |   | **5,883**                             | ** **  | 5,421 |   |
| Consolidated  Revenue from continuing operations                     |   | **202,784**                           | ** **  | 189,797 |   |
| Discontinued  Operations                                             |   | **277**                               | ** **  | 4,905 |   |
| Consolidated  Revenue                                                |   | **$**                                 | **203,061** | ** ** | $ | 194,702 |   |
| Funds From  Operations                                               |   |                                  | ** **  |   |   |
| Rental Operations:                                                   |   |                                  | ** **  |   |   |
| Office                                                               |   | **$**                                 | **71,161**  | ** ** | $ | 67,840 |   |
| Industrial                                                           |   | **52,077**                            | ** **  | 47,950 |   |
| Retail                                                               |   | **1,368**                             | ** **  | 1,597 |   |
| Services  Operations                                                 |   | **2,042**                             | ** **  | 1,882 |   |
| Total Segment  FFO                                                   |   | **126,648**                           | ** **  | 119,269 |   |
|                                                                 |   |                                  | ** **  |   |   |
| Non-Segment  FFO:                                                    |   |                                  | ** **  |   |   |
| Interest expense                                                     |   | **(33,222**                           | **)**       | (31,952 | ) |
| Interest  income                                                     |   | **1,508**                             | ** **  | 981 |   |
| General and administrative expense                                   |   | **(8,323**                            | **)**       | (5,915 | ) |
| Gain on land sales                                                   |   | **4,629**                             | ** **  | 3,143 |   |
| Other expenses                                                       |   | **393**                               | ** **  | (1,271 | ) |
| Minority interest in earnings of  subsidiaries                       |   | **(307**                              | **)**       | (23 | ) |
| Joint venture FFO                                                    |   | **9,112**                             | ** **  | 9,371 |   |
| Dividends on preferred units                                         |   | **(7,600**                            | **)**       | (10,154 | ) |
| Adjustment for redemption of preferred  units                        |   | **(3,614**                            | **)**       | — |   |
| Discontinued operations                                              |   | **(26**                               | **)**       | 2,405 |   |
| Consolidated FFO                                                     |   | **89,198**                            | ** **  | 85,854 |   |
| Depreciation and amortization on continuing  operations              |   | **(52,318**                           | **)**       | (46,610 | ) |
| Depreciation and amortization on  discontinued operations            |   | **(79**                               | **)**       | (1,062 | ) |
| Share of joint venture adjustments                                   |   | **(4,588**                            | **)**       | (5,003 | ) |
| Earnings from  depreciated property sales on continuing operations   |   | **—**                            | ** **  | 6,259 |   |
| Earnings from  depreciated property sales on discontinued operations |   | **4,009**                             | ** **  | 2,354 |   |
| Net income  available for common unitholders                         |   | **$**                                 | **36,222**  | ** ** | $ | 41,792 |   |

 

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|                  |   | **March 31,  2004** |          | **December 31,  2003** |   |
|-----------------------|--------|--------------------------|---------------|-----------------------------|--------|
| Assets                |   |                     |          |                        |   |
| Rental Operations:    |   |                     |          |                        |   |
| Office                |   | **$**                    | **2,953,489** |                        | $      | 2,884,834 |   |
| Industrial            |   | **2,168,533**            |          | 2,177,483                   |   |
| Retail                |   | **49,216**               |          | 47,293                      |   |
| Service  Operations   |   | **109,097**              |          | 111,318                     |   |
| Total Segment  Assets |   | **5,280,335**            |          | 5,220,928                   |   |
| Non-Segment  Assets   |   | **344,245**              |          | 337,783                     |   |
| Consolidated  Assets  |   | **$**                    | **5,624,580** |                        | $      | 5,558,711 |   |

 

In addition to revenues and FFO, the Partnership also reviews itsrecurring capital expenditures in measuring the performance of its individualsegments. These recurring capital expenditures consist of tenant improvements,leasing commissions and building improvements. These expenditures are reviewedby the Partnership to determine the costs associated with re-leasing vacantspace. The Partnership’s recurring capital expenditures by segment aresummarized as follows for the three months ended March 31, 2004 and 2003,respectively  (in thousands):

 
|                           |   | **2004**   |       | **2003** |   |
|--------------------------------|--------|------------|------------|----------|--------|
| Recurring Capital Expenditures |   |       |       |     |   |
| Office                         |   | **$**      | **15,062** |     | $      | 7,396 |   |
| Industrial                     |   | **10,371** |       | 8,295    |   |
| Retail                         |   | **18**     |       | 93       |   |
| Total                          |   | **$**      | **25,451** |     | $      | 15,784 |   |

 

**6.****              RealEstate Investments**

 

The Partnership adopted SFAS No. 144, *Accountingfor the Impairment or Disposal of Long Lived Assets*(“SFAS 144”), onJanuary 1, 2002. SFAS 144 requires the Partnership to report indiscontinued operations the results of operations of a property which haseither been disposed or is classified as held-for-sale, unless certain conditionsare met.

 

The Partnership has classified operations of forty-seven buildings asdiscontinued operations in accordance with SFAS 144. These forty-sevenbuildings consist of thirty-seven industrial, seven office and three retailproperties. As a result, the Partnership classified net income (loss) of($105,000) and $1.3 million as net income (loss) from discontinued operationsfor the three months ended March 31, 2004 and 2003, respectively. Inaddition, four of the properties classified in discontinued operations weresold during the first three months of 2004 and five properties were sold duringthe first three months of 2003; therefore, the gains on disposal of theseproperties of $4.0 million and $2.3 million for the three months endedMarch 31, 2004 and 2003, respectively, are also reported in discontinuedoperations. The remaining thirty-eight properties consist of thirty-sevenproperties sold during the last nine months of 2003 and one operating propertyis classified as held-for-sale at March 31, 2004.

 

The following table illustrates the major classes of assets andoperations affected by the 47 buildings identified as discontinued operationsat March 31, 2004 (in thousands):

 

9

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|                                                      |   | **March 31,  2004** |       | **March 31,  2003** |   |
|-----------------------------------------------------------|--------|--------------------------|------------|--------------------------|--------|
| Balance Sheet:                                            |   |                     | ** ** |                     |   |
| Real estate investments, net                              |   | **$**                    | **6,962**  | ** **               |   |   |
| Other Assets                                              |   | **348**                  | ** ** |                     |   |
| Total Assets                                              |   | **$**                    | **7,310**  | ** **               |   |   |
| Accrued Expenses                                          |   | **$**                    | **4**      | ** **               |   |   |
| Other Liabilities                                         |   | **78**                   | ** ** |                     |   |
| Equity                                                    |   | **7,228**                | ** ** |                     |   |
| Total Liabilities and Equity                              |   | **$**                    | **7,310**  | ** **               |   |   |
| Statement of Operations:                                  |   |                     | ** ** |                     |   |
| Revenues                                                  |   | **$**                    | **277**    | ** **               | $      | 4,905 |   |
| Expenses:                                                 |   |                     | ** ** |                     |   |
| Operating                                                 |   | **178**                  | ** ** | 1,639                    |   |
| Interest                                                  |   | **125**                  | ** ** | 867                      |   |
| Depreciation and Amortization                             |   | **79**                   | ** ** | 1,062                    |   |
| General and Administrative                                |   | **—**               | ** ** | 5                        |   |
| Operating Income                                          |   | **(105**                 | **)**      | 1,332                    |   |
| Other Income                                              |   | **—**               | ** ** | 11                       |   |
|                                                      |   |                     | ** ** |                     |   |
| Income from discontinued operations, before  gain on sale |   | **(105**                 | **)**      | 1,343                    |   |
| Gain on sale of property, net of impairment  adjustment   |   | **4,009**                | ** ** | 2,338                    |   |
|                                                      |   |                     | ** ** |                     |   |
| Income from discontinued operations                       |   | **$**                    | **3,904**  | ** **               | $      | 3,681 |   |

 

The Partnership allocates interest expense to discontinued operationsas permitted under EITF 87-24, *“Allocationof Interest to Discontinued Operations,”*and has included suchinterest expense in computing net income from discontinued operations. Interestexpense allocable to discontinued operations includes interest on the debt forthe secured properties and an allocable share of the Partnership’s consolidatedunsecured interest expense for unencumbered properties. The allocation ofunsecured interest expense to discontinued operations was based upon the GrossBook Value of the discontinued operations unencumbered population as it relatedto the Partnership’s entire unencumbered population.

