**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

**FORM 10-Q**

 
| **(Mark  One)**                     |
|-------------------------------------|
|                                |
| **ý**                          | **QUARTERLY REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|                                |
|                                | **For  the quarterly period ended September 30, 2002** |
|                                |
| **OR**                              |
|                                |
| **o**                               | **TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934** |
|                                |
|                                | **For  the transition period  from                    to                    .** |
|                                |
| **Commission  File Number: 1-9044** |

 

| **DUKE  REALTY LIMITED PARTNERSHIP**                                                                      |
|-----------------------------------------------------------------------------------------------------------|
|                                                                                                      |   |   |
| State of  Incorporation:                                                                                  |   | IRS Employer  Identification Number: |
| **Indiana**                                                                                               |   | **35-1740409** |
|                                                                                                      |   |   |
| **600  East 96th Street, Suite 100  Indianapolis, Indiana  46240**                                   |
|                                                                                                      |   |   |
| **Telephone:  (317) 808-6000**                                                                       |
| (Address,  including zip code and telephone number, including area code, of principal  executive offices) |
|                                                                                                      |   |   |

 

Indicate by check markwhether 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 of CommonUnits outstanding as of November 7, 2002 was 14,981,314 ($.01 par value).

 

 

----

 

**DUKE REALTY LIMITED PARTNERSHIP**

 

**INDEX**

 
| **Part I - Financial  Information**                                                                            |
|----------------------------------------------------------------------------------------------------------------|
|                                                                                                           |   |
| **Item 1.  Financial Statements**                                                                         |
|                                                                                                           |   |
|                                                                                                           | Condensed  Consolidated Balance Sheets as of  September 30, 2002 (Unaudited) and December 31, 2001 |
|                                                                                                           |   |
|                                                                                                           | Condensed  Consolidated Statements of Operations (Unaudited)  for the three and nine months ended September 30, 2002 and 2001 |
|                                                                                                           |   |
|                                                                                                           | Condensed  Consolidated Statements of Cash Flows (Unaudited)  for the nine months ended September 30, 2002 and 2001 |
|                                                                                                           |   |
|                                                                                                           | Condensed  Consolidated Statement of Partners’ Equity  (Unaudited) for the nine months ended September 30, 2002 |
|                                                                                                           |   |
|                                                                                                           | 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 1. | Legal Proceedings |
|                                                                                                           | Item 2. | Changes in Securities |
|                                                                                                           | Item 3. | Defaults Upon  Senior Securities |
|                                                                                                           | Item  4. | Submission  of Matters to a Vote of Security Holders |
|                                                                                                           | Item 5. | Other Information |
|                                                                                                           | Item 6. | Exhibits and  Reports on Form 8-K |
|                                                                                                                |  |  |  |

 

----

 

**PART I - FINANCIAL INFORMATION**

**Item 1.  FinancialStatements**

**DUKE REALTY LIMITED PARTNERSHIP ANDSUBSIDIARIES**

**Condensed Consolidated Balance Sheets**

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

 
|                                                                                       |   | **September  30,  2002** |          | **December 31,  2001** |       |
|--------------------------------------------------------------------------------------------|--------|--------------------------|---------------|------------------------|------------|
|                                                                                       |   | **(Unaudited)**          |          |                   |       |
| **ASSETS**                                                                                 |   |                     |          |                   |       |
| Real  estate investments:                                                                  |   |                     | ** **    |                   |       |
| Land  and improvements                                                                     |   | **$**                    | **588,960**   | ** **             | $          | 583,909 |   |
| Buildings  and tenant improvements                                                         |   | **4,137,102**            | ** **    | 4,068,944              |       |
| Construction  in progress                                                                  |   | **78,975**               | ** **    | 154,086                |       |
| Investments  in unconsolidated companies                                                   |   | **325,320**              | ** **    | 323,682                |       |
| Land  held for development                                                                 |   | **321,005**              | ** **    | 322,528                |       |
|                                                                                       |   | **5,451,362**            |          | 5,453,149              | ** ** |
| Accumulated  depreciation                                                                  |   | **(521,215**             | **)**         | (425,721               | )          |
|                                                                                       |   |                     | ** **    |                   |       |
| Net  real estate investments                                                               |   | **4,930,147**            | ** **    | 5,027,428              |       |
|                                                                                       |   |                     | ** **    |                   |       |
| Cash  and cash equivalents                                                                 |   | **43,134**               | ** **    | 10,453                 |       |
| Accounts  receivable, net of allowance of $3,518 and $2,820                                |   | **17,381**               | ** **    | 23,142                 |       |
| Straight-line  rent receivable, net of allowance of $3,262 and $841                        |   | **49,504**               | ** **    | 42,751                 |       |
| Receivables  on construction contracts                                                     |   | **31,388**               | ** **    | 30,077                 |       |
| Deferred  financing costs, net of accumulated amortization of $14,966 and $17,459          |   | **12,248**               | ** **    | 12,489                 |       |
| Deferred  leasing and other costs, net of accumulated amortization of $48,038 and  $41,284 |   | **101,138**              | ** **    | 97,117                 |       |
| Escrow  deposits and other assets                                                          |   | **113,956**              | ** **    | 86,789                 |       |
|                                                                                       |   | **$**                    | **5,298,896** |                   | $          | 5,330,246 | ** ** |
| **LIABILITIES  AND PARTNERS’ EQUITY**                                                 |   |                     | ** **    |                   |       |
|                                                                                       |   |                     | ** **    |                   |       |
| Indebtedness:                                                                              |   |                     | ** **    |                   |       |
| Secured  debt                                                                              |   | **$**                    | **308,911**   | ** **             | $          | 318,484 |   |
| Unsecured  notes                                                                           |   | **1,526,198**            | ** **    | 1,376,372              |       |
| Unsecured  lines of credit                                                                 |   | **29,000**               | ** **    | 120,000                |       |
|                                                                                       |   | **1,864,109**            |          | 1,814,856              | ** ** |
|                                                                                       |   |                     | ** **    |                   |       |
| Construction  payables and amounts due subcontractors                                      |   | **45,140**               | ** **    | 54,735                 |       |
| Accounts  payable                                                                          |   | **160**                  | ** **    | 2,274                  |       |
| Accrued  expenses:                                                                         |   |                     | ** **    |                   |       |
| Real  estate taxes                                                                         |   | **71,265**               | ** **    | 51,462                 |       |
| Interest                                                                                   |   | **19,749**               | ** **    | 24,313                 |       |
| Other                                                                                      |   | **43,806**               | ** **    | 48,678                 |       |
| Other  liabilities                                                                         |   | **105,709**              | ** **    | 117,577                |       |
| Tenant  security deposits and prepaid rents                                                |   | **34,425**               | ** **    | 34,644                 |       |
| Total  liabilities                                                                         |   | **2,184,363**            | ** **    | 2,148,539              |       |
|                                                                                       |   |                     | ** **    |                   |       |
| Minority  interest                                                                         |   | **5,174**                | ** **    | 5,475                  |       |
|                                                                                       |   |                     | ** **    |                   |       |
| Partners’  equity:                                                                    |   |                     | ** **    |                   |       |
| General  Partner                                                                           |   |                     | ** **    |                   |       |
| Common  equity                                                                             |   | **2,235,251**            | ** **    | 2,203,291              |       |
| Preferred  equity (liquidation preference of $590,889)                                     |   | **565,466**              | ** **    | 583,419                |       |
|                                                                                       |   | **2,800,717**            | ** **    | 2,786,710              |       |
| Limited  partners’ common equity                                                      |   | **240,735**              | ** **    | 286,759                |       |
| Limited  partners’ preferred equity                                                   |   | **67,955**               | ** **    | 102,955                |       |
| Accumulated  other comprehensive income (loss)                                             |   | **(48**                  | **)**         | (192                   | )          |
|                                                                                       |   | **3,109,359**            | ** **    | 3,176,232              |       |
|                                                                                       |   | **$**                    | **5,298,896** | ** **             | $          | 5,330,246 |   |

 

See accompanying Notes toCondensed Consolidated Financial Statements

 

2

----

 

**DUKE REALTY LIMITED PARTNERSHIP AND SUBSIDIARIES**

**CondensedConsolidated Statements of OperationsFor the three and nine months ended September 30****,**

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

**(Unaudited)**

 
|                                                                   |   | **Three  Months Ended** |        | **Nine  Months Ended** |   |
|------------------------------------------------------------------------|--------|-------------------------|-------------|------------------------|--------|
|                                                                   |   | **2002**                |        | **2001**               |   | **2002** |   | **2001** |   |
| **RENTAL  OPERATIONS:**                                                |   |                    | ** **  |                   |   |   | ** ** |   |   |
| Revenues:                                                              |   |                    | ** **  |                   |   |   | ** ** |   |   |
| Rental  income                                                         |   | **$**                   | **173,812** | ** **             | $      | 169,980 |   | **$** | **517,291** | ** ** | $ | 516,040 |   |
| Equity  in earnings of unconsolidated companies                        |   | **8,344**               | ** **  | 7,024                  |   | **20,918** | ** ** | 24,309 |   |
|                                                                   |   | **182,156**             |        | 177,004                |   | **538****,209** | ** ** | 540,349 |   |
| Operating  expenses:                                                   |   |                    | ** **  |                   |   |   | ** ** |   |   |
| Rental  expenses                                                       |   | **33,311**              | ** **  | 31,084                 |   | **95,009** | ** ** | 91,587 |   |
| Real  estate taxes                                                     |   | **18,852**              | ** **  | 18,279                 |   | **57,049** | ** ** | 54,202 |   |
| Interest  expense                                                      |   | **29,797**              | ** **  | 27,689                 |   | **84,757** | ** ** | 85,260 |   |
| Depreciation  and amortization                                         |   | **45,074**              | ** **  | 39,249                 |   | **130,564** | ** ** | 117,378 |   |
|                                                                   |   | **127,034**             |        | 116,301                |   | **367****,379** | ** ** | 348,427 |   |
|                                                                   |   |                    | ** **  |                   |   |   | ** ** |   |   |
| Earnings  from rental operations                                       |   | **55,122**              | ** **  | 60,703                 |   | **170,830** | ** ** | 191,922 |   |
|                                                                   |   |                    | ** **  |                   |   |   | ** ** |   |   |
| **SERVICE  OPERATIONS**                                                |   |                    | ** **  |                   |   |   | ** ** |   |   |
| Revenues:                                                              |   |                    | ** **  |                   |   |   | ** ** |   |   |
| General  contractor gross revenue                                      |   | **47,783**              | ** **  | 75,965                 |   | **134,****696** | ** ** | 201,169 |   |
| General  contractor costs                                              |   | **(42,426**             | **)**       | (67,265                | )      | **(119,303** | **)** | (173,626 | ) |
| Net  general contractor revenue                                        |   | **5****,357**           | ** **  | 8,700                  |   | **15,393** | ** ** | 27,543 |   |
| Property  management, maintenance and leasing fees                     |   | **3,817**               | ** **  | 4,758                  |   | **10****,445** | ** ** | 19,252 |   |
| Construction  and development activity income                          |   | **794**                 | ** **  | 5,780                  |   | **28,712** | ** ** | 17,705 |   |
| Other  income                                                          |   | **1,616**               | ** **  | 2,438                  |   | **1,668** | ** ** | 3,125 |   |
| Total  revenue                                                         |   | **11,584**              | ** **  | 21,676                 |   | **56,****218** | ** ** | 67,625 |   |
|                                                                   |   |                    | ** **  |                   |   |   | ** ** |   |   |
| Operating  expenses                                                    |   | **8,311**               | ** **  | 9,836                  |   | **30,255** | ** ** | 37,270 |   |
|                                                                   |   |                    | ** **  |                   |   |   | ** ** |   |   |
| Total  earnings from service operations                                |   | **3,273**               | ** **  | 11,840                 |   | **25,963** | ** ** | 30,355 |   |
|                                                                   |   |                    | ** **  |                   |   |   | ** ** |   |   |
| General  and administrative expense                                    |   | **(6,621**              | **)**       | (1,437                 | )      | **(20,657** | **)** | (10,152 | ) |
|                                                                   |   |                    | ** **  |                   |   |   | ** ** |   |   |
| Operating  income                                                      |   | **51****,774**          | ** **  | 71,106                 |   | **176,136** | ** ** | 212,125 |   |
|                                                                   |   |                    | ** **  |                   |   |   | ** ** |   |   |
| **OTHER  INCOME (EXPENSE)**                                            |   |                    | ** **  |                   |   |   | ** ** |   |   |
| Interest  income                                                       |   | **931**                 | ** **  | 1,587                  |   | **2,****694** | ** ** | 4,589 |   |
| Earnings  from land and depreciable property dispositions,             |   | **4****,795**           | ** **  | 31,801                 |   | **8,882** | ** ** | 45,117 |   |
| Other  expense                                                         |   | **(93**                 | **)**       | (916                   | )      | **144** | ** ** | (2,283 | ) |
| Other  minority interest in earnings of subsidiaries                   |   | **(247**                | **)**       | (727                   | )      | **(883** | **)** | (1,968 | ) |
| Income  from continuing operations                                     |   | **57****,160**          | ** **  | 102,851                |   | **186,973** | ** ** