**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C.  20549**

** **

**FORM 10-Q**

 

(Mark One)

**ý****        QUARTERLYREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**For thequarterly period ended September 30, 2001**

 

**OR**

 

**o****        TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**For thetransition period from __________ to ___________**.

 

**CommissionFile Number: 1-9044**

 

**DUKE REALTY LIMITED PARTNERSHIP**

 

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

 

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 the preceding12 months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 90 days.

 

Yes     ý     No    o

 

The number ofCommon Units outstanding as of October 31, 2001 was 17,580,718 ($.01 parvalue).

 

 

**DUKE REALTY LIMITED PARTNERSHIP**

 

**INDEX**

 
| **Part I -**                                                                                                                  | **Financial Information**                                                                       |
|-------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------|
|                                                                                                                          |                                                                                            |
| **Item 1.**                                                                                                                   | **Financial Statements**                                                                        |
|                                                                                                                          |                                                                                            |
| Condensed  Consolidated Balance Sheets as of September 30, 2001 (Unaudited) and December  31, 2000                            |
|                                                                                                                          |                                                                                            |
| Condensed  Consolidated Statements of Operations (Unaudited) for the three and nine  months ended September 30, 2001 and 2000 |
|                                                                                                                          |                                                                                            |
| Condensed  Consolidated Statements of Cash Flows (Unaudited) for the nine months ended  September 30, 2001 and 2000           |
|                                                                                                                          |                                                                                            |
| Condensed  Consolidated Statement of Partners’ Equity (Unaudited) for the nine months  ended September 30, 2001          |
|                                                                                                                          |                                                                                            |
| Notes  to Condensed Consolidated Financial Statements (Unaudited)                                                             |
|                                                                                                                          |                                                                                            |
| Independent  Accountants’ Review Report                                                                                  |
|                                                                                                                          |                                                                                            |
| **Item  2.**                                                                                                                  | **Management’s  Discussion and Analysis of Financial Condition and Results of Operations** |
|                                                                                                                          |                                                                                            |
| Part II -                                                                                                                     | Other Information                                                                               |
|                                                                                                                          |                                                                                            |
| Item 6.                                                                                                                       | Exhibits and  Reports on Form 8-K                                                               |
|                                                                                                                               |                                                                                                 |  |  |

**PARTI - FINANCIAL INFORMATION**

**Item1.  Financial Statements**

**DUKE REALTY LIMITED PARTNERSHIP**

**CondensedConsolidated Balance Sheets**

**(in thousands, except per unitamounts)**

 
|                                                                                      |   | **September 30,** | ** **    | **December 31,** |   |
|-------------------------------------------------------------------------------------------|--------|-------------------|---------------|------------------|--------|
| **ASSETS**                                                                                |   | **2001**          | ** **    | **2000**         |   |
|                                                                                      |   | **(Unaudited)**   | ** **    |             |   |
| Real estate investments:                                                                  |   |              | ** **    |             |   |
| Land and improvements                                                                     |   | **$**             | **566,278**   | ** **       | $      | 581,530 |   |
| Buildings and tenant improvements                                                         |   | **3,975,476**     | ** **    | 3,989,033        |   |
| Construction in progress                                                                  |   | **197,121**       | ** **    | 216,938          |   |
| Investments in unconsolidated companies                                                   |   | **330,132**       | ** **    | 367,581          |   |
| Land held for development                                                                 |   | **285,333**       | ** **    | 257,779          |   |
|                                                                                      |   | **5,354,340**     | ** **    | 5,412,861        |   |
| Accumulated depreciation                                                                  |   | **(396,186**      | **)**         | (338,426         | )      |
|                                                                                      |   |              | ** **    |             |   |
| Net real estate investments                                                               |   | **4,958,154**     | ** **    | 5,074,435        |   |
|                                                                                      |   |              | ** **    |             |   |
| Cash and cash equivalents                                                                 |   | **9,966**         | ** **    | 39,200           |   |
| Accounts receivable, net of allowance of $2,747 and  $1,540                               |   | **16,873**        | ** **    | 19,454           |   |
| Straight-line rent receivable, net of allowance of  $841 and $1,460                       |   | **39,971**        | ** **    | 34,512           |   |
| Receivables on construction contracts                                                     |   | **47,434**        | ** **    | 45,394           |   |
| Deferred financing costs, net of accumulated  amortization of $16,399 and $13,288         |   | **13,430**        | ** **    | 12,475           |   |
| Deferred leasing and other costs, net of accumulated  amortization of $38,440 and $31,522 |   | **94,336**        | ** **    | 102,413          |   |
| Escrow deposits and other assets                                                          |   | **123,916**       | ** **    | 133,350          |   |
|                                                                                      |   | **$**             | **5,304,080** | ** **       | $      | 5,461,233 |   |
| **LIABILITIES AND PARTNERS' EQUITY**                                                      |   |              | ** **    |             |   |
|                                                                                      |   |              | ** **    |             |   |
| Indebtedness:                                                                             |   |              | ** **    |             |   |
| Secured debt                                                                              |   | **$**             | **367,522**   | ** **       | $      | 466,624 |   |
| Unsecured notes                                                                           |   | **1,376,428**     | ** **    | 1,286,591        |   |
| Unsecured lines of credit                                                                 |   | **20,000**        | ** **    | 220,000          |   |
|                                                                                      |   | **1,763,950**     | ** **    | 1,973,215        |   |
|                                                                                      |   |              | ** **    |             |   |
| Construction payables and amounts due subcontractors                                      |   | **76,343**        | ** **    | 70,105           |   |
| Accounts payable                                                                          |   | **3,011**         | ** **    | 4,312            |   |
| Accrued expenses:                                                                         |   |              | ** **    |             |   |
| Real estate taxes                                                                         |   | **64,623**        | ** **    | 51,328           |   |
| Interest                                                                                  |   | **19,096**        | ** **    | 28,780           |   |
| Other                                                                                     |   | **43,716**        | ** **    | 61,028           |   |
| Other liabilities                                                                         |   | **114,315**       | ** **    | 88,542           |   |
| Tenant security deposits and prepaid rents                                                |   | **29,178**        | ** **    | 34,208           |   |
| Total liabilities                                                                         |   | **2,114,232**     | ** **    | 2,311,518        |   |
|                                                                                      |   |              | ** **    |             |   |
| Minority interest                                                                         |   | **2,888**         | ** **    | 2,117            |   |
|                                                                                      |   |              | ** **    |             |   |
| Partners’ equity:                                                                    |   |              | ** **    |             |   |
| General Partner                                                                           |   |              |          |             |   |
| Common equity                                                                             |   | **2,191,152**     | ** **    | 2,128,138        |   |
| Preferred equity (liquidation preference of $683,753)                                     |   | **583,448**       | ** **    | 586,261          |   |
|                                                                                      |   | **2,774,600**     | ** **    | 2,714,399        |   |
| Limited partners' common equity                                                           |   | **309,645**       | ** **    | 330,244          |   |
| Limited partners' preferred equity                                                        |   | **102,955**       | ** **    | 102,955          |   |
| Accumulated other comprehensive income                                                    |   | **(240**          | **)**         | -                |   |
| Total Partners' equity                                                                    |   | **3,186,960**     | ** **    | 3,147,598        |   |
|                                                                                      |   | **$**             | **5,304,080** | ** **       | $      | 5,461,233 |   |

 

See accompanyingNotes to Condensed Consolidated Financial Statements

 