 

At March 31, 2004, the Partnership had five office, one industrialand one retail properties comprising approximately 742,000 square feetclassified as held-for-sale. With the exception of three office and one retailproperties mentioned above, each of these properties was under development onthat date and had no operations. Net operating income (defined as totalproperty revenues, less property expenses, which include real estate taxes,repairs and maintenance, property management, utilities, insurance and otherexpenses) of the properties held-for-sale for the three months ended March 31,2004 and 2003, was approximately $444,000, and $227,000, respectively. The netbook value of the properties held-for-sale at March 31, 2004, wasapproximately $54.4 million. There can be no assurance that such propertiesheld for sale will be sold.

 

For the three months ended March 31, 2004 and 2003, thePartnership recorded $100,000 and $420,000, respectively of impairmentadjustments for two land parcels that were held-for-sale. These adjustmentsreflect the write-down of the carrying value of the properties to theirprojected sales price, less selling expenses, once it became probable that theproperties would be sold. The March 31, 2003, property was later sold in2003 and the March 31, 2004, property is scheduled to be sold in thesecond quarter of 2004.

 

**7.****              Partners’ Equity**

 

The General Partner periodically accesses the public equity markets tofund the development and acquisition of additional rental properties or to paydown debt. The proceeds of these offerings are contributed to the Partnershipin exchange for an additional interest in the Partnership.

 

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The following series of Preferred Units are outstanding as ofMarch 31, 2004 (in thousands, except percentages):

 
| **Description**    |   | **Shares  Outstanding** |   | **Dividend  Rate** |   | **Initial  Optional  Redemption  Date** |   | **Liquidation  Preference** |    | **Convertible** |   |
|--------------------|--------|-------------------------|--------|--------------------|--------|-----------------------------------------|--------|-----------------------------|---------|-----------------|--------|
| Series B Preferred |   | 265                     |   | 7.99               | %      | March 31, 2007                     |   | $                           | 132,250 |            | No     |   |
| Series I Preferred |   | 300                     |   | 8.45               | %      | February 6, 2006                   |   | $                           | 75,000  |            | No     |   |
| Series J Preferred |   | 400                     |   | 6.625              | %      | August 25, 2008                    |   | $                           | 100,000 |            | No     |   |
| Series K Preferred |   | 600                     |   | 6.50               | %      | February 13, 2009                  |   | $                           | 150,000 |            | No     |   |

 

All series of preferred units require cumulative distributions and haveno stated maturity date (although the General Partner may redeem them on orfollowing their initial optional redemption dates).

 

The Series B, Series I, Series J and Series K Preferred Units may beredeemed only at the General Partner’s option, in whole or in part.

 

The dividend rate on the Series B Preferred Units increases to 9.99%after September 12, 2012.

 

The Partnership redeemed its $100.0 million Series E Preferred Units onJanuary 20, 2004, at par value.

 

In connection with the General Partner’s call for the redemption of itsSeries D Preferred stock, the Partnership called for the redemption of itsSeries D Convertible Preferred Units as of March 16, 2004. Prior to theredemption date, 5,242,635 Series D Convertible Preferred Units were convertedinto 4,911,143 Common Units. The remaining 103,695 Series D Convertible PreferredUnits outstanding on March 16, 2004 were redeemed.

 

The General Partner issued $150 million of Series K Preferred Units onFebruary 13, 2004, at a distribution rate of 6.50%.

 

**8.****              OtherMatters**

 

**Reclassifications**

 

Certain 2003 balances have been reclassified to conform to the 2004presentation.

 

**9.****              FinancialInstruments**

 

The Partnership is exposed to capital market risk, such as changes ininterest rates. In order to manage the volatility relating to interest raterisk, the Partnership may enter into interest rate hedging arrangements fromtime to time. The Partnership does not utilize derivative financial instrumentsfor trading or speculative purposes. The Partnership accounts for derivativeinstruments under Statement of Financial Accounting Standard No. 133, *Accounting for Derivative Instruments and HedgingActivities,* as amended (“SFAS 133”).

 

During the first quarter of 2004, the Partnership funded a $65 millionnote receivable secured by a first mortgage on a portfolio of office propertiesowned by a third party located in Atlanta, Georgia. The note receivable has amaximum two-year term with an interest rate of 5.5% for the first 6 months and6.5% thereafter. In order to fund the note receivable, the Partnership borrowed$65 million under a variable interest rate term loan. The interest rate on theloan is LIBOR + 75 basis points with a maturity date of January 2005 andtwo six month renewal options. To hedge its variable interest rate risk on theloan, the Partnership entered into two interest rate swaps totaling $65 millionthat effectively fixed the rate through maturity. The hedge accounting rulesare being used for the swaps, which allows for the change in market value ofthe swaps to be recorded through Other Comprehensive Income (“OCI”) in equityversus the Statement of Operations.

 

11

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As of March 31, 2004, the Partnership was in a liability positionof $118,000, which is reflected in other liabilities and OCI on the balancesheet. As a lender, the Partnership is subject to customary non-payment anddefault risk with respect to this secured loan.

 

In May 2003, the FASB issued SFAS No. 150 *Accounting for Certain Financial Instruments with Characteristics ofboth Liabilities and Equity* (“SFAS 150”). SFAS 150 establishesstandards for classifying and measuring as liabilities certain financialinstruments that embody obligations of the issuer and have characteristics ofboth liabilities and equity. SFAS 150 is effective for all financial instrumentscreated or modified after May 31, 2003, and otherwise is effective July 1,2003. The Partnership includes the operations of one joint venture in itsconsolidated financial statements at March 31, 2004. This joint venture ispartially owned by an unaffiliated party that has a non-controlling interest.SFAS 150 requires the disclosure of the estimated settlement value of thisnon-controlling interest. In the quarter ended March 31, 2004, thePartnership acquired its partner’s minority interest in four other jointventures. As of March 31, 2004, the estimated settlement value of thenoncontrolling interest in the remaining consolidated joint venture wasapproximately $944,000 as compared to the minority interest liability recordedon the Partnership’s books for this joint venture of ($121,000).

 

**10.****       StockBased Compensation**

 

Under the limited partnership agreement ofthe partnership, the Partnership is required to issue one Common Unit to theGeneral Partner for each share of common shock issued by the General Partner.Accordingly, the issuance of common shares by the General Partner under itsstock based compensation plans requires the issuance of a corresponding numberof Common Units by the Partnership to the General Partner.

 

For all issuances prior to 2002, thePartnership applies the recognition and measurement provisions ofAPB Opinion No. 25, *Accounting for StockIssued to Employees*, and related Interpretations in accounting forits stock based compensation. Effective January 1, 2002, the Partnershipprospectively adopted the fair value recognition provisions of FASB StatementNo. 123, *Accounting for Stock-BasedCompensation*, to all awards granted after January 1, 2002.

 

The following table illustrates the effect on net income and earningsper share if the fair value method had been applied to all outstanding andunvested awards in each period.

 
|                                                                                                             |        | **Three  Months ended March 31,** |       |
|------------------------------------------------------------------------------------------------------------------|-------------|----------------------------------------|------------|
|                                                                                                             |        | **2004**                               |       | **2003** |   |
| Net income, as reported                                                                                          |        | **$**                                  | **36,222** | ** ** | $ | 41,792 |   |
| Add:   Stock-based employee compensation expense included in net income  determined under fair value method |        | **101**                                | ** ** | 10 |   |
| Deduct:   Total stock based compensation expense determined under fair value  method for all awards         |        | **(220**                               | **)**      | (185 | ) |
| Proforma Net Income                                                                                              |        | **$**                                  | **36,103** | ** ** | $ | 41,617 |   |
| Basic net income per share                                                                                       | As reported |                                   | **$**      | **.24** | ** ** | $ | .28 |   |
|                                                                                                             | Pro forma   |                                   | **$**      | **.24** | ** ** | $ | .28 |   |
|                                                                                                             |        |                                   |       |   |   |
| Diluted net income per share                                                                                     | As reported |                                   | **$**      | **.23** | ** ** | $ | .28 |   |
|                                                                                                             | Pro forma   |                                   | **$**      | **.23** | ** ** | $ | .28 |   |

 

**11.****       RecentAccounting Pronouncements**

 

In January 2003, the FASB issued Interpretation 46, Consolidationof Variable Interest Entities (“Interpretation 46”), which addresses theconsolidation of certain entities in which a company has a controllingfinancial interest through means other than voting rights. This interpretationwas revised in

 

12

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December 2003. For calendar year companies, Interpretation 46contains an effective date of December 31, 2003 for special purposeentities and periods ending after March 15, 2004 for all other entities.The Partnership does not own interests in any special purpose entities. ThePartnership determined that its investments in variable interest entities inwhich the Partnership has the majority variable interest have been consolidatedin previously issued financial statements under previous accounting guidanceand there are no other interests in variable interest entities other than thosethat have been consolidated previously. The Partnership’s adoption of thisinterpretation did not have an impact on its financial statements.

 

**12.****       SubsequentEvents**

 

*Declaration of Distributions*

 

The Board of Directors of the General Partner declared the followingdistributions at its April 28, 2004 regularly scheduled Board meeting:

 
| **Class**                        |   | **Quarterly****Amount/Unit** |    | **Record  Date** |               | **Payment  Date** |
|----------------------------------|--------|------------------------------|---------|------------------|--------------------|-------------------|
| Common                           |   | $                            | 0.46    |             | May 14, 2004       |              | May 28, 2004 |
| Preferred (per depositary unit): |   |                         |    |             |               |              |
| Series B                         |   | $                            | 0.99875 |             | June 16, 2004 |              | June 30, 2004 |
| Series I                         |   | $                            | 0.52813 |             | June 16, 2004 |              | June 30, 2004 |
| Series J                         |   | $                            | 0.41406 |             | May 14, 2004       |              | May 28, 2004 |
| Series K*                        |   | $                            | 0.48750 |             | May 14, 2004       |              | May 28, 2004 |

 

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*This first dividend for the series K Preferred Units applies from theissue date of February 13, 2004, through May 31, 2004. In the future, thenormal quarterly distribution payment is expected to be $0.40625.

 

13

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**The Partners**

Duke Realty Limited Partnership**:**

 

We have reviewed the condensed consolidated balance sheet of DukeRealty Limited Partnership and subsidiaries as of March 31, 2004, therelated condensed consolidated statements of operations for the three monthsended March 31, 2004 and 2003, the related condensed consolidatedstatements of cash flows for the three months ended March 31, 2004 and2003, and the related condensed consolidated statement of partners’ equity forthe three months ended March 31, 2004. These condensed consolidatedfinancial statements are the responsibility of the Partnership’s management.

 

We conducted our review in accordance with standards established by theAmerican Institute of Certified Public Accountants. A review of interimfinancial information consists principally of applying analytical procedures tofinancial data and making inquiries of persons responsible for financial andaccounting matters. It is substantially less in scope than an audit conducted inaccordance with auditing standards generally accepted in the United States ofAmerica, the objective of which is the expression of an opinion regarding thefinancial statements taken as a whole. Accordingly, we do not express such anopinion.

 

Based on our review, we are not aware of any material modificationsthat should be made to the condensed consolidated financial statements referredto above for them to be in conformity with accounting principles generallyaccepted in the United States of America.

 

We have previously audited, in accordance with auditing standardsgenerally accepted in the United States of America, the consolidated balancesheet of Duke Realty Limited Partnership and subsidiaries as ofDecember 31, 2003, and the related consolidated statements of operations,partners’ equity and cash flows for the year then ended (not presented herein);and in our report dated January 28, 2004, we expressed an unqualifiedopinion on those consolidated financial statements. In our opinion, the informationset forth in the accompanying condensed consolidated balance sheet as ofDecember 31, 2003 is fairly presented, in all material respects, inrelation to the consolidated balance sheet from which it has been derived.

 

 
| KPMG LLP              |
|-----------------------|
| Indianapolis, Indiana |
| May 3, 2004           |

 

14

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

 

**Cautionary StatementRegarding Forward Looking Statements**

 

Certain statements in this quarterly report, including those related tothe Partnership’s future operations, constitute “forward-looking statements”within the meaning of Section 27A of the Securities Act of 1933, asamended, and Section 21E of the Securities Exchange Act of 1934, asamended. These forward-looking statements involve known and unknown risks,uncertainties and other important factors that could cause the actual results,performance or achievements of the Partnership, or industry results, to differmaterially from any predictions of future results, performance or achievementsthat we express or imply in this report. Some of the risks, uncertainties andother important factors that may affect future results include, among others:

 

•  General economic and businessconditions;

•  The General Partner’scontinued qualification as a real estate investment trust;

•  Competition for tenants anddecrease in property occupancy;

•  Potential increases in realestate construction costs;

•  Potential changes in interestrates;

•  Continuing ability tofavorably raise debt and equity in the capital markets; and

•  Other risks inherent in thereal estate business including tenant defaults, potential liability relating toenvironmental matters and liquidity of real estate investments.

 

This list of risks and uncertainties, however, is not intended to beexhaustive. The Partnership has on file with the Securities and ExchangeCommission (“SEC”) a Current Report on Form 8K dated September 5, 2003,which contains additional risk factor information.

 

The words “believe,” “estimate,” “expect” and similar expressions orstatements regarding future periods are intended to identify forward-lookingstatements. Although we believe that the plans, expectations and resultsexpressed in or suggested by the forward-looking statements are reasonable, allforward-looking statements are inherently uncertain as they involve substantialrisks and uncertainties beyond the Partnership’s control. New factors emergefrom time to time, and it is not possible for us to predict the nature orassess the potential impact of each new factor on the Partnership’s business.Given these uncertainties, we caution you not to place undue reliance on theseforward-looking statements. The Partnership undertakes no obligation to updateor revise any of its forward-looking statements for events or circumstancesthat arise after the statement is made.

 

**Business Overview**

 

As of March 31, 2004, the Partnership:

 

•                 Owned orcontrolled 899 industrial, office and retail properties (including propertiesunder development), consisting of more than 109.7 million square feet locatedin 13 operating platforms; and

•                 Owned orcontrolled more than 3,600 acres of land with an estimated future developmentpotential of approximately 56 million square feet of industrial, office andretail properties.

 

15

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The Partnership provides the following services for its properties andfor certain properties owned by third parties:

•                 leasing;

•                 management;

•                 construction;

•                 development; and

•                 othertenant-related services.

 

The Partnership’s operating results depend primarily upon income fromthe Rental Operations of its properties. This rental income is substantiallyinfluenced by the supply and demand for the Partnership’s rental space. ThePartnership’s continued growth is dependent upon its ability to maintainoccupancy rates and increase rental rates of its in-service portfolio. ThePartnership’s strategy for growth also includes developing and acquiringadditional rental properties.

 

The following highlights the areas of Rental Operations that thePartnership considers critical for future revenue growth (all square footagetotals and occupancy percentages reflect 100% of both wholly-owned propertiesand properties in joint ventures):

 

***Same PropertyPerformance:*** The Partnership tracks same propertyperformance, which measures the performance of properties that were in-servicefor all reported portions of a two-year period by comparing the results of thesecond year with the results of the first year. For the three months endedMarch 31, 2004, net operating income from the same property portfoliodecreased .1% from the same period in 2003.

 

***Occupancy Analysis:***As discussed above, the ability to maintain occupancy rates is a principaldriver of the Partnership’s results of operations. The following table setsforth occupancy information regarding the Partnership’s in-service portfolio ofrental properties as of March 31, 2004 and 2003 (square feet inthousands):

 
|            |   | **Total  Square Feet** |       | **Percent  of  Total Square Feet** |       | **Percent  Occupied** |       |
|-----------------|--------|------------------------|------------|-----------------------------------------|------------|-----------------------|------------|
| **Type**        |   | **2004**               | ** ** | **2003**                                | ** ** | **2004**              | ** ** | **2003** | ** ** | **2004** | ** ** | **2003** | ** ** |
| **Industrial**  |   |                   |       |                                    |       |                  | ** ** |   |   |   | ** ** |   |   |
| Service Centers |   | **13,****200**         |       | 13,758                                  | ** ** | **12.2**              | **%**      | 13.1 | % | **84.9** | **%** | 86.4 | % |
| Bulk            |   | **66,850**             |       | 66,077                                  | ** ** | **62.1**              | **%**      | 62.7 | % | **91.3** | **%** | 88.5 | % |
| **Office**      |   | **26,891**             |       | 24,709                                  | ** ** | **25.0**              | **%**      | 23.4 | % | **86.9** | **%** | 85.1 | % |
| **Retail**      |   | **738**                |       | 840                                     | ** ** | **.7**                | **%**      | .8 | % | **98.5** | **%** | 99.3 | % |
|            |   |                   |       |                                    |       |                  | ** ** |   |   |   | ** ** |   |   |
| Total           |   | **107,679**            |       | 105,384                                 | ** ** | **100.0**             | **%**      | 100.0 | % | **89.5** | **%** | 87.5 | % |

 

