**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON,D.C. 20549**

**FORM 10-Q**

| **(Mark One)**                                                                                                   | ** ** | ** **                                                                                    |
|------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------|
| **x**                                                                                                            | ** ** | **QUARTERLY REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**  |
| ** **                                                                                                       | ** ** |                                                                                          |
| **For the  quarterly period ended   June 30, 2006**                                                    |
| ** **                                                                                                       | ** ** | ** **                                                                                    |
| **OR**                                                                                                           |
| ** **                                                                                                       | ** ** | ** **                                                                                    |
| **o**                                                                                                            | ** ** | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
| ** **                                                                                                       | ** ** | ** **                                                                                    |
| **For the  transition period from               to** |
| ** **                                                                                                       | ** ** | ** **                                                                                    |

 

**CommissionFile Number:   0-20625**

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

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

 

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

Indicate by checkmark whether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant was requiredto file such reports), and (2) has been subject to such filing requirements forthe past 90 days.

YES   x         NO   o

Indicate by check mark whether the registrant is a largeaccelerated filer, an accelerated filer, or a non-accelerated filer. Seedefinition of  “accelerated filer andlarge accelerated filer” in Rule 12b-2of the Exchange Act.

Large acceleratedfiler   o         Acceleratedfiler   o         Non-accelerated filer   x

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act):

YES   o         NO   x

Indicate the number ofshares outstanding of each of the issuer’s classes of common stock, as of thelatest practicable date:

| **Class**                              |   | **Outstanding  at August 1, 2006** |
|----------------------------------------|--------|------------------------------------|
| Common Units,  $.01 par value per unit |   | 148,305,761  units                 |

 

 

----

**DUKEREALTY LIMITED PARTNERSHIP**

**INDEX**
| **Part I — Financial  Information**                                            | ** **                                                                                                             | ** ** | **Page**   |
|-------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------|------------|------------|
| ** **                                                                          | ** **                                                                                                             | ** ** | ** ** |
| **Item 1.   Financial  Statements**                                       | ** **                                                                                                             | ** ** |
| ** **                                                                          | ** **                                                                                                             | ** ** | ** ** |
| ** **                                                                          | Condensed Consolidated Balance Sheets as of June 30,  2006 (Unaudited) and December 31, 2005                           | ** ** | 2          |
| ** **                                                                          | ** **                                                                                                             | ** ** | ** ** |
| ** **                                                                          | Condensed Consolidated Statements of Operations  (Unaudited) for the three and six months ended June 30, 2006 and 2005 | ** ** | 3          |
| ** **                                                                          | ** **                                                                                                             | ** ** | ** ** |
| ** **                                                                          | Condensed Consolidated Statements of Cash Flows  (Unaudited) for the six months ended June 30, 2006 and 2005           | ** ** | 4          |
| ** **                                                                          | ** **                                                                                                             | ** ** | ** ** |
| ** **                                                                          | Condensed Consolidated Statement of Partners’ Equity (Unaudited)  for the six months ended June 30, 2006          | ** ** | 5          |
| ** **                                                                          | ** **                                                                                                             | ** ** | ** ** |
| ** **                                                                          | Notes to Condensed Consolidated Financial Statements (Unaudited)                                                       | ** ** | 6-19       |
| ** **                                                                          | ** **                                                                                                             | ** ** | ** ** |
| **Item 2.   Management’s  Discussion and Analysis of Financial**     | ** **                                                                                                             | ** ** |
| ** **                                                                          | ** Condition  and Results of Operations**                                                                         | ** ** | 20-38      |
| ** **                                                                          | ** **                                                                                                             | ** ** | ** ** |
| **Item 3.   Quantitative and  Qualitative Disclosures About Market Risk** | ** **                                                                                                             | 38         |
| ** **                                                                          | ** **                                                                                                             | ** ** | ** ** |
| **Item 4.   Controls and  Procedures**                                    | ** **                                                                                                             | 38         |
| ** **                                                                          | ** **                                                                                                             | ** ** | ** ** |
| **Part II — Other  Information**                                               | ** **                                                                                                             | ** ** |
| ** **                                                                          | ** **                                                                                                             | ** ** | ** ** |
| ** **                                                                          | Item  1.   Legal  Proceedings                                                                                | ** ** | 39         |
| ** **                                                                          | ** **                                                                                                             | ** ** | ** ** |
| ** **                                                                          | Item  1A. Risk  Factors                                                                                           | ** ** | 39         |
| ** **                                                                          | Item 2.   Unregistered  Sales of Equity Securities and Use of Proceeds                                       | ** ** | 39-40      |
| ** **                                                                          | Item 3.   Defaults Upon  Senior Securities                                                                   | ** ** | 40         |
| ** **                                                                          | Item 4.   Submission of  Matters to a Vote of Security Holders                                               | ** ** | 40-41      |
| ** **                                                                          | Item  5.   Other  Information                                                                                | ** ** | 41         |
| ** **                                                                          | Item 6.   Exhibits                                                                                           | ** ** | 41         |
|                                                                                     |                                                                                                                        |            |            |  |  |

 

----

**PART I — FINANCIALINFORMATIONItem 1.**   Financial StatementsDUKE REALTY LIMITED PARTNERSHIP AND SUBSIDIARIESCondensed Consolidated Balance Sheets(in thousands)
| ** **                                                                                  | ** ** | **June 30,** | ** **    | **December 31,** | ** ** |
|---------------------------------------------------------------------------------------------|------------|-------------------|---------------|-----------------------|------------|
| ** **                                                                                  | ** ** | **2006**          | ** **    | **2005**              | ** ** |
| ** **                                                                                  | ** ** | **(Unaudited)**   | ** **    | ** **            | ** ** |
| **ASSETS**                                                                                  |       |              |          |                  |       |
| Real estate investments:                                                                    |       |              |          |                  |       |
| Land and  improvements                                                                      | ** ** | **$**             | **742,259**   |                  | $          | 675,050 |   |
| Buildings and  tenant improvements                                                          | ** ** | **4,328,887**     |          | 4,156,456             |       |
| Construction in  progress                                                                   | ** ** | **287,412**       |          | 227,066               |       |
| Investments in  unconsolidated companies                                                    | ** ** | **327,832**       |          | 301,322               |       |
| Land held for  development                                                                  | ** ** | **655,834**       |          | 429,270               |       |
|                                                                                        | ** ** | **6,342,224**     |          | 5,789,164             |       |
| Accumulated  depreciation                                                                   | ** ** | **(833,606**      | **)**         | (754,742              | )          |
|                                                                                        | ** ** | ** **        |          |                  |       |
| Net real estate  investments                                                                | ** ** | **5,508,618**     |          | 5,034,422             |       |
|                                                                                        | ** ** | ** **        |          |                  |       |
| Real estate investments  and other assets held for sale (see Note 8)                        | ** ** | **835,282**       |          | —                |       |
|                                                                                        | ** ** | ** **        |          |                  |       |
| Cash and cash equivalents                                                                   | ** ** | **6,971**         |          | 26,858                |       |
| Accounts receivable,  net of allowance of $1,107 and $1,093                                 | ** ** | **18,871**        |          | 31,342                |       |
| Straight-line rent  receivable, net of allowance of $1,344 and $1,538                       | ** ** | **103,142**       |          | 95,948                |       |
| Receivables on  construction contracts, including retentions                                | ** ** | **45,441**        |          | 50,035                |       |
| Deferred financing  costs, net of accumulated amortization of $16,422 and $14,113           | ** ** | **43,148**        |          | 27,118                |       |
| Deferred leasing and  other costs, net of accumulated amortization of $120,918 and $112,245 | ** ** | **253,163**       |          | 227,648               |       |
| Escrow deposits and  other assets                                                           | ** ** | **204,737**       |          | 153,316               |       |
|                                                                                        | ** ** | **$**             | **7,019,373** |                  | $          | 5,646,687 |   |
|                                                                                        |       |              |          |                  |       |
| **LIABILITIES  AND PARTNERS’ EQUITY**                                                  |       |              |          |                  |       |
|                                                                                        |       |              |          |                  |       |
| Indebtedness:                                                                               |       |              |          |                  |       |
| Secured debt                                                                                | ** ** | **$**             | **1,063,656** |                  | $          | 167,255 |   |
| Unsecured notes                                                                             | ** ** | **2,100,278**     |          | 2,050,396             |       |
| Unsecured line  of credit                                                                   | ** ** | **670,000**       |          | 383,000               |       |
|                                                                                        | ** ** | **3,833,934**     |          | 2,600,651             |       |
|                                                                                        | ** ** | ** **        |          |                  |       |
| Construction payables  and amounts due subcontractors, including retentions                 | ** ** | **88,674**        |          | 93,137                |       |
| Accounts payable                                                                            | ** ** | **190**           |          | 781                   |       |
| Accrued expenses:                                                                           |       |              |          |                  |       |
| Real estate  taxes                                                                          | ** ** | **72,610**        |          | 60,883                |       |
| Interest                                                                                    | ** ** | **37,949**        |          | 33,022                |       |
| Other                                                                                       | ** ** | **38,085**        |          | 52,649                |       |
| Other liabilities                                                                           | ** ** | **126,025**       |          | 135,323               |       |
| Tenant security  deposits and prepaid rents                                                 | ** ** | **37,265**        |          | 34,924                |       |
| Total  liabilities                                                                          | ** ** | **4,234,732**     |          | 3,011,370             |       |
|                                                                                        | ** ** | ** **        |          |                  |       |
| Minority interest                                                                           | ** ** | **179**           |          | 73                    |       |
|                                                                                        |       |              |          |                  |       |
| Partners’ equity:                                                                      |       |              |          |                  |       |
| General Partner                                                                             |       |              |          |                  |       |
| Common equity                                                                               | ** ** | **1,766,568**     |          | 1,841,932             |       |
| Preferred equity  (liquidation preference of $876,250 and $657,250)                         | ** ** | **825,774**       |          | 616,780               |       |
|                                                                                        | ** ** | **2,592,342**     |          | 2,458,712             |       |
| Limited  Partners’ common equity                                                       | ** ** | **171,624**       |          | 183,650               |       |
| Accumulated  other comprehensive income (loss)                                              | ** ** | **20,496**        |          | (7,118                | )          |
| Total Partners’  equity                                                                | ** ** | **2,784,462**     |          | 2,635,244             |       |
|                                                                                        | ** ** | **$**             | **7,019,373** |                  | $          | 5,646,687 |   |

 

See accompanying Notes to Condensed ConsolidatedFinancial Statements.

 

2

----

 

**DUKEREALTY LIMITED PARTNERSHIP AND SUBSIDIARIESCondensed Consolidated Statements of OperationsFor the three and six months ended June 30,(in thousands, except per unit data)(Unaudited)**
| ** **                                                              | ** ** | **Three Months Ended** | ** **  | **Six Months Ended** | ** ** |
|-------------------------------------------------------------------------|------------|----------------------------------|-------------|--------------------------------|------------|
| ** **                                                              | ** ** | **2006**                         | ** **  | **2005**                       | ** ** | **2006** | ** ** | **2005** | ** ** |
| **RENTAL OPERATIONS:**                                                  |       |                             |        |                           |       |   |   |   |   |
| Revenues:                                                               |       |                             |        |                           |       |   |   |   |   |
| Rental income  from continuing operations                               | ** ** | **$**                            | **201,261** |                           | $          | 158,977 | ** ** | **$** | **392,826** |   | $ | 317,966 |   |
| Equity in  earnings of unconsolidated companies                         | ** ** | **9,696**                        |        | 15,684                         | ** ** | **17,955** |   | 20,890 |   |
|                                                                    | ** ** | **210,957**                      |        | 174,661                        | ** ** | **410,781** |   | 338,856 |   |
| ** **                                                              | ** ** | ** **                       | ** **  | ** **                     | ** ** | ** ** | ** ** | ** ** | ** ** |
| Operating  expenses:                                                    |       |                             |        |                           |       |   |   |   |   |
| Rental expenses                                                         | ** ** | **45,057**                       |        | 37,448                         | ** ** | **91,169** |   | 75,731 |   |
| Real estate  taxes                                                      | ** ** | **24,252**                       |        | 19,283                         | ** ** | **47,200** |   | 38,095 |   |
| Interest expense                                                        | ** ** | **45,467**                       |        | 29,634                         | ** ** | **83,757** |   | 58,438 |   |
| Depreciation and  amortization                                          | ** ** | **64,333**                       |        | 52,749                         | ** ** | **124,196** |   | 105,511 |   |
|                                                                    | ** ** | **179,109**                      |        | 139,114                        | ** ** | **346,322** |   | 277,775 |   |
| Earnings from  continuing rental operations                             | ** ** | **31,848**                       |        | 35,547                         | ** ** | **64,459** |   | 61,081 |   |
| ** **                                                              | ** ** | ** **                       | ** **  | ** **                     | ** ** | ** ** | ** ** | ** ** | ** ** |
| **SERVICE OPERATIONS**                                                  |       |                             |        |                           |       |   |   |   |   |
| Revenues:                                                               |       |                             |        |                           |       |   |   |   |   |
| General  contractor gross revenue                                       | ** ** | **54,061**                       |        | 101,808                        | ** ** | **123,610** |   | 188,424 |   |
| General  contractor costs                                               | ** ** | **(48,798**                      | **)**       | (94,597                        | )          | **(113,006** | **)** | (174,156 | ) |
| Net general  contractor revenue                                         | ** ** | **5,263**                        |        | 7,211                          | ** ** | **10,604** |   | 14,268 |   |
| Property  management, maintenance and leasing fees                      | ** ** | **3,504**                        |        | 4,153                          | ** ** | **7,291** |   | 8,032 |   |
| Construction  management and development activity income                | ** ** | **561**                          |        | 12,038                         | ** ** | **1,283** |   | 20,032 |   |
| Other income                                                            | ** ** | **390**                          |        | 346                            | ** ** | **546** |   | 3,111 |   |
| Total revenue                                                           | ** ** | **9,718**                        |        | 23,748                         | ** ** | **19,724** |   | 45,443 |   |
| Operating  expenses                                                     | ** ** | **6,242**                        |        | 10,702                         | ** ** | **11,798** |   | 20,559 |   |
| Earnings from  service operations                                       | ** ** | **3,476**                        |        | 13,046                         | ** ** | **7,926** |   | 24,884 |   |
| General and  administrative expense                                     | ** ** | **(6,965**                       | **)**       | (7,034                         | )          | **(20,912** | **)** | (15,506 | ) |
| Operating income                                                        | ** ** | **28,359**                       |        | 41,559                         | ** ** | **51,473** |   | 70,459 |   |
| **OTHER INCOME (EXPENSE)**                                              |       |                             |        |                           |       |   |   |   |   |
| Interest and  other income                                              | ** ** | **2,232**                        |        | 1,083                          | ** ** | **4,432** |   | 2,403 |   |
| Earnings from  sale of land, net of impairment adjustments              | ** ** | **554**                          |        | 3,266                          | ** ** | **2,445** |   | 3,409 |   |
| Other expenses                                                          | ** ** | **(280**                         | **)**       | (166                           | )          | **(500** | **)** | (244 | ) |
| Other minority  interest in earnings of subsidiaries                    | ** ** | **(73**                          | **)**       | (29                            | )          | **(175** | **)** | (66 | ) |
| Income from  continuing operations                                      | ** ** | **30,792**                       |        | 45,713                         | ** ** | **57,675** |   | 75,961 |   |
| Discontinued  operations:                                               |       |                             |        |                           |       |   |   |   |   |
| Net income from  discontinued operations                                | ** ** | **5,031**                        |        | 5,043                          | ** ** | **5,695** |   | 10,875 |   |
| Gain on sale of  discontinued operations, net of impairment adjustments | ** ** | **1,500**                        |        | 5,133                          | ** ** | **2,004** |   | 8,834 |   |
| Income from  discontinued operations                                    | ** ** | **6,531**                        |        | 10,176                         | ** ** | **7,699** |   | 19,709 |   |
| Net income                                                              | ** ** | **37,323**                       |        | 55,889                         | ** ** | **65,374** |   | 95,670 |   |
| Dividends on  preferred units                                           | ** ** | **(13,255**                      | **)**       | (11,620                        | )          | **(25,967** | **)** | (23,240 | ) |
| Adjustments for  redemption of preferred units                          | ** ** | **—**                       |        | —                         | ** ** | **(2,633** | **)** | — |   |
| Net income  available for common unitholders                            | ** ** | **$**                            | **24,068**  |                           | $          | 44,269 | ** ** | **$** | **36,774** |   | $ | 72,430 |   |
|                                                                    |       |                             |        |                           |       |   |   |   |   |
| Basic net income  per common unit:                                      |       |                             |        |                           |       |   |   |   |   |
| Continuing  operations                                                  | ** ** | **$**                            | **.12**     |                           | $          | .22 | ** ** | **$** | **.20** |   | $ | .33 |   |
| Discontinued  operations                                                | ** ** | **.04**                          |        | .06                            | ** ** | **.05** |   | .13 |   |
| Total                                                                   | ** ** | **$**                            | **.16**     |                           | $          | .28 | ** ** | **$** | **.25** |   | $ | .46 |   |
| Diluted net  income per common unit:                                    |       |                             |        |                           |       |   |   |   |   |
| Continuing  operations                                                  | ** ** | **$**                            | **.12**     |                           | $          | .22 | ** ** | **$** | **.20** |   | $ | .33 |   |
| Discontinued  operations                                                | ** ** | **.04**                          |        | .06                            | ** ** | **.05** |   | .13 |   |
| Total                                                                   | ** ** | **$**                            | **.16**     |                           | $          | .28 | ** ** | **$** | **.25** |   | $ | .46 |   |
| Weighted average  number of common units outstanding                    | ** ** | **148,273**                      |        | 156,986                        | ** ** | **148,224** |   | 156,967 |   |
| Weighted average number  of common and dilutive potential common units  | ** ** | **149,364**                      |        | 157,696                        | ** ** | **149,273** |   | 157,711 |   |

 

See accompanying Notes to Condensed Consolidated Financial Statements

 

3

----

 