**CondensedConsolidated Statements of Operations**

**For the three and nine months endedSeptember 30,**

**(in thousands, except per unitamounts)**

**(Unaudited)**

 
|                                                                 |   | **Three Months Ended** |        | **Nine Months Ended** |   |
|----------------------------------------------------------------------|--------|------------------------|-------------|-----------------------|--------|
|                                                                 |   | **2001**               | ** **  | **2000**              |   | **2001** | ** ** | **2000** |   |
| **RENTAL  OPERATIONS:**                                              |   |                   | ** **  |                  |   |   | ** ** |   |   |
| Revenues:                                                            |   |                   | ** **  |                  |   |   | ** ** |   |   |
| Rental income                                                        |   | **$**                  | **171,175** | ** **            | $      | 182,525 |   | **$** | **519,626** | ** ** | $ | 528,617 |   |
| Equity in earnings of unconsolidated companies                       |   | **7,024**              | ** **  | 3,235                 |   | **24,309** | ** ** | 10,285 |   |
|                                                                 |   | **178,199**            | ** **  | 185,760               |   | **543,935** | ** ** | 538,902 |   |
| Operating expenses:                                                  |   |                   | ** **  |                  |   |   | ** ** |   |   |
| Rental expenses                                                      |   | **31,089**             | ** **  | 30,322                |   | **91,593** | ** ** | 87,428 |   |
| Real estate taxes                                                    |   | **18,279**             | ** **  | 18,833                |   | **54,202** | ** ** | 56,417 |   |
| Interest expense                                                     |   | **28,042**             | ** **  | 36,376                |   | **86,326** | ** ** | 105,310 |   |
| Depreciation and amortization                                        |   | **38,282**             | ** **  | 41,875                |   | **116,591** | ** ** | 119,990 |   |
|                                                                 |   | **115,692**            | ** **  | 127,406               |   | **348,712** | ** ** | 369,145 |   |
|                                                                 |   |                   | ** **  |                  |   |   | ** ** |   |   |
| Earnings from rental operations                                      |   | **62,507**             | ** **  | 58,354                |   | **195,223** | ** ** | 169,757 |   |
|                                                                 |   |                   | ** **  |                  |   |   | ** ** |   |   |
| **SERVICE  OPERATIONS:**                                             |   |                   | ** **  |                  |   |   | ** ** |   |   |
| Revenues:                                                            |   | **4,758**              | ** **  | 5,937                 |   | **19,252** | ** ** | 18,202 |   |
| Property management, maintenance and leasing fees                    |   | **14,480**             | ** **  | 15,634                |   | **45,248** | ** ** | 41,581 |   |
| Construction and development activity income                         |   | **2,438**              | ** **  | 332                   |   | **3,125** | ** ** | 1,226 |   |
| Other income                                                         |   | **21,676**             | ** **  | 21,903                |   | **67,625** | ** ** | 61,009 |   |
|                                                                 |   |                   | ** **  |                  |   |   | ** ** |   |   |
|                                                                 |   |                   | ** **  |                  |   |   | ** ** |   |   |
| Operating expenses                                                   |   | **9,836**              | ** **  | 13,410                |   | **37,270** | ** ** | 36,187 |   |
|                                                                 |   |                   | ** **  |                  |   |   | ** ** |   |   |
| Earnings from service operations                                     |   | **11,840**             | ** **  | 8,493                 |   | **30,355** | ** ** | 24,822 |   |
|                                                                 |   |                   | ** **  |                  |   |   | ** ** |   |   |
| General and administrative expense                                   |   | **(1,437**             | **)**       | (5,825                | )      | **(10,152** | **)** | (15,499 | ) |
|                                                                 |   |                   | ** **  |                  |   |   | ** ** |   |   |
| Operating income                                                     |   | **72,910**             | ** **  | 61,022                |   | **215,426** | ** ** | 179,080 |   |
|                                                                 |   |                   | ** **  |                  |   |   | ** ** |   |   |
| **OTHER INCOME  (EXPENSE):**                                         |   |                   | ** **  |                  |   |   | ** ** |   |   |
| Interest income                                                      |   | **1,587**              | ** **  | 1,630                 |   | **4,589** | ** ** | 5,533 |   |
| Earnings from land and depreciated property dispositions             |   | **30,513**             | ** **  | 4,450                 |   | **43,176** | ** ** | 21,111 |   |
| Other expense                                                        |   | **(916**               | **)**       | (111                  | )      | **(2,283** | **)** | (361 | ) |
| Other minority interest in earnings of subsidiaries                  |   | **(727**               | **)**       | (697                  | )      | **(1,968** | **)** | (1,669 | ) |
|                                                                 |   |                   | ** **  |                  |   |   | ** ** |   |   |
| Net income                                                           |   | **103,367**            | ** **  | 66,294                |   | **258,940** | ** ** | 203,694 |   |
|                                                                 |   |                   | ** **  |                  |   |   | ** ** |   |   |
| Dividends on preferred units                                         |   | **(15,349**            | **)**       | (14,345               | )      | **(46,640** | **)** | (43,050 | ) |
|                                                                 |   |                   | ** **  |                  |   |   | ** ** |   |   |
| Net income available for common unitholders                          |   | **$**                  | **88,018**  | ** **            | $      | 51,949 |   | **$** | **212,300** | ** ** | $ | 160,644 |   |
|                                                                 |   |                   | ** **  |                  |   |   | ** ** |   |   |
| Net income per common unit:                                          |   |                   | ** **  |                  |   |   | ** ** |   |   |
| Basic                                                                |   | **$**                  | **.59**     | ** **            | $      | .36 |   | **$** | **1.44** | ** ** | $ | 1.10 |   |
| Diluted                                                              |   | **$**                  | **.58**     | ** **            | $      | .35 |   | **$** | **1.42** | ** ** | $ | 1.09 |   |
|                                                                 |   |                   | ** **  |                  |   |   | ** ** |   |   |
| Weighted average number of common units outstanding                  |   | **148,396**            | ** **  | 146,138               |   | **147,850** | ** ** | 145,662 |   |
|                                                                 |   |                   | ** **  |                  |   |   | ** ** |   |   |
| Weighted average number of common and dilutivepotential common units |   | **158,594**            |        | 147,916               |   | **151,623** |   | 147,217 |   |

 

See accompanyingNotes to Condensed Consolidated Financial Statements

** **

**CondensedConsolidated Statements of Cash Flows**

**For the nine months ended September30**

**(in thousands)**

**(Unaudited)**

 
|                                                                                                        |   | **2001**     |        | **2000**   |   |
|-------------------------------------------------------------------------------------------------------------|--------|--------------|-------------|------------|--------|
| Cash flows from operating activities:                                                                       |   |         | ** **  |       |   |
| Net income                                                                                                  |   | **$**        | **258,940** | ** ** | $      | 203,694 |   |
| Adjustments to reconcile net income to net cash provided by operating  activities:                          |   |         | ** **  |       |   |
| Depreciation of buildings and tenant improvements                                                           |   | **102,944**  | ** **  | 106,467    |   |
| Amortization of deferred leasing and other costs                                                            |   | **13,647**   | ** **  | 13,523     |   |
| Amortization of deferred financing costs                                                                    |   | **3,611**    | ** **  | 2,702      |   |
| Minority interest in earnings                                                                               |   | **1,968**    | ** **  | 1,669      |   |
| Straight-line rent adjustment                                                                               |   | **(9,316**   | **)**       | (12,819    | )      |
| Earnings from land and depreciated property dispositions                                                    |   | **(43,176**  | **)**       | (21,111    | )      |
| Construction contracts, net                                                                                 |   | **9,970**    | ** **  | (18,342    | )      |
| Other accrued revenues and expenses, net                                                                    |   | **17,890**   | ** **  | 25,718     |   |
| Equity in earnings in (excess)/shortfall of operating distributions  received from unconsolidated companies |   | **9,968**    | ** **  | (105       | )      |
| **Net cash  provided by operating activities**                                                              |   | **366,446**  | ** **  | 301,396    |   |
|                                                                                                        |   |         | ** **  |       |   |
| Cash flows from investing activities:                                                                       |   |         | ** **  |       |   |
| Development of real estate investments                                                                      |   | **(282,521** | **)**       | (409,428   | )      |
| Acquisition of real estate investments                                                                      |   | **(13,927**  | **)**       | (5,932     | )      |
| Acquisition of land held for development and infrastructure costs                                           |   | **(69,187**  | **)**       | (73,194    | )      |
| Recurring tenant improvements                                                                               |   | **(12,236**  | **)**       | (24,085    | )      |
| Recurring leasing costs                                                                                     |   | **(10,515**  | **)**       | (14,175    | )      |
| Recurring building improvements                                                                             |   | **(7,103**   | **)**       | (4,924     | )      |
| Other deferred leasing costs                                                                                |   | **(3,662**   | **)**       | (27,941    | )      |
| Other deferred costs and other assets                                                                       |   | **(17,986**  | **)**       | (9,548     | )      |
| Tax deferred exchange escrow, net                                                                           |   | **7,157**    | ** **  | 5,235      |   |
| Proceeds from land and depreciated property sales, net                                                      |   | **403,783**  | ** **  | 345,064    |   |
| Capital distributions from unconsolidated companies                                                         |   | **59,468**   | ** **  | -          |   |
| Advances from (to) unconsolidated companies                                                                 |   | **(16,196**  | **)**       | (24,891    | )      |
| **Net cash  provided by (used for)  investing  activities**                                            |   | **37,075**   | ** **  | (243,819   | )      |
|                                                                                                        |   |         | ** **  |       |   |
| Cash flows from financing activities:                                                                       |   |         | ** **  |       |   |
| Contributions from General Partner                                                                          |   | **106,173**  | ** **  | 21,842     |   |
| Proceeds from indebtedness                                                                                  |   | **175,000**  | ** **  | -          |   |
| Payments for redemption of preferred stock                                                                  |   | **(75,014**  | **)**       | -          |   |
| Payments on indebtedness including principal amortization                                                   |   | **(193,830** | **)**       | 240,026    |   |
| Borrowings/ (repayments) on lines of credit, net                                                            |   | **(195,975** | **)**       | (73,810    | )      |
| Distributions to partners                                                                                   |   | **(195,538** | **)**       | (176,231   | )      |
| Distributions to preferred unitholders                                                                      |   | **(47,208**  | **)**       | (43,050    | )      |
| Distributions to minority interest                                                                          |   | **(1,217**   | **)**       | (1,349     | )      |
| Deferred financing costs                                                                                    |   | **(5,146**   | **)**       | (2,400     | )      |
| **Net cash used  for financing activities**                                                                 |   | **(432,755** | **)**       | (34,972    | )      |
|                                                                                                        |   |         | ** **  |       |   |
| **Net increase  (decrease) in cash and cash equivalents**                                                   |   | **(29,234**  | **)**       | 22,605     |   |
|                                                                                                        |   |         | ** **  |       |   |
| Cash and cash equivalents at beginning of period                                                            |   | **39,200**   | ** **  | 18,514     |   |
| Cash and cash equivalents at end of period                                                                  |   | **$**        | **9,966**   | ** ** | $      | 41,119 |   |
|                                                                                                        |   |         | ** **  |       |   |
| Other non-cash  items:                                                                                      |   |         | ** **  |       |   |
| Assumption of  debt for real estate acquisitions                                                            |   | **$**        | **6,379**   | ** ** | $      | - |   |
| Contributions of  property to unconsolidated companies                                                      |   | **$**        | **15,812**  | ** ** | $      | - |   |
| Conversion of  Limited Partner Units to units                                                               |   | **$**        | **2,303**   | ** ** | $      | 6,806 |   |
| Issuance of  Limited Partner Units for real estate acquisitions                                             |   | **$**        | **2,487**   | ** ** | $      | 7,615 |   |
| Transfer of mortgage debt in sale of depreciated property                                                   |   | **$**        | **-**       | ** ** | $      | 72,650 |   |
| Issuance of Limited Partner Units for sale of depreciated property                                          |   | **$**        | **13,445**  | ** ** | $      | - |   |

 

See accompanyingNotes to Condensed Consolidated Financial Statements

 