16

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***Lease Expiration:***Thefollowing table reflects the Partnership’s in-service portfolio leaseexpiration schedule as of March 31, 2004, by property type indicatingsquare footage and annualized net effective rents under expiring leases (inthousands, except per square foot amounts):

 
|                         |   | **Total  Portfolio** |   | **Industrial**         |    | **Office**              |   | **Retail**       |   |
|------------------------------|--------|----------------------|--------|------------------------|---------|-------------------------|--------|------------------|--------|
| **Year of  Expiration**      |   | **Square  Feet**     |   | **Ann. Rent  Revenue** |    | **Percent of  Revenue** |   | **Square  Feet** |   | **Ann. Rent  Revenue** |   | **Square  Feet** |   | **Ann. Rent  Revenue** |   | **Square  Feet** |   | **Ann. Rent  Revenue** |   |
| 2004                         |   | 7,971                |   | $                      | 56,292  |                    | 8      | %                | 5,881  |   | $ | 27,927 |   | 2,090 |   | $ | 28,365 |   | — |   | $ | — |   |
| 2005                         |   | 12,769               |   | 88,375                 |    | 13                      | %      | 10,043           |   | 49,354 |   | 2,690 |   | 38,521 |   | 36 |   | 500 |   |
| 2006                         |   | 10,978               |   | 76,903                 |    | 12                      | %      | 8,626            |   | 44,931 |   | 2,350 |   | 31,939 |   | 2 |   | 33 |   |
| 2007                         |   | 12,173               |   | 78,648                 |    | 12                      | %      | 9,577            |   | 44,703 |   | 2,571 |   | 33,668 |   | 25 |   | 277 |   |
| 2008                         |   | 13,034               |   | 77,693                 |    | 12                      | %      | 10,610           |   | 46,555 |   | 2,403 |   | 30,775 |   | 21 |   | 363 |   |
| 2009                         |   | 10,324               |   | 68,068                 |    | 10                      | %      | 7,806            |   | 34,921 |   | 2,498 |   | 32,759 |   | 20 |   | 388 |   |
| 2010                         |   | 7,504                |   | 56,791                 |    | 9                       | %      | 5,400            |   | 26,858 |   | 2,090 |   | 29,697 |   | 14 |   | 236 |   |
| 2011                         |   | 4,248                |   | 35,144                 |    | 5                       | %      | 2,856            |   | 13,790 |   | 1,376 |   | 21,109 |   | 16 |   | 245 |   |
| 2012                         |   | 4,624                |   | 28,781                 |    | 4                       | %      | 3,547            |   | 13,660 |   | 1,070 |   | 14,788 |   | 7 |   | 333 |   |
| 2013                         |   | 3,974                |   | 41,576                 |    | 6                       | %      | 1,726            |   | 8,122 |   | 2,185 |   | 32,539 |   | 63 |   | 915 |   |
| 2014 and  Thereafter         |   | 8,715                |   | 58,775                 |    | 9                       | %      | 6,133            |   | 24,739 |   | 2,058 |   | 30,500 |   | 524 |   | 3,536 |   |
| Total Leased                 |   | 96,314               |   | $                      | 667,046 |                    | 100    | %                | 72,205 |   | $ | 335,560 |   | 23,381 |   | $ | 324,660 |   | 728 |   | $ | 6,826 |   |
| Total  Portfolio Square Feet |   | 107,679              |   |                   |    |                    |   | 80,049           |   |   |   | 26,891 |   |   |   | 739 |   |   |   |
|                         |   |                 |   |                   |    |                    |   |             |   |   |   |   |   |   |   |   |   |   |   |
| Percent  Occupied            |   | 89.5                 | %      |                   |    |                    |   | 90.2             | %      |   |   | 86.9 | % |   |   | 98.5 | % |   |   |

 

***Future Development:***ThePartnership expects to realize growth in earnings from Rental Operationsthrough the development and acquisition of additional rental properties in itsprimary markets. Specifically, the Partnership has 2.1 million square feet ofproperties under development at March 31, 2004. These properties shouldprovide future earnings through Service Operations income upon sale or fromRental Operations growth as they are placed in service. A summary of the propertiesunder development as of March 31, 2004, follows (in thousands, exceptpercent leased and stabilized returns):

 
| **Anticipated  In-Service  Date** |   | **Square  Feet** |   | **Percent  Leased** |   | **Project  Costs** |   | **Estimated  Stabilized  Return** |   |
|-----------------------------------|--------|------------------|--------|---------------------|--------|--------------------|--------|-----------------------------------|--------|
| Held For Rental:                  |   |             |   |                |   |               |   |                              |   |
| 2nd Quarter 2004                  |   | 833              |   | 91                  | %      | $                  | 32,118 |                              | 9.4    | % |
| 3rd Quarter 2004                  |   | 727              |   | 76                  | %      | 27,563             |   | 9.7                               | %      |
| 4th Quarter 2004                  |   | 193              |   | 100                 | %      | 6,479              |   | 9.9                               | %      |
| Thereafter                        |   | —           |   | —              |   | —             |   | —                            |   |
|                              |   | 1,753            |   | 86                  | %      | $                  | 66,160 |                              | 9.5    | % |
|                              |   |             |   |                |   |               |   |                              |   |
| Build-to-Suit for Sale:           |   |             |   |                |   |               |   |                              |   |
| 2nd Quarter 2004                  |   | 26               |   | 100                 | %      | $                  | 2,650  |                              | 11.3   | % |
| 3rd Quarter 2004                  |   | 227              |   | 100                 | %      | 23,719             |   | 9.6                               | %      |
| 4th Quarter 2004                  |   | 35               |   | 100                 | %      | 3,404              |   | 14.2                              | %      |
| Thereafter                        |   | 21               |   | 100                 | %      | 2,291              |   | 10.5                              | %      |
|                              |   | 309              |   | 100                 | %      | $                  | 32,064 |                              | 10.3   | % |
| Total                             |   | 2,062            |   | 88                  | %      | $                  | 98,224 |                              | 9.8    | % |

 

***Lease Renewals:***ThePartnership renewed 73.1% of leases up for renewal in the three months endedMarch 31, 2004, totaling 3.0 million square feet on which it attained a3.6% growth in net effective rents. This compares to renewals of 61.6% for thethree months ended March 31, 2003, totaling 1.1 million square feet and adecrease in net effective rents of 1.5%. In addition to the renewal increasesthe average term of renewals increased to 4.4 years from an average of 3.5years for all of 2003.

 

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**Funds From Operations**

 

Funds From Operations (“FFO”) is used by industry analysts andinvestors as a supplemental operating performance measure of an equity real estate investment trust (“REIT”).FFO is calculated in accordance with the definition that was adopted by theBoard of Governors of the National Association of Real Estate Investment Trusts(“NAREIT”). FFO, as defined by NAREIT, represents net income (loss) determinedin

 

Accordance with accounting principles generally accepted in the UnitedStates of America (“GAAP”), excluding extraordinary items as defined under GAAPand gains or losses from sales of previously depreciated operating real estateassets, plus certain non-cash items such as real estate asset depreciation andamortization, and after adjustment for unconsolidated partnerships and jointventures.

 

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 investors and analysts haveconsidered presentation of operating results for real estate companies that usehistorical cost accounting to be insufficient by themselves. Thus, NAREITcreated FFO as a supplemental measure of REIT operating performance thatexcludes historical cost depreciation, among other items, from GAAP net income.Management believes that the use of FFO, combined with the required primaryGAAP presentations, has improved the understanding of operating results ofREITs among the investing public and made comparisons of REIT operating resultsmore meaningful. As a REIT subsidiary, the Partnership’s management considersFFO to be a useful measure for reviewing comparative operating and financialperformance (although FFO should be reviewed in conjunction with net incomewhich remains the primary measure of performance) because by excluding gains orlosses related to sales of previously depreciated operating real estate assetsand excluding real estate asset depreciation and amortization, FFO assists incomparing the operating performance of a company’s real estate between periodsor as compared to different companies.

 

The following table summarizes the calculation of FFO for the threemonths ended March 31 (in thousands):

 
|                                             |   | **Three  Months Ended March 31,** |       |
|--------------------------------------------------|--------|----------------------------------------|------------|
|                                             |   | **2004**                               |       | **2003** |   |
| Net income available for common unitholders      |   | **$**                                  | **36,222** |   | $ | 41,792 |   |
| Add back (deduct):                               |   |                                   |       |   |   |
| Depreciation and amortization                    |   | **52,397**                             |       | 47,672 |   |
| Share of joint venture adjustments               |   | **4,588**                              |       | 5,003 |   |
| Earnings from depreciable property  dispositions |   | **(4,009**                             | **)**      | (8,613 | ) |
|                                             |   |                                   |       |   |   |
| **Funds From Operations**                        |   | **$**                                  | **89,198** |   | $ | 85,854 |   |

 

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**Results of Operations**

 

A summary of the Partnership’s operating results and propertystatistics for the three months ended March 31, 2004 and 2003, is asfollows (in thousands, except number of properties and per unit amounts):

 
|                                                         |   | **Three  Months  Ended March 31,** |        |
|--------------------------------------------------------------|--------|-----------------------------------------|-------------|
|                                                         |   | **2004**                                |        | **2003** |   |
| Rental Operations revenue from continuing  operations        |   | **$**                                   | **191,349** |   | $ | 180,615 |   |
| Service Operations revenues                                  |   | **11,435**                              |        | 9,182 |   |
| Earnings from Rental Operations                              |   | **43,986**                              |        | 42,472 |   |
| Earnings from Service Operations                             |   | **2,042**                               |        | 1,882 |   |
| Operating income                                             |   | **37,705**                              |        | 38,439 |   |
| Net income available for common unitholders                  |   | **$**                                   | **36,222**  |   | $ | 41,792 |   |
| Weighted average common units outstanding                    |   | **152,444**                             |        | 149,971 |   |
| Weighted average common and dilutive  potential common units |   | **156,913**                             |        | 150,627 |   |
| Basic income per common unit:                                |   |                                    |        |   |   |
| Continuing operations                                        |   | **$**                                   | **.21**     |   | $ | .26 |   |
| Discontinued operations                                      |   | **$**                                   | **.03**     |   | $ | .02 |   |
| Diluted income per common unit:                              |   |                                    |        |   |   |
| Continuing operations                                        |   | **$**                                   | **.21**     |   | $ | .26 |   |
| Discontinued operations                                      |   | **$**                                   | **.02**     |   | $ | .02 |   |
| Number of in-service properties at end of  period            |   | **887**                                 |        | 908 |   |
| In-service square footage at end of period                   |   | **107,679**                             |        | 105,384 |   |
| Under development square footage at end of  period           |   | **2,061**                               |        | 3,545 |   |

 

**Comparison of ThreeMonths Ended March 31, 2004 to Three Months Ended March 31, 2003**

 

Rental Income from Continuing Operations

 

Overall, rental income from continuing operations increased from $176.3million in 2003 to $186.8 million in 2004. The following table reconcilesrental income by reportable segment to the Partnership’s total reported rentalincome from continuing operations for the three months ended March 31,2004 and 2003 (in thousands):

 
|        |   | **2004**   |        | **2003** |   |
|-------------|--------|------------|-------------|----------|--------|
| Office      |   | **$**      | **112,299** |     | $      | 106,030 |   |
| Industrial  |   | **71,419** |        | 67,080   |   |
| Retail      |   | **1,748**  |        | 2,084    |   |
| Non-segment |   | **1,358**  |        | 1,152    |   |
| Total       |   | **$**      | **186,824** |     | $      | 176,346 |   |

 

Although the Partnership’s three reportable segmentscomprising Rental Operations (office, industrial and retail) are all within thereal estate industry, they are not necessarily affected by the same economicand industry conditions. The primary causes of the increase in rental incomefrom continuing operations, with specific references to a particular segmentwhen applicable, are summarized below:

 

•                  The Partnership ‘s in-service occupancy increased to 89.5% at March 31, 2004, from87.5% at March 31, 2003. Bulk industrial continued to be the strongestperforming product type, with the office/showroom still lagging behind inlease-up activity. This trend is consistent with management’s expectations atthis point of the economic recovery.

•                  Straight-line rental income for the firstquarter of 2004 totaled approximately $5.9 million compared to $4.6 million in2003, which reflects the Partnership’s continued use of free rent concessions as an incentive to attractquality tenants in competitive markets primarily on office leases. The effectof these concessions is reflected in straight-line rental income over the lifeof the leases.

 

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•                  During the lastthree quarters of 2003 and the first quarter of 2004 the Partnership acquiredtwelve new properties, placed ten development projects in-service and acquiredan additional three properties through acquisitions of its joint venturepartner’s interest. These acquisitions and developments are the primary factorin the overall $10.5 million increase in rental revenue for the three monthsended March 31, 2004, compared to the same period in 2003. Ten of thetwelve property acquisitions, four development projects and all of the jointventure acquisitions were office properties. These office acquisitions anddevelopments resulted in the $6.3 million increase in office rental income.During 2003 and in the first quarter 2004, the Partnership acquired two anddeveloped six industrial buildings.

•                  Lease termination fees totaled $4.1 millionfor the first quarter 2004, compared to $9.3 million for the same period in2003. The office portfolio had termination fees of $3.4 million during thefirst quarter of 2004 compared to $8.2 million for the first quarter of 2003.In 2003, $5.9 million of the $8.2 million of termination fees was associatedwith a single office tenant.

 

Rental Expenses and Real Estate Taxes

 

The following table reconciles rental expenses and real estate taxes byreportable segment to the Partnership’s total reported amounts in the statementof operations for the three months ended March 31, 2004 and 2003 (inthousands):

 
|               |   | **2004**   | ** ** | **2003** | ** ** |
|--------------------|--------|------------|------------|----------|------------|
| Rental Expenses:   |   |       |       |     |       |
| Office             |   | **$**      | **28,921** |     | $          | 27,545 |   |
| Industrial         |   | **10,961** |       | 11,160   |       |
| Retail             |   | **244**    |       | 338      |       |
| Non-segment        |   | **180**    |       | 548      |       |
| Total              |   | **$**      | **40,306** |     | $          | 39,591 |   |
|               |   |       |       |     |       |
|               |   | **2004**   | ** ** | **2003** | ** ** |
| Real Estate Taxes: |   |       |       |     |       |
| Office             |   | **$**      | **11,917** |     | $          | 10,686 |   |
| Industrial         |   | **8,382**  |       | 8,066    |       |
| Retail             |   | **134**    |       | 149      |       |
| Non-segment        |   | **1,084**  |       | 1,089    |       |
| Total              |   | **$**      | **21,517** |     | $          | 19,990 |   |

 

The overall rental expense increase is the result of the Partnership’sincreased real estate assets associated with acquisitions and developments asnoted above. The increase in rental expenses for the three month period endedMarch 31, 2004, was somewhat offset by the decrease in snow removal andother weather related expenses that the Partnership experienced for the sameperiod in 2003.

 

Interest Expense

 

The increase in interest expense from $32.0 million for the firstquarter of 2003, to $33.2 million for the same period in 2004, was primarilyattributable to an increase in the Partnership’s unsecured debt balance  (excluding the line of credit). SinceMarch 31, 2003, the Partnership had $265.0 million of net unsecured debtissuances.

 

Depreciation and Amortization

 

Depreciation and amortization expense increased from $46.6 millionduring the three months ended March 31, 2003 to $52.3 million for the sameperiod in 2004.

 

The following highlights the significant changes in depreciable andamortizable property:

 

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•                  The basis of thePartnership’s held for investment depreciable property portfolio increased byapproximately $242.6 million from March 31, 2003 to March 31, 2004,primarily through developments placed in-service and acquisitions throughout2003 and the first quarter of 2004.

•                  The Partnershiphas incurred tenant improvement costs of $93.6 million since the first quarterof 2003.

•                  The Partnershiphas also recorded lease commissions of $39.2 million since the first quarter of2003.

•                  For the quarterended March 31, 2004, the Partnership recorded $3.1 million ofamortization associated with intangible assets for leases acquired and in-placeat the closing date of the acquisition. These intangible assets are amortizedover the remaining life of the leases (generally 3-5 years).

 

Service Operations

 

Service Operations primarily consist of leasing, management,construction and development services for joint venture properties andproperties owned by third parties. Service Operations revenues increased from$9.2 million for the three months ended March 31, 2003, to $11.4 millionfor the three months ended March 31, 2004 as a result of the followingsignificant fluctuations:

 

•                  Revenue fromwork performed as general contractor for third party construction jobsincreased from $50.1 million for the three months ended March 31, 2003, to$82.7 million for the three months ended March 31, 2004. The Partnershiphas continued to experience an increase in volume for third party work in 2004.

•                  During the firstquarter of 2004 the Partnership sold one held-for-sale property compared tohaving no sales in the first quarter of 2003.

 

Service Operations expenses increased from $7.3 million for the threemonths ended March 31, 2003, to $9.4 million for the three months endedMarch 31, 2004. The increase is the result of increased labor costsassociated with the increase in third party construction activity mentionedabove.

 

General and Administrative Expense

 

General and administrative expenses increased from $5.9 million for thethree months ended March 31, 2003 to $8.3 million for the same period in2004. The increase is primarily attributable to an overall increase in basecompensation of the Partnership ‘s associates.

 

Other Income and Expenses

 

Earnings from sale of land and ownership interests in unconsolidatedcompanies is comprised of the following amounts for the three months endedMarch 31, 2004 and 2003:

 
|                                   |   | **2004**   |       | **2003**   |   |
|----------------------------------------|--------|------------|------------|------------|--------|
| Gain on land sales                     |   | **$**      | **4,729**  | ** ** | $      | 3,563 |   |
| Gain on sale of joint venture interest |   | **—** | ** ** | 6,275      |   |
| Impairment adjustment for land         |   | **(100**   | **)**      | (420       | )      |
| Total                                  |   | **$**      | **4,629**  | ** ** | $      | 9,418 |   |

 

Gain on land sales represents sales of undeveloped land owned by thePartnership. The Partnership pursues opportunities to dispose of land inmarkets with a high concentration of undeveloped land and those markets wherethe land no longer meets strategic development plans of the Partnership.

 

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In the first quarter 2003, the Partnership sold its interest in a jointventure that owned and operated depreciable investment property. ThePartnership was a 50% partner in this joint venture. The joint venturedeveloped and operated real estate assets; thus, the gain was not included inoperating income.

 

The Partnership recorded $100,00 and $420,000 of impairment charges ontwo different land parcels for the three months ended March 31, 2004 and2003. The parcel that was impaired in 2003 was later sold in 2003 and theproperty which was impaired in 2004 is scheduled to be sold in the secondquarter of 2004.

 

Discontinued Operations

 

The Partnership adopted Statement of Financial Accounting Standards No.144, *Accounting for the Impairment orDisposal of Long Lived Asset* (“SFAS 144”), on January 1, 2002.SFAS 144 requires the Partnership to report in discontinued operations theresults of operations of a property that has either been sold or is classifiedas held for sale, unless certain conditions are met.

 

The Partnership has classified operations of forty-seven buildings asdiscontinued operations in accordance with SFAS 144. These forty-sevenbuildings consist of thirty-seven industrial, seven office and three retailproperties. As a result, the Partnership classified net income (loss) of($105,000) and $1.3 million as net income from discontinued operations for thethree months ended March 31, 2004 and 2003, respectively. In addition,four of the properties classified in discontinued operations were sold duringthe first three months of 2004 and five properties were sold during the firstthree months of 2003; therefore, the gains on disposal of these properties of$4.0 million and $2.3 million for the three months ended March 31, 2004and 2003, respectively, are also reported in discontinued operations. Theremaining thirty-eight properties consist of thirty-seven properties soldduring the last nine months of 2003 and one operating property is classified asheld-for-sale at March 31, 2004.

 

**Liquidity and CapitalResources**

 

Sources of Liquidity

 

The Partnership expects to meet its short-term liquidity requirementsover the next twelve months, including payments distributions as well asrecurring capital expenditures relating to maintaining the Partnership’scurrent real estate assets, primarily through the following:

 

•                 working capital;and

•                 net cash providedby operating activities.

 

Although the Partnership historically has not used any other sources offunds to pay for recurring capital expenditures on its current real estateinvestment, the use of borrowings or property disposition proceeds may beneeded to fund such expenditures during periods of high leasing volume. Thissituation could arise in 2004 if the Partnership experiences a significantincrease in its occupancy.

 

The Partnership expects to meet long-term liquidity requirements, suchas scheduled mortgage debt maturities, refinancing of long-term debt, preferredequity redemptions, the retirement of unsecured notes and amounts outstandingunder the unsecured credit facility, property acquisitions, financing ofdevelopment activities and other non-recurring capital improvements, primarilythrough the following sources:

 

•                 issuance ofadditional unsecured notes;

•                 issuance ofadditional General Partner preferred equity;

•                 undistributedcash provided by operating activities, if any; and

•                 proceeds receivedfrom real estate dispositions.

 

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*Rental Operations*

The Partnership believesthat its principal source of liquidity, cash flows from Rental Operations,provides a stable source of cash to fund operational expenses. The Partnershipbelieves that this cash-based revenue stream is substantially aligned withrevenue recognition (except for periodic straight-line rental income accruals)as cash receipts from the leasing of rental properties are generally receivedin advance of or in a short time following the actual revenue recognition. ThePartnership is subject to risks of decreased occupancy through marketconditions as well as tenant defaults and bankruptcies, and potential reductionin rental rates upon renewal or re-letting of properties, which would result inreduced cash flow from operations. However, management believes that theserisks are mitigated by the Partnership’s strong market presence in most of itslocations and the fact that the Partnership performs in-house credit review andanalysis on major tenants and all significant leases before they are executed.

 

*Credit Facilities*

The Partnership has the following line of credit available (in thousands):

 
| **Description**          |   | **Borrowing  Capacity** |    | **Maturity  Date** |              | **Interest  Rate** |        | **Amount  Outstanding  at March 31, 2004** |   |
|--------------------------|--------|-------------------------|---------|--------------------|-------------------|--------------------|-------------|-------------------------------------------------|--------|
| Unsecured Line of Credit |   | $                       | 500,000 |               | January 2007 |               | LIBOR + .60 | %                                               | $      | 230,000 |   |
|                          |        |                         |         |                    |                   |                    |             |                                                 |        |  |  |

 

The line of credit is used to fund developmentactivities, acquire additional rental properties and provide working capital.

 

The line of credit provides the Partnership with anoption to obtain borrowings from the financial institutions that participate atrates lower than the stated interest rate, subject to certain restrictions.Amounts outstanding on the unsecured line of credit at March 31, 2004,range from LIBOR + .30% to .60% (1.39% to 1.70% at March 31, 2004).

 

The line of credit also contains financial covenantsthat require the Partnership to meet defined levels of performance. As ofMarch 31, 2004, the Partnership is in compliance with all covenants andexpects to remain in compliance for the foreseeable future.

 

*Debt and Equity Securities*

 

The Partnership currently has on file with the SEC an effective shelfregistration statement that permits the Partnership to sell up to an additional$545 million of unsecured debt securities as of March 31, 2004. Inaddition, the General Partner has on file with the SEC an effective shelfregistration statement that permits the General Partner to sell up to anadditional $250.7 million of common and preferred stock. From time-to-time, thePartnership and General Partner expect to issue additional securities underthese registration statements to fund development and acquisition of additionalrental properties and to fund the repayment of the credit facilities and otherlong-term debt upon maturity.

 

The indenture governing the Partnership’s unsecured notes also requiresthe Partnership to comply with financial ratios and other covenants regardingthe operations of the Partnership. The Partnership is currently in compliancewith all such covenants as of March 31, 2004.

 

In January 2004, the Partnership completed a $125 millionunsecured debt offering at an effective interest rate of 3.4%, dueJanuary 2008.

 

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In February 2004, the General Partner issued Series K Preferredequity totaling $150 million at a dividend rate of 6.50%.

 

*Sale of Real Estate Assets*

The Partnership utilizes sales of real estate assets as an additionalsource of liquidity. During the first quarter of 2004, the Partnership’s saleof real estate assets were minimal, but the Partnership continues to pursueopportunities to sell real estate assets and prune its older portfolioproperties when beneficial and inline with the Partnership’s long-termstrategy.

 

Uses of Liquidity

 

The Partnership’s principal uses of liquidity includethe following:

 

•                 Property investments;

•                 Recurring leasing/capital costs;

•                 Dividends and distributions toshareholders and unitholders;

•                 Long-term debt maturities; and

•                 Other contractual obligations.

 

*Property Investments and OtherCapital Expenditures*

 

One of the Partnership’s principal uses of its liquidity is for thedevelopment, acquisition and recurring leasing/capital expenditures of its realestate investments.

 

A summary of the Partnership’s recurring capital expenditures for thethree months ended March 31, 2004 and 2003, is as follows (in thousands):

 
|                  |   | **2004**  |       | **2003** |   |
|-----------------------|--------|-----------|------------|----------|--------|
| Tenant improvements   |   | **$**     | **14,244** |     | $      | 8,257 |   |
| Leasing costs         |   | **6,652** |       | 4,901    |   |
| Building improvements |   | **4,555** |       | 2,625    |   |
| Totals                |   | **$**     | **25,451** |     | $      | 15,783 |   |

 

*Debt Maturities*

 

Debt outstanding at March 31, 2004, totaled $2.4 billion with aweighted average interest rate of 5.61% maturing at various dates through 2028.The Partnership had $2.2 billion of unsecured debt and approximately $206.8million of secured debt outstanding at March 31, 2004. Scheduled principalamortization of such debt totaled $1.7 million for the three months endedMarch 31, 2004.

 

Following is a summary of the scheduled future amortization andmaturities of the Partnership’s indebtedness at March 31, 2004 (inthousands):

 
|       |   | **Future  Repayments**      |   | **Weighted****Average********Interest  Rate of********Future  Repayments** |   |
|------------|--------|-----------------------------|--------|----------------------------------------------------------------------------|--------|
| **Year**   |   | **Scheduled  Amortization** |   | **Maturities**                                                             |   | **Total** |   |   |
|       |
|       |   |                        |   |                                                                       |   |   |   |   |   |
| 2004       |   | $                           | 6,199  |                                                                       | $      | 166,834 |   | $ | 173,033 |   | 7.37 | % |
| 2005       |   | 7,749                       |   | 270,980                                                                    |   | 278,729 |   | 6.04 | % |
| 2006       |   | 7,326                       |   | 180,186                                                                    |   | 187,512 |   | 5.99 | % |
| 2007       |   | 5,842                       |   | 444,615                                                                    |   | 450,457 |   | 3.50 | % |
| 2008       |   | 4,922                       |   | 259,028                                                                    |   | 263,950 |   | 4.91 | % |
| 2009       |   | 4,694                       |   | 275,000                                                                    |   | 279,694 |   | 7.38 | % |
| 2010       |   | 4,076                       |   | 175,000                                                                    |   | 179,076 |   | 5.38 | % |
| 2011       |   | 3,334                       |   | 175,000                                                                    |   | 178,334 |   | 6.94 | % |
| 2012       |   | 1,944                       |   | 200,000                                                                    |   | 201,944 |   | 5.85 | % |
| 2013       |   | 1,581                       |   | 150,000                                                                    |   | 151,581 |   | 4.62 | % |
| Thereafter |   | 8,360                       |   | 50,000                                                                     |   | 58,360 |   | 6.63 | % |
|       |   | $                           | 56,027 |                                                                       | $      | 2,346,643 |   | $ | 2,402,670 |   | 5.61 | % |

 

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Historical Cash Flows

 

Cash and cash equivalents were $9.9 million and $13.2 million atMarch 31, 2004 and 2003, respectively. The following highlights significant changes in net cash associated withthe Partnership’s operating, investing and financing activities (amounts inthousands):

 
|                                                  |   | **Three  Months Ended March 31,** |       |
|-------------------------------------------------------|--------|----------------------------------------|------------|
|                                                  |   | **2004**                               |       | **2003** |   |
| Net cash Provided by Operating Activities             |   | **$**                                  | **69.6**   |   | $ | 58.9 |   |
|                                                  |   |                                   |       |   |   |
| Net Cash Used by Investing Activities                 |   | **$**                                  | **(107.4** | **)** | $ | (60.4 | ) |
|                                                  |   |                                   |       |   |   |
| Net Cash Provided by (Used for) Financing  Activities |   | **$**                                  | **35.0**   |   | $ | (2.4 | ) |

 

*Operating Activities*

 

Cash flows from operating activities provide the cash necessary to meetnormal, operational requirements of the Partnership’s rental operations and itsbuild-for-sale activities. The receipt of rental income from rental operationscontinues to provide the primary source of revenues and operating cash flowsfor the Partnership. However, the Partnership also develops buildings with theintent to sell, which provides another significant source of operating cashflow activity.

 

•                  During the threemonths ended March 31, 2004, the Partnership incurred build-for-saledevelopment costs of $8.8 million as compared to $15.3 million for the threemonths ended March 31, 2003, which reflects a smaller development backlogfor these types of developments.

•                  The Partnershipsold one build-for-sale property in the first quarter of 2004 as compared nosales in the first quarter of 2003.

•                  The Partnershiphas a backlog of build-for-sale buildings as of March 31, 2004, withprojected project costs of $68.9 million that it anticipates selling.

 

*Investing Activities*

Investing activities are one of the primary uses of the Partnership’sliquidity. Development and acquisition activity is necessary to generateadditional rental revenues and provide cash flows for operational requirements.Highlights of significant cash uses are as follows:

 

•                  Developmentcosts decreased to $22.1 million for the quarter ended March 31, 2004 from$29.0 million for the first quarter 2003. The decrease reflects fewerdevelopment opportunities as a result of continued relatively high vacancyrates in the Partnership’s markets and the Partnership focusing its efforts onleasing-up existing properties. Management anticipates development costs toincrease in the following quarters with a pickup in the industrial segment.

•                  The Partnershipacquired only $9.6 million of real estate in the first quarter of 2004 ascompared to $34.6 million for the first quarter of 2003. Despite this decrease,the Partnership continually evaluates potential acquisition properties in itscurrent markets as sources for growth opportunities and does not anticipate asignificant reduction in its acquisition volume in 2004. With a debt to marketcapitalization ratio of 29.0% and an additional debt capacity over $1.0billion, the Partnership anticipates that acquisitions will increase as pricesfor real estate decrease in light of anticipated increase in interest rates.

•                  Recurring costsfor tenant improvements, lease commissions and building improvements havecontinued to increase. Management anticipates these costs to remain high withthe improving and releasing of existing space as occupancy trends upward,particularly in the office segment.

 

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•                  Proceeds fromthe sale of land and depreciated property provided $29.4 million in netproceeds for the three months ended March 31, 2004, compared to $51.4million in 2003. As noted above, the Partnership continues to pursueopportunities to sell real estate assets, in particular its older properties,when beneficial and consistent with the Partnership’s long-term strategy. Salesof property will continue to be utilized as part of the Partnership’s capitalrecycling program to fund acquisitions and new development.

•                  InJanuary 2004, the Partnership funded a $65 million mortgage loan securedby a portfolio of office properties owned by a third party located in Atlanta,Georgia. The Partnership received a one-year option to purchase the propertiesas part of the transaction. This two year first mortgage loan has an initialinterest rate of 5.5% for the first six months and 6.5% thereafter.

 

*Financing Activities*

 

In the first quarter of 2004, the Partnership raised capital byborrowing from the public debt markets and issuing preferred stock. Thefollowing significant items highlight fluctuations in net cash provided by(used for) financing activities:

 

•                  During the threemonths ended March 31, 2004, the Partnership received approximately $145.0million in net proceeds from the General Partner’s issuance of its Series Kpreferred equity. This preferred equity was issued at a favorable dividendyield of 6.5%. The Series K preferred equity issuance corresponded with theredemption of $102.6 million of the General Partner’s Series E preferred equityin January 2004, which carried an 8.25% dividend rate.

•                  InFebruary 2004, the General Partner called for the redemption of all itsSeries D convertible preferred equity as of March 16, 2004. The redemptionprice of each depository share of the General Partner’s Series D stock was $25,whereas each depository share was convertible into .93677 shares of the GeneralPartner’s common stock. Since the value of the General Partner’s common stockwas well in excess of $26.89 per share during the redemption period, the vastmajority of the General Partner’s Series D shareholders elected to converttheir shares into the General Partner’s common stock. Prior to the redemptiondate, 5,242,635 Series D convertible preferred depositary shares were convertedinto 4,911,143 common shares of the General Partner, with the remaining 103,695Series D convertible preferred depositary shares redeemed on March 16,2004. The General Partner’s equity issuances are directly related withcorresponding equity issuances by the Partnership to the General Partner. ThePartnership issued one Common Unit for each common share issued by the GeneralPartner, and cancelled one Series D Preferred Unit for each Series D shareconverted or redeemed by the General Partner.

•                  The Partnershiptook advantage of the low interest rate environment in January when itissued $125.0 million of four year unsecured debt at 3.35%. The net proceedsfrom this unsecured offering were used to decrease the amounts outstandingunder the Partnership’s line of credit by a net amount of $121.0 million.

•                  The Partnershippaid $2.9 million in cash to a group of warrant holders in exchange for thecancellation of their warrants in March 2004. The price paid representedthe “in-the money” value of the warrants based upon the difference between theexercise price of the warrants and the price of the General Partner’s commonstock at the exercise date.

•                  In associationwith the funding of the $65 million third party mortgage loan receivable notedabove in Investing Activities, the Partnership borrowed $65 million under avariable rate bank term loan with a year term and two six month renewaloptions. In order to mitigate its interest rate risk on the term loan, thePartnership fixed the interest rate on the loan for a one year period with twointerest rate swaps. For information on the swaps see the Financial Instrumentssection below.

 

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*FinancialInstruments*

 

The Partnership is exposed to capital market risk, such as changes ininterest rates. In order to manage the volatility relating to interest raterisk, the Partnership may enter into interest rate hedging arrangements fromtime to time. The Partnership does not utilize derivative financial instrumentsfor trading or speculative purposes. The Partnership accounts for derivativeinstruments under Statement of Financial Accounting Standard No. 133, *Accounting for Derivative Instruments and HedgingActivities,* as amended (“SFAS 133”).

 

During the first quarter of 2004, the Partnership funded a $65 millionnote receivable secured by a first mortgage on a portfolio of office propertiesowned by a third party located in Atlanta, Georgia. The note receivable has amaximum two-year term with an interest rate of 5.5% for the first 6 months and6.5% thereafter. In order to fund the note receivable, the Partnership borrowed$65 million under a variable interest rate term loan. The interest rate on theloan is LIBOR + 75 basis points with a maturity date of January 2005 andtwo six month renewal options. To hedge its variable interest rate risk on theloan, the Partnership entered into two interest rate swaps totaling $65 millionthat effectively fixed the rate through maturity. The hedge accounting rulesare being used for the swaps, which allows for the change in market value ofthe swaps to be recorded through Other Comprehensive Income (“OCI”) in equityversus the Statement of Operations. As of March 31, 2004, the Partnershipwas in a liability position of $118,000, which is reflected in otherliabilities and OCI on the balance sheet. As a lender, the Partnership issubject to customary non-payment and default risk with respect to this securedloan.

 

In May 2003, the FASB issued SFAS No. 150 *Accounting for Certain Financial Instruments with Characteristics ofboth Liabilities and Equity* (“SFAS 150”). SFAS 150 establishesstandards for classifying and measuring as liabilities certain financialinstruments that embody obligations of the issuer and have characteristics ofboth liabilities and equity. SFAS 150 is effective for all financialinstruments created or modified after May 31, 2003, and otherwise is effectiveJuly 1, 2003. The Partnership includes the operations of one joint venturein its consolidated financial statements at March 31, 2004. This jointventure is partially owned by an unaffiliated party that has a noncontrollinginterest. SFAS 150 requires the disclosure of the estimated settlement value ofthis noncontrolling interest. In the quarter ended March 31, 2004, thePartnership acquired its partner’s minority interest in four other joint ventures.As of March 31, 2004, the estimated settlement value of the noncontrollinginterest in the remaining consolidated joint venture was approximately $944,000as compared to the minority interest liability recorded on the Partnership’sbooks for this joint venture of ($121,000).

 

**Investments inUnconsolidated Companies**

 

The Partnership has equity interests ranging from 10% to 64% inunconsolidated 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 the Partnership has the ability to exercisesignificant influence, but not control, over operating and financial policies.As a result, the assets and liabilities of these joint ventures are notincluded on the Partnership’s balance sheet. The Partnership’s investment inunconsolidated companies represents less than 6% of the Partnership’s totalassets as of March 31, 2004. This investment provides several benefits tothe Partnership including increased market share and an additional source ofcapital to fund real estate projects.

 

**Recent Accounting Pronouncements**

 

In January 2003, the FASB issued Interpretation 46, Consolidationof Variable Interest Entities (“Interpretation 46”), which addresses theconsolidation of certain entities in which a company has a controllingfinancial interest through means other than voting rights. This interpretationwas revised in December 2003. For calendar year companies, Interpretation46 contains an effective date of December 31,

 

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2003, for special purpose entities and periods ending afterMarch 15, 2004 for all other entities. The Partnership does not owninterests in any special purpose entities. The Partnership determined that itsinvestments in variable interest entities in which the Partnership has themajority variable interest have been consolidated in previously issuedfinancial statements under previous accounting guidance and there are no otherinterests in variable interest entities other than those that have beenconsolidated previously. The Partnership’s adoption of this interpretation didnot have an impact on its financial statements.

 

**Item 3.  Quantitative and Qualitative Disclosure About Market Risks**

 

The Partnership is exposed to interest rate changes primarily as aresult of its line of credit and long-term debt used to maintain liquidity andfund capital expenditures and expansion of the Partnership’s real estateinvestment portfolio and operations. The Partnership’s interest rate riskmanagement objective is to limit the impact of interest rate changes onearnings and cash flows and to lower its overall borrowing costs. To achieveits objectives the Partnership borrows primarily at fixed rates and may enterinto derivative financial instruments such as interest rate swaps, caps andtreasury locks in order to mitigate its interest rate risk on a relatedfinancial instrument. The Partnership does not enter into derivative orinterest rate transactions for speculative purposes.

 

**Item 4.  Controls and Procedures**

 

The Partnership maintains disclosure controls and procedures that aredesigned to ensure that information required to be disclosed in annual andperiodic reports filed with the SEC is recorded, processed, summarized andreported within the time periods specified in the SEC’s rules and forms. Thesedisclosure controls and procedures are further designed to ensure that suchinformation is accumulated and communicated to management, including the chiefexecutive officer of the General Partner and the chief financial officer of theGeneral Partner to allow timely decisions regarding required disclosure.

 

Based on the most recent evaluation, which was completed as ofMarch 31, 2004, the chief executive officer  of the General Partner, and chief financial officer of theGeneral Partner believe that the Partnership’s disclosure controls andprocedures are effective. There have been no significant changes in thePartnership’s internal controls or in other factors that could significantlyaffect the internal controls subsequent to the date of the completedevaluation.

 

**Part II - OtherInformation**

 

Item 1.  Legal Proceedings

 

Broadband Office, Inc. and Official Committee of Unsecured Creditors ofBroadband Office, Inc. filed a complaint against a group of real estateinvestment trusts and real estate operating companies and certain affiliatedentities and individuals in connection with the formation and management ofBroadband Office. Among the defendants are the General Partner, thePartnership  and Mr. Dennis Oklak, theGeneral Partner’s chief executive officer. The complaint alleges variousbreaches of purported fiduciary duties by the defendants, seeks recharacterizationor equitable subordination of debt, seeks recovery of alleged avoidabletransfers, appears to seek to hold them liable for, among other things, thedebt of Broadband Office under alter-ego, veil-piercing and partnershiptheories, and seeks other relief under other theories. The complaint seeksaggregate damages in excess of $300 million from all of the defendants. ThePartnership believes that it has meritorious defenses to the plaintiff’sallegations and intends to vigorously defend this litigation. Due to theinherent uncertainties of the litigation process and the judicial system, thePartnership is not able to predict the outcome of this litigation. If thislitigation is not resolved in the Partnership’s favor, it could have a materialadverse effect on its business, financial condition and results of operations.

 

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Item 2.  Changes in Securities

 

None

 

Item 3.  Defaults upon Senior Securities

 

None

 

Item 4.  Submission of Matters to a Vote of SecurityHolders

 

None

 

Item 5.  Other Information

 

None

 

Item 6.  Exhibits and Reports on Form 8-K

 

(a)                                  Exhibits

 

Exhibit 11.1 Ratio of Earnings to Combined Fixed Charges and PreferredStock Dividends.

 

Exhibit 11.2 Ratio of Earnings to Fixed Charges.

 

Exhibit 15 Letter regarding unaudited interim financial information.

 

Exhibit 31.1  Certification Pursuant to Section 302 ofthe Sarbanes-Oxley Act of 2003

 

Exhibit 31.2  Certification Pursuant to Section 302 ofthe Sarbanes-Oxley Act of 2003

 

Exhibit 32.1  Certification Pursuant to 18 U.S. C. Section 13.50,as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2003

 

Exhibit 32.2  Certification Pursuant to 18 U.S. C.Section 13.50, as adopted pursuant to Section 906 of theSarbanes-Oxley Act of 2003

 

(b)                                 Reports on Form 8-K

 

A current report was filed on Form 8-K, dated January 16, 2004,setting forth under item 5 the issuance of $125,000,000 aggregate principalamount of Notes due in 2008 at 3.35%.

 

A current report was filed on Form 8-K, dated January 22, 2004,reporting under items 5 and 7 the execution of a new $500 million revolvingline of credit.

 

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**SIGNATURES**

 

Pursuant to the requirements of the Securities Exchange Act of 1934,the registrant has duly caused this report to be signed on its behalf by theundersigned thereunto duly authorized.

 
|                     | DUKE REALTY LIMITED PARTNERSHIP |
|--------------------------|---------------------------------|
|                     | By:                             | Duke Realty Corporation |
|                     |                            | Its General Partner |
|                     |                            |   |
|                     |                            |   |
| Date:  May 17, 2004 | By:                             | /s/       Dennis D. Oklak |   |
|                     |                            | Dennis D. Oklak |
|                     |                            | Chief Executive Officer  of the General Partner |
|                     |                            |   |
|                     |                            |   |
|                     | By:                             | /s/       Matthew A. Cohoat |   |
|                     |                            | Matthew A. Cohoat |
|                     |                            | Executive Vice President and Chief  Financial Officer of the General Partner |
|                          |                                 |  |  |  |

 

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