**DUKEREALTY LIMITED PARTNERSHIP AND SUBSIDIARIESCondensed Consolidated Statements of Cash FlowsFor the six months ended June 30,(in thousands)(Unaudited)**
| ** **                                                                                                   | ** ** | **2006**       | ** **  | **2005** | ** ** |
|--------------------------------------------------------------------------------------------------------------|------------|----------------|-------------|----------|------------|
| Cash flows from  operating activities:                                                                       |       |           |        |     |       |
| Net income                                                                                                   | ** ** | **$**          | **65,374**  |     | $          | 95,670 |   |
| Adjustments to  reconcile net income to net cash provided by operating activities:                           |       |           |        |     |       |
| Depreciation of  buildings and tenant improvements                                                           | ** ** | **103,658**    |        | 104,013  |       |
| Amortization of  deferred leasing and other costs                                                            | ** ** | **22,091**     |        | 23,337   |       |
| Amortization of  deferred financing costs                                                                    | ** ** | **3,818**      |        | 3,087    |       |
| Minority  interest in earnings                                                                               | ** ** | **176**        |        | 66       |       |
| Straight-line  rent adjustment                                                                               | ** ** | **(10,207**    | **)**       | (11,221  | )          |
| Earnings from  land and depreciated property sales                                                           | ** ** | **(4,449**     | **)**       | (12,242  | )          |
| Build-for-sale  operations, net                                                                              | ** ** | **(93,673**    | **)**       | 14,470   |       |
| Construction  contracts, net                                                                                 | ** ** | **(3,878**     | **)**       | (13,696  | )          |
| Other accrued  revenues and expenses, net                                                                    | ** ** | **18,708**     |        | (2,850   | )          |
| Operating  distributions received in excess of (less than) equity in earnings from  unconsolidated companies | ** ** | **(11,520**    | **)**       | (5,149   | )          |
| **Net  cash provided by operating activities**                                                               | ** ** | **90,098**     |        | 195,485  |       |
|                                                                                                         |       |           |        |     |       |
| Cash flows from  investing activities:                                                                       |       |           |        |     |       |
| Development of  real estate investments                                                                      | ** ** | **(167,746**   | **)**       | (68,230  | )          |
| Acquisition of  real estate investments                                                                      | ** ** | **(675,723**   | **)**       | (262,720 | )          |
| Acquisition of  land held for development and infrastructure costs                                           | ** ** | **(284,609**   | **)**       | (40,163  | )          |
| Recurring tenant  improvements                                                                               | ** ** | **(25,272**    | **)**       | (29,948  | )          |
| Recurring  leasing costs                                                                                     | ** ** | **(6,217**     | **)**       | (16,346  | )          |
| Recurring  building improvements                                                                             | ** ** | **(3,146**     | **)**       | (6,086   | )          |
| Other deferred  leasing costs                                                                                | ** ** | **(23,349**    | **)**       | (7,473   | )          |
| Other deferred  costs and other assets                                                                       | ** ** | **(26,099**    | **)**       | (3,556   | )          |
| Proceeds from  land and depreciated property sales, net                                                      | ** ** | **29,686**     |        | 70,616   |       |
| Distributions  received from unconsolidated companies for land and depreciated property  sales               | ** ** | **21,238**     |        | —   |       |
| Repayments from  (advances to) unconsolidated companies                                                      | ** ** | **5,321**      |        | (8,102   | )          |
| **Net  cash used for investing activities**                                                                  | ** ** | **(1,155,916** | **)**       | (372,008 | )          |
|                                                                                                         |       |           |        |     |       |
| Cash flows from  financing activities:                                                                       |       |           |        |     |       |
| Payments for  repurchases of common units                                                                    | ** ** | **(11,883**    | **)**       | —   |       |
| Proceeds from  exercise of the General Partner’s stock options                                          | ** ** | **5,607**      |        | 1,342    |       |
| Proceeds from  issuance of preferred units, net                                                              | ** ** | **283,994**    |        | —   |       |
| Payments for  redemption of preferred units                                                                  | ** ** | **(75,000**    | **)**       | —   |       |
| Proceeds from  unsecured debt issuance                                                                       | ** ** | **150,000**    |        | 400,000  |       |
| Payments on  unsecured debt                                                                                  | ** ** | **(100,000**   | **)**       | (165,000 | )          |
| Proceeds from  issuance of secured debt                                                                      | ** ** | **710,450**    |        | —   |       |
| Payments on  secured indebtedness including principal amortization                                           | ** ** | **(19,449**    | **)**       | (9,408   | )          |
| Borrowings on  line of credit, net                                                                           | ** ** | **287,000**    |        | 120,000  |       |
| Distributions to  common unitholders                                                                         | ** ** | **(139,716**   | **)**       | (145,995 | )          |
| Distributions to  preferred unitholders                                                                      | ** ** | **(25,967**    | **)**       | (23,240  | )          |
| Contributions  from (distributions to) minority interest                                                     | ** ** | **(71**        | **)**       | 12       |       |
| Deferred  financing costs                                                                                    | ** ** | **(19,034**    | **)**       | (469     | )          |
| **Net  cash provided by financing activities**                                                               | ** ** | **1,045,931**  |        | 177,242  |       |
| **Net  increase (decrease) in cash and cash equivalents**                                                    | ** ** | **(19,887**    | **)**       | 719      |       |
|                                                                                                         |       |           |        |     |       |
| Cash and cash  equivalents at beginning of period                                                            | ** ** | **26,858**     |        | 5,770    |       |
| Cash and cash  equivalents at end of period                                                                  | ** ** | **$**          | **6,971**   |     | $          | 6,489 |   |
|                                                                                                         |       |           |        |     |       |
| Other non-cash items:                                                                                        |       |           |        |     |       |
| Conversion of Limited  Partner Units to common shares of the General Partner                                 | ** ** | **$**          | **3,047**   |     | $          | 1,440 |   |
| Issuance of Limited  Partner Units for acquisition of minority interest                                      | ** ** | **$**          | **—**  |     | $          | 15,000 |   |
| Assumption of debt for  real estate acquisitions                                                             | ** ** | **$**          | **206,020** |     | $          | 11,743 |   |
| Contribution of real estate investments to unconsolidated companies                                          | ** ** | **$**          | **36,557**  |     | $          | — |   |

 

See accompanyingNotes to Condensed Consolidated Financial Statements

 

4

----

 

**DUKEREALTY LIMITED PARTNERSHIP AND SUBSIDIARIESCondensed Consolidated Statement of Partners’ EquityFor the six months ended June 30, 2006(in thousands, except per unit data)(Unaudited)**
| ** **                                                               | ** ** | ** **               | ** **    | ** **         | ** ** | **Limited** | ** ** | **Accumulated**        | ** **  | ** **  | ** ** |
|--------------------------------------------------------------------------|------------|--------------------------|---------------|--------------------|------------|-------------|------------|------------------------|-------------|-------------|------------|
| ** **                                                               | ** ** | **General Partner** | ** **    | **Partners’** | ** ** | **Other**   | ** ** | ** **             | ** **  |
| ** **                                                               | ** ** | **Common**               | ** **    | **Preferred**      | ** ** | **Common**  | ** ** | **Comprehensive**      | ** **  | ** **  | ** ** |
| ** **                                                               | ** ** | **Equity**               | ** **    | **Equity**         | ** ** | **Equity**  | ** ** | **Income (Loss)** | ** **  | **Total**   | ** ** |
| **Balance  at December 31, 2005**                                        | ** ** | **$**                    | **1,841,932** | ** **         | **$**      | **616,780** | ** ** | **$**                  | **183,650** | ** **  | **$**      | **(7,118** | **)** | **$** | **2,635,244** | ** ** |
| Comprehensive income:                                                    |       |                     |          |               |       |        |       |                   |        |        |       |
| Net income                                                               |       | 35,796                   |          | 25,967             |       | 3,611       |       | —                 |        | 65,374      |       |
| Distributions to  preferred unitholders                                  |       | —                   |          | (25,967            | )          | —      |       | —                 |        | (25,967     | )          |
| Gains on  derivative instruments                                         |       | —                   |          | —             |       | —      |       | 27,614                 |        | 27,614      |       |
| Comprehensive  income available for common unitholders                   |       |                     |          |               |       |        |       |                   |        | 67,021      |       |
| Capital  contribution from General Partner                               |       | 5,409                    |          | 283,994            |       | —      |       | —                 |        | 289,403     |       |
| Acquisition of  Partnership interest for common stock of General Partner |       | 6,057                    |          | —             |       | (3,010      | )          | —                 |        | 3,047       |       |
| Redemption of  Series I Preferred Units                                  |       | —                   |          | (75,000            | )          | —      |       | —                 |        | (75,000     | )          |
| Tax benefits  from employee stock plans                                  |       | 258                      |          | —             |       | —      |       | —                 |        | 258         |       |
| Stock based  compensation expense                                        |       | 6,419                    |          | —             |       | —      |       | —                 |        | 6,419       |       |
| Retirement of  common units                                              |       | (2,526                   | )             | —             |       | —      |       | —                 |        | (2,526      | )          |
| Distribution to  General Partner                                         |       | (14                      | )             | —             |       | —      |       | —                 |        | (14         | )          |
| Distributions to  partners ($0.94 per Common Unit)                       |       | (126,763                 | )             | —             |       | (12,627     | )          | —                 |        | (139,390    | )          |
| **Balance  at June 30, 2006**                                            | ** ** | **$**                    | **1,766,568** | ** **         | **$**      | **825,774** | ** ** | **$**                  | **171,624** | ** **  | **$**      | **20,496** | ** ** | **$** | **2,784,462** | ** ** |
| **Common Units outstanding at   June 30, 2006**                          | ** ** | **135,074**              | ** **    | ** **         | ** ** | **13,223**  |       |                   |        | **148,297** |       |

 

See accompanyingNotes to Condensed Consolidated Financial Statements

 

5

----

 

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

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

The interim condensed consolidated financialstatements included herein have been prepared by Duke Realty LimitedPartnership (the “Partnership”) without audit (except for the Balance Sheet asof December 31, 2005). The financial statements have been prepared inaccordance with United States generally accepted accounting principles (“GAAP”)for interim financial information and in accordance with Rule 10-01 ofRegulation S-X of the Securities Exchange Act of 1934. Accordingly, they do notinclude all of the information and footnotes required by GAAP for completefinancial statements. In the opinion of management, all adjustments (consistingof normal recurring adjustments) considered necessary for a fair presentationhave been included. These financial statements should be read in conjunctionwith Management’s Discussion and Analysis of Financial Condition and Results ofOperations included herein and the consolidated financial statements and notesthereto included in our Annual Report on Form 10-K for the year ended December31, 2005.

The Partnership was formed on October 4, 1993, whenDuke Realty Corporation (the “General Partner”) contributed all of itsproperties and related assets and liabilities, along with the net proceeds fromthe issuance of additional shares of the General Partner through an offering,to the Partnership. Simultaneously, the Partnership completed the acquisitionof Duke Associates, a full-service commercial real estate firm operating in theMidwest. The General Partner was formed in 1985 and qualifies as a real estate investmenttrust (“REIT”) under provisions of the Internal Revenue Code. The General Partneris the sole general partner of the Partnership, owning 91.1% of the commonpartnership interests as of June 30, 2006 (“General Partner Units”). Theremaining 8.9% of the Partnership’s common interest is owned by limitedpartners (“Limited Partner Units” and, together with the General Partner Units,the “Common Units”). The Limited Partner Units are exchangeable for shares ofthe General Partner’s common stock on a one-for-one basis subject generally toa one-year holding period or, under certain circumstances, the General Partnermay repurchase the Limited Partnership Units for cash. The General Partner alsoowns preferred partnership interests in the Partnership (“Preferred Units”).

We own and operate a diversified portfolio ofindustrial, office and retail properties and provide real estate services tothird-party owners.  We conduct ourservice operations through Duke Realty Services, LLC, Duke Realty ServicesLimited Partnership (“DRSLP”) and Duke Construction Limited Partnership Thecondensed consolidated financial statements include our accounts and ourmajority-owned or controlled subsidiaries. In this Quarterly Report on Form10-Q (this “Report”), the terms “we,” “us” and “our” refer to the Partnershipand those entities owned or controlled by the Partnership.

**2.            Reclassifications**

Certain 2005 balances have been reclassified toconform to the 2006 presentation.

**                             **

6

----

** **

**3.            Acquisitions**

In the first six months of2006, we completed the acquisition of a Washington D.C. metropolitan areaportfolio of suburban office and light industrial properties (the “Mark WinklerPortfolio”). The assets acquired for a purchase price of approximately $865.6million are comprised of 32 properties with approximately 2.9 million squarefeet for rental, 166 acres of undeveloped land, as well as certain relatedassets of the Mark Winkler Company, a real estate management company. Theacquisition was financed primarily through assumed mortgage loans and newborrowings (see Note 4).  The assets ofthe Mark Winkler Portfolio related to in-service properties, consisting of$697.9 million of real estate investments and acquired lease related intangibleassets, are classified and accounted for as held-for-sale based on meeting theapplicable criteria of Statement of Financial Accounting Standards No. 144, *Accounting For the Impairment or Disposal ofLong-Lived Assets (“SFAS 144”).*As required by SFAS 144, the resultsof operations of the acquired properties since the date of acquisition havebeen included in continuing operations, rather than discontinued operations,based on our present intention to sell the majority of our ownership interestin the properties to an entity in which we will retain a minority equityownership interest. The allocation of purchase price based on the fair value ofassets acquired is preliminary.

In January 2006, wecompleted a majority of the purchase of a portfolio of industrial real estateproperties in Savannah, Georgia with the purpose of expanding our industrialreal estate holdings near major port facilities.  The assets acquired as of June 30, 2006 for apurchase price of approximately $178.1 million are comprised of 17 buildingswith approximately 4.7 million square feet for rental as well as over 60acres of undeveloped land.  Theacquisition was financed in part through assumed mortgage loans (see Note4).  The total purchase price uponcompletion of the portfolio acquisition in the third quarter of 2006 presentlyis expected to be approximately $196 million and will include one additionalindustrial property with approximately 438,000 square feet for rental.  The results of operations for the acquiredproperties since the date of acquisition have been included in continuingoperations in our consolidated financial statements.

**4.            Indebtedness**

We had one unsecured line of credit available as ofJune 30, 2006, described as follows (dollars in thousands):
| ** **               | ** **      | **Borrowing** | ** ** | **Maturity** | ** ** | **Interest**  | ** ** | **Outstanding Balance** | ** ** |
|--------------------------|-----------------|---------------|------------|--------------|------------|---------------|------------|-------------------------|------------|
| ** **               | **Description** | ** **    | ** ** | **Capacity** | ** ** | **Date**      | ** ** | **Rate**                | ** ** | **at June 30, 2006** | ** ** |
| Unsecured Line of Credit |            | $1,000,000    |       | January 2010 |       | LIBOR + .525% |       | $670,000                |       |
|                          |                 |               |            |              |            |               |            |                         |            |  |  |

 

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

The line of credit provides us with an option to obtain borrowings fromfinancial institutions that participate in the line, at rates lower than thestated interest rate, subject to certain restrictions. Interest rates on theamounts outstanding on the unsecured line of credit as of June 30, 2006 rangedfrom LIBOR + .13% to LIBOR + .525% (equal to 5.28% to 5.88% as of June 30,2006).

The line of credit also contains financial covenants that require us tomeet financial ratios and defined levels of performance, including thoserelated to variable interest indebtedness, consolidated net worth and debt-to-marketcapitalization. As of June 30, 2006, we were in compliance with allcovenants under our line of credit.

7

----

We took thefollowing actions during the six-month period ended June 30, 2006, relevant toour indebtedness:

·                  InJanuary 2006, we renewed our unsecured line of credit. The new facilityprovides borrowing capacity up to $1.0 billion and, subject to certainconditions, may be increased to $1.3 billion. Under the new facility, whichreplaced the previous unsecured line of credit agreement, the interest rate wasreduced, the borrowing capacity was increased by $500.0 million and thematurity date was extended to January 25, 2010.

·                  To finance the acquisition of theMark Winkler Portfolio (see Note 3) we obtained a $700.0 million term loan,secured by certain of the acquired real estate properties. The term loan bearsinterest at LIBOR + .525% and has a six-month term with the option for anadditional six-month extension.

·                  Inconjunction with our real estate acquisitions (see Note 3) we assumed $210.1million of mortgage loans, of which we received $10.5 million of proceedsdirectly. The assumed mortgage loans bear interest at rates ranging between5.55% and 8.50% and have maturities ranging between 2011 and 2026.  An adjustment of $6.3 million was recorded toincrease the assumed loans to fair value.

·                  InMarch 2006, we issued $150 million of 5.50% senior unsecured notes due in2016.  The notes were issued as part ofan exchange of securities for our $100 million 6.72% puttable option resetsecurities, which we retired. The remaining cash proceeds were used to fundcosts associated with the issuance of the debt and to repay amounts outstandingunder our line of credit.

**5.            Related Party Transactions**

We provide property management, leasing, constructionand other tenant related services to unconsolidated companies in which we haveequity interests. For the six months ended June 30, 2006 and 2005, we receivedmanagement fees of $2.2 million and $2.4 million, leasing fees of $1.6million and $2.2 million and construction and development fees of $3.2 millionand $1.1 million, respectively, from these companies.  These fees approximate market rates and weeliminated our ownership percentage of these fees in the condensed consolidatedfinancial statements.

**6.             Net Income PerCommon Unit**

Basic net income per common unit is computed by dividing net incomeavailable for common unitholders by the weighted average number of common unitsoutstanding for the period. Diluted net income per common unit is computed by dividingthe sum of net income available for common unitholders by the sum of theweighted average number of common units outstanding, and any dilutive potentialcommon units for the period.

The following table reconciles the components of basic and diluted netincome per common unit for the three and six months ended June 30, 2006 and2005, respectively (in thousands):

|                                                                             | ** ** | **Three Months Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
|-----------------------------------------------------------------------------|------------|-----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                                  | ** ** | **2006**                                            | ** ** | **2005**                                          | ** ** | **2006** | ** ** | **2005** | ** ** |
| Basic and  diluted net income available for common unitholders              | ** ** | **$**                                               | **24,068** |                                              | $          | 44,269 | ** ** | **$** | **36,774** |   | $ | 72,430 |   |
| Weighted average  number of common units outstanding                        | ** ** | **148,273**                                         |       | 156,986                                           | ** ** | **148,224** |   | 156,967 |   |
| Dilutive units  for stock-based compensation plans                          | ** ** | **1,091**                                           |       | 710                                               | ** ** | **1,049** |   | 744 |   |
| Weighted average number  of common units and dilutivepotential common units | ** ** | **149,364**                                         |       | 157,696                                           | ** ** | **149,273** |   | 157,711 |   |
|                                                                             |            |                                                     |            |                                                   |            |  |  |  |  |  |  |  |  |

 

8

----

**7.            SegmentReporting**

We are engaged in threereportable operating segments, the first two of which consist of the ownershipand rental of office and industrial real estate investments. The third segmentconsists of the our build-to-suit for sale operations and the providing ofvarious real estate services such as property management, maintenance, leasing,development and construction management to third party property owners andjoint ventures (“Service Operations”). Our reportable segments offer differentproducts and services and are managed separately because each segment requiresdifferent operating strategies and management expertise.  During the six-month periods ended June 30,2006 and 2005, there were no material intersegment sales or transfers.

Non-segmentrevenue consists mainly of equity in earnings of unconsolidated companies.Segment FFO information (FFO is defined below) is calculated by subtractingoperating expenses attributable to the applicable segment from segmentrevenues. Non-segment assets consist of corporate assets including cash,deferred financing costs and investments in unconsolidated companies. Interestexpense and other non-property specific revenues and expenses are not allocatedto individual segments in determining our performance measure.

We assess andmeasure segment operating results based upon an industry performance measurereferred to as Funds From Operations (“FFO”), which management believes is auseful indicator of our operating performance. FFO is used by industry analysts and investors as a supplementaloperating performance measure of a REIT like our General Partner. FFO is calculatedin accordance with the definition that was adopted by the Board of Governors ofthe National Association of Real Estate Investment Trusts (“NAREIT”).  NAREIT created FFO as a supplemental measureof REIT operating performance that excludes historical cost depreciation, amongother items, from net income determined in accordance with GAAP. FFO is anon-GAAP financial measure developed by NAREIT to compare the operatingperformance of REITs. The most comparable GAAP measure is net income (loss).  FFO should not be considered as a substitutefor net income or any other measures derived in accordance with GAAP and maynot be comparable to other similarly titled measures of other companies.

Historical cost accounting for real estate assets inaccordance with GAAP implicitly assumes that the value of real estate assetsdiminishes predictably over time.  Sincereal estate values instead have historically risen or fallen with marketconditions, many industry investors and analysts have considered presentationof operating results for real estate companies that use historical costaccounting to be insufficient by themselves. FFO, as defined by NAREIT, represents GAAP net income (loss), excludingextraordinary items as defined under GAAP and gains or losses from sales ofpreviously depreciated operating real estate assets, plus certain non-cashitems such as real estate asset depreciation and amortization, and aftersimilar adjustments for unconsolidated partnerships and joint ventures.

Management believes that the use of FFO, combined withthe required primary GAAP presentations, improves the understanding ofoperating results of REITs among the investing public and makes comparisons ofREIT operating results more meaningful. Management considers FFO to be a useful measure for reviewingcomparative operating and financial performance (although FFO should bereviewed in conjunction with net income which remains the primary measure ofperformance) because by excluding gains or losses related to sales of previouslydepreciated operating real estate assets and excluding real estate assetdepreciation and amortization, FFO provides a useful comparison of theoperating performance of our real estate between periods or as compared todifferent companies.

9

----

The following table shows (i) the revenues and FFO foreach of the reportable segments and (ii) a reconciliation of net incomeavailable for common unitholders to the calculation of FFO for the three andsix months ended June 30, 2006 and 2005, respectively (in thousands):
| ** **                                                              | ** ** | **Three Months Ended June 30,** | ** **  | **Six Months Ended June 30,** | ** ** |
|-------------------------------------------------------------------------|------------|-----------------------------------------------------|-------------|---------------------------------------------------|------------|
| ** **                                                              | ** ** | **2006**                                            | ** **  | **2005**                                          | ** ** | **2006** | ** ** | **2005** | ** ** |
| Revenues                                                                |       |                                                |        |                                              |       |   |   |   |   |
| Rental Operations:                                                      |       |                                                |        |                                              |       |   |   |   |   |
| Office                                                                  | ** ** | **$**                                               | **144,934** |                                              | $          | 115,698 | ** ** | **$** | **283,967** |   | $ | 232,639 |   |
| Industrial                                                              | ** ** | **52,577**                                          |        | 40,806                                            | ** ** | **102,460** |   | 80,697 |   |
| Service Operations                                                      | ** ** | **9,718**                                           |        | 23,748                                            | ** ** | **19,724** |   | 45,443 |   |
| Total Segment Revenues                                                  | ** ** | **207,229**                                         |        | 180,252                                           | ** ** | **406,151** |   | 358,779 |   |
| Non-Segment Revenue                                                     | ** ** | **13,447**                                          |        | 18,156                                            | ** ** | **24,355** |   | 25,520 |   |
| Consolidated Revenue from continuing operations                         | ** ** | **220,676**                                         |        | 198,408                                           | ** ** | **430,506** |   | 384,299 |   |
| Discontinued Operations                                                 | ** ** | **7,050**                                           |        | 32,787                                            | ** ** | **10,091** |   | 66,362 |   |
| Consolidated Revenue                                                    | ** ** | **$**                                               | **227,726** |                                              | $          | 231,195 | ** ** | **$** | **440,597** |   | $ | 450,661 |   |
| Funds From  Operations                                                  |       |                                                |        |                                              |       |   |   |   |   |
| Rental Operations:                                                      |       |                                                |        |                                              |       |   |   |   |   |
| Office                                                                  | ** ** | **$**                                               | **89,441**  |                                              | $          | 70,879 | ** ** | **$** | **174,324** |   | $ | 143,164 |   |
| Industrial                                                              | ** ** | **40,324**                                          |        | 30,581                                            | ** ** | **76,780** |   | 59,443 |   |
| Services Operations                                                     | ** ** | **3,476**                                           |        | 13,046                                            | ** ** | **7,926** |   | 24,884 |   |
| Total Segment FFO                                                       | ** ** | **133,241**                                         |        | 114,506                                           | ** ** | **259,030** |   | 227,491 |   |
| Non-Segment FFO:                                                        |       |                                                |        |                                              |       |   |   |   |   |
| Interest expense                                                        | ** ** | **(45,467**                                         | **)**       | (29,634                                           | )          | **(83,757** | **)** | (58,438 | ) |
| Interest income                                                         | ** ** | **2,232**                                           |        | 1,083                                             | ** ** | **4,432** |   | 2,403 |   |
| General and administrative expense                                      | ** ** | **(6,965**                                          | **)**       | (7,034                                            | )          | **(20,912** | **)** | (15,506 | ) |
| Gain on land sales                                                      | ** ** | **554**                                             |        | 3,266                                             | ** ** | **2,445** |   | 3,409 |   |
| Impairment charges on depreciable property                              | ** ** | **(31**                                             | **)**       | (755                                              | )          | **(31** | **)** | (3,564 | ) |
| Other income (expenses)                                                 | ** ** | **1,906**                                           |        | 620                                               | ** ** | **2,853** |   | 1,288 |   |
| Minority interest in earnings of subsidiaries                           | ** ** | **(73**                                             | **)**       | (29                                               | )          | **(175** | **)** | (66 | ) |
| Joint venture FFO                                                       | ** ** | **8,721**                                           |        | 9,453                                             | ** ** | **18,719** |   | 19,525 |   |
| Dividends on preferred units                                            | ** ** | **(13,255**                                         | **)**       | (11,620                                           | )          | **(25,967** | **)** | (23,240 | ) |
| Adjustment for redemption of preferred unit                             |       | —                                              |        | —                                            | ** ** | **(2,633** | **)** | **—** | ** ** |
| Discontinued operations                                                 | ** ** | **5,866**                                           |        | 16,418                                            | ** ** | **7,248** |   | 32,714 |   |
| Consolidated FFO                                                        | ** ** | **$**                                               | **86,729**  |                                              | $          | 96,274 | ** ** | **$** | **161,252** |   | $ | 186,016 |   |
| Depreciation and amortization on continuing  operations                 | ** ** | **(64,333**                                         | **)**       | (52,749                                           | )          | **(124,196** | **)** | (105,511 | ) |
| Depreciation and amortization on discontinued  operations               | ** ** | **(834**                                            | **)**       | (11,375                                           | )          | **(1,553** | **)** | (21,839 | ) |
| Share of joint venture adjustments                                      | ** ** | **(4,425**                                          | **)**       | (4,943                                            | )          | **(9,127** | **)** | (9,808 | ) |
| Earnings from depreciated  property sales on discontinued operations    | ** ** | **1,531**                                           |        | 5,888                                             | ** ** | **2,036** |   | 12,398 |   |
| Earnings from depreciated  property sales — share of joint venture | ** ** | **5,400**                                           |        | 11,174                                            | ** ** | **8,362** |   | 11,174 |   |
| Net income available for common unitholders                             | ** ** | **$**                                               | **24,068**  |                                              | $          | 44,269 | ** ** | **$** | **36,774** |   | $ | 72,430 |   |

 

10

----

 

The assets for each of the reportable segments as of June 30, 2006 andDecember 31, 2005, respectively, are as follows (in thousands):

|                      | ** ** | **June 30,** | ** **    | **December 31,** | ** ** |
|----------------------|------------|-------------------|---------------|-----------------------|------------|
| ** **           | ** ** | **2006**          | ** **    | **2005**              | ** ** |
| Assets               |       |              |          |                  |       |
| Rental  Operations:  | ** ** | ** **        | ** **    | ** **            | ** ** |
| Office               | ** ** | **$**             | **4,273,351** |                  | $          | 3,396,985 |   |
| Industrial           | ** ** | **1,941,538**     |          | 1,577,631             |       |
| Service Operations   | ** ** | **257,040**       |          | 177,463               |       |
| Total Segment Assets | ** ** | **6,471,929**     |          | 5,152,079             |       |
| Non-Segment Assets   | ** ** | **547,444**       |          | 494,608               |       |
| Consolidated  Assets | ** ** | **$**             | **7,019,373** |                  | $          | 5,646,887 |   |

 

In addition to revenues and FFO, we also review our recurring capitalexpenditures in measuring the performance of individual Rental Operationssegments. These recurring capital expenditures consist of tenant improvements,leasing commissions and building improvements. We review these expenditures todetermine the costs associated with re-leasing space and maintaining thecondition of our properties. Our recurring capital expenditures by segment aresummarized as follows for the six months ended June 30, 2006 and 2005,respectively  (in thousands):

|                                 | ** ** | **2006**  | ** ** | **2005** | ** ** |
|---------------------------------|------------|-----------|------------|----------|------------|
| Recurring Capital  Expenditures |       |      |       |     |       |
| Office                          | ** ** | **$**     | **24,632** |     | $          | 29,179 |   |
| Industrial                      | ** ** | **9,685** |       | 23,179   |       |
| Non-segment                     |       | **318**   |       | 22       |       |
| Total                           | ** ** | **$**     | **34,635** |     | $          | 52,380 |   |

 

**8.            Discontinued Operations**

We classified the operations of 250 buildings asdiscontinued operations as of June 30, 2006. These 250 buildings consist of 236industrial properties, 13 office properties and one retail property. Of theseproperties, five were sold during the first six months of 2006, 234 were soldduring 2005 and 11 operating properties were classified as held-for-sale atJune 30, 2006.

The following table illustrates the operations of the 250 buildingsreflected in discontinued operations for the three and six months ended June30, 2006 and 2005, respectively (in thousands):

|                                                           | ** ** | **Three Months Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
|-----------------------------------------------------------|------------|-----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                | ** ** | **2006**                                            | ** ** | **2005**                                          | ** ** | **2006** | ** ** | **2005** | ** ** |
| Statement of  Operations:                                 |       |                                                |       |                                              |       |   |   |   |   |
| Revenues                                                  | ** ** | **$**                                               | **7,051**  |                                              | $          | 32,786 | ** ** | **$** | **10,092** |   | $ | 66,362 |   |
| Expenses:                                                 |       |                                                |       |                                              |       |   |   |   |   |
| Operating                                                 | ** ** | **590**                                             |       | 9,563                                             | ** ** | **1,566** |   | 20,133 |   |
| Interest                                                  | ** ** | **586**                                             |       | 6,770                                             | ** ** | **1,257** |   | 13,453 |   |
| Depreciation and  Amortization                            | ** ** | **834**                                             |       | 11,375                                            | ** ** | **1,553** |   | 21,839 |   |
| General and  Administrative                               | ** ** | **10**                                              |       | 35                                                | ** ** | **21** |   | 62 |   |
| Income from  discontinued operations, before gain on sale | ** ** | **5,031**                                           |       | 5,043                                             | ** ** | **5,695** |   | 10,875 |   |
| Gain on sale of  property, net of impairment adjustments  | ** ** | **1,500**                                           |       | 5,133                                             | ** ** | **2,004** |   | 8,834 |   |
| Income from discontinued operations                       | ** ** | **$**                                               | **6,531**  |                                              | $          | 10,176 | ** ** | **$** | **7,699** |   | $ | 19,709 |   |

 

11

----

At June 30, 2006, we classifiedas held-for-sale, and included in discontinued operations, 11 industrialproperties comprising approximately 1.9 million square feet. Additionally, wehave classified the 32 properties from the Mark Winkler Portfolio (see Note 3),as well as three additional properties, as held-for-sale.  However, the results of these 35 propertiesare included in continuing operations, as required by SFAS 144, based on ourpresent intention to sell the majority of our ownership interest in theproperties to entities in which we will retain a minority equity ownershipinterest. The following table illustrates the aggregate balance sheet of theaforementioned 11 properties included in discontinued operations, as well asthe 35 held-for-sale properties whose results are included in continuingoperations at June 30, 2006 (in thousands):

|                               | ** ** | **Held- for-Sale  and Included in** | ** ** | **Held-for-Sale  and Included**   | ** ** | ** ** | ** ** |
|-------------------------------|------------|----------------------------------------------------|------------|----------------------------------------|------------|------------|------------|
| ** **                    | ** ** | **Discontinued Operations**                   | ** ** | **in Continuing Operations** | ** ** | **Total**  | ** ** |
| Real estate investments,  net |       | $                                                  | 66,500     |                                   | $          | 668,913    |       | $ | 735,413 |   |
| Other assets                  |       | 4,461                                              |       | 95,408                                 |       | 99,869     |       |
| Assets  held-for-sale         |       | 70,961                                             |       | 764,321                                |       | 835,282    |       |
|                          |       |                                               |       |                                   |       |       |       |
| Accrued expenses              |       | $                                                  | 1,026      |                                   | $          | 2,385      |       | $ | 3,411 |   |
| Other liabilities             |       | 695                                                |       | 3,626                                  |       | 4,321      |       |
| Secured debt                  |       | —                                             |       | 144,423                                |       | 144,423    |       |
| Liabilities  held-for-sale    |       | $                                                  | 1,721      |                                   | $          | 150,434    |       | $ | 152,155 |   |

 

We allocate interest expense to discontinued operations as permittedunder Emerging Issues Task Force (“EITF”) Issue No. 87-24, A*llocation of Interest to Discontinued Operations*,and have included such interest expense in computing net income fromdiscontinued operations. Interest expense allocable to discontinued operationsincludes interest on any debt on secured properties included in discontinuedoperations and an allocable share of our consolidated unsecured interestexpense for unencumbered properties. The allocation of unsecured interestexpense to discontinued operations was based upon the gross book value of thediscontinued operations unencumbered population as it related to our entireunencumbered population.

For the six months ended June 30, 2006 and 2005, we recorded impairmentadjustments of $339,000 and $3.6 million, respectively. The $339,000impairment adjustment recorded in the six months ended June 30, 2006 reflectsthe write-down of the carrying value of one industrial building sold in thesecond quarter of 2006 and one land parcel that is scheduled for sale later inthe year. The $3.6 million impairment adjustment recorded in the six monthsended June 30, 2005 reflects the write-down of the carrying value of threeoffice buildings, two industrial buildings and one land parcel sold in thesecond quarter of 2005, as well as one land parcel that was later sold in 2005and one industrial building that was sold in 2006.

**9.            Partners’Equity**

The GeneralPartner periodically accesses the public equity markets to fund the developmentand acquisition of additional rental properties or to pay down debt. Theproceeds of these offerings are contributed to us in exchange for additional interestsin the Partnership. In January 2006, the General Partner issued $184 million of6.95% Series M Cumulative Redeemable Preferred Shares, from which a portion ofthe net proceeds were used to redeem its $75 million of outstanding 8.45%Series I Cumulative Redeemable Preferred Shares.  Offering costs of $2.6 million were chargedagainst net income available to common unitholders in conjunction with theredemption of the Series I Cumulative Redeemable Preferred Shares.  In June 2006, the General Partner issued $110million of 7.25% Series N Cumulative Redeemable Preferred Shares.

12

----

The followingseries of preferred units are outstanding as of June 30, 2006 (in thousands,except percentage data):

|                    | ** **      | **Units**  | ** ** | **Dividend**    | ** ** | **Redemption**               | ** ** | **Liquidation** | ** ** |
|--------------------|-----------------|------------|------------|-----------------|------------|------------------------------|------------|-----------------|------------|
| ** **         | **Description** | ** ** | ** ** | **Outstanding** | ** ** | **Rate**                     | ** ** | **Date**        | ** ** | **Preference** | ** ** |
|               |            |       |       |            |       |                         |       |            |       |
| Series B Preferred |            | 265        |       | 7.990%          |       | September 30, 2007 |       | $               | 132,250    |   |
| Series J Preferred |            | 400        |       | 6.625%          |       | August 29, 2008    |       | 100,000         |       |
| Series K Preferred |            | 600        |       | 6.500%          |       | February 13, 2009  |       | 150,000         |       |
| Series L Preferred |            | 800        |       | 6.600%          |       | November 30, 2009  |       | 200,000         |       |
| Series M Preferred |            | 736        |       | 6.950%          |       | January 31, 2011   |       | 184,000         |       |
| Series N Preferred |            | 440        |       | 7.250%          |       | June 30, 2011      |       | 110,000         |       |
|                    |                 |            |            |                 |            |                              |            |                 |            |  |  |  |

 

The dividend rateon the Series B preferred units increases to 9.99% after September 12, 2012.

All series ofpreferred units require cumulative distributions and have no stated maturitydate (although we may redeem all such preferred units on or following theiroptional redemption dates).

The Series B,Series J, Series K, Series L, Series M and Series N preferred units may beredeemed on or after the dates noted above only at our option, in whole or inpart.

**10.          Financial Instruments**

We are exposed to capital market risk, such as changesin interest rates. In order to manage the volatility relating to interest raterisk, we may enter into interest rate hedging arrangements from time to time.We do not utilize derivative financial instruments for trading or speculativepurposes. We account for derivative instruments under Statement of FinancialAccounting Standards. No. 133, *Accountingfor Derivative Instruments and Hedging Activities*(“SFAS 133”), asamended.

In March 2005, we entered into $300 million of cashflow hedges through forward-starting interest rate swaps to hedge interestrates on $300 million of estimated debt offerings in 2006. The swaps qualifyfor hedge accounting under SFAS 133 with any changes in fair value recorded inAccumulated Other Comprehensive Income (“OCI”). The market value of theseinterest rate swaps is dependent upon existing market interest rates, whichchange over time. In March 2006, we issued $150 million of 5.5% seniorunsecured notes due 2016 (see Note 4) and terminated a corresponding amount ofthe cash flow hedges designated for this transaction. The settlement amountpaid of approximately $1 million will be recognized to earnings throughinterest expense ratably over the life of the senior notes and the ineffectiveportion of the

hedge was insignificant. At June 30, 2006, theestimated fair value of the remaining $150 million of swaps was approximately$5.2 million in an asset position as the effective rates of the swaps werelower than current interest rates at June 30, 2006.

In August 2005, we entered into $300 million of cashflow hedges through forward-starting interest rate swaps to hedge interestrates on $300 million of estimated debt offerings in 2007. The swaps qualifyfor hedge accounting under SFAS 133 with any changes in fair value recorded inOCI. At June 30, 2006, the fair value of these swaps was approximately $21.7million in an asset position as the effective rates of the swaps were lowerthan current interest rates at June 30, 2006.

In June 2006, we entered into a $250 million cash flowhedge through an interest rate swap to fix the rate on $250 million ofpreviously floating rate debt which matures in December 2006.  The swap qualifies for hedge accounting underSFAS 133 with any changes in fair value recorded in OCI.  At June 30, 2006, the fair value of this swapwas approximately $25,000 in a liability position and there was noineffectiveness.  Effectiveness of thehedge will be evaluated throughout its life using the hypothetical derivativemethod under which the change in fair value of the actual swap designated asthe hedging instrument is compared to the change in fair value of ahypothetical swap.

13

----

Statementof Financial Accounting Standards No. 150, *Accountingfor Certain Financial Instruments with Characteristics of both Liabilities andEquity* (“SFAS 150”), establishes standards for classifying andmeasuring as liabilities certain financial instruments that embody obligationsof the issuer and have characteristics of both liabilities and equity. Weinclude the operations of eight joint ventures in our condensed consolidatedfinancial statements at June 30, 2006 that are partially owned by unaffiliatedparties that have noncontrolling interests. SFAS 150 requires the disclosure ofthe estimated settlement value of these noncontrolling interests. As of June30, 2006, the estimated settlement value of the noncontrolling interest in twoof these consolidated joint ventures was approximately $2.6 million as comparedto the $178,000 minority interest liability reported in our financialstatements for these joint ventures.  Theestimated settlement values of the noncontrolling interests in the remainingsix joint ventures approximate their carrying value.

**11.          StockBased Compensation**

Under the limitedpartnership agreement of the Partnership, we are required to issue one CommonUnit to the General Partner for each share of common stock issued by theGeneral Partner.  Accordingly, theissuance of common shares by the General Partner under its stock basedcompensation plans requires the issuance of a corresponding number of CommonUnits by the Partnership to the General Partner.

The GeneralPartner’s stock based employee and non-employee compensation plans aredescribed more fully below.  The GeneralPartner is authorized to issue up to 11,320,552 shares of its common stockunder these compensation plans.  Newshares of the General Partner’s common stock are issued to employees uponexercise of share-based awards that are settled in the General Partner’s stock.

Forall stock-based awards issued by the General Partner prior to 2002, we appliedthe recognition and measurement provisions of Accounting Principles BoardOpinion No. 25, *Accounting for Stock Issuedto Employees* (“APB 25”), and related interpretations, in accountingfor our stock-based compensation. Accordingly, for stock options granted priorto 2002, no compensation expense is reflected in net income as all optionsgranted had an exercise price equal to the market value of the General Partner’sunderlying common shares on the date of the grant.

EffectiveJanuary 1, 2002, we prospectively adopted the fair value recognition provisionsof Statement of Financial Accounting Standards No. 123, *Accounting for Stock-Based Compensation* (“SFAS123”), and applied SFAS 123 to all awards granted after January 1, 2002.

EffectiveJanuary 1, 2006 we adopted Statement of Financial Accounting Standards No.123(R), *Share Based Payment*, (“SFAS 123(R)”),using the modified prospective application method. Under this method, as ofJanuary 1, 2006, we applied the provisions of SFAS 123(R) to new and modifiedawards, as well as to the nonvested portion of awards granted before the requiredeffective date and outstanding at such time.

Someof the General Partner’s stock-based compensation awards, including both stockoptions and restricted stock units, have a retirement eligible provision,whereby awards granted to an employee who has reached the age of 55, and 10years of service, automatically vest upon such employee’s retirement. We havepreviously accounted for this type of arrangement by recognizing compensationcost (for both pro forma and expense recognition purposes) over the full statedvesting period of the award and, if the employee retired before the end of thevesting period, recognizing any remaining unrecognized compensation cost at thedate of retirement. Upon adoption of SFAS 123(R), new awards granted toretirement eligible employees are subject to accelerated vesting over a periodwhen the employee’s retention of the award is no longer contingent on providingadditional service.  Had we appliedaccelerated vesting to all existing unvested awards issued to retirement eligibleemployees prior to January 1, 2006, we would have recognized an additional$667,000 in stock-based employee compensation expense for the six months endedJune 30, 2006.

14

----

Anadditional requirement of SFAS 123(R) is that estimated forfeitures be consideredin determining compensation expense. As previously permitted, we recordedforfeitures when they occurred. The effect of this accounting change onexisting nonvested stock compensation was insignificant.

As aresult of adopting SFAS 123(R) on January 1, 2006, our net incomeavailable for common unitholders for the six-months ended June 30, 2006, was$171,000 higher than if we had continued to account for share-basedcompensation under SFAS 123 and APB 25. There was no effect on basic and dilutedearnings per unit from continuing operations as a result of the adoption ofSFAS 123(R).

Cash flows resulting from tax deductions in excessof recognized compensation cost from the exercise of stock options (excess taxbenefits) were not significant in either period presented.

The following tableillustrates the effect on net income and earnings per unit if we had appliedthe fair value recognition provisions of SFAS 123 to all stock-based employeecompensation for the three and six month periods ended June 30, 2005 (inthousands, except per unit data):

|                                                                                                                           | ** ** | **Three Months**                  | ** ** | **Six Months**                    | ** ** |
|---------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------|------------|----------------------------------------|------------|
| ** **                                                                                                                | ** ** | **Ended June 30, 2005** | ** ** | **Ended June 30, 2005** | ** ** |
| Net income available  for common unitholders,as reported                                                                  |       | $                                      | 44,269     |                                   | $          | 72,430 |   |
| Add:   Stock-based  employee compensation   expense included in net income determined   under fair value method |       | 648                                    |       | 929                                    |       |
|                                                                                                                      |       |                                   |       |                                   |       |
| Deduct:   Total stock-based  compensation  expense determined under fair value method   for all awards     |       | (703                                   | )          | (1,040                                 | )          |
| Proforma net income  available for common   unitholders                                                                   |       | $                                      | 44,214     |                                   | $          | 72,319 |   |
|                                                                                                                      |       |                                   |       |                                   |       |
| Basic net income per  common unit                                                                                         |       |                                   |       |                                   |       |
| As reported                                                                                                               |       | $                                      | 0.28       |                                   | $          | 0.46 |   |
| Pro forma                                                                                                                 |       | $                                      | 0.28       |                                   | $          | 0.46 |   |
|                                                                                                                      |       |                                   |       |                                   |       |
| Diluted net income per  common unit                                                                                       |       |                                   |       |                                   |       |
| As reported                                                                                                               |       | $                                      | 0.28       |                                   | $          | 0.46 |   |
| Pro forma                                                                                                                 |       | $                                      | 0.28       |                                   | $          | 0.46 |   |

 

# **Fixed Stock Option Plans**

The GeneralPartner had options outstanding under six fixed option plans as of June 30,2006. Additional grants may be made under one of those plans. Stock optionawards granted under the General Partner’s stock based employee andnon-employee compensation plans generally vest over five years at 20% per yearand have contractual lives of ten years. The exercise price for stock option grants is set at the fair value ofthe General Partner’s common shares on the day of grant.

 

15

----

 

The following table summarizes transactions under theGeneral Partner’s stock option plans for the six months ended 2006:
| ** **                           | ** ** | **Shares** | ** ** | **Weighted  Average  Exercise  Price** | ** ** | **Weighted  Average  Contractual  Term** | ** ** | **Aggregate  Intrinsic  Value (1)  (in millions** | ** ** |
|--------------------------------------|------------|------------|------------|----------------------------------------|------------|------------------------------------------|------------|-------------------------------------------------------------|------------|
| Outstanding, beginning  of year      |       | 3,828,157  |       | $                                      | 25.50      |                                     |       |                                                        |       |   |
| Granted                              |       | 853,491    |       | $                                      | 34.16      |                                     |       |                                                        |       |   |
| Exercised                            |       | (284,155   | )          | $                                      | 22.22      |                                     |       |                                                        |       |   |
| Forfeited                            |       | (75,944    | )          | $                                      | 29.61      |                                     |       |                                                        |       |   |
| Outstanding at June 30,  2006        |       | 4,321,549  |       | $                                      | 27.35      |                                     | 6.51       |                                                        | $          | 33.7 |   |
| Options exercisable at June 30, 2006 |       | 2,399,931  |       | $                                      | 23.89      |                                     | 4.80       |                                                        | $          | 27.0 |   |

----

(1)             Theaggregate intrinsic value represents the total pre-tax intrinsic value, basedon the closing stock price of $35.15 at June 30, 2006, which would have beenreceived by the option holders had all option holders exercised their optionsas of that date.  This amount changescontinuously based on the fair value of the stock.

Options granted inthe six month periods ended June 30, 2006 and 2005, respectively, had aweighted average fair value of $3.59 and $3.03. As of June 30, 2006, there was$4.5 million of total unrecognized compensation expense related to stockoptions granted under the plans, which is expected to be recognized over aweighted average remaining period of 3.5 years. The total intrinsic value ofoptions exercised during the six month periods ended June 30, 2006 and 2005,respectively, was $3.9 million and $1.0 million.  Compensation expense recognized for fixedstock option plans was $995,000 and $558,000 in the first six months of 2006and 2005, respectively.

The fair values ofthe options for the six months ended June 30, 2006 and 2005, were determinedusing the Black-Scholes option-pricing model with the following assumptions:

|                         | ** ** | **2006** | ** ** | **2005** | ** ** |
|-------------------------|------------|----------|------------|----------|------------|
| Dividend yield          |       | 6.25     | %          | 6.25     | %          |
| Volatility              |       | 20.0     | %          | 20.0     | %          |
| Risk-free interest rate |       | 4.5      | %          | 3.8      | %          |
| Expected life           |       | 6 years  |       | 6 years  |       |

 

The risk freeinterest rate assumption is based upon observed interest rates appropriate forthe term of the General Partner’s employee stock options. The dividend yieldassumption is based on the history of and our present expectation of futuredividend payouts. The computation of expected volatility for the valuation ofstock options granted in the quarters ended June 30, 2006 and 2005 is based onhistoric volatility over a time equal to the expected term. The expected lifeof employee stock options represents the weighted average period the stockoptions are expected to remain outstanding.

## **Performance Share Plans**

Performance shareswere granted under the 2000 Performance Share Plan, with each performance shareeconomically equivalent to one share of the General Partner’s common stock.

The performanceshares vest over a five-year period with the vesting percentage for a yeardependent upon our attainment of certain predefined levels of earnings growthfor such year.  The performance shareshave a contractual life of five years.

16

----

In April 2006, the2000 Performance Share Plan was amended to provide that awards would be settledin shares of the General Partner’s common stock rather than cash.  The fair value of existing awards was fixedat the date of the amendment and the fair value of subsequent awards will befixed at the fair value of the General Partner’s common stock at the date ofgrant. Under the General Partner’s 2005 Long-Term Incentive Plan, additionalperformance shares may be granted on such terms and conditions as may beselected by the General Partner’s compensation committee, including whetherpayment will be made in cash, shares of the General Partner’s common stock, ourUnits or other property.

The followingtable summarizes transactions for the General Partner’s performance shares forthe first six months of 2006:
| **2000 Performance Share Plan**                  | ** ** | ** ** | ** ** | **Vested** | ** ** | **Unvested** | ** ** | **Total** | ** ** |
|-----------------------------------------------------------------|------------|------------|------------|------------|------------|--------------|------------|-----------|------------|
| Performance Share Plan  units at December 31, 2005              |       | 84,466     |       | 99,001     |       | 183,467      |       |
| Granted                                                         |       | —     |       | —     |       | —       |       |
| Vested                                                          |       | 25,487     |       | (25,487    | )          | —       |       |
| Forfeited                                                       |       | —     |       | (3,746     | )          | (3,746       | )          |
| Dividend reinvestments                                          |       | 4,584      |       | —     |       | 4,584        |       |
| Disbursements                                                   |       | (13,385    | )          | —     |       | (13,385      | )          |
| Total Performance Share Plan units outstanding at June 30, 2006 |       | 101,152    |       | 69,768     |       | 170,920      |       |

 

## Compensationexpense recognized for Performance Share Plan units was $585,000 and $365,000for the six-month periods ended June 30, 2006 and 2005, respectively. As ofJune 30, 2006, there was $400,000 of total unrecognized compensation expenserelated to nonvested performance shares granted under the Plan, which will berecognized based on the Partnership’s actual performance. The total vest datefair value of the General Partner’s shares vesting during the six-month periodended June 30, 2006 was $918,000.

**ShareholderValue Plan Awards**

## Paymentsmade under the General Partner’s 1995 Shareholder Value Plan (“1995 SVP Plan”)are based upon the General Partner’s cumulative shareholder return for athree-year period as compared to the cumulative total return of the S&P 500and the NAREIT Equity REIT Total Return indices and are payable in cash.Duringthe first six months of 2006, one of the awards made under the 1995 SVP Planwas distributed for a total of $600,000. Compensation cost recognized under the 1995 SVP Plan was $62,000 and$(665,000) for the six-month periods ended June 30, 2006 and 2005, respectively***.***

The GeneralPartner’s 2005 Shareholder Value Plan (“2005 SVP Plan”), a sub-plan of its 2005Long-Term Incentive Plan, was approved by its shareholders in April 2005. Uponvesting, payout of the 2005 Shareholder Value Plan awards will be made inshares of the General Partner’s common stock. Under the 2005 SVP Plan,shareholder value awards fully vest three years after the date of grant. Thenumber of common shares to be issued may range from 0%-300% of the targetshares awarded and will be based upon the General Partner’s total shareholderreturn for such three-year period as compared to the S & P 500 Index and theNAREIT Real Estate 50 Index. Each index is weighted at 50%.

Awards made underthe 2005 SVP Plan are measured at fair value, which is determined using a MonteCarlo simulation model that was developed to accommodate the unique features ofthe 2005 SVP Plan. Compensation cost recognized under the 2005 SVP Plan was$321,000 and $259,000 for the six-month periods ended June 30, 2006 and 2005,respectively.

17

----

 

The followingtable summarizes transactions for the General Partner’s awards under the 2005SVP Plan for the first six months of 2006:

| 2005 Shareholder Value Plan Awards | ** ** | ** ** | ** ** | **Number of  SVP  Units** | ** ** | **Weighted  Average  Grant Date  Fair Value** | ** ** |
|--------------------------------------------------------|------------|------------|------------|--------------------------------|------------|---------------------------------------------------------|------------|
| SVP awards at December  31, 2005                       |       | 75,678     |       | $                              | 30.64      |                                                    |
| Granted                                                |       | 89,790     |       | $                              | 32.56      |                                                    |
| Forfeited                                              |       | (3,565)    |       | $                              | 31.15      |                                                    |
| SVP awards at June 30,  2006                           |       | 161,903    |       | $                              | 31.67      |                                                    |

 

## As of June30, 2006, there was $2.3 million of total unrecognized compensation expenserelated to nonvested SVP Plan awards granted under the 2005 SVP Plan, whichwill be recognized over a weighted average period of 2.2 years. All 2005 SVPPlan awards have a contractual life of three years.

**RestrictedStock Units**

Under the General Partner’s2005 Long-Term Incentive Plan and the General Partner’s 2005 Non-EmployeeDirectors Compensation Plan approved by its shareholders in April 2005,restricted stock units (“RSUs”) may be granted to non-employee directors,executive officers and selected management employees. An RSU is economicallyequivalent to one share of the General Partner’s common stock. RSUs grantedprior to January 1, 2006 vest 20% per year over five years, have contractuallives of five years and are payable in shares of our common stock.  RSUs granted to existing non-employeedirectors subsequent to January 1, 2006 vest 100% over one year, and havecontractual lives of one year. We recognize the value of the granted RSUs overthis vesting period as expense.

The following tablesummarizes transactions for our RSUs, excluding dividend equivalents, for thefirst six months of 2006:

| Restricted Stock Units | ** ** | ** ** | ** ** | **Number of  RSUs** | ** ** | **Weighted**AverageGrant DateFair Value | ** ** |
|----------------------------------|------------|------------|------------|--------------------------|------------|---------------------------------------------------|------------|
| RSUs at December  31, 2005       | ** ** | 172,095    |       | $                        | 32.19      |                                              |
| Granted                          | ** ** | 107,656    | ** ** | $                        | 34.16      | ** **                                        |
| Vested                           | ** ** | (16,241    | )          | $                        | 30.64      | ** **                                        |
| Forfeited                        |       | (7,021     | )          | $                        | 32.40      |                                              |
| RSUs at June 30,  2006           |       | 256,489    |       | $                        | 32.81      |                                              |

 

Compensation costrecognized for RSUs totaled $1.3 million and $112,000 for the six-month periodsended June 30, 2006 and 2005, respectively.

As of June 30,2006, there was $6.4 million of total unrecognized compensation expense relatedto nonvested RSUs granted under the Plan, which is expected to be recognizedover a weighted average period of 4 years.

In addition, allRSUs earn dividend equivalents that are deemed to be reinvested in additionalRSUs.  Dividend equivalents vestimmediately and will be paid in shares of the General Partner’s common stockwhen the corresponding portion of the original RSU award vests or upontermination of the participant. Dividend equivalents of 7,386 RSUs were earnedin the first six months of 2006, and 12,083 dividend equivalents wereoutstanding as of June 30, 2006. A charge to retained earnings of $478,000 wasrecorded for the value of these dividend equivalents during the first sixmonths of 2006.

18

----

**12.   Recent AccountingPronouncements**

In April 2006, the Financial Accounting StandardsBoard (“FASB”) issued FASB Staff Position (“FSP”) FIN 46R-6, *Determining the Variability to Be Considered inApplying FASB Interpretation No. 46(R).*This FSP addresses certainimplementation issues related to FASB Interpretation No. 46 (Revised December2003), *Consolidation of Variable InterestEntities*. Specifically, FSP FIN 46R-6 addresses how a reportingenterprise should determine the variability to be considered in applying FIN46R. The variability that is considered in applying FIN 46R affects thedetermination of (a) whether an entity is a variable interest entity (“VIE”),(b) which interests are “variable interests” in the VIE, and (c) which party,if any, is the primary beneficiary of the VIE. That variability affects anycalculation of expected losses and expected residual returns, if such acalculation is necessary. We are required to apply the guidance in this FSPprospectively to all entities (including newly created entities) and to allentities previously required to be analyzed under FIN 46R when a “reconsiderationevent” has occurred, beginning July 1, 2006. We will evaluate the impact ofthis Staff Position at the time any such “reconsideration event” occurs, andfor any new entities.

In June 2006, the FASB issued Interpretation No. 48, *Accounting for Uncertainty in Income Taxes*,*an Interpretation of FASB Statement No. 109*(“FIN48”).  FIN 48 clarifies the accountingfor uncertainty in income taxes recognized in a company’s financial statementsand prescribes a recognition threshold and measurement attribute for thefinancial statement recognition and measurement of a tax position taken orexpected to be taken in a tax return. The Interpretation also provides guidance on description,classification, interest and penalties, accounting in interim periods,disclosure and transition.  FIN 48becomes effective on January 1, 2007. Upon evaluation we have determined that the adoption of FIN 48 will nothave a material effect on our financial statements.

**13.  SubsequentEvents**

*Declarationof Distributions*

The General Partner’s Board of Directors declared thefollowing distributions at its July 27, 2006, regularly scheduled Boardmeeting:

| Class                             | ** ** | **Quarterly**  Amount/Unit | ** ** | **Record Date ** | ** **         | **Payment Date** | ** **         |
|-----------------------------------|------------|----------------------------|------------|----------------------------|--------------------|-----------------------|--------------------|
| Common                            |       | $                          | 0.4750     |                       | August 14, 2006    |                  | August 31, 2006    |   |
| Preferred (per  depositary unit): |       |                       |       |                       |               |                  |               |
| Series B                          |       | $                          | 0.998750   |                       | September 15, 2006 |                  | September 29, 2006 |   |
| Series J                          |       | $                          | 0.414063   |                       | August 17, 2006    |                  | August 31, 2006    |   |
| Series K                          |       | $                          | 0.406250   |                       | August 17, 2006    |                  | August 31, 2006    |   |
| Series L                          |       | $                          | 0.412500   |                       | August 17, 2006    |                  | August 31, 2006    |   |
| Series M                          |       | $                          | 0.434375   |                       | September 15, 2006 |                  | September 29, 2006 |   |
| Series N                          |       | $                          | 0.458160   |                       | September 15, 2006 |                  | September 29, 2006 |   |

 

*Sale ofCleveland Industrial Properties*

In July 2006, we sold the remaining ten industrialbuildings in our Cleveland, Ohio industrial portfolio to one purchaser for$93.5 million.  We intend to market ourremaining 2.2 million square foot suburban office portfolio and undevelopedland holdings as continuation of our exit strategy in the Cleveland market.

 

19

----

**Business Overview**

**Item 2.   Management’s Discussion and Analysisof Financial Condition and Results of Operations**

**Cautionary Statement Regarding Forward Looking Statements**

Certain statements in thisquarterly report, including those related to our future operations, constitute “forward-lookingstatements” within the meaning of Section 27A of the Securities Act of 1933, asamended (the “Securities Act”) and Section 21E of the Securities Exchange Actof 1934, as amended (the “Exchange Act”). The words “believe,” “estimate,” “expect,” “anticipate,” “intend,” “plan,”“seek,” “may,” and similar expressions or statements regarding future periodsare intended to identify forward-looking statements. These forward-lookingstatements involve known and unknown risks, uncertainties and other importantfactors that could cause  our actualresults, performance or achievements, or industry results, to differ materiallyfrom any predictions of futureresults, performance or achievements that we express or imply in this Report.Some of the risks, uncertainties and other important factors that may affectfuture results include, among others:

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

·                 The General Partner’s continued qualification asa real estate investment trust, or “REIT”;

·                 Heightened competition for tenants and potentialdecreases in property occupancy;

·                 Potential increases in real estate constructioncosts;

·                 Potential changes in the financial markets andinterest rates;

·                 Our continuing ability to favorably raise fundsthrough the issuance of debt and equity in the capital markets;

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

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

·                 Inherent risks in the real estate businessincluding tenant defaults, potential liability relating to environmentalmatters and liquidity of real estate investments; and

·                 Other risks and uncertainties described herein,including, without limitation, under the caption “Item1A. Risk Factors”, and inour reports and other filings with the Securities and Exchange Commission (“SEC”).

This list of risks anduncertainties, however, is not intended to be exhaustive. Additional riskfactor information is included in our Annual Report on Form 10-K for thefiscal year ended December 31, 2005, which we filed with the SEC on March 14,2006, and is updated by us from time to time in Quarterly Reports on Form 10-Qand other future filings.

Although we believe that theplans, expectations and results expressed in or suggested by theforward-looking statements are reasonable, all forward-looking statements areinherently uncertain as they involve substantial risks and uncertainties beyondour control. New factors emerge from time to time, and it is not possible forus to predict the nature or assess the potential impact of each new factor onour business. Given these uncertainties, we caution you not to place unduereliance on these forward-looking statements. We undertake no obligation toupdate or revise any of our forward-looking statements for events orcircumstances that arise after the statement is made.

20

----

**Business Overview**

We are a limited partnership formedunder the laws of the State of Indiana in 1993. We own and operate adiversified portfolio of industrial, office and retail properties and providereal estate services to third-party owners. We conduct our service operationsthrough Duke Realty Services, LLC, Duke Realty Services Limited Partnership (“DRSLP”)and Duke Construction Limited Partnership. The condensed consolidated financialstatements include our accounts and our majority-owned or controlledsubsidiaries. In this Quarterly Report on Form 10-Q (this “Report”), the terms“we,” “us” and “our” refer to the Partnership and those entities owned orcontrolled by the Partnership. As of June 30, 2006, we:

·                 Owned or controlled 737 industrial, office andretail properties (including properties under development), consisting ofapproximately 113.9 million square feet; and

·                 Owned or controlled more than 6,300 acres of landwith an estimated future development potential of more than 90 millionsquare feet of industrial, office and retail properties.

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

·                 Property leasing;

·                 Property management;

·                 Construction;

·                 Development; and

·                 Other tenant-related services.

**Acquisitions**

In the first six months of2006, we completed the acquisition of a Washington D.C. metropolitan areaportfolio of suburban office and light industrial properties (the “Mark WinklerPortfolio”). The assets acquired for a purchase price of approximately $865.6million are comprised of 32 properties with approximately 2.9 millionsquare feet for rental, 166 acres of undeveloped land, as well as certainrelated assets of the Mark Winkler Company, a real estate management company.The acquisition was financed primarily through assumed mortgage loans and newborrowings.  The assets of the MarkWinkler Portfolio related to in-service properties, consisting of $697.9 millionof real estate investments and acquired lease related intangible assets, areclassified and accounted for as held-for-sale based on meeting the applicablecriteria of Statement of Financial Accounting Standards No. 144, *Accounting For the Impairment or Disposal ofLong-Lived Assets (“SFAS 144”).*As required by SFAS144, theresults of operations of the acquired properties since the date of acquisitionhave been included in continuing operations, rather than discontinuedoperations, based on our present intention to sell the majority of ourownership interest in the properties to an entity in which we will retain aminority equity ownership interest. The allocation of purchase price based onthe fair value of assets acquired is preliminary.

In January 2006, wecompleted a majority of the purchase of a portfolio of industrial real estateproperties in Savannah, Georgia with the purpose of expanding our industrialreal estate holdings near major port facilities.  The assets acquired as of June 30, 2006 for apurchase price of approximately $178.1 million are comprised of 17 buildingswith approximately 4.7 million square feet for rental as well as over 60acres of undeveloped land.  Theacquisition was financed in part through assumed mortgage loans. The totalpurchase price upon completion of the portfolio acquisition in the thirdquarter of 2006 presently is expected to be approximately $196 million andwill include one additional industrial property with approximately 438,000square feet for rental.  The results ofoperations for the acquired properties since the date of acquisition have beenincluded in continuing operations in our consolidated financial statements.

21

----

**Key Performance Indicators**

Our operating results dependprimarily upon rental income from our office, industrial and retail properties(“Rental Operations”). The following highlights the areas of Rental Operationsthat we consider critical for future revenue growth. (All square footage totalsand occupancy percentages reflect both wholly owned properties and propertiesin joint ventures).

***Occupancy Analysis:***   Our ability to maintain favorableoccupancy rates is a principal driver of our results of operations. Thefollowing table sets forth occupancy information regarding our in-serviceportfolio of rental properties as of June 30, 2006 and 2005, respectively (inthousands, except percentage data):

|                 | ** ** | **Total**            | ** ** | **Percent of**             | ** ** | ** **                | ** ** | ** ** | ** ** |
|-----------------|------------|----------------------|------------|---------------------------------|------------|---------------------------|------------|------------|------------|
| ** **      | ** ** | **Square Feet** | ** ** | **Total Square Feet** | ** ** | **Percent Occupied** | ** ** |
| **Type**        | ** ** | ** **           | ** ** | **2006**                        | ** ** | **2005**                  | ** ** | **2006**   | ** ** | **2005** | ** ** | **2006** | ** ** | **2005** | ** ** |
| **Industrial**  |       |                 |       |                            |       |                      |       |       |       |   |   |   |   |
| Service Centers | ** ** | **5,457**            |       | 12,754                          | ** ** | **5.1**                   | **%**      | 11.5       | %          | **92.1** | **%** | 86.6 | % |
| Bulk            | ** ** | **70,242**           |       | 68,031                          | ** ** | **65.2**                  | **%**      | 61.3       | %          | **93.2** | **%** | 92.6 | % |
| **Office**      | ** ** | **31,334**           |       | 29,635                          | ** ** | **29.1**                  | **%**      | 26.6       | %          | **90.1** | **%** | 88.1 | % |
| **Retail**      | ** ** | **611**              |       | 611                             | ** ** | **0.6**                   | **%**      | 0.6        | %          | **99.7** | **%** | 96.0 | % |
| Total           | ** ** | **107,644**          |       | 111,031                         | ** ** | **100.0**                 | **%**      | 100.0      | %          | **92.3** | **%** | 90.7 | % |
|                 |            |                      |            |                                 |            |                           |            |            |            |  |  |  |  |  |  |

 

***Lease Expiration and Renewal:***   Our ability to maintain and increaseoccupancy rates primarily depends upon our continuing ability to re-leaseexpiring space.******Thefollowing table reflects our in-service portfolio lease expiration schedule byproperty type as of June 30, 2006. The table indicates square footage andannualized net effective rents (based on June 2006 rental revenue) underexpiring leases (in thousands, except percentage data):
| ** **          | ** ** | **Total**     | ** ** | ** **         | ** ** | ** **          | ** ** | ** ** | ** ** | ** **         | ** ** | ** ** | ** ** | ** **         | ** ** |
|---------------------|------------|---------------|------------|--------------------|------------|---------------------|------------|------------|------------|--------------------|------------|------------|------------|--------------------|------------|
| ** **          | ** ** | **Portfolio** | ** ** | **Industrial**     | ** ** | **Office**          | ** ** | **Retail** | ** ** |
| **Year of**    | ** ** | **Square**    | ** ** | **Ann. Rent** | ** ** | **Percent of** | ** ** | **Square** | ** ** | **Ann. Rent** | ** ** | **Square** | ** ** | **Ann. Rent** | ** ** | **Square** | ** ** | **Ann. Rent** | ** ** |
| **Expiration**      | ** ** | **Feet**      | ** ** | **Revenue**        | ** ** | **Revenue**         | ** ** | **Feet**   | ** ** | **Revenue**        | ** ** | **Feet**   | ** ** | **Revenue**        | ** ** | **Feet** | ** ** | **Revenue** | ** ** |
| 2006                |       | 3,592         |       | $                  | 24,496     |                | 3          | %          | 2,598      |               | $          | 11,499     |       | 994                |       | $ | 12,997 |   | — |   | $ | — |   |
| 2007                |       | 11,563        |       | 69,583             |       | 10                  | %          | 8,931      |       | 34,498             |       | 2,623      |       | 34,962             |       | 9 |   | 123 |   |
| 2008                |       | 13,598        |       | 86,566             |       | 13                  | %          | 9,957      |       | 40,799             |       | 3,622      |       | 45,432             |       | 19 |   | 335 |   |
| 2009                |       | 12,558        |       | 81,647             |       | 12                  | %          | 9,019      |       | 35,663             |       | 3,535      |       | 45,906             |       | 4 |   | 78 |   |
| 2010                |       | 11,507        |       | 93,042             |       | 14                  | %          | 7,388      |       | 34,689             |       | 4,112      |       | 58,248             |       | 7 |   | 105 |   |
| 2011                |       | 12,496        |       | 77,803             |       | 11                  | %          | 9,481      |       | 37,614             |       | 2,971      |       | 39,370             |       | 44 |   | 819 |   |
| 2012                |       | 7,277         |       | 48,983             |       | 7                   | %          | 4,965      |       | 17,713             |       | 2,305      |       | 30,937             |       | 7 |   | 333 |   |
| 2013                |       | 6,254         |       | 58,646             |       | 9                   | %          | 3,254      |       | 14,176             |       | 2,966      |       | 43,891             |       | 34 |   | 579 |   |
| 2014                |       | 4,857         |       | 25,735             |       | 4                   | %          | 3,974      |       | 14,119             |       | 883        |       | 11,616             |       | — |   | — |   |
| 2015                |       | 6,835         |       | 52,815             |       | 8                   | %          | 4,830      |       | 19,234             |       | 2,005      |       | 33,581             |       | — |   | — |   |
| 2016 and Thereafter |       | 8,809         |       | 62,158             |       | 9                   | %          | 6,114      |       | 25,228             |       | 2,211      |       | 33,631             |       | 484 |   | 3,299 |   |
| Total Leased        |       | 99,346        |       | $                  | 681,474    |                | 100        | %          | 70,511     |               | $          | 285,232    |       | 28,227             |       | $ | 390,571 |   | 608 |   | $ | 5,671 |   |
| Total Portfolio     |       |          |       |               |       |                |       |       |       |               |       |       |       |               |       |   |   |   |   |
| Square Feet         |       | 107,644       |       |               |       |                |       | 75,699     |       |               |       | 31,334     |       |               |       | 611 |   |   |   |
| Percent Occupied    |       | 92.3          | %          |               |       |                |       | 93.1       | %          |               |       | 90.1       | %          |               |       | 99.7 | % |   |   |

 

***Lease Renewals:  ***We renewed 80.9% and 78.6% of leases up forrenewal in the three and six months ended June 30, 2006, totaling 1.9 millionand 3.8 million square feet, respectively. This compares to renewals of70.0% and 71.9% for the three and six months ended June 30, 2005, totaling 3.1million and 4.9 million square feet, respectively.

The average term of renewals for the three and six months ended June30, 2006, was 4.0 and 3.5 years, respectively, compared to an average term of4.3 and 4.0 years for the three and six months ended June 30, 2005,respectively.

22

----

***Future Development:  ***Anothersource of growth in earnings is the development of additional properties. Theseproperties should provide future earnings through Service Operations incomeupon sale or from Rental Operations growth as they are placed in service. As ofJune 30, 2006, we had 8.7 million square feet of property under developmentwith total estimated costs upon completion of $772.9 million, which were42% pre-leased as of June 30, 2006. This compares to 3.6 million squarefeet with total estimated costs of $351.0 million, which were 47%pre-leased as of June 30, 2005.

A summary ofproperties under development as of June 30, 2006, follows (in thousands, exceptpercentage data):

|                       | ** ** | ** ** | ** ** | ** **  | ** ** | **Total**     | ** ** | ** **      | ** ** |
|-----------------------|------------|------------|------------|-------------|------------|---------------|------------|-----------------|------------|
| **Anticipated**       | ** ** | ** ** | ** ** | ** **  | ** ** | **Estimated** | ** ** | **Anticipated** | ** ** |
| **In-Service**        | ** ** | **Square** | ** ** | **Percent** | ** ** | **Project**   | ** ** | **Stabilized**  | ** ** |
| ** **            | **Date**   | ** ** | ** ** | **Feet**    | ** ** | **Leased**    | ** ** | **Costs**       | ** ** | **Return** | ** ** |
| Held for Rental:      |       |       |       |        |       |          |       |            |       |
| 3rd Quarter 2006 |       | 1,995      |       | 15          | %          | $             | 92,575     |            | 9.7        | % |
| 4th Quarter 2007 |       | 3,274      |       | 33          | %          | 157,600       |       | 9.0             | %          |
| 1st Quarter 2007 |       | 674        |       | 27          | %          | 73,689        |       | 10.0            | %          |
| Thereafter            |       | 322        |       | 0           | %          | 59,544        |       | 9.2             | %          |
|                  |       | 6,265      |       | 25          | %          | $             | 383,408    |            | 9.4        | % |
|                  |       |       |       |        |       |          |       |            |       |
| Merchant  Buildings:  |       |       |       |        |       |          |       |            |       |
| 3rdQuarter 2006       |       | 304        |       | 82          | %          | $             | 46,631     |            | 9.5        | % |
| 4th Quarter 2007 |       | 380        |       | 81          | %          | 71,016        |       | 8.7             | %          |
| 1st Quarter 2007 |       | 539        |       | 100         | %          | 26,069        |       | 8.6             | %          |
| Thereafter            |       | 1,175      |       | 85          | %          | 245,795       |       | 8.7             | %          |
|                  |       | 2,398      |       | 87          | %          | $             | 389,511    |            | 8.8        | % |
| Total                 |       | 8,663      |       | 42          | %          | $             | 772,919    |            | 9.1        | % |
|                       |            |            |            |             |            |               |            |                 |            |  |  |  |

 

***Acquisition and Disposition Activity:*  **Sales proceeds from dispositions of whollyowned properties for the six months ended June 30, 2006 and 2005 were $25.3million and $136.3 million, respectively. The sales in the first half of 2006 were entirely from held-for-rentalproperties that no longer met our long term growth objectives, while the salesduring the same period in 2005 were comprised of both held-for-rentalproperties and held-for-sale properties that were developed with the intent tosell upon completion.

On the acquisition front, our strategy is topursue acquisitions with value added opportunities. During the first six monthsof 2006, we closed on over $1.0 billion of acquisitions, as previouslydiscussed, which compares to acquisitions of over $280 million for the sameperiod in 2005. We will continue to identify and pursue both disposition andacquisition opportunities that arise and are in line with our business plan.

**Funds From Operations**

Funds From Operations (“FFO”) is used by industry analysts andinvestors as a supplemental operating performance measure of an equity REITlike our General Partner. FFO is calculated in accordance with the definitionthat was adopted by the Board of Governors of the National Association of RealEstate Investment Trusts (“NAREIT”). NAREIT created FFO as a supplemental measure of REIT operatingperformance that excludes historical cost depreciation, among other items, fromnet income determined in accordance with United States generally acceptedaccounting principles (“GAAP”). FFO is a non-GAAP financial measure developedby NAREIT to compare the operating performance of REITs.  The most comparable GAAP measure is netincome (loss).  FFO should not beconsidered as a substitute for net income or any other measures derived inaccordance with GAAP and may not be comparable to other similarly titledmeasures of other companies.

23

----

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. FFO, as defined byNAREIT, represents GAAP net income (loss), excluding extraordinary items asdefined under GAAP and gains or losses from sales of previously depreciatedoperating real estate assets, plus certain non-cash items such as real estatedepreciation and amortization, and after similar adjustments for unconsolidatedpartnerships and joint ventures.

Management believes that the use of FFO, combined with the requiredprimary GAAP presentations, has improved the understanding of operating resultsof REITs among the investing public and made comparisons of REIT operatingresults more meaningful. Management considers FFO to be a useful measure forreviewing comparative operating and financial performance (although FFO shouldbe reviewed in conjunction with net income which remains the primary measure ofperformance) because, by excluding gains or losses related to sales of previouslydepreciated operating real estate assets and excluding real estate assetdepreciation and amortization, FFO provides a useful comparison of theoperating performance of our real estate between periods or as compared todifferent companies.

The following table shows a reconciliation of net income available forcommon unitholders to the calculation of FFO for the three and six months endedJune 30, 2006 and 2005, respectively (in thousands):

|                                                                    | ** ** | **Three Months Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
|--------------------------------------------------------------------|------------|-----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                         | ** ** | **2006**                                            | ** ** | **2005**                                          | ** ** | **2006** | ** ** | **2005** | ** ** |
| Net income  available for common unitholders                       | ** ** | **$**                                               | **24,068** |                                              | $          | 44,269 | ** ** | **$** | **36,774** |   | $ | 72,430 |   |
| Add back  (deduct):                                                |       |                                                |       |                                              |       |   |   |   |   |
| Depreciation and amortization                                      | ** ** | **65,167**                                          |       | 64,124                                            | ** ** | **125,749** |   | 127,350 |   |
| Share of joint venture adjustments                                 | ** ** | **4,425**                                           |       | 4,943                                             | ** ** | **9,127** |   | 9,808 |   |
| Earnings from depreciable property sales-   wholly owned           | ** ** | **(1,531**                                          | **)**      | (5,888                                            | )          | **(2,036** | **)** | (12,398 | ) |
| Earnings from depreciable property sales-   share of joint venture | ** ** | **(5,400**                                          | **)**      | (11,174                                           | )          | **(8,362** | **)** | (11,174 | ) |
|                                                               | ** ** | ** **                                          | ** ** |                                              |       | ** ** | ** ** |   |   |
| **Funds From Operations**                                          | ** ** | **$**                                               | **86,729** |                                              | $          | 96,274 | ** ** | **$** | **161,252** |   | $ | 186,016 |   |

 

 

24

----

 

**Results of Operations**

A summary of our operating results and property statistics for thethree and six months ended June 30, 2006 and 2005, is as follows (in thousands,except number of properties and per unit data):

|                                                               | ** ** | **Three Months Ended June 30,** | ** **  | **Six Months Ended June 30,** | ** ** |
|---------------------------------------------------------------|------------|-----------------------------------------------------|-------------|---------------------------------------------------|------------|
| ** **                                                    | ** ** | **2006**                                            | ** **  | **2005**                                          | ** ** | **2006** | ** ** | **2005** | ** ** |
| Rental Operations  revenue from Continuing                    |       |                                                |        |                                              |       |   |   |   |   |
| Operations                                                    | ** ** | **$**                                               | **201,261** |                                              | $          | 158,977 | ** ** | **$** | **392,826** |   | $ | 317,966 |   |
| Service Operations  revenues from Continuing                  |       |                                                |        |                                              |       |   |   |   |   |
| Operations                                                    | ** ** | **9,718**                                           |        | 23,748                                            | ** ** | **19,724** |   | 45,443 |   |
| Earnings from  Continuing Rental Operations                   | ** ** | **31,848**                                          |        | 35,547                                            | ** ** | **64,459** |   | 61,081 |   |
| Earnings from  Continuing Service Operations                  | ** ** | **3,476**                                           |        | 13,046                                            | ** ** | **7,926** |   | 24,884 |   |
| Operating income                                              | ** ** | **28,359**                                          |        | 41,559                                            | ** ** | **51,473** |   | 70,459 |   |
| Net income available  for common unitholders                  | ** ** | **24,068**                                          |        | 44,269                                            | ** ** | **36,774** |   | 72,430 |   |
| Weighted average common  units outstanding                    | ** ** | **148,273**                                         |        | 156,986                                           | ** ** | **148,224** |   | 156,967 |   |
| Weighted average common  and dilutive potential  common units | ** ** | **149,364**                                         |        | 157,696                                           | ** ** | **149,273** |   | 157,711 |   |
| Basic income per common  unit:                                |       |                                                |        |                                              |       |   |   |   |   |
| Continuing  operations                                        | ** ** | **$**                                               | **.12**     |                                              | $          | .22 | ** ** | **$** | **.20** |   | $ | .33 |   |
| Discontinued  operations                                      | ** ** | **.04**                                             |        | $                                                 | . 06       | ** ** | **.05** |   | $ | .13 |   |
|                                                          | ** ** | **$**                                               | **.16**     |                                              | $          | .28 | ** ** | **$** | **.25** |   | $ | .46 |   |
| Diluted income per  common unit:                              |       |                                                |        |                                              |       |   |   |   |   |
| Continuing  operations                                        | ** ** | **$**                                               | **.12**     |                                              | $          | .22 | ** ** | **$** | **.29** |   | $ | .33 |   |
| Discontinued operations                                       | ** ** | **.04**                                             |        | $                                                 | .06        | ** ** | **.05** |   | $ | .13 |   |
| ** **                                                    |       | **$**                                               | **.16**     | ** **                                        | $          | .28 |   | **$** | **.25** |   | $ | .46 |   |
| Number of in-service  properties at end of period             | ** ** | **715**                                             |        | 878                                               | ** ** | **715** |   | 878 |   |
| In-service square  footage at end of period                   | ** ** | **107,644**                                         |        | 111,031                                           | ** ** | **107,644** |   | 111,031 |   |
| Under development square footage at end of period             | ** ** | **6,265**                                           |        | 2,086                                             | ** ** | **6,265** |   | 2,086 |   |

 

**Comparison of Three Months Ended June 30, 2006 to Three Months EndedJune 30, 2005**

Rental Income From Continuing Operations

Overall, rentalincome from continuing operations increased from $159.0 million for the quarterended June 30, 2005 to $201.3 million for the same period in 2006. Thefollowing table reconciles rental income from continuing operations byreportable segment to our total reported rental income from continuingoperations for the quarters ended June 30, 2006 and 2005 (in thousands):

|             | ** ** | **2006**   | ** **  | **2005** | ** ** |
|-------------|------------|------------|-------------|----------|------------|
| Office      | ** ** | **$**      | **144,934** |     | $          | 115,698 |   |
| Industrial  | ** ** | **52,577** |        | 40,806   |       |
| Non-segment | ** ** | **3,750**  |        | 2,473    |       |
| Total       | ** ** | **$**      | **201,261** |     | $          | 158,977 |   |

 

The following factorscontributed to these results:

·                  Weacquired 52 properties and placed 18 developments in service from July 1, 2005to June 30, 2006. These acquisitions and developments are the primary factor inthe overall $42.3 million increase in rental revenue for the second quarter of2006, compared to the same period in 2005. These acquisitions and developmentsprovided revenues of $24.2 million in the second quarter of 2006, including$20.6 million from the real estate portfolios in the Washington D.C. area andSavannah, Georgia that were acquired in 2006.

·                  Revenuesfor acquisitions and developments placed in service in the second quarter of2005 increased by $7.1 million in the second quarter of 2006.

25

----

 

·                  Leasetermination fees totaled $6.1 million in the second quarter of 2006, comparedto $1.1 million for the same period in 2005.

·                  Theremaining increase in rental revenues was attributable to our in-serviceoccupancy increasing from 90.7% at June 30, 2005 to 92.3% at June 30, 2006, aswell as from increases in our rental rates or rollover leases.

Equity in Earnings of Unconsolidated Companies

Equity in earningsdecreased from $15.7 million for the second quarter of 2005 to $9.7 million forthe same period in 2006. Our share of the gains on joint venture building saleswas $6.1 million in the second quarter of 2006 compared to $11.2 millionfor the same period in 2005, which is the main reason for the decrease.

Rental Expensesand Real Estate Taxes

The followingtable reconciles rental expenses and real estate taxes by reportable segment toour total reported amounts in the statement of operations for the three monthsended June 30, 2006 and 2005, respectively (in thousands):

|                    | ** ** | **2006**  | ** ** | **2005** | ** ** |
|--------------------|------------|-----------|------------|----------|------------|
| Rental Expenses:   |       |      |       |     |       |
| Office             | ** ** | **$**     | **38,926** |     | $          | 31,804 |   |
| Industrial         | ** ** | **5,982** |       | 5,212    |       |
| Non-segment        | ** ** | **149**   |       | 432      |       |
| Total              | ** ** | **$**     | **45,057** |     | $          | 37,448 |   |
|               |       |      |       |     |       |
| Real Estate Taxes: |       |      |       |     |       |
| Office             | ** ** | **$**     | **16,567** |     | $          | 13,014 |   |
| Industrial         | ** ** | **6,270** |       | 5,013    |       |
| Non-segment        | ** ** | **1,415** |       | 1,256    |       |
| Total              | ** ** | **$**     | **24,252** |     | $          | 19,283 |   |

 

Of the overallincrease in rental expenses and real estate taxes, $2.8 million and $1.9million, respectively, were attributable to properties acquired anddevelopments placed in service from July 1, 2005 to June 30, 2006.  In addition, rental expenses and real estatetaxes for acquisitions and developments placed in service in the second quarterof 2005 increased by $1.4 million and $1.2 million, respectively, in thesecond quarter of 2006, as a result of having a full three months of operatingactivity on these properties.  Theremaining increase in rental expense is the result of increased occupancy andinflationary factors and the remaining increase to real estate taxes was drivenby normal increases in assessments by municipal authorities.

Interest Expense

Interest expenseincreased from $29.6 million in the second quarter of 2005 to $45.5 million inthe second quarter of 2006 primarily due to an increase in secured debt and anincrease in borrowings and interest rates on our unsecured line of credit.  Our secured debt had a net increase of  $858.7 million from June 30, 2005 to June 30,2006, which includes the $700 million secured term loan obtained inFebruary 2006 to finance the acquisition of the Mark Winkler Portfolio and the$210.1 million of mortgage loans assumed as part of this acquisition andthe acquisition of the portfolio of industrial real estate properties inSavannah, Georgia.  These financingsresulted in $12.3 million of interest expense ($9.7 million on the term loanand $2.6 million on the assumed mortgage loans) for the three months endedJune 30, 2006.

The outstandingbalance on our unsecured line of credit increased from $120 million at June 30,2005 to $670 million at June 30, 2006. This increase, combined with the increase in interest rates on the lineof credit, resulted in an increase in interest expense of $6.6 million for thethree months ended June 30, 2006 compared to the same period in 2005.

26

----

 

Depreciation and Amortization

Depreciation andamortization expense increased from $52.7 million for the second quarter of2005 to $64.3 million for the same period in 2006.

The followinghighlights the significant changes in depreciation expense for these timeperiods:

·                  Buildingdepreciation expense increased by $5.3 million due to increases in ourheld-for-rental asset base from acquisitions and developments during 2005 and2006.

·                  Depreciationon tenant improvements increased by $4.5 million and lease commissionamortization increased by $1.9 million due to increased leasing activity.

Service Operations

Service Operationsprimarily consist of our merchant building sales and the leasing, management,construction and development services for joint venture properties andproperties owned by third parties. These operations are heavily influenced bythe current state of the economy, as leasing and management fees are dependentupon occupancy while construction and development services rely on theexpansion of business operations. In the first six months of 2006, we began toshift our resources from third party construction services to wholly ownedconstruction activities. Service Operations earnings decreased from $13.0million for the quarter ended June 30, 2005 to $3.5 million for the quarterended June 30, 2006, primarily as a result of the following:

·                  Ourmerchant building development and sales program, whereby a building isdeveloped and then sold, is generally a significant component of constructionand development income. During the second quarter of 2006, we did not sell anyproperties under this program, while we sold two properties in the second quarterof 2005 for a gain of $7.9 million.

·                 Excludingthe gains above, earnings from Service Operations decreased from $5.1 millionin the second quarter of 2005 to $3.5 million in the same period of 2006,largely as the result of a decrease in third party construction fees.

General and Administrative Expense

General andadministrative expenses totaled $7.0 million for each of the quarters endedJune 30, 2006 and 2005. General and administrative expenses are comprised oftwo components. The first is direct expenses that are not attributable tospecific assets such as legal fees, external audit fees, marketing costs,investor relations expenses and other corporate overhead. The second componentis the unallocated overhead costs associated with the operation of our ownedproperties and Service Operations, including construction, leasing andmaintenance operations. Those overhead costs not allocated to these operationsare charged to general and administrative expenses.  Despite an increase in our overall pool of overheadcosts, general and administrative expenses for the three months ended June 30,2006 were consistent with those for the three months ended June 30, 2005, dueto a corresponding increase in the allocation of these costs to wholly ownedconstruction and development activities.

Other Income and Expenses

Earnings from saleof land, net of impairment adjustments, are comprised of the following amountsfor the three months ended June 30, 2006 and 2005, respectively (in thousands):

|                                 | ** ** | **2006** | ** ** | **2005** | ** ** |
|---------------------------------|------------|----------|------------|----------|------------|
| Gain on land sales              |       | $        | 862        |     | $          | 3,309 |   |
| Impairment adjustment  for land |       | (308     | )          | (43      | )          |
| Total                           |       | $        | 554        |     | $          | 3,266 |   |

 

27

----

 

Gain on land salesis derived from sales of undeveloped land that we own. We sold only fourparcels of undeveloped land in the second quarter of 2006, compared to ten suchparcels in the second quarter of 2005, resulting in a decrease in gain onundeveloped land sales of $2.4 million between the two periods.  We pursue opportunities to dispose ofundeveloped land in markets with a high concentration of undeveloped land andthose markets where the land no longer meets our strategic development plans.

We recorded animpairment charge of approximately $308,000 in the second quarter of 2006associated with a land parcel that is scheduled to be sold later in theyear.  This compares to a $43,000impairment charge recorded in the second quarter of 2005 for two land parcelsthat were sold in 2005.

Discontinued Operations

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

We classified the operations of 250 buildings asdiscontinued operations as of June 30, 2006. These 250 buildings consist of 236industrial properties, 13 office properties and one retail property. As aresult, we classified net income from operations of $5.0 million as netincome from discontinued operations for each of the three months ended June 30,2006 and 2005. Of these properties, three were sold during the second quarterof 2006 and ten properties were sold during the second quarter of 2005. Thegains on disposal of these properties, net of impairment adjustment, of $1.5million and $5.1 million for the three months ended June 30, 2006 and 2005,respectively, are also reported in discontinued operations. The remaining 237properties consist of 224 properties sold in 2005, two properties sold in thefirst quarter of 2006 and 11 operating properties classified as held-for-saleat June 30, 2006. We also classified 35 buildings as held-for-sale, but havenot included these buildings in discontinued operations, based on our presentintention to sell the majority of our ownership interest in these properties toan entity in which we will retain a minority equity ownership interest.

**Comparison of Six Months Ended June 30, 2006 to Six Months Ended June30, 2005**

Rental Income From Continuing Operations

Overall, rentalincome from continuing operations increased from $318.0 million for the sixmonths ended June 30, 2005 to $392.8 million for the same period in 2006. Thefollowing table reconciles rental income from continuing operations byreportable segment to our total reported rental income from continuingoperations for the six months ended June 30, 2006 and 2005, respectively (inthousands):

|             | ** ** | **2006**    | ** **  | **2005** | ** ** |
|-------------|------------|-------------|-------------|----------|------------|
| Office      | ** ** | **$**       | **283,967** |     | $          | 232,639 |   |
| Industrial  | ** ** | **102,460** |        | 80,697   |       |
| Non-segment | ** ** | **6,399**   |        | 4,630    |       |
| Total       | ** ** | **$**       | **392,826** |     | $          | 317,966 |   |

 

28

----

 

The following factorscontributed to these results:

·                  Weacquired 52 properties and placed 18 developments in service from July 1, 2005to June 30, 2006. These acquisitions and developments are the primary factor inthe overall $74.9 million increase in rental revenue for the first six monthsin 2006, compared to the same period in 2005, as they provided revenues of$35.1 million in the first six months of 2006, including $29.3 million from thereal estate portfolios in the Washington D.C. area and Savannah, Georgia that wereacquired in 2006.

·                  Revenuesfor acquisitions and developments placed in service in the first six months of2005 increased by $18.2 million in the first six months of 2006.

·                  Leasetermination fees totaled $10.2 million for the first six months of 2006,compared to $2.9 million for the same period in 2005.

·                  Theremaining increase in rental revenues was attributable to our in-serviceoccupancy increasing from 90.7% at June 30, 2005 to 92.3% at June 30, 2006 aswell as from increases in our rental rates or rollover leases.

Equity in Earningsof Unconsolidated Companies

Equity in earningsdecreased from $20.9 million for the first half of 2005 to $18.0 million forthe same period in 2006. Our share of the gains on five joint venture buildingsales totaled $10.5 million in the first six months of 2006, compared to$11.2 million of gains recognized on three joint venture building salesfor the same period in 2005.

Rental Expensesand Real Estate Taxes

The followingtable reconciles rental expenses and real estate taxes by reportable segment toour total reported amounts in the statement of operations for the six monthsended June 30, 2006 and 2005, respectively (in thousands):

|                     | ** ** | **2006**   | ** ** | **2005** | ** ** |
|---------------------|------------|------------|------------|----------|------------|
| Rental Expenses:    |       |       |       |     |       |
| Office              | ** ** | **$**      | **77,217** |     | $          | 63,765 |   |
| Industrial          | ** ** | **13,647** |       | 11,278   |       |
| Non-segment         | ** ** | **305**    |       | 688      |       |
| Total               | ** ** | **$**      | **91,169** |     | $          | 75,731 |   |
|                | ** ** | ** ** |       |     |       |
| Real  Estate Taxes: | ** ** | ** ** |       |     |       |
| Office              | ** ** | **$**      | **32,425** |     | $          | 25,709 |   |
| Industrial          | ** ** | **12,033** |       | 9,976    |       |
| Non-segment         | ** ** | **2,742**  |       | 2,410    |       |
| Total               | ** ** | **$**      | **47,200** |     | $          | 38,095 |   |

 

Of the overallincrease in rental expenses and real estate taxes, $4.4 million and $2.7million, respectively, were attributable to properties acquired anddevelopments placed in service from July 1, 2005 to June 30, 2006, as notedabove. In addition, rental expenses and real estate taxes for acquisitions anddevelopments placed in service in the first six months of 2005 increased by$3.9 million and $3.0 million, respectively, in the same period of 2006, as aresult of having a full six months of operating activity on these properties.  The remaining increase in rental expenses isthe result of increased occupancy and inflationary factors and the remainingincrease to real estate taxes was driven by normal increases in assessments bymunicipal authorities.

29

----

 

Interest Expense

Interest expenseincreased from $58.4 million for the six months ended June 30, 2005 to $83.8million for the same period in 2006 due to an increase in secured debt and anincrease in borrowings and interest rates on our unsecured line of credit.  Our secured debt had a net increase of $858.7million from June 30, 2005 to June 30, 2006, which includes the $700 millionsecured term loan obtained in February 2006 to finance the acquisition of theMark Winkler Portfolio and the $210.1 million of mortgage loans assumed as partof this acquisition and the acquisition of the portfolio of industrial realestate properties in Savannah, Georgia. These financings resulted in $16.5 million of interest expense ($12.9 millionon the term loan and $3.6 million on the assumed mortgage loans) for thesix months ended June 30, 2006.

The outstandingbalance on our unsecured line of credit increased from $120 million at June 30,2005 to $670 million at June 30, 2006. This increase, combined with the increase in interest rates on the lineof credit, resulted in an increase in interest expense of $11.7 million for thesix months ended June 30, 2006 compared to the same period in 2005.

Depreciation andAmortization

Depreciation andamortization expense increased from $105.5 million for the first half of 2005to $124.2 million for the same period in 2006.

The followinghighlights the significant changes in depreciation expense for these timeperiods:

·                 Buildingdepreciation expense increased by $7.1 million due to increases in our held-for-rentalasset base from acquisitions and developments during 2005 and 2006.

·                 Depreciationon tenant improvements increased by $10.9 million and lease commissionamortization increased by $679,000 due to increased leasing activity.

Service Operations

Service Operationsprimarily consist of our merchant building sales and the leasing, management,construction and development services for joint venture properties andproperties owned by third parties. These operations are heavily influenced bythe current state of the economy, as leasing and management fees are dependentupon occupancy while construction and development services rely on theexpansion of business operations. In the first six months of 2006, we began toshift our resources from third party construction service to wholly ownedconstruction services. Service Operations earnings decreased from $24.9 millionfor the six months ended June 30, 2005 to $7.9 million for the six monthsended June 30, 2006, primarily as a result of the following:

·                  Ourmerchant building development and sales program, whereby a building isdeveloped and then sold, is generally a significant component of constructionand development income. During the first half of 2006, we did not sell anyproperties under this program, while we sold four properties in the first halfof 2005 for a gain of $12.4 million.

·                  Excludingthe gains above, earnings from Service Operations decreased from $12.3 millionin first half of 2005 to $7.8 million in the same period of 2006, largely as theresult of a decrease in third party construction fees from 2005 and a $2.7million non-recurring gain recognized in the first quarter of 2005 from thesale of our landscaping operations in 2001 that was deferred as a result offuture performance provisions contained in the original sale agreement. As aresult of contract renegotiations effective in the first quarter of 2005, allfuture performance provisions were removed and the gain was recognized.

30

----

 

General andAdministrative Expense

General and administrativeexpenses increased from $15.5 million for the six months ended June 30, 2005 to$20.9 million for the same period in 2006. General and administrative expenses are comprised of two components. Thefirst is direct expenses that are not attributable to specific assets such aslegal fees, external audit fees, marketing costs, investor relations expensesand other corporate overhead. The second component is the unallocated overheadcosts associated with the operation of our owned properties and ServiceOperations, including construction, leasing and maintenance operations. Thoseoverhead costs not allocated to these operations are charged to general andadministrative expenses. The overall increase in general and administrativeexpense is primarily the result of an increase in our overall pool of overheadcosts, to meet anticipated increases in leasing, development and constructionactivities, as well as a decrease in the amount of overhead costs allocated tothird party construction activities in the first quarter of 2006. As a resultof increased wholly owned construction and leasing activity in the secondquarter of 2006, a larger portion of the overall pool of overhead costs wasabsorbed by development and leasing projects rather than expensed as generaland administrative expenses.

Other Income and Expenses

Earnings from saleof land, net of impairment adjustments, are comprised of the following amountsfor the six months ended June 30, 2006 and 2005, respectively (in thousands):

|                                 | ** ** | **2006** | ** ** | **2005** | ** ** |
|---------------------------------|------------|----------|------------|----------|------------|
| Gain on land sales              | ** ** | **$**    | **2,753**  |     | $          | 3,486 |   |
| Impairment adjustment  for land | ** ** | **(308** | **)**      | (77      | )          |
| Total                           | ** ** | **$**    | **2,445**  |     | $          | 3,409 |   |

 

Gain on land sales is derived from sales ofundeveloped land that we own. We pursue opportunities to dispose of land inmarkets with a high concentration of undeveloped land and those markets wherethe land no longer meets our strategic development plans.

We recorded $308,000 and $77,000 of impairment chargeson land parcels for the six months ended June 30, 2006 and 2005, respectively.  The land parcel with the $308,000 impairmentis scheduled to be sold later in 2006. Both of the land parcels making up the $77,000 impairment adjustmentwere sold in 2005.

DiscontinuedOperations

We classified the operations of 250 buildings asdiscontinued operations as of June 30, 2006. These 250 buildings consist of 236industrial properties, 13 office properties and one retail property. As aresult, we classified net income from operations of $5.7 million and $10.9million as net income from discontinued operations for the six months endedJune 30, 2006 and 2005, respectively. Of these properties, five were soldduring the first six months of 2006 and 12 properties were sold during thefirst six months of 2005. The gains on disposal of these properties, net ofimpairment adjustment, of $2.0 million and $8.8 million for the six monthsended June 30, 2006 and 2005, respectively, are also reported in discontinuedoperations. The remaining 233 properties consist of 222 properties sold duringthe last six months of 2005 and 11 operating properties classified asheld-for-sale at June 30, 2006.  We alsoclassified 35 buildings as held-for-sale, but have not included these buildingsin discontinued operations, based on our present intention to sell the majorityof our ownership interest in these properties to an entity in which we willretain a minority equity ownership interest.

 

31

----

 

**Liquidity and Capital Resources**

Sources of Liquidity

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

·            working capital; and

·            net cash provided byoperating activities.

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

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

·            issuanceof additional General Partner equity, including common and preferred stock;

·            issuance of additionaldebt securities;

·            undistributed cashprovided by operating activities, if any; and

·            proceeds received fromreal estate dispositions.  

### *Rental Operations*

Webelieve that our principal source of liquidity, cash flows from RentalOperations, provides a stable source of cash to fund operational expenses. Webelieve that this cash-based revenue stream is substantially aligned withrevenue recognition (except for periodic straight-line rental income accrualsand amortization of above or below market rents) as cash receipts from theleasing of rental properties are generally received in advance of or in a shorttime following the actual revenue recognition.

Weare subject to risks of decreased occupancy through market conditions, as wellas tenant defaults and bankruptcies, and potential reduction in rental ratesupon renewal or re-letting of properties, which would result in reduced cashflow from operations. However, we believe that these risks are mitigated by ourrelatively strong market presence in most of our locations and the fact that weperform in-house credit review and analysis on major tenants and allsignificant leases before they are executed.

*Credit Facilities*

We had one unsecured line of credit available as ofJune 30, 2006, summarized as follows (dollars in thousands):
| ** **               | **Description** | ** ** | ** ** | **Borrowing  Capacity** | ** ** | **Maturity  Date** | ** ** | **Interest  Rate** | ** ** | **Outstanding Balance  at June 30, 2006** | ** ** |
|--------------------------|-----------------|------------|------------|-------------------------|------------|--------------------|------------|--------------------|------------|-------------------------------------------|------------|
| Unsecured Line of Credit |            | $1,000,000 |       | January 2010            |       | LIBOR + .525       | %          | $670,000           |       |

 

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

The line of credit provides us with an option to obtain borrowings fromfinancial institutions that participate in the line, at rates lower than thestated interest rate, subject to certain restrictions. Interest rates on theamounts outstanding on the unsecured line of credit as of June 30, 2006, rangedfrom LIBOR + .13% to LIBOR + .525% (equal to 5.28% to 5.88% as of June 30,2006).

32

----

 

The line of credit also contains financial covenants that require us tomeet financial ratios and defined levels of performance, including thoserelated to variable interest indebtedness, consolidated net worth anddebt-to-market capitalization. As of June 30, 2006, we were in compliance withall covenants under our line of credit.

*Debtand Equity Securities*

At June 30, 2006, we had on file with the SEC aneffective shelf registration statement that permits us to issue up to anadditional $350 million of unsecured debt securities.  In addition, the General Partner had on filewith the SEC an effective shelf registration statement that permits the GeneralPartner to issue up to an additional $6 million of common and preferredstock.  On July 31, 2006, we and theGeneral Partner filed with the SEC an automatic shelf registration statement onForm S-3, relating to the offer and sale, from time to time of an indeterminateamount of debt securities, common stock, preferred stock, depository shares andwarrants.  The shelf registrationstatement replaces our previous shelf registration statement filed with the SECin November 2004.  From time to time, weand the General Partner expect to issue additional securities under this newautomatic registration statement to fund development and acquisition ofadditional rental properties and to fund the repayment of the credit facilitiesand other long-term debt upon maturity.

The indenture governing our unsecured notes alsorequires us to comply with financial ratios and other covenants regarding ouroperations. We were in compliance with all such covenants as of June 30, 2006.

On July 21, 2006, the GeneralPartner announced that we had received the requisite consent of the holders ofcertain outstanding notes to amend the terms of the following series of our outstandingnotes:
| **CUSIP No.** | ** ** | ** ** | ** **  | **Principal Amount  Outstanding** | ** **                  | **Security Description** | ** ** | **Consent Payment  per $1,000** | ** ** |
|--------------------|------------|------------|-------------|----------------------------------------|-----------------------------|-------------------------------|------------|-------------------------------------------|------------|
| 264414AS2          |       | $          | 100,000,000 |                                   | 6.75% Notes due  5/30/2008  |                          | $          | 1.00                                      |       |
| 264414AT0          |       | $          | 125,000,000 |                                   | 6.80% Notes due  2/12/2009  |                          | $          | 2.50                                      |       |
| 26441YAC1          |       | $          | 150,000,000 |                                   | 7.75% Notes due  11/15/2009 |                          | $          | 2.50                                      |       |
| 26441YAE7          |       | $          | 175,000,000 |                                   | 5.25% Notes due 1/15/2010   |                          | $          | 2.50                                      |       |
| 26441YAD9          |       | $          | 175,000,000 |                                   | 6.95% Notes due  3/15/2011  |                          | $          | 3.75                                      |       |
| 264411AB5          |       | $          | 150,000,000 |                                   | 5.875% Notes due  8/15/2012 |                          | $          | 3.75                                      |       |
| 26441QAD6          |       | $          | 50,000,000  |                                   | 5.45% Notes due  10/1/2012  |                          | $          | 3.75                                      |       |
| 26441QAC8          |       | $          | 50,000,000  |                                   | 7.25% Notes due 6/15/2028   |                          | $          | 5.00                                      |       |

 

The purpose of theconsent solicitation was to obtain the consent of the holders of the securitiesto amend certain financial covenants governing the securities to make themconsistent with the financial covenants in each series of our notes issued onor after May 22, 2003.

*Sale ofReal Estate Assets*

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

33

----

Uses of Liquidity

Our principal uses of liquidity include the following:

·                 Propertyinvestments;

·                 Recurringleasing/capital costs;

·                 Distributions tounitholders;

·                 Long-term debtmaturities; and

·                 Other contractualobligations.

*PropertyInvestment*

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

*RecurringExpenditures*

One of ourprincipal uses of our liquidity is to fund the development, acquisition andrecurring leasing/capital expenditures of our real estate investments. Thefollowing is a summary of our recurring capital expenditures for the six monthsended June 30, 2006 and 2005, respectively, (in thousands):

|                        | ** ** | **2006** | ** ** | **2005** | ** ** |
|------------------------|------------|----------|------------|----------|------------|
| Tenant  improvements   |       | $        | 25,272     |     | $          | 29,948 |   |
| Leasing costs          |       | 6,217    |       | 16,346   |       |
| Building  improvements |       | 3,146    |       | 6,086    |       |
| Totals                 |       | $        | 34,635     |     | $52,380    |   |
|                        |            |          |            |          |            |  |  |

 

*DebtMaturities*

Debt outstandingat June 30, 2006 totaled $3.8 billion with a weighted average interest rate of5.87% maturing at various dates through 2028. We had $2.8 billion of unsecureddebt and  $1.1 billion of secured debtoutstanding at June 30, 2006. Scheduled principal amortization of such debttotaled $4.1 million for the six months ended June 30, 2006.

The following is asummary of the scheduled future amortization and maturities of our indebtednessat June 30, 2006 (in thousands, except percentage data):

|            | ** ** | **Future Repayments** | ** ** | ** **                  | ** ** |
|------------|------------|----------------------------|------------|-----------------------------|------------|
| **Year**   | ** ** | ** **                 | ** ** | **Scheduled  Amortization** | ** ** | **Maturities** | ** ** | **Total** | ** ** | **Weighted Average  Interest Rate of  Future Repayments** | ** ** |
| ** ** | ** ** | ** **                 | ** ** | ** **                  | ** ** | ** ** | ** ** | ** ** | ** ** |
| 2006       |       | $                          | 6,434      |                        | $          | 975,000 |   | $ | 981,434 |   | 5.79 | % |
| 2007       |       | 12,771                     |       | 214,615                     |       | 227,386 |   | 5.55 | % |
| 2008       |       | 12,185                     |       | 268,968                     |       | 281,153 |   | 5.05 | % |
| 2009       |       | 11,872                     |       | 275,000                     |       | 286,872 |   | 7.36 | % |
| 2010       |       | 11,675                     |       | 845,000                     |       | 856,675 |   | 5.57 | % |
| 2011       |       | 11,582                     |       | 187,139                     |       | 198,721 |   | 6.97 | % |
| 2012       |       | 9,487                      |       | 201,216                     |       | 210,703 |   | 5.90 | % |
| 2013       |       | 9,453                      |       | 150,000                     |       | 159,453 |   | 4.74 | % |
| 2014       |       | 9,347                      |       | 294,534                     |       | 303,881 |   | 6.44 | % |
| 2015       |       | 12,893                     |       | —                      |       | 12,893 |   | 7.19 | % |
| Thereafter |       | 35,567                     |       | 279,196                     |       | 314,763 |   | 6.08 | % |
|       |       | $                          | 143,266    |                        | $          | 3,690,668 |   | $ | 3,833,934 |   | 5.87 | % |
|            |            |                            |            |                             |            |  |  |  |  |  |  |  |  |  |

 

$700.0 million ofdebt maturing in 2006 relates to a secured loan used to finance acquisitionsmade in 2006.   The loan is expected tobe refinanced or repaid from the proceeds received from selling the majority ofour ownership interest in certain acquired properties to an entity in which wewill retain a continuing minority interest.

34

----

 

Historical Cash Flows

Cash and cash equivalentswere $7.0 million and $6.5 million at June 30, 2006 and 2005, respectively. Thefollowing highlights significant changes in net cash associated with ouroperating, investing and financing activities (in millions):

|                                            | ** ** | **Six Months Ended June 30,** | ** ** |
|--------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                 | ** ** | **2006**                                          | ** ** | **2005** | ** ** |
| Net Cash  Provided by Operating Activities |       | $                                                 | 90.4       |   | $ | 194.3 |   |
| Net Cash Used  for Investing Activities    |       | $                                                 | (1,155.9   | ) | $ | (370.7 | ) |
| Net Cash Provided by  Financing Activities |       | $                                                 | 1,045.6    |   | $ | 177.3 |   |

 

*Operating Activities*

Cash flows fromoperating activities provide the cash necessary for us to meet normaloperational requirements of our rental operations and merchant buildingactivities. The receipt of rental income from rental operations continues toprovide the primary source of our revenues and operating cash flows. Inaddition, we also develop buildings with the intent to sell them, whichprovides another significant source of operating cash flow activity.

·                  During the period ended June 30, 2006, weincurred merchant building development costs of $93.9 million, comparedto $37.9 million for the period ended June 30, 2005. The difference isreflective of the increased activity in our held-for-sale pipeline. Thepipeline of held-for-sale projects under construction as of June 30, 2006 hasanticipated future costs of $389.8 million.

·                  We sold four merchant buildings in the first sixmonths of 2005, recognizing after tax gains of $12.4 million.  We had no merchant building sales in thefirst six months of 2006.

*Investing Activities*

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

·                  Developmentcosts totaled $167.7 million for the period June 30, 2006, compared to $68.2million for the same period in 2005.  Theincreased development costs from 2005 is the result of our increased focus onwholly owned development activity in 2006.

·                  Duringthe first six months of 2006, we paid cash of $675.7 million for real estateacquisitions and $284.6 million for undeveloped land acquisitions, compared to$262.7 million for real estate acquisitions and $40.2 million for undevelopedland acquisitions in the same period of 2005. The most significant activity inthe first six months of 2006 consisted of the purchase of a portfolio ofsuburban office and light industrial properties and undeveloped land in theWashington, D.C. area for $865.6 million ($713.8 million paid in cash), aportfolio of industrial properties in Savannah, Georgia for $178.1 million($119.3 million paid in cash), the purchase of land held for industrial andoffice development in Baltimore, Maryland for $25.8 million and variousacquisitions of land held for retail development of $35.1 million.  The most significant activity in the firstsix months of 2005 was the acquisition of a five building office complex in ourChicago market for $257.0 million.

·                  Salesof land and depreciated property provided $29.7 million in net proceeds for theperiod ended June 30, 2006, compared to $70.6 million for the same period in2005.  In addition, we receiveddistributions of $21.2 million for our share of proceeds on the sales of landand depreciable property within three of our joint ventures. We continue todispose of non-strategic and older properties as part of our capital recyclingprogram to fund acquisitions and new development while improving the overallquality of our investment portfolio.

35

----

 

*FinancingActivities*

The following significantitems highlight fluctuations in net cash provided by financing activities:

·                  InJanuary 2006, we received approximately $177.7 million in net proceeds from theGeneral Partner’s issuance of its Series M Cumulative Redeemable preferredstock. This preferred stock was issued at a dividend yield of 6.95% perannum.  A portion of the net proceedsfrom the Series M preferred equity issuance was used to redeem the GeneralPartner’s $75.0 million of Series I preferred shares in February, which had an8.45% dividend rate per annum.

·                  InFebruary 2006, we obtained a $700.0 million secured term loan, which was pricedat LIBOR +.525%. The proceeds were used to finance the acquisition of the MarkWinkler Portfolio in the Washington, D.C. metropolitan area, and the loan issecured by these properties.

·                  InMarch 2006, we issued $150 million of 5.50% senior unsecured notes due in 2016.These notes were issued as part of an exchange of securities for $100 million6.72% puttable option reset securities, which we retired. The remaining cashproceeds were used to fund costs associated with the issuance of debt and torepay amounts outstanding under our line of credit.

·                  Duringthe first six months of 2006, we increased net borrowings on our $1 billionline of credit by $287.0 million. These borrowings were used to fund ourdevelopment and acquisition activity in the first six months of 2006.

·                  InJune 2006, we received approximately $106.3 million in net proceeds from theGeneral Partner’s issuance of its Series N Cumulative Redeemable PreferredShares.  This preferred stock bears adividend yield of 7.25% per annum.

Financial Instruments

We are exposed to capital market risk, such as changesin interest rates. In order to manage the volatility relating to interest raterisk, we may enter into interest rate hedging arrangements from time to time.We do not utilize derivative financial instruments for trading or speculativepurposes. We account for derivative instruments under Statement of FinancialAccounting Standards No. 133, *Accounting forDerivative Instruments and Hedging Activities* (“SFAS 133”), asamended.

In March 2005, we entered into $300 million of cashflow hedges through forward-starting interest rate swaps to hedge interestrates on $300 million of estimated debt offerings in 2006. The swaps qualifyfor hedge accounting under SFAS 133 with any changes in fair value recorded inAccumulated Other Comprehensive Income (“OCI”). The market value of theseinterest rate swaps is dependent upon existing market interest rates, whichchange over time. In March 2006, we issued $150 million of 5.5% seniorunsecured notes due 2016 and terminated a corresponding amount of the cash flowhedges designated for this transaction. The settlement amount paid ofapproximately $1 million will be recognized to earnings through interestexpense ratably over the life of the senior notes and the ineffective portionof the hedge was insignificant. At June 30, 2006, the estimated fair value ofthe remaining $150 million of swaps was approximately $5.2 million in an assetposition as the effective rates of the swaps were lower than current interestrates at June 30, 2006.

In August 2005, we entered into $300 million of cashflow hedges through forward-starting interest rate swaps to hedge interestrates on $300 million of estimated debt offerings in 2007. The swaps qualifyfor hedge accounting under SFAS 133 with any changes in fair value recorded inOCI. At June 30, 2006, the fair value of these swaps was approximately $21.7million in an asset position as the effective rates of the swaps were lowerthan current interest rates at June 30, 2006.

36

----

In June 2006, we entered into a $250 million cash flowhedge through an interest rate swap to fix the rate on $250 million ofpreviously floating rate debt which matures in December 2006. The swapqualifies for hedge accounting under SFAS 133 with any changes in fair valuerecorded in OCI.   At June 30, 2006, thefair value of this swap was approximately $25,000 in a liability position andthere was no ineffectiveness. Effectiveness of the hedge will be evaluated throughout its life usingthe hypothetical derivative method, under which the change in fair value of theactual swap designated as the hedging instrument is compared to the change inthe fair value of a hypothetical swap.

**Recent Accounting Pronouncements**

InApril 2006, the Financial Accounting Standards Board (“FASB”) issued FASB StaffPosition (“FSP”) FIN 46R-6, *Determining theVariability to Be Considered in Applying FASB Interpretation No. 46(R)*.  This FSP addresses certain implementationissues related to FASB Interpretation No. 46 (Revised December 2003), *Consolidation of Variable Interest Entities*.  Specifically, FSP FIN 46R-6 addresses how areporting enterprise should determine the variability to be considered inapplying FIN 46R.  The variability thatis considered in applying FIN 46R affects the determination of (a) whether anentity is a variable interest entity (“VIE”), (b) which interests are “variableinterests” in the VIE, and (c) which party, if any, is the primary beneficiaryof the VIE.

Thatvariability affects any calculation of expected losses and expected residualreturns, if such a calculation is necessary. We are required to apply the guidance in this FSP prospectively to allentities (including newly created entities) and to all entities previouslyrequired to be analyzed under FIN 46R when a “reconsideration event” hasoccurred, beginning July 1, 2006.  Wewill evaluate the impact of this Staff Position at the time any such “reconsiderationevent” occurs, and for any new entities.

In June 2006, the FASBissued Interpretation No. 48, *Accounting forUncertainty in Income Taxes*, *anInterpretation of FASB Statement No. 109*(“FIN 48”).  FIN 48 clarifies the accounting foruncertainty in income taxes recognized in a company’s financial statements andprescribes a recognition threshold and measurement attribute for the financialstatement recognition and measurement of a tax position taken or expected to betaken in a tax return.  TheInterpretation also provides guidance on description, classification, interestand penalties, accounting in interim periods, disclosure and transition.  FIN 48 becomes effective on January 1,2007.  Upon evaluation we have determinedthat the adoption of FIN 48 will not have a material effect on our financialstatements.

**Investments in Unconsolidated Companies**

We analyze ourinvestments in joint ventures under FASB Interpretation No. 46(R), *Consolidation of Variable Interest Entities (*“FIN46(R)”),**to determine if thejoint venture is a VIE and would require consolidation. To the extent that ourjoint ventures do not qualify as VIEs, we further assess under the guidelinesof EITF No. 04-5, *Determining Whether aGeneral Partner, or the General Partners as a Group, Controls a LimitedPartnership or Similar Entity when the Limited Partners Have Certain Rights*(“EITF 04-5”); Statement of Position 78-9, *Accountingfor Investments in Real Estate Ventures*; Accounting ResearchBulletin No.51, *Consolidated FinancialStatements* and FASB No. 94, *Consolidationof All Majority-Owned Subsidiaries*, to determine if the ventureshould be consolidated.

37

----

We have seven 50/50 jointventures with a medical office developer and one joint venture with a retaildeveloper to develop healthcare and retail facilities. Under the terms of theseventures, we provide the project financing and construction services, while ourpartners provide the business development, leasing and property management ofthe co-developed properties. We evaluated these partnerships under theguidelines of FIN 46(R) and determined that the joint ventures qualify VIEssubject to consolidation.  We are theprimary beneficiary as determined under FIN 46(R) and fully consolidate thejoint ventures.  At June 30, 2006, therewere seven properties under development and one property in service with thesejoint ventures. These properties total approximately 897,000 square feet and haveaggregate construction in-process and real estate investment balances of over$66.7 million that are consolidated into our balance sheet.

We have equity interestsin unconsolidated partnerships and joint ventures that own and operate rentalproperties and hold land for development. The equity method of accounting isused for these investments in which we have the ability to exercise significantinfluence, but not control, over operating and financial policies. As a result,the assets and liabilities of these joint ventures are not included on ourbalance sheet. Our investment in unconsolidated companies represents less than5% of our total assets as of June 30, 2006.

**Item3.  Quantitative and Qualitative Disclosure About Market Risk**

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

**Item4.  Controls and Procedures**

(a)   Evaluation of Disclosure Controls andProcedures

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

We carried out an evaluation, under the supervisionand with the participation of management, including the General Partner’s ChiefExecutive Officer and the General Partner’s Chief Financial Officer, of theeffectiveness of the design and operation of our disclosure controls andprocedures pursuant to Exchange Act Rules 13a-15 and 15d-15. Based upon theforegoing, the General Partner’s Chief Executive Officer and the GeneralPartner’s Chief Financial Officer concluded that, as of the end of the periodcovered by this Report, our disclosure controls and procedures are effective inall material respects.

(b)  Changesin Internal Control over Financial Reporting

During the six months ended June 30, 2006, there havebeen no changes in our internal control over financial reporting during theperiod covered by this report that have materially affected, or are reasonablylikely to materially affect, our internal control over financial reporting.

38

----

**PartII — Other Information**

**Item 1.   Legal Proceedings**

From time to time, we are parties to a variety oflegal proceedings and claims arising in the ordinary course of our businesses.While these matters generally are covered by insurance, there is no assurancethat our insurance will cover any particular proceeding or claim. We presentlybelieve that all of these proceedings to which we were subject as of June 30,2006, taken as a whole, will not have a material adverse effect on ourliquidity, business, financial condition or results of operations.

**Item 1A.   Risk Factors**

In addition to theinformation set forth in this Report, you also should carefully review andconsider the information contained in our other reports and periodic filingsthat we make with the SEC, including, without limitation, the informationcontained under the caption “Item 1A. Risk Factors” in our Annual Report onForm 10-K for the year ended December 31, 2005, and in our Quarterly Reports onForm 10-Q filed after the date of such Annual Report.  Those risk factors could materially affectour business, financial condition and results of operations.

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

**Item 2.   Unregistered Sales ofEquity Securities and Use of Proceeds**

**(a)   UnregisteredSales of Equity Securities**

None

**(b)   Useof Proceeds**

None

**(c)   IssuerPurchases of Equity Securities**

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

39

----

 

The followingtable shows the General Partner’s share repurchase activity for each of thethree months in the quarter ended June 30, 2006:
| ** **                | **Month** | ** ** | ** ** | **Total Number of  Shares  Purchases (1)** | ** ** | **Average Price  Paid per Share** | ** ** | **Total Number of   Shares Purchased as  Part of Publicly  Announced Plans orPrograms** | ** ** | **Maximum Number  (or Approximate  Dollar Value) of  Shares that May  Yet be Purchased  Under the Plans or  Programs (2)** | ** ** | ** ** |
|---------------------------|-----------|------------|------------|-----------------------------------------------------------|------------|--------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------|
| April 1 through  30, 2006 |      | 12,841     |       | $                                                         | 35.42      |                                             | 12,841     |                                                                                                                                 |       |                                                                                                                                                                                   |       |
| May 1 through  31, 2006   |      | 8,114      |       | $                                                         | 34.61      |                                             | 8,114      |                                                                                                                                 |       |                                                                                                                                                                                   |       |
| June 1 through  30, 2006  |      | 7,106      |       | $                                                         | 34.75      |                                             | 7,106      |                                                                                                                                 |       |                                                                                                                                                                                   |       |
| Total                     |      | 28,061     |       | $                                                         | 35.02      |                                             | 28,061     |                                                                                                                                 |       |                                                                                                                                                                                   |       |

----

(1) Includes 20,069common shares of the General Partner repurchased under its Employee StockPurchase Plan and 7,992 common shares swapped to pay the exercise price ofstock options.

(2) The number ofcommon shares of the General Partner that may yet be repurchased in the openmarket to fund shares purchased under the General Partner’s Employee StockPurchase Plan, as amended was 176,480 as of June 30, 2006. The approximatedollar value of common shares that may yet be purchased under the GeneralPartner’s Share Repurchase Program was $450.4 million as of June 30, 2006.

**Item 3.   Defaults upon SeniorSecurities**

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

**Item 4.   Submission of Mattersto a Vote of Security Holders**

On April 27, 2006,the General Partner held its 2006 annual meeting of shareholders (the “AnnualMeeting”). Our shareholders were asked to take action to (a) elect directors toserve on the board of directors until the General Partner’s annual meeting ofshareholders in 2007 and (b) ratify the appointment of KPMG LLP to serve as ourindependent auditors for the fiscal year ending December 31, 2006.

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

| NOMINEE                 | ** ** | **FOR**     | ** ** | **WITHHELD** | ** ** |
|-------------------------|------------|-------------|------------|--------------|------------|
| Barrington H. Branch    |       | 115,870,155 |       | 1,442,898    |       |
| Geoffrey Button         |       | 115,427,870 |       | 1,885,183    |       |
| William Cavanaugh III   |       | 115,852,328 |       | 1,460,725    |       |
| Ngaire E. Cuneo         |       | 114,399,013 |       | 2,914,040    |       |
| Charles R. Eitel        |       | 115,918,325 |       | 1,394,728    |       |
| Dr. R. Glenn Hubbard    |       | 115,722,092 |       | 1,540,961    |       |
| Dr. Martin C. Jischke   |       | 115,833,752 |       | 1,479,301    |       |
| L. Ben Lytle            |       | 115,134,055 |       | 2,178,998    |       |
| William O. McCoy        |       | 115,709,899 |       | 1,603,154    |       |
| Dennis D. Oklak         |       | 115,404,685 |       | 1,908,368    |       |
| Jack R. Shaw            |       | 115,870,626 |       | 1,442,427    |       |
| Robert J. Woodward, Jr. |       | 115,879,442 |       | 1,433,611    |       |

 

40

----

 

The holders of116,404,972 shares of the General Partner’s common stock voted **FOR** the ratification of the appointment ofKPMG LLP to serve as our independent auditors for the fiscal year endingDecember 31, 2006, the holders of 688,066 shares voted **AGAINST** such appointment and the holders of220,015 shares **ABSTAINED**fromvoting on such matters. As a result, this proposal was approved.

**Item 5.   Other Information**

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

**Item6.  Exhibits**

**(a)             Exhibits**
| Number | ** ** | **Description**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|--------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 1.1    |       | Terms Agreement, dated as of June 15, 2006, by and  among Duke Realty Corporation, Duke Realty Limited Partnership, and the  several underwriters named in the Terms Agreement (including the terms of the  related Underwriting Agreement attached as Annex A to the Terms Agreement and  made a part thereof) (filed as Exhibit 1.1 to the General Partner’s Current  Report on Form 8-K, as filed with the SEC on June 21, 2006, File No.  001-09044, and incorporated herein by this reference). |
|   |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 3.1    |       | Second Amended and Restated Agreement of Limited  Partnership of Duke Realty Limited Partnership (filed as Exhibit 4.1 to the  Partnership’s Current Report on Form 8-K, as filed with the SEC on July 16,  1999, File No. 000-20625, and incorporated herein by this reference).                                                                                                                                                                                                                    |
|   |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 3.2    |       | First Amendment to the Second Amended and Restated  Agreement of Limited Partnership of Duke Realty Limited Partnership (filed as  Exhibit 10.2 to the General Partner’s Annual Report on Form 10-K for the  fiscal year ended December 31, 2000, as filed with the SEC on March 28, 2001,  File No. 001-09044, and incorporated herein by this reference).                                                                                                                                          |
|   |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 3.3    |       | Second Amendment to the Second Amended and Restated  Agreement of Limited Partnership of Duke Realty Limited Partnership (filed as  Exhibit 10.3 to the General Partner’s Annual Report on Form 10-K for the  fiscal year ended December 31, 2001, as filed with the SEC on March 15, 2002,  File No. 001-09044, and incorporated herein by this reference).                                                                                                                                         |
|   |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 3.4    |       | Third Amendment to the Second Amended and Restated  Agreement of Limited Partnership of Duke Realty Limited Partnership (filed as  Exhibit 10.4 to the General Partner’s Annual Report on Form 10-K for the  fiscal year ended December 31, 2001, as filed with the SEC on March 15, 2002,  File No. 001-09044, and incorporated herein by this reference).                                                                                                                                          |
|   |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 3.5    |       | Fourth Amendment to the Second Amended and Restated  Agreement of Limited Partnership of Duke Realty Limited Partnership (filed as  Exhibit 10.5 to the General Partner’s Annual Report on Form 10-K for the  fiscal year ended December 31, 2001, as filed with the SEC on March 15, 2002,  File No. 001-09044, and incorporated herein by this reference).                                                                                                                                         |
|   |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 3.6    |       | Fifth Amendment to the Second Amended and Restated  Agreement of Limited Partnership of Duke Realty Limited Partnership (filed as  Exhibit 10.6 to the General Partner’s Annual Report on Form 10-K for the  fiscal year ended December 31, 2005, as filed with the SEC on March 7, 2006,  File No. 001-09044, and incorporated herein by this reference).                                                                                                                                           |
|   |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 3.7    |       | Sixth Amendment to the Second Amended and Restated  Agreement of Limited Partnership of Duke Realty Limited Partnership (filed as  Exhibit 10.7 to the General Partner’s Annual Report on Form 10-K for the  fiscal year ended December 31, 2005, as filed with the SEC on March 7, 2006,  File No. 001-09044, and incorporated herein by this reference).                                                                                                                                           |
|   |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 3.8    |       | Seventh Amendment to the Second Amended and Restated  Agreement of Limited Partnership of Duke Realty Limited Partnership (filed as  Exhibit 10.8 to the General Partner’s Annual Report on Form 10-K for the  fiscal year ended December 31, 2005, as filed with the SEC on March 7, 2006,  File No. 001-09044, and incorporated herein by this reference).                                                                                                                                         |
|   |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 3.9    |       | Eighth Amendment to the Second Amended and Restated  Agreement of Limited Partnership of Duke Realty Limited Partnership (filed as  Exhibit 3.1 to the Partnership’s Current Report on Form 8-K for the, as filed  with the SEC on February 6, 2006, File No. 000-20625, and incorporated herein  by this reference).                                                                                                                                                                                |

 

41

----

 
| 4.1    |   | Indenture, dated September 19, 1995, between Duke  Realty Limited Partnership and The First National Bank of Chicago, Trustee  (filed as Exhibit 4.1 to the General Partner’s Current Report on Form 8-K, as  filed with the SEC on September 22, 1995, File No. 001-09044, and  incorporated herein by this reference).                                                                |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                         |
| 4.2    |   | First Supplemental Indenture, dated September 19,  1995, between Duke Realty Limited Partnership and The First National Bank of  Chicago, Trustee (filed as Exhibit 4.2 to the General Partner’s Current  Report on Form 8-K, as filed with the SEC on September 22, 1995, File No.  001-09044, and incorporated herein by this reference).                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                         |
| 4.3    |   | Second Supplemental Indenture, dated April 29, 1996,  between Duke Realty Limited Partnership and The First National Bank of  Chicago, Trustee (filed as Exhibit 4 to the Partnership’s Current Report on  Form 8-K, as filed with the SEC on July 12, 1996, File No. 000-20625, and  incorporated herein by this reference).                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                         |
| 4.4    |   | Third Supplemental Indenture, dated May 13, 1997,  between Duke Realty Limited Partnership and The First National Bank of  Chicago, Trustee (filed as Exhibit 4 to the Partnership’s Current Report on  Form 8-K, as filed with the SEC on May 20, 1997, File No. 000-20625, and  incorporated herein by this reference).                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                         |
| 4.5    |   | Fourth Supplemental Indenture, dated August 21,  1997, between Duke Realty Limited Partnership and The First National Bank of  Chicago, Trustee (filed as Exhibit 4.8 to the General Partner’s Registration  Statement on Form S-4, as filed with the SEC on May 4, 1999, File No.  333-77645, and incorporated herein by this reference).                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                         |
| 4.6    |   | Fifth Supplemental Indenture, dated May 27, 1998,  between Duke Realty Limited Partnership and The First National Bank of Chicago,  Trustee (filed as Exhibit 4 to the Partnership’s Current Report on Form 8-K,  as filed with the SEC on June 1, 1998, File No. 000-20625, and incorporated  herein by this reference).                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                         |
| 4.7    |   | Sixth Supplemental Indenture, dated February 12,  1999, between Duke Realty Limited Partnership and The First National Bank of  Chicago, Trustee (filed as Exhibit 4 to the Partnership’s Current Report on  Form 8-K, as filed with the SEC on February 12, 1999, File No. 000-20625, and  incorporated herein by this reference).                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                         |
| 4.8    |   | Seventh Supplemental Indenture, dated June 18, 1999,  between Duke Realty Limited Partnership and The First National Bank of  Chicago, Trustee (filed as Exhibit 4 to the Partnership’s Current Duke Realty  Limited Partnership on Form 8-K, as filed with the SEC on June 29, 1999, File  No. 000-20625, and incorporated herein by this reference).                                  |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                         |
| 4.9    |   | Eighth Supplemental Indenture, dated November 16,  1999, between Duke Realty Limited Partnership and Bank One Trust Company,  N.A., Trustee (successor in interest to Bank One Trust Company, N.A.) (filed  as Exhibit 4 to the Partnership’s Current Report on Form 8-K, as filed with  the SEC on November 15, 1999, File No. 000-20625, and incorporated herein by  this reference). |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                         |
| 4.10   |   | Ninth Supplemental Indenture, dated March 5, 2001,  between Duke Realty Limited Partnership and Bank One Trust Company, N.A.,  Trustee (successor in interest to Bank One Trust Company, N.A.) (filed as  Exhibit 4 to the Partnership’s Current Report on Form 8-K, as filed with the  SEC on March 2, 2001, File No. 000-20625, and incorporated herein by this  reference).          |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                         |
| 4.11   |   | Tenth Supplemental Indenture, dated June 8, 2001,  between Duke Realty Limited Partnership and Bank One Trust Company, N.A.,  Trustee (successor in interest to Bank One Trust Company, N.A.) (filed as  Exhibit 4 to the Partnership’s Current Report on Form 8-K, as filed with the  SEC on August 13, 2001, File No. 000-20625, and incorporated herein by this  reference).         |

 

42

----

 
| 4.12       |   | Eleventh Supplemental Indenture, dated August 26,  2002, between Duke Realty Limited Partnership and Bank One Trust Company,  N.A., Trustee (successor in interest to Bank One Trust Company, N.A.) (filed  as Exhibit 4 to the Partnership’s Current Report on Form 8-K, as filed with  the SEC on August 26, 2002, File No. 000-20625, and incorporated herein by  this reference).                                                                                    |
|------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 4.13       |   | Twelfth Supplemental Indenture, dated January 16,  2003, between Duke Realty Limited Partnership and Bank One Trust Company,  N.A., Trustee (successor in interest to Bank One Trust Company, N.A.) (filed  as Exhibit 4 to the Partnership’s Current Report on Form 8-K, as filed with  the SEC on January 16, 2003, File No. 000-20625, and incorporated herein by  this reference).                                                                                   |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 4.14       |   | Thirteenth Supplemental Indenture, dated May 22,  2003, between Duke Realty Limited Partnership and Bank One Trust Company,  N.A., Trustee (successor in interest to Bank One Trust Company, N.A.) (filed  as Exhibit 4 to the Partnership’s Current Report on Form 8-K, as filed with  the SEC on May 22, 2003, File No. 000-20625, and incorporated herein by this  reference).                                                                                        |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 4.15       |   | Fourteenth Supplemental Indenture, dated October 24,  2003, between Duke Realty Limited Partnership and Bank One Trust Company,  N.A., Trustee (successor in interest to Bank One Trust Company, N.A.) (filed  as Exhibit 4 to the Partnership’s Current Report on Form 8-K, as filed with  the SEC on October 24, 2003, File No. 000-20625, and incorporated herein by  this reference).                                                                                |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 4.16       |   | Fifteenth Supplemental Indenture, dated January 7,  2004, between Duke Realty Limited Partnership and J.P. Morgan Trust Company,  National Association, Trustee (successor in interest to Bank One Trust  Company, N.A.) (filed as Exhibit 4 to the Partnership’s Current Report on  Form 8-K, as filed with the SEC on January 9, 2004, File No. 000-20625, and  incorporated herein by this reference).                                                                |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 4.17       |   | Sixteenth Supplemental Indenture, dated January 16,  2004, between Duke Realty Limited Partnership and J.P. Morgan Trust Company,  National Association, Trustee (successor in interest to Bank One Trust  Company, N.A.) (filed as Exhibit 4 to the Partnership’s Current Report on  Form 8-K, as filed with the SEC on January 23, 2004, File No. 000-20625, and  incorporated herein by this reference).                                                              |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 4.18       |   | Seventeenth Supplemental Indenture, dated August 16,  2004, between Duke Realty Limited Partnership and J.P. Morgan Trust Company,  National Association, Trustee (successor in interest to Bank One Trust  Company, N.A.) (filed as Exhibit 4 to the Partnership’s Current Report on  Form 8-K, as filed with the SEC on August 18, 2004, File No. 000-20625, and  incorporated herein by this reference).                                                              |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|  4.19 |   | Eighteenth Supplemental Indenture, dated December  22, 2004, between Duke Realty Limited Partnership and J.P. Morgan Trust  Company, National Association, Trustee (successor in interest to Bank One  Trust Company, N.A.) (successor in interest to Bank One Trust Company, N.A.),  (filed as Exhibit 4 to the Partnership’s Current Report on Form 8-K, as filed  with the SEC on December 23, 2004, File No. 000-20625, and incorporated  herein by this reference). |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 4.20       |   | Nineteenth Supplemental Indenture, dated as of March  1, 2006, between Duke Realty Limited Partnership and J.P. Morgan Trust  Company, National Association (successor in interest to Bank One Trust  Company, N.A.) (filed as Exhibit 4.1 to the Partnership’s Current Report on  Form 8-K, as filed with the SEC on March 3, 2006, File No. 000-20625, and  incorporated herein by this reference).                                                                    |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.1       |   | Amendment Three to the 2000 Performance Share Plan  of Duke-Weeks Realty Corporation, dated as of the 26th day of April, 2006 (filed as Exhibit 99.1 to  the General Partner’s Current Report on Form 8-K filed May 2, 2006, File No.  001-09044, and incorporated herein by this reference).                                                                                                                                                                       |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 11         |   | Statement Regarding Computation of Per Share  Earnings**                                                                                                                                                                                                                                                                                                                                                                                                                      |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 12.1       |   | Ratio of Earning to Combined Fixed Charges and  Preferred Stock Distributions.*                                                                                                                                                                                                                                                                                                                                                                                               |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 12.2       |   | Ratio of Earnings to Debt Service.*                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 31.1       |   | Rule 13a-14(a) Certification of the General  Partner’s Chief Executive Officer.*                                                                                                                                                                                                                                                                                                                                                                                         |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 31.2       |   | Rule 13a-14(a) Certification of the General  Partner’s Chief Financial Officer.*                                                                                                                                                                                                                                                                                                                                                                                         |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 32.1       |   | Section 1350 Certification of the General Partner’s  Chief Executive Officer.*                                                                                                                                                                                                                                                                                                                                                                                           |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 32.2       |   | Section 1350 Certification of the General Partner’s  Chief Financial Officer.*                                                                                                                                                                                                                                                                                                                                                                                           |

 

*Filed herewith.

**Data required by Statement of Financial AccountingStandard No. 128, *Earnings Per Share,*is provided in Note 6 to the condensed consolidated financial statementsincluded in this report.

 

43

----

 

**SIGNATURES**

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.
|                                   | **DUKE REALTY LIMITED PARTNERSHIP** |
|-----------------------------------|-------------------------------------|
|                              |                                |   |
|                              |                                |   |
|                              |                                |   |
| Date:   August 14, 2006 |                                | /s/         Dennis D. Oklak |
|                              |                                | Dennis D. Oklak  Chairman and Chief Executive Officer |
|                              |                                | of the General  Partner |
|                              |                                |   |
|                              |                                |   |
|                              |                                | /s/         Matthew A. Cohoat |
|                              |                                | Matthew A. Cohoat  Executive Vice President and |
|                              |                                | Chief Financial  Officer of the  General Partner |

 

----