**CondensedConsolidated Statement of Partners’ Equity**

**For the nine months ended September30, 2001**

**(in thousands,  except per unit data)**

**(Unaudited)**

 
|                                                                     |   |                 |          |          |       | **Limited**        |       | **Limited**   |        | **Accumulated**   |       |        |       |
|--------------------------------------------------------------------------|--------|----------------------|---------------|---------------|------------|--------------------|------------|---------------|-------------|-------------------|------------|-------------|------------|
|                                                                     |   | **General  Partner** | ** **    | **Partners'** | ** ** | **Partners’** | ** ** | **Other**     | ** **  |              |       |
|                                                                     |   | **Common**           |          | **Preferred** | ** ** | **Common**         | ** ** | **Preferred** | ** **  | **Comprehensive** | ** ** |        |       |
|                                                                     |   | **Equity**           |          | **Equity**    | ** ** | **Equity**         | ** ** | **Equity**    |        | **Income (Loss)** |       | **Total**   |       |
| **Balance at December 31, 2000**                                         |   | **$**                | **2,128,138** | ** **    | **$**      | **586,261**        | ** ** | **$**         | **330,244** | ** **        | **$**      | **102,955** | ** ** | **$** | **-** | ** ** | **$** | **3,147,598** | ** ** |
|                                                                     |   |                 |          |          |       |               |       |          |        |              |       |        |       |
| Comprehensive income:                                                    |   |                 |          |          |       |               |       |          |        |              |       |        |       |
|                                                                     |   |                 |          |          |       |               |       |          |        |              |       |        |       |
| Net income                                                               |   | 184,979              |          | 40,902        |       | 26,753             |       | 6,306         |        | -                 |       | 258,940     |       |
| Distributions to preferred unitholders                                   |   | -                    |          | (40,902       | )          | -                  |       | (6,306        | )           | -                 |       | (47,208     | )          |
| Transition adjustment resulting from adoption of FASB  No. 133           |   | -                    |          | -             |       | -                  |       | -             |        | 398               |       | 398         |       |
| Gains (losses) on derivative instruments                                 |   | -                    |          | -             |       | -                  |       | -             |        | (1,143            | )          | (1,143      | )          |
| Settlement of derivative instrument                                      |   | -                    |          | -             |       | -                  |       | -             |        | 505               |       | 505         |       |
|                                                                     |   |                 |          |          |       |               |       |          |        |              |       |        |       |
| Comprehensive income available for common unitholders                    |   |                 |          |          |       |               |       |          |        |              |       | 211,492     |       |
|                                                                     |   |                 |          |          |       |               |       |          |        |              |       |        |       |
| Capital contribution from General Partner                                |   | 35,058               |          | 72,235        |       | -                  |       | -             |        | -                 |       | 107,293     |       |
|                                                                     |   |                 |          |          |       |               |       |          |        |              |       |        |       |
| Acquisition of partnership  interest for common stock of General Partner |   | 12,359               |          | -             |       | (10,056            | )          | -             |        | -                 |       | 2,303       |       |
|                                                                     |   |                 |          |          |       |               |       |          |        |              |       |        |       |
| Acquisition of partnership interest for real estate  investments         |   | -                    |          | -             |       | (13,445            | )          | -             |        | -                 |       | (13,445     | )          |
|                                                                     |   |                 |          |          |       |               |       |          |        |              |       |        |       |
| Acquisition of property in exchange for Limited Partner  Units           |   | -                    |          | -             |       | 2,487              |       | -             |        | -                 |       | 2,487       |       |
|                                                                     |   |                 |          |          |       |               |       |          |        |              |       |        |       |
| General Partner’s redemption of Series A Preferred  stock           |   | -                    |          | (75,014       | )          | -                  |       | -             |        | -                 |       | (75,014     | )          |
|                                                                     |   |                 |          |          |       |               |       |          |        |              |       |        |       |
| Conversion of Series D Preferred equity to common units                  |   | 34                   |          | (34           | )          | -                  |       | -             |        | -                 |       | -           |       |
|                                                                     |   |                 |          |          |       |               |       |          |        |              |       |        |       |
| Retirement of common units                                               |   | (216                 | )             | -             |       | -                  |       | -             |        | -                 |       | (216        | )          |
|                                                                     |   |                 |          |          |       |               |       |          |        |              |       |        |       |
| Distributions to partners  ($1.31 per Common Unit)                  |   | (169,200             | )             | -             |       | (26,338            | )          | -             |        | -                 |       | (195,538    | )          |
|                                                                     |   |                 |          |          |       |               |       |          |        |              |       |        |       |
| **Balance at September 30, 2001**                                        |   | **$**                | **2,191,152** | ** **    | **$**      | **583,448**        | ** ** | **$**         | **309,645** | ** **        | **$**      | **102,955** | ** ** | **$** | **(240** | **)** | **$** | **3,186,960** | ** ** |
|                                                                     |   |                 |          |          |       |               |       |          |        |              |       |        |       |
| **Common units outstanding at  September 30, 2001**                      |   | **130,236**          | ** **    |          | ** ** | **17,957**         |       |          |        |              |       | **148,193** |       |

 

See accompanyingNotes to Condensed Consolidated Financial Statements

 

**DUKE REALTY LIMITED PARTNERSHIP**

**NOTESTO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

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

 

The interimcondensed consolidated financial statements included herein have been preparedby Duke Realty Limited Partnership (the “Partnership”) without audit. Thefinancial statements have been prepared in accordance with accountingprinciples generally accepted in the United States of America for interimfinancial information and in accordance with Rule 10-01 of Regulation S-X.Accordingly, they do not include all of the information and footnotes requiredby accounting principles generally accepted in the United States of America forcomplete financial statements. In the opinion of management, all adjustments(consisting of normal recurring adjustments) considered necessary for a fairpresentation have been included. These financial statements should be read inconjunction with the consolidated financial statements and notes theretoincluded in the General Partner’s 2000 Annual Report to Shareholders.

 

**The Partnership**

 

The Partnership was formed on October 4, 1993, when the General Partnercontributed all of its properties and related assets and liabilities along withthe net proceeds from the issuance of an additional 14,000,833 shares through acommon stock offering to the Partnership. Simultaneously, the Partnershipcompleted the acquisition of Duke Associates, a full-service commercial realestate firm operating in the Midwest. The General Partner was formed in 1985and qualifies as a real estate investment trust under provisions of theInternal Revenue Code. The General Partner is the sole general partner of thePartnership and owns 87.4% of the Partnership at September 30, 2001. The remaininglimited partnership interest (“Limited Partner Units”) (together with the unitsof general partner interests, the (“Common Units”)) are mainly owned by theprevious partners of Duke Associates. The Limited Partner Units areexchangeable for shares of the General Partner’s common stock on a one-for-onebasis subject generally to a one-year holding period. The General Partnerperiodically acquires a portion of the minority interest in the Partnershipthrough the issuance of shares of common stock for a like number of CommonUnits. The acquisition of the minority interest is accounted for under thepurchase method with assets acquired recorded at the fair market value of theGeneral Partner's common stock on the date of acquisition.

 

The service operations are conducted through Duke Realty ServicesLimited Partnership and Duke Construction Limited Partnership, in which thePartnership has an 89% profits interest (after certain preferred returns onpartners’ capital accounts) and effective control of their operations. Theconsolidated financial statements include the accounts of the Partnership andits majority-owned or controlled subsidiaries. The equity interests in these majority-owned or controlled subsidiariesnot owned by the Partnership are reflected as minority interests in theconsolidated financial statements.

 

**Reclassifications**

 

Certain2000 balances have been reclassified to conform to 2001 presentation.

 

**2.            Linesof Credit**

 

The Partnershiphas the following lines of credit available:

 
|                      |   | **Borrowing**       |    |         |          |         |        | **Outstanding**           |   |
|---------------------------|--------|---------------------|---------|--------------|---------------|--------------|-------------|---------------------------|--------|
|                      |   | **Capacity**        |    | **Maturity** |          | **Interest** |        | **at September 30, 2001** |   |
| **Description**           |   | **(in 000’s)** |    | **Date**     |          | **Rate**     |        | **(in 000’s)**       |   |
| Unsecured Line  of Credit |   | $                   | 500,000 |         | February 2004 |         | LIBOR + .65 | %                         | $      | 20,000 |   |
| Unsecured Line  of Credit |   | 150,000             |    | July 2002    |          | LIBOR + .675 | %           | 0                         |   |
| Secured Line of  Credit   |   | 150,000             |    | January 2003 |          | LIBOR + 1.05 | %           | 56,683                    |   |
|                           |        |                     |         |              |               |              |             |                           |        |  |  |

 

Thelines of credit are used to fund development activities, to acquire additionalrental properties and to provide working capital.

 

The$500 million line of credit allows the Partnership an option to obtainborrowings from the financial institutions that participate in the line ofcredit at rates lower than the stated interest rate, subject to certainrestrictions. Amounts outstanding on the line of credit at September 30, 2001,bear interest at LIBOR + .65%.

 

**3.            RelatedParty Transactions**

 

The Partnershipprovides management, maintenance, leasing, construction and other tenantrelated services to properties in which certain executive officers havecontinuing ownership interests. The Partnership was paid fees totaling $1.3million and $1.7 million for such services for the nine months ended September30, 2001 and 2000, respectively. Management believes the amounts that thePartnership was paid for such services are equivalent to those that anunrelated third party would pay in the market. The Partnership has an option topurchase the executive officers' interest in each of these properties whichexpires October 2003. The option price of each property was established at thedate the option was granted.

 

In August 2001, aspart of a severance agreement between the Partnership and a former executive,the Partnership sold seven buildings totaling approximately 557,000 square feetand 5.5 acres of undeveloped land to the former executive for $31.3 million.The Partnership received approximately $17.9 million in cash and $13.4 millionin Limited Partnership Units that were previously held by the former executive.The sales price was based upon the market value of the buildings and land.

 

**4.            Net Income Per Common Unit**

 

Basic net income per common unit is computed by dividing net incomeavailable for common unitholders by the weighted average number of common unitsoutstanding for the period. Diluted net income per unit is computed by dividingnet income available for common unitholders by the sum of the weighted averagenumber of common units outstanding and dilutive potential common units for theperiod.

 

The following table reconciles the components of basic and diluted netincome per common unit for the three and nine months ended September 30 (inthousands):

 
|                                                                           |   | **Three Months  Ended** |       | **Nine months  Ended** |   |
|--------------------------------------------------------------------------------|--------|-------------------------|------------|------------------------|--------|
|                                                                           |   | **September 30,**       |       | **September 30,**      |   |
|                                                                           |   | **2001**                |       | **2000**               |   | **2001** |   | **2000** |   |
| Net income available for common unitholders                                    |   | **$**                   | **88,018** |                   | $      | 51,949 |   | **$** | **212,300** |   | $ | 160,644 |   |
| Joint venture partner convertible ownership net income                         |   | **810**                 |       | -                      |   | **2,476** |   | - |   |
| Series D Convertible Preferred equity accrued dividend                         |   | **2,466**               |       | -                      |   | **-** |   | - |   |
| Series G Convertible Preferred units accrued dividend                          |   | **700**                 |       | -                      |   | **-** |   | - |   |
| Diluted net income available for common unitholders                            |   | **$**                   | **91,994** |                   | $      | 51,949 |   | **$** | **214,776** |   | $ | 160,644 |   |
|                                                                           |   |                    |       |                   |   |   |   |   |   |
| Weighted average common partnership units outstanding                          |   | **148,396**             |       | 146,138                |   | **147,850** |   | 145,662 |   |
| Joint venture partner convertible ownership common  share equivalents          |   | **2,025**               |       | -                      |   | **2,086** |   | - |   |
| Series D Convertible Preferred common share  equivalents                       |   | **5,011**               |       | -                      |   | **-** |   | - |   |
| Series G Convertible Preferred units common share  equivalents                 |   | **1,445**               |       | -                      |   | **-** |   | - |   |
| Dilutive shares for long-term compensation plans                               |   | **1,717**               |       | 1,778                  |   | **1,687** |   | 1,555 |   |
| Weighted average number of common shares and dilutive  potential common shares |   | **158,594**             |       | 147,916                |   | **151,623** |   | 147,217 |   |

 

The Series D Convertible Preferred equity and the Series G Preferredlimited partner units were dilutive for the three months ended September 30,2001; therefore, conversion to common units is included in weighted dilutivepotential common units. The dilutive effect is the result of net income for thethree months ended September 30, 2001, being significantly higher due to thesignificant gain on depreciated property sales for the quarter. The effect onpreferred equity and units was anti-dilutive for the nine months endedSeptember 30, 2001; therefore, no conversion to common units is included indilutive potential common units.

 

A joint venture partner in one of the Partnership's unconsolidatedventures has the option to convert a portion of its ownership to the GeneralPartner’s common shares. The effects of the option on earnings per unit wasdilutive for the three months and the nine months ended September 30, 2001;therefore, conversion to common units is included in weighted dilutivepotential common units.

 

**5.            SegmentReporting**

 

ThePartnership is engaged in four operating segments: the ownership and rental ofoffice, industrial and retail real estate investments (“Rental Operations”) andthe providing of various real estate services such as property management,maintenance, leasing, development and construction management to third-partyproperty owners  (“Service Operations”).The Partnership’s reportable segments offer different products or services andare managed separately because each requires different operating strategies andmanagement expertise. There are no material intersegment sales or transfers.

 

Non-segmentrevenue to reconcile to total revenue consists mainly of equity in earnings ofunconsolidated companies. Non-segment assets to reconcile to total assetsconsist of corporate assets including cash, deferred financing costs andinvestments in unconsolidated companies. Interest expense and othernon-property specific revenues and expenses are not allocated to individualsegments in determining the Partnership’s performance measure.

 

The Partnershipassesses and measures segment operating results based on industry performancemeasures referred to as Funds From Operations (“FFO”). The National Associationof Real Estate Investment Trusts defines FFO as net income or loss, excludinggains or losses from debt restructuring and sales of depreciated operatingproperty, plus operating property depreciation and amortization and adjustmentsfor minority interest and unconsolidated companies on the same basis. FFO isnot a measure of operating results or cash flows from operating activities asmeasured by generally accepted accounting principles, is not necessarilyindicative of cash available to fund cash needs and should not be considered analternative to cash flows as a measure of liquidity.

 

The revenues andFFO for each of the reportable segments for the three and nine months endedSeptember 30, 2001 and 2000, and the assets for each of the reportable segmentsas of September 30, 2001 and December 31, 2000, are summarized as follows (inthousands):

 

 
|                                                |       | **Three Months Ended September 30,** |        | **Nine months Ended September 30,** |       |
|-----------------------------------------------------|------------|--------------------------------------|-------------|-------------------------------------|------------|
|                                                |       | **2001**                             |        | **2000**                            |       | **2001** |   | **2000** |   |
| Revenues                                            | ** ** |                                 | ** **  |                                | ** ** |   | ** ** |   | ** ** |
| Rental Operations:                                  |       |                                 |        |                                |       |   |   |   |   |
| Office                                              | ** ** | **$**                                | **95,335**  |                                | $          | 85,183 | ** ** | **$** | **284,147** |   | $ | 248,793 |   |
| Industrial                                          | ** ** | **71,965**                           |        | 88,185                              | ** ** | **218,117** |   | 256,032 |   |
| Retail                                              | ** ** | **3,617**                            |        | 7,659                               | ** ** | **17,200** |   | 22,325 |   |
| Service Operations                                  | ** ** | **21,676**                           |        | 21,903                              | ** ** | **67,625** |   | 61,009 |   |
| Total Segment Revenues                              | ** ** | **192,593**                          |        | 202,930                             | ** ** | **587,089** |   | 588,159 |   |
| Non-Segment Revenue                                 | ** ** | **7,282**                            |        | 4,733                               | ** ** | **24,471** |   | 11,752 |   |
| Consolidated Revenue                                | ** ** | **$**                                | **199,875** |                                | $          | 207,663 | ** ** | **$** | **611,560** |   | $ | 599,911 |   |
|                                                |       |                                 |        |                                |       |   |   |   |   |
| Funds From  Operations                              |       |                                 |        |                                |       |   |   |   |   |
| Rental Operations:                                  |       |                                 |        |                                |       |   |   |   |   |
| Office                                              | ** ** | **$**                                | **63,448**  |                                | $          | 57,274 | ** ** | **$** | **191,300** |   | $ | 168,825 |   |
| Industrial                                          | ** ** | **56,083**                           |        | 69,176                              | ** ** | **169,042** |   | 199,426 |   |
| Retail                                              | ** ** | **2,882**                            |        | 6,165                               | ** ** | **14,  090** |   | 17,883 |   |
| Services Operations                                 | ** ** | **11,841**                           |        | 8,493                               | ** ** | **30,355** |   | 24,822 |   |
| Total Segment FFO                                   | ** ** | **134,254**                          |        | 141,108                             | ** ** | **404,787** |   | 410,956 |   |
|                                                |       |                                 |        |                                |       |   |   |   |   |
| Non-Segment FFO:                                    |       |                                 |        |                                |       |   |   |   |   |
| Interest expense                                    | ** ** | **(28,042**                          | **)**       | (36,376                             | )          | **(86,326** | **)** | (105,310 | ) |
| Interest income                                     | ** ** | **1,587**                            | ** **  | 1,630                               |       | **4,589** | ** ** | 5,533 |   |
| General and administrative expense                  | ** ** | **(1,437**                           | **)**       | (5,825                              | )          | **(10,152** | **)** | (15,499 | ) |
| Gain on land sales                                  | ** ** | **1,082**                            | ** **  | 2,612                               |       | **4,402** | ** ** | 6,525 |   |
| Other revenues and expenses,net                     | ** ** | **(1,499**                           | **)**       | 563                                 |       | **(2,914** | **)** | (2,157 | ) |
| Other minority interest in earnings of subsidiaries | ** ** | **(727**                             | **)**       | (697                                | )          | **(1,968** | **)** | (1,669 | ) |
| Joint venture FFO                                   | ** ** | **11,506**                           | ** **  | 5,298                               |       | **34,258** | ** ** | 15,751 |   |
| Dividends on preferred units                        | ** ** | **(15,349**                          | **)**       | (14,345                             | )          | **(46,640** | **)** | (43,050 | ) |
| Consolidated FFO                                    | ** ** | **$**                                | **101,375** | ** **                          | $          | 93,968 |   | $ | **300,036** | ** ** | $ | 271,080 |   |
|                                                |       |                                 | ** **  |                                |       |   | ** ** |   |   |
| Depreciation and amortization                       | ** ** | **(38,282**                          | **)**       | (43,314                             | )          | **(116,591** | **)** | (121,429 | ) |
| Share of joint venture adjustments                  | ** ** | **(4,506**                           | **)**       | (1,982                              | )          | **(9,919** | **)** | (5,032 | ) |
| Earnings from depreciated property sales            | ** ** | **29,431**                           |        | 3,277                               | ** ** | **38,774** |   | 16,025 |   |
|                                                |       |                                 |        |                                |       |   |   |   |   |
| Net Income Available for Common  Unitholders        | ** ** | **$**                                | **88,018**  |                                | $          | 51,949 | ** ** | **$** | **212,300** |   | $ | 160,644 |   |

 
|                 |       | **September 30,** |          | **December 31,** |       |
|----------------------|------------|-------------------|---------------|------------------|------------|
|                 |       | **2001**          | ** **    | **2000**         | ** ** |
| Assets               |       |              |          |             |       |
| Rental Operations:   |       |              |          |             |       |
| Office               | ** ** | **$**             | **2,572,169** |             | $          | 2,473,191 |   |
| Industrial           | ** ** | **2,146,208**     |          | 2,265,237        |       |
| Retail               | ** ** | **6****3,552**    |          | 186,389          |       |
| Service Operations   | ** ** | **142,353**       |          | 128,249          |       |
| Total Segment Assets | ** ** | **4,924,282**     |          | 5,053,066        |       |
| Non-Segment Assets   | ** ** | **379,798**       |          | 408,167          |       |
| Consolidated Assets  | ** ** | **$**             | **5,304,080** |             | $          | 5,461,233 |   |
|                      |            |                   |               |                  |            |  |  |  |

 

**6.            RealEstate Assets Held for Sale**

 

In order to redeploy capital, the Partnership has anactive sales program through which it continually pursues favorableopportunities to dispose of real estate assets that no longer meet long-terminvestment objectives of the Partnership. At September 30, 2001, thePartnership held for sale six industrial properties, three office propertiesand one retail property comprising approximately 2.6 million square feet heldfor sale. Of these properties, three build-to-suit office, four build-to-suitindustrial and one build-to-suit retail properties were under development at September30, 2001. Net operating income (defined as total property revenues lessproperty expenses, which include real estate taxes, repairs and maintenance,property management, utilities, insurance and other expenses) of the propertiesheld for sale for the nine months ended September 30, 2001 and 2000, isapproximately $1.7 million and $1.5 million, respectively. Net book value ofthe properties held for sale at September 30, 2001, is $63.6 million. There canbe no assurances that such properties will be sold.

 

In August 2001, the Partnership sold $159.0 million ofits retail portfolio in a single transaction. The transaction consisted of 19retail buildings totaling more than 1.7 million square feet and one vacant lot.The buildings were approximately 95% leased and provided approximately $16.7million of net operating income per year.

 

**7.            Partners’Equity**

 

The following series of preferred equity areoutstanding as of September 30, 2001 (in thousands, except percentages):

 
|                |       | **Units**       |       | **Dividend** |       | **Redemption**      |       | **Liquidation** |       |            |       |
|---------------------|------------|-----------------|------------|--------------|------------|---------------------|------------|-----------------|------------|-----------------|------------|
| **Description**     | ** ** | **Outstanding** | ** ** | **Rate**     | ** ** | **Date**            | ** ** | **Preference**  | ** ** | **Convertible** | ** ** |
| Series  B Preferred |       | 300             |       | 7.990        | %          | September  30, 2007 |       | 150,000         |       | No              |       |
| Series  D Preferred |       | 535             |       | 7.375        | %          | December  31, 2003  |       | 133,689         |       | Yes             |       |
| Series  E Preferred |       | 400             |       | 8.250        | %          | January  20, 2004   |       | 100,000         |       | No              |       |
| Series  F Preferred |       | 600             |       | 8.000        | %          | October  10, 2002   |       | 150,000         |       | No              |       |
| Series  I Preferred |       | 300             |       | 8.450        | %          | February  1, 2006   |       | 75,000          |       | No              |       |

 

All series ofpreferred equity require cumulative distributions, have no stated maturitydate, and the redemption price of each series may only be paid from theproceeds of other capital shares of the General Partner, which may includeother classes or series of preferred equity.

 

The Series IPreferred equity was issued in February 2001.

 

The Series DPreferred equity is convertible at a conversion rate of 9.3677 common units foreach preferred unit outstanding.

 

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

 

The GeneralPartner redeemed the Series A Preferred equity in August 2001.

 

**8.            DerivativeInstruments**

 

The Partnershipadopted Statement of Financial Accounting Standards (“SFAS”) No. 133"Accounting for Derivative Instruments and Hedging Activities” (“SFAS133”) as amended by SFAS No. 137 and No. 138 on January 1, 2001. SFAS 133requires that all derivative instruments be recorded on the balance sheet attheir fair value. Gains or losses resulting from changes in the values of thosederivatives would be accounted for depending on the use of the derivative andwhether it qualifies for hedge accounting. The Partnership uses derivativefinancial instruments such as interest rate swaps to mitigate its interest raterisk on a related financial instrument. SFAS 133 requires that changes in fairvalue of derivatives that qualify as cash flow hedges be recognized in othercomprehensive income while the ineffective portion of the derivative's changein fair value be recognized immediately in earnings.

 

One of thePartnership's interest rate swap contracts did not meet the criteria of SFAS133 to qualify for hedge accounting. SFAS 133 requires that unrealized gainsand losses on derivatives not qualifying as hedge accounting be recognizedcurrently in earnings. The cumulative effect of a change in accountingprinciple due to the adoption of SFAS 133 as of January 1, 2001, was $398,000and was recorded in accumulated other comprehensive income as a transitionadjustment. As of September 30, 2001, the Partnership recorded a net loss of$1.4 million in other expense due to the interest rate swap contract notqualifying for hedge accounting.

 

The Partnership had three interest rate swaps that qualified for hedgeaccounting under SFAS No. 133. All three were tied to an $85 million unsecuredterm loan to fix the interest rate. Any change in fair values on these swapswas recognized in other comprehensive income. In July 2001, the Partnershippaid off the term loan and terminated the three swaps. The cost to terminatethe swaps was $505,000, which was recorded as interest expense and reversed outof other comprehensive income.

 

**9.            RecentAccounting Pronouncements**

 

In July 2001, the Financial Accounting Standards Board (or FASB) issuedSFAS No. 141, *Business Combinations*.SFAS 141 requires the purchase method of accounting for business combinationsinitiated after July 30, 2001, and eliminates the pooling-of-interests method.The Partnership does not believe that the adoption of SFAS 141 will have asignificant impact on its financial statements.

 

In July 2001, FASB issued SFAS No., 142, *Goodwilland Other Intangible Assets,* which is effective January 1, 2002.SFAS 142 requires, among other things, the discontinuance of goodwillamortization. In addition, the standard includes provisions for the reclassificationof certain existing recognized intangibles as goodwill, reassessment of theuseful lives of existing recognized intangibles, reclassification of certainintangibles out of previously reported goodwill and the identification ofreporting units for purposes of assessing potential future impairments ofgoodwill. SFAS 142 also requires a transitional goodwill impairment test sixmonths from the date of adoption. The Partnership does not believe that theadoption of SFAS 142 will have an impact on its financial statements.

 

**10.          SubsequentEvents**

 

The Board ofDirectors of the General Partner declared the following distributions onOctober 31, 2001:

 
|                              |       | **Quarterly**   |       |            |              |             |              |
|-----------------------------------|------------|-----------------|------------|-----------------|-------------------|------------------|-------------------|
| **Class**                         | ** ** | **Amount/Unit** | ** ** | **Record Date** | ** **        | **Payment Date** | ** **        |
| Common                            |       | $               | 0.45       |            | November 14, 2001 |             | November 30, 2001 |   |
| Preferred (per depositary share): |       |            |       |            |              |             |              |
| Series B                          |       | $               | 0.99875    |            | December 17, 2001 |             | December 31, 2001 |   |
| Series D                          |       | $               | 0.46094    |            | December 17, 2001 |             | December 31, 2001 |   |
| Series E                          |       | $               | 0.51563    |            | December 17, 2001 |             | December 31, 2001 |   |
| Series F                          |       | $               | 0.50000    |            | January 17, 2002  |             | January 31, 2002  |   |
| Series I                          |       | $               | 0.52813    |            | December 17, 2001 |             | December 31, 2001 |   |

 

The General Partner’s Board ofDirectors increased the General Partner’s common share repurchase authorizationfrom $100 million to $250 million at its October 31, 2001, meeting. As ofSeptember 30, 2001, the General Partner and the Partnership have repurchased10,000 shares at an average price of $21.60 per share.

 

To the Partners

**DukeRealty Limited Partnership:**

 

We have reviewed the condensed consolidated balance sheet of DukeRealty Limited Partnership as of September 30, 2001, the related condensedconsolidated statements of operations for the three months and the nine monthsended September 30, 2001 and 2000, the related condensed consolidatedstatements of cash flows for the nine months ended September 30, 2001 and 2000,and the related condensed consolidated statement of partners’ equity for thenine months ended September 30, 2001. These condensed consolidated financialstatements are the responsibility of the Partnership’s management.

 

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

 

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

 

We have previously audited, in accordance with auditing standardsgenerally accepted in the United States of America, the consolidated balancesheet of Duke Realty Limited Partnership as of December 31, 2000, and therelated consolidated statements of operations, Partners’ equity and cash flowsfor the year then ended (not presented herein); and in our report dated January25, 2001, we expressed an unqualified opinion on those consolidated financialstatements. In our opinion, the information set forth in the accompanyingcondensed consolidated balance sheet as of December 31, 2000 is fairlypresented, in all material respects, in relation to the consolidated balancesheet from which it has been derived.

 

 

KPMG LLP

Indianapolis, Indiana

October 31, 2001

 

**Item 2.                       Management’sDiscussion and Analysis of Financial Condition and Results of Operations**

 

**Overview**

 

Certain statements in this “Management’s Discussion and Analysis ofFinancial Condition and Results of Operations,” including those related to thePartnership’s future operations, constitute “forward-looking statements” withinthe meaning of Section 27A of the Securities Act of 1933, as amended, andSection 21E of the Securities Exchange Act of 1934, as amended. Suchforward-looking statements involve known and unknown risks, uncertainties andother important factors that could cause the actual results, performance orachievements of the Partnership, or industry results, to differ materially fromany future results, performance or achievements expressed or implied by suchforward-looking statements. Such risks, uncertainties and other importantfactors include, among others: general economic and business conditions;competition for tenants; changes in market rental rates; ability to controlvariable operating costs; availability of financing; qualifications as a real estateinvestment trust; and other factors referenced in this report. The words “may,”“could,” “should,” “would,” “believe,” “anticipate,” “estimate,” “expect,”“intend,” “plan” and similar expressions or statements regarding future periodsare intended to identify forward-looking statements. All forward-lookingstatements are inherently uncertain as they involve substantial risks anduncertainties beyond the Partnership’s control. The Partnership undertakes noobligation to update or revise any forward-looking statements for events orcircumstance after the date on which such statement is made. New factors emergefrom time to time, and it is not possible for the Partnership to predict allsuch factors. Further, the Partnership cannot assess the impact of each suchfactor on its business or the extent to which any factor, or combination offactors, may cause actual results to differ materially from those contained inany forward-looking statements.

 

ThePartnership’s operating results depend primarily upon income from the RentalOperations of its industrial, office and retail properties located in itsprimary markets. This rental income from Rental Operations is substantiallyinfluenced by the supply and demand for the Partnership’s rental space in itsprimary markets. In addition, the Partnership’s continued growth is dependentupon its ability to maintain occupancy rates and increase rental rates of itsin-service portfolio. The Partnership’s strategy for continued growth alsoincludes developing and acquiring additional rental properties in its primarymarkets and expanding into other attractive markets.

 

Throughoutthe nine months ended September 31, 2001, the Partnership has experienced aslowed growth rate due to a combination of a deteriorating economy and theeffects of selling over $500 million of assets in 2001. While these events haveaffected growth and related rental income, the Partnership has excellentliquidity and financial flexibility. With a debt to market capitalization ratioof 29.5% and only $20 million drawn on its $650 million unsecured lines ofcredit as of September 30, 2001, the Partnership is well positioned to makefuture opportunistic real estate investments. Additionally, the Partnership hasexperienced continued demand for third party construction services through itsService Operations and has significantly lowered its corporate general andadministrative expenses to offset the reductions in rental income.

 

ThePartnership tracks “Same Property” performance, which compares those propertiesthat have been in-service for all of a two year period. The net operatingincome from the Same Property portfolio increased 6.2% for the nine monthsended September 30, 2001, compared to the nine months ended September 30, 2000.

 

Thefollowing table sets forth information regarding the Partnership’s in-serviceportfolio of rental properties as of September 30, 2001 and 2000 (in thousands,except percentages):

 
|            |       | **Total**               |       | **Percent  of**          |       |                         |       |     |   |
|-----------------|------------|-------------------------|------------|-------------------------------|------------|------------------------------|------------|----------|--------|
|            | ** ** | **Square Feet   ** | ** ** | **Total Square  Feet  ** |       | **Percent  Occupied  ** | ** ** |
| **Type**        | ** ** | **2001**                |       | **2000**                      |       | **2001**                     |       | **2000** |   | **2001** |   | **2000** |   |
| **Industrial**  |       |                    |       |                          |       |                         |       |     |   |   |   |   |   |
| Service Centers | ** ** | **13,784**              | ** ** | 13,359                        | ** ** | **13.8**                     | **%**      | 13.9     | %      | **89.20** | **%** | 92.3 | % |
| Bulk            | ** ** | **62,374**              | ** ** | 59,431                        | ** ** | **62.2**                     | **%**      | 62.0     | %      | **91.12** | **%** | 94.2 | % |
|            |       |                    |       |                          |       |                         |       |     |   |   |   |   |   |
| **Office**      | ** ** | **23,301**              | ** ** | 20,524                        | ** ** | **23.3**                     | **%**      | 21.5     | %      | **86.89** | **%** | 92.2 | % |
|            |       |                    | ** ** |                          |       |                         | ** ** |     |   |   | ** ** |   |   |
| **Retail**      | ** ** | **745**                 | ** ** | 2,535                         | ** ** | **.7**                       | **%**      | 2.6      | %      | **95.95** | **%** | 97.0 | % |
|            |       |                    | ** ** |                          |       |                         | ** ** |     |   |   | ** ** |   |   |
| Total           | ** ** | **100,204**             | ** ** | 95,849                        | ** ** | **100.0**                    | **%**      | 100.0    | %      | **89.91** | **%** | 93.6 | % |

 

Thefollowing table reflects the Partnership’s in-service portfolio leaseexpiration schedule as of September 30, 2001, by property type, indicatingsquare footage and annualized net effective rents under expiring leases (inthousands, except per square foot amounts):

 
|                |   | **Total**     |   |           |    |        |   |       |   |          |   |       |   |          |   |
|---------------------|--------|---------------|--------|----------------|---------|-------------|--------|------------|--------|---------------|--------|------------|--------|---------------|--------|
|                |   | **Portfolio** |   | **Industrial** |    | **Office**  |   | **Retail** |   |
| **Year of**         |   | **Square**    |   | **Ann. Rent**  |    |        |   | **Square** |   | **Ann. Rent** |   | **Square** |   | **Ann. Rent** |   | **Square** |   | **Ann. Rent** |   |
| **Expiration**      |   | **Feet**      |   | **Revenue**    |    | **Percent** |   | **Feet**   |   | **Revenue**   |   | **Feet**   |   | **Revenue**   |   | **Feet** |   | **Revenue** |   |
| 2001                |   | 2,472         |   | $              | 12,789  |        | 2      | %          | 2,249  |          | $      | 10,043     |   | 223           |   | $ | 2,746 |   | - |   | $ | - |   |
| 2002                |   | 9,318         |   | 58,455         |    | 9           | %      | 7,509      |   | 36,924        |   | 1,801      |   | 21,422        |   | 8 |   | 109 |   |
| 2003                |   | 9,809         |   | 64,969         |    | 11          | %      | 7,814      |   | 39,149        |   | 1,993      |   | 25,786        |   | 2 |   | 34 |   |
| 2004                |   | 11,133        |   | 75,566         |    | 12          | %      | 8,623      |   | 41,361        |   | 2,489      |   | 33,802        |   | 21 |   | 403 |   |
| 2005                |   | 13,492        |   | 93,148         |    | 14          | %      | 10,605     |   | 51,115        |   | 2,849      |   | 41,531        |   | 38 |   | 502 |   |
| 2006                |   | 11,716        |   | 80,651         |    | 13          | %      | 9,171      |   | 44,410        |   | 2,538      |   | 36,132        |   | 7 |   | 109 |   |
| 2007                |   | 6,077         |   | 43,577         |    | 7           | %      | 4,821      |   | 25,574        |   | 1,227      |   | 17,612        |   | 29 |   | 391 |   |
| 2008                |   | 5,868         |   | 37,925         |    | 6           | %      | 4,688      |   | 21,293        |   | 1,161      |   | 16,342        |   | 19 |   | 290 |   |
| 2009                |   | 5,641         |   | 34,951         |    | 6           | %      | 4,582      |   | 19,715        |   | 1,040      |   | 14,867        |   | 19 |   | 369 |   |
| 2010                |   | 5,413         |   | 43,973         |    | 7           | %      | 3,754      |   | 18,052        |   | 1,640      |   | 25,607        |   | 19 |   | 314 |   |
| 2011 and Thereafter |   | 9,023         |   | 79,056         |    | 13          | %      | 5,320      |   | 26,611        |   | 3,149      |   | 48,175        |   | 554 |   | 4,270 |   |
| Total Leased        |   | 89,962        |   | $              | 625,060 |        | 100    | %          | 69,136 |          | $      | 334,247    |   | 20,110        |   | $ | 284,022 |   | 716 |   | $ | 6,791 |   |
|                |   |          |   |           |    |        |   |       |   |          |   |       |   |          |   |   |   |   |   |
| Total  Portfolio    |   |          |   |           |    |        |   |       |   |          |   |       |   |          |   |   |   |   |   |
| Square Feet         |   | 100,204       |   |           |    |        |   | 76,158     |   |          |   | 23,301     |   |          |   | 745 |   |   |   |
|                |   |          |   |           |    |        |   |       |   |          |   |       |   |          |   |   |   |   |   |
| Annualized  net     |   |          |   |           |    |        |   |       |   |          |   |       |   |          |   |   |   |   |   |
| effective rent      |   |          |   |           |    |        |   |       |   |          |   |       |   |          |   |   |   |   |   |
| per square foot     |   |          |   | $              | 6.95    |        |   |       |   |          | $      | 4.83       |   |          |   | $ | 14.12 |   |   |   | $ | 9.48 |   |

 

The Partnership also expects to realize growth inearnings from Rental Operations through (i) the development and acquisition ofadditional rental properties in its primary markets; (ii) the expansion intoother attractive markets; and (iii) the completion of the 6.3 million squarefeet of properties under development by the Partnership at September 30, 2001,over the next three quarters and thereafter. These properties under developmentshould provide future earnings through Service Operations income upon sale orfrom Rental Operations growth for the Partnership as they are placed in serviceas follows (in thousands, except percent leased and stabilized returns):

 

 
| **Anticipated**          |       |       |       |        |       |        |       |           |       |
|--------------------------|------------|------------|------------|-------------|------------|-------------|------------|----------------|------------|
| **In-Service**           | ** ** | **Square** | ** ** | **Percent** | ** ** | **Project** | ** ** | **Stabilized** | ** ** |
| **Date**                 |       | **Feet**   |       | **Leased**  |       | **Costs**   |       | **Return**     |       |
| Held  For Rental:        |       |       |       |        |       |        |       |           |       |
|                     |       |       |       |        |       |        |       |           |       |
| 4th  Quarter 2001        |       | 2,527      |       | 17          | %          | $           | 109,385    |           | 11.5       | % |
| 1st   Quarter 2002  |       | 838        |       | 33          | %          | 64,754      |       | 11.5           | %          |
| 2ND  quarter 2002        |       | 1,140      |       | 5           | %          | 61,818      |       | 11.2           | %          |
| Thereafter               |       | 120        |       | 100         | %          | 12,352      |       | 11.7           | %          |
|                     |       | 4,625      |       | 19          | %          | $           | 248,309    |           | 11.4       | % |
|                     |       |       |       |        |       |        |       |           |       |
| Build-to-Suit  for Sale: |       |       |       |        |       |        |       |           |       |
|                     |       |       |       |        |       |        |       |           |       |
| 4th  Quarter 2001        |       | 1,035      |       | 100         | %          | $           | 47,202     |           |       |   |
| 1st   Quarter 2002  |       | 402        |       | 100         | %          | 33,433      |       |           |       |
| 2nd  Quarter 2002        |       | 194        |       | 92          | %          | 15,006      |       |           |       |
| Thereafter               |       | -          |       | -           |       | -           |       |           |       |
|                     |       | 1,631      |       | 99          | %          | $           | 95,641     |           |       |   |
| Total                    |       | 6,256      |       | 40          | %          | $           | 343,950    |           |       |   |

 

**Results of Operations**

 

Followingis a summary of the Partnership’s operating results and property statistics forthe three and nine months ended September 30, 2001 and 2000 (in thousands,except number of properties and per share amounts):
|                                                         |       | **Three Months Ended September 30,** |        | **Nine months Ended September 30,** |       |
|--------------------------------------------------------------|------------|--------------------------------------|-------------|-------------------------------------|------------|
|                                                         |       | **2001**                             |        | **2000**                            |       | **2001** |   | **2000** |   |
| Rental Operations revenue                                    | ** ** | **$**                                | **178,199** |                                | $          | 185,760 | ** ** | **$** | **543,935** |   | $ | 538,902 |   |
| Service Operations revenue                                   | ** ** | **21,676**                           |        | 21,903                              | ** ** | **67,625** |   | 61,009 |   |
| Earnings  from Rental Operations                             | ** ** | **62,507**                           |        | 58,354                              | ** ** | **195,223** |   | 169,757 |   |
| Earnings  from Service Operations                            | ** ** | **11,840**                           |        | 8,493                               | ** ** | **30,355** |   | 24,822 |   |
| Operating income                                             | ** ** | **72,910**                           |        | 61,022                              | ** ** | **215,426** |   | 179,080 |   |
| Net  income available for common units                       | ** ** | **$**                                | **88,018**  |                                | $          | 51,949 | ** ** | **$** | **212,300** |   | $ | 160,644 |   |
| Weighted  average common units outstanding                   | ** ** | **148,396**                          |        | 146,138                             | ** ** | **147,850** |   | 145,662 |   |
| Weighted  average common and dilutive potential common units | ** ** | **158,594**                          |        | 147,916                             | ** ** | **151,623** |   | 147,217 |   |
| Basic income per common unit                                 | ** ** | **$**                                | **.59**     |                                | $          | .36 | ** ** | **$** | **1.44** |   | $ | 1.10 |   |
| Diluted income per common unit                               | ** ** | **$**                                | **.58**     |                                | $          | .35 | ** ** | **$** | **1.42** |   | $ | 1.09 |   |
| Number  of in-service properties at end of period            | ** ** | **878**                              |        | 878                                 | ** ** | **878** |   | 878 |   |
| In-service  square footage at end of period                  | ** ** | **100,204**                          |        | 95,849                              | ** ** | **100,204** |   | 95,849 |   |
| Under  development square footage at end of period           | ** ** | **6,256**                            |        | 7,910                               | ** ** | **6,256** |   | 7,910 |   |

 

 

**Comparison of Three Months EndedSeptember 30, 2001 to Three Months Ended September 30, 2000**

 

RentalOperations

 

Rental Operations revenuedecreased from $185.8 million for the three months ended September 30, 2000, to$178.2 million for the same period in 2001, caused primarily by a 6.2% declinein rental income. The decline is a result of in-service occupancy decreasing3.7% from September 30, 2000, to September 30, 2001. Also contributing to thedecline in rental income is the effects of the Partnership’s capital recyclingprogram. Since the program was actively began in 2000, the Partnership has soldapproximately $770 million of held for rental properties from its in-serviceportfolio through September 30, 2001. A majority of these properties were inexcess of 90% leased and the developments placed in-service over the same timeperiod have experienced slower lease-up activity and, therefore, less rentalincome to the Partnership. This decline in rental income was somewhat offset bythe Partnership’s equity in earnings of unconsolidated companies increasing from $3.2 million for the three monthsended September 30, 2000, to $7.0 million for the same period in 2001. Thisincrease is mainly the result of the Partnership contributing $469 million ofproperty to a joint venture in October 2000. The Partnership holds a 50%interest in this venture. The following is a summary of the Partnership'sacquisition and development activity since January 1, 2000:

 

 
|                             |   |          |       | **Square** |       |
|----------------------------------|--------|---------------|------------|------------|------------|
|                             |   | **Buildings** | ** ** | **Feet**   | ** ** |
| Properties owned  as of:         |   |          |       |       |       |
| January 1, 2000                  |   | 865           |       | 92,502     |       |
| Acquisitions                     |   | 2             |       | 169        |       |
| Developments placed in service   |   | 75            |       | 11,546     |       |
| Dispositions                     |   | (53           | )          | (6,586     | )          |
| Contributions from joint venture |   |          |       |       |       |
| Partners                         |   | 24            |       | 3,331      |       |
|                             |   |          |       |       |       |
| December 31, 2000                |   | 913           |       | 100,962    |       |
| Acquisitions                     |   | 5             |       | 258        |       |
| Developments placed in service   |   | 41            |       | 6,920      |       |
| Dispositions                     |   | (81           | )          | (7,936     | )          |
|                             |   |          |       |       |       |
| September 30, 2001               |   | 878           |       | 100,204    |       |

 

Rentaland real estate expenses were comparable during the three months endedSeptember 30, 2000, and 2001, as the Partnership's portfolio of in-serviceproperty has not changed significantly over the past year. Additionally, thePartnership has placed a greater emphasis on cost cutting measures within itsin-service portfolio over the past year in an effort to control operatingexpenses.

 

The $8.3 million decrease in interest expense is primarily attributableto lower outstanding balances on the Partnership's lines of credit associatedwith the financing of the Partnership's investment and operating activities.The Partnership has maintained a significantly lower balance on its lines ofcredit throughout 2001 compared to 2000 as a result of its capital recyclingprogram generating proceeds used to fund future development, coupled with asmaller development backlog compared to prior years. Additionally, thePartnership paid off approximately $60.0 million of secured mortgage loanswhich matured in the third quarter of 2001, as well as an $85 million unsecuredterm loan that was not due until December 2001.

 

Depreciation and amortization expense decreased in the three monthsended September 30, 2001, compared to the same period in 2000, again primarilydue to the significant number of properties disposed of over the last twelve toeighteen months.

 

As a result of the above-mentioned items, earnings from RentalOperations increased $4.1 million from $58.4 million for the three months endedSeptember 30, 2000, to $62.5 million for the three months ended September 30,2001.

 

Service Operations

 

ServiceOperations revenues decreased by $200,000 from $21.9 million for the threemonths ended September 30, 2000, to $21.7 million for the three months endedSeptember 30, 2001. Property management, maintenance and leasing fee revenuesdecreased approximately $1.2 million due to a decrease in landscapingmaintenance revenue associated with the sale of the landscape business in thethird quarter (see discussion below). Construction income decreased over thissame time period as a result of timing of the Partnership’s recognition ofprofit on third party construction. During the three months ended September 30,2000, the Partnership had two large third party construction projects inprogress for which fees were recognized in the period. In 2001, the feesrecognized under the percentage of completion are lower due to volume andtiming of jobs. These decreases were offset by a $1.8 million gain thePartnership recognized on the sale of its landscape business in the third quarterof 2001. The sale of the landscape business resulted in a net profit of over $9million after deducting all related expenses. This gain will be recognized invarying amounts over the next seven years due to the Partnership’s on-goingcontract to provide future services to the buyer. The $1.8 million gain isrecorded in Service Operations other income.

 

Service Operations expenses decreased for the three months endedSeptember 30, 2001, compared to the same period in 2000, as the Partnership hasreduced overhead and employee-related costs throughout 2001 in an effort tominimize the effects of decreased construction and development activity. Thesale of the landscaping business resulted in a $1.6 million decrease inoverhead expenses for the three months ended September 30, 2001, compared toSeptember 30, 2000.

 

As a result, earnings from Service Operations increased from $8.5million for the three months ended September 30, 2000, to $11.8 million for thethree months ended September 30, 2001.

 

Other Income and Expenses

 

The Partnership’s disposition strategy is to pursue favorableopportunities to dispose of real estate assets that no longer meet long-terminvestment objectives of the Partnership. This strategy resulted in net salesproceeds of $216.2 million and a net gain of $30.5 million during the threemonths ended September 30, 2001.

 

In connection withthis disposition strategy, included in net real estate investments are 10buildings with a net book value of $63.6 million, which were classified as heldfor sale by the Partnership at September 30, 2001. The Partnership expects tocomplete these and other dispositions and use the proceeds to fund futureinvestments in real estate assets.

 

Other expense forthe three months ended September 30, 2001, includes a $690,000 expense relatedto an interest rate swap that does not qualify for hedge accounting under SFAS133. See Note 8 to the Partnership’s Condensed Consolidated FinancialStatements.

 

Net Income Available for Common Unitholders

 

Net income available for common unitholders for the three months endedSeptember 30, 2001, was $88.0 million, compared to $51.9 million for the threemonths ended September 30, 2000. This increase results from the increasednumber of properties disposed of in the third quarter of 2001 compared to 2000.

 

**Comparison ofNine months Ended September 30, 2001 to Nine months Ended September 30, 2000**

 

Rental Operations

 

Rental Operationsrevenue increased to $543.9 million for the nine months ended September 30,2001, compared to $538.9 million for the same period in 2000.  This increase is due to a $14.0 millionincrease in equity in earnings of unconsolidated companies, attributable to thePartnership’s significant contribution of property to a 50% owned joint venturein October 2000 as discussed earlier in the analysis of the three month RentalOperations results.

 

Rental income forthe nine months ended September 30, 2001, is down approximately 1.7% from thesame period in 2000, due to the effects of the Partnership’s property dispositionsas noted above in the analysis of the three months Rental Operations results.

 

Rental, realestate and depreciation and amortization expenses were comparable during thenine months ended September 30, 2000 and 2001, due to the Partnership's portfolioof in-service properties remaining consistent from 2000 to 2001 and thePartnership’s concentrated efforts to reduce operational expenses within itsrental properties.

 

The $19.0 million decrease in interest expense is primarilyattributable to lower outstanding debt balances on the Partnership's lines ofcredit, due to the effects of the Partnership’s capital recycling program asdiscussed in the three months analysis of interest expense.

 

As a result of the above-mentioned items, earnings from RentalOperations increased $25.4 million from $169.8 million for the nine monthsended September 30, 2000, to $195.2 million for the nine months ended September30, 2001.

 

Service Operations

 

ServiceOperations revenues increased by $6.6 million from $61.0 million for the ninemonths ended September 30, 2000, to $67.6 million for the nine months endedSeptember 30, 2001, primarily as a result of increases in construction anddevelopment income from third party construction. Other service income for thenine months also increased as a result of the $1.8 million gain on the sale ofthe landscaping business in August 2001 as discussed earlier in the analysis ofthe three month Service Operations results.

 

Service Operations operating expenses increased from $36.2 million forthe nine months ended September 30, 2000, to $37.3 million for the nine monthsended September 30, 2001. The Partnership has reduced overhead related expenseswithin its Service Operations throughout 2001, which has enabled it to keepexpenses at or near 2000 levels despite growth in the activities within theService Operations.

 

Overall, earnings from Service Operations increased from $24.8 millionfor the nine months ended September 30, 2000, to $30.4 million for the ninemonths ended September 30, 2001.

 

Other Income and Expenses

 

Pursuant to the Partnership’s disposition strategy, the Partnershipdisposed of real estate assets which resulted in net sales proceeds of $403.8million and a net gain of $43.2 million during the nine months ended September30, 2001.

 

Net Income Available for Common Unitholders

 

Net incomeavailable for common unitholders for the nine months ended September 30, 2001,was $212.3 million, compared to $160.6 million for the nine months endedSeptember 30, 2000. This increase results from the improved operating resultsin the Service Operations and the increased number of held for rentalproperties disposed of in 2000, as described above.

 

**Liquidity andCapital Resources**

 

Net cash provided by operating activities totaling $366.4 million and$301.4 million for the nine months ended September 30, 2001 and 2000,respectively, represents the primary source of liquidity to fund distributionsto unitholders and the other minority interests and to fund recurring costsassociated with the renovation and re-letting of the Partnership’s properties.

 

Net cash providedby  (used) by investing activitiestotaling $37.1 million and ($243.8) million for the nine months ended September30, 2001 and 2000, respectively, represents the investment of funds by thePartnership to expand its portfolio of rental properties through thedevelopment and acquisition of additional rental properties, net of proceedsreceived from property sales. As noted in the three and nine months analysis,the Partnership has sold a significant amount of held for rental property in2001 which has yielded proceeds of $403.8 million. In addition, the Partnershiphas received approximately $60.0 million from distributions from unconsolidatedcompanies in 2001, which represents the Partnership’s share of financingproceeds from leveraging activities within the unconsolidated companies.

 

Net cash used forfinancing activities totaling $432.8 million and $35.0 million for the ninemonths ended September 30, 2001 and 2000, respectively, is comprised of debtand equity issuances, net of distributions to shareholders and minorityinterests and repayments of outstanding indebtedness. In the first nine monthsof 2001, the Partnership received $33.9 million of net proceeds from theGeneral Partner’s issuance of common shares and $72.2 million of net proceedsfrom the General Partner’s issuance of preferred shares. Additionally, thePartnership received $175.0 million of proceeds from the issuance of unsecureddebt. All proceeds were used to reduce amounts outstanding under thePartnership’s lines of credit and to fund the development and acquisition ofadditional rental properties.

 

During the three months ended September 30, 2001, the General Partnerredeemed its Series A Preferred stock at a cost of $75.0 million. ThePartnership also paid off approximately $60.0 million of secured mortgage debtand a $85.0 million unsecured term loan.

 

The Partnershiphas the following lines of credit available:

 
|                      |   | **Borrowing**        |       |         |          |         |        | **Outstanding**           |       |
|---------------------------|--------|----------------------|------------|--------------|---------------|--------------|-------------|---------------------------|------------|
|                      |   | **Capacity**         | ** ** | **Maturity** | ** **    | **Interest** | ** **  | **at September 30, 2001** | ** ** |
| **Description**           |   | **(in  000’s)** |       | **Date**     |          | **Rate**     |        | **(in  000’s)**      |       |
| Unsecured Line  of Credit |   | $                    | 500,000    |         | February 2004 |         | LIBOR + .65 | %                         | $          | 20,000 |   |
| Unsecured Line  of Credit |   | 150,000              |       | July 2002    |          | LIBOR + .675 | %           | $                         | 0          |   |
| Secured Line of  Credit   |   | 150,000              |       | January 2003 |          | LIBOR + 1.05 | %           | $                         | 56,683     |   |
|                           |        |                      |            |              |               |              |             |                           |            |  |  |

 

The lines of credit are used to fund development activities, to acquire ofadditional rental properties and to provide working capital.

 

The $500 millionline of credit allows the Partnership an option to obtain borrowings from thefinancial institutions that participate in the line of credit at rates lowerthan the stated interest rate, subject to certain restrictions. Amountsoutstanding at September 30, 2001, bear interest at LIBOR + .65%.

 

The GeneralPartner and the Partnership currently have on file a Form S-3 RegistrationStatement with the Securities and Exchange Commission (“Shelf Registration”)which had remaining availability as of September 30, 2001, of approximately$542.9 million to issue common stock, preferred stock or unsecured debtsecurities. The General Partner and the Partnership intend to issueadditionalequity or debt under this Shelf Registration as capital needs arise to fund thedevelopment and acquisition of additional rental properties and also plans tofile additional shelf registrations as necessary.

 

The Partnership’s total debt outstanding at September 30, 2001,consisted of notes totaling approximately $1.8 billion with a weighted averageinterest rate of 7.1% maturing at various dates through 2028. The Partnershiphas $1.4 billion of unsecured debt and $367.5 million of secured debtoutstanding at September 30, 2001. Scheduled principal amortization of suchdebt totaled $7.7 million for the nine months ended September 30, 2001.

 

Following is asummary of the scheduled future amortization and maturities of thePartnership’s indebtedness at September 30, 2001 (in thousands):

 
|       |       | **Future Repayments** |       | **Weighted Average** |       |
|------------|------------|-----------------------|------------|----------------------|------------|
|       | ** ** | **Scheduled**         | ** ** |                 | ** ** |   | ** ** | **Interest Rate of** | ** ** |
| **Year**   |       | **Amortization**      |       | **Maturities**       |       | **Total** |   | **Future  Repayments** |   |
| 2001       |       | $                     | 2,617      |                 | $          | 17,342 |   | $ | 19,959 |   | 7.68 | % |
| 2002       |       | 11,437                |       | 53,750               |       | 65,187 |   | 7.26 | % |
| 2003       |       | 10,264                |       | 337,445              |       | 347,709 |   | 6.98 | % |
| 2004       |       | 8,497                 |       | 196,186              |       | 204,683 |   | 6.99 | % |
| 2005       |       | 7,061                 |       | 219,642              |       | 226,703 |   | 7.17 | % |
| 2006       |       | 5,908                 |       | 146,179              |       | 152,087 |   | 7.09 | % |
| 2007       |       | 4,028                 |       | 116,554              |       | 120,582 |   | 7.09 | % |
| 2008       |       | 3,605                 |       | 100,000              |       | 103,605 |   | 6.74 | % |
| 2009       |       | 3,863                 |       | 275,000              |       | 278,863 |   | 7.31 | % |
| 2010       |       | 4,189                 |       | -                    |       | 4,189 |   | 6.57 | % |
| Thereafter |       | 15,383                |       | 225,000              |       | 240,383 |   | 6.86 | % |
| Total      |       | $                     | 76,852     |                 | $          | 1,687,098 |   | $ | 1,763,950 |   | 7.06 | % |

** **

**Funds FromOperations**

 

Managementbelieves that FFO (as defined in Note 5 to the Partnership’s CondensedConsolidated Financial Statements) is the industry standard for reporting theoperations of real estate investment trusts.

 

The following table reflects the calculation of the Partnership’s FFOfor the three and nine months ended September 30 as follows (in thousands):

 
|                                                              |       | **Three Months  Ended September 30,** |        | **Nine months  Ended September 30,** |       |
|-------------------------------------------------------------------|------------|---------------------------------------|-------------|--------------------------------------|------------|
|                                                              |       | **2001**                              |        | **2000**                             |       | **2001** |   | **2000** |   |
| Net income available for common unitholders                       | ** ** | **$**                                 | **88,018**  |                                 | $          | 51,949 | ** ** | **$** | **212,300** |   | $ | 160,644 |   |
| Add  back (deduct):                                               |       |                                  |        |                                 |       |   |   |   |   |
| Depreciation and amortization                                     | ** ** | **38,282**                            |        | 41,875                               | ** ** | **116,591** |   | 119,990 |   |
| Share of joint venture adjustments                                | ** ** | **4,506**                             |        | 1,982                                | ** ** | **9,919** |   | 5,032 |   |
| (Earnings) loss from depreciated operating property  dispositions | ** ** | **(29,431**                           | **)**       | (1,838                               | )          | **(38,774** | **)** | (14,586 | ) |
| **Funds From Operations**                                         | ** ** | **$**                                 | **101,375** |                                 | $          | 93,968 |   | **$** | **300,036** |   | $ | 271,080 |   |
| **Cash flow provided by (used by):**                              |       |                                  |        |                                 |       |   |   |   |   |
| Operating activities                                              | ** ** | **$**                                 | **147,327** |                                 | $          | 126,831 |   | **$** | **366,446** |   | $ | 301,396 |   |
| Investing activities                                              | ** ** | **59,393**                            |        | 14,421                               |       | **37,075** |   | (243,819 | ) |
| Financing activities                                              | ** ** | **(296,623**                          | **)**       | (141,764                             | )          | **(432,755** | **)** | (34,972 | ) |

 

Theincrease in FFO for the three months ended September 30, 2001, compared to thethree months ended September 30, 2000, results from increases in ServiceOperations net income combined with savings in interest expense and general andadministrative expense.

 

The increase in FFO for the nine months ended September 30, 2001,compared to the same period in 2000 is attributable to increases in equity inearnings of unconsolidated companies, Service Operations net income, andreduction in interest and general and administrative expenses.

 

While management believes that FFO is the most relevant and widely usedmeasure of the Partnership's operating performance, such amount does notrepresent cash flow from operations as defined by generally accepted accountingprinciples, should not be considered as an alternative to net income as anindicator of the Partnership's operating performance, and is not indicative ofcash available to meet funding requirements.

 

**PartII - Other Information**

 

Item 6. Exhibits and Reports on Form 8-K

 

Exhibits

 

Exhibit 15.                 Letter regarding unauditedinterim financial information

 

Reports on Form8-K

 

None.

 

**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:  | November 9, 2001 | /s/           Thomas  L. Hefner |                                                                                 |
|   |             |                                                                              | Thomas L. Hefner                                                                     |   |
|   |             |                                                                              | President and  Chief Executive Officer                                               |
|   |             |                                                                              |                                                                                 |   |
|   |             |                                                                              |                                                                                 |   |
|   |             |                                                                              | /s/           Darell  E. Zink, Jr. |   |
|   |             |                                                                              | Darell E. Zink, Jr.                                                                  |
|   |             |                                                                              | Executive Vice  President and Chief Financial Officer                                |
|   |             |                                                                              |                                                                                 |   |
|   |             |                                                                              |                                                                                 |   |
|   |             |                                                                              | /s/           Dennis  D. Oklak     |   |
|   |             |                                                                              | Dennis D. Oklak                                                                      |
|   |             |                                                                              | Executive Vice  President and Chief Administrative Officer                           |
|   |             |                                                                              | (Chief Accounting  Officer)                                                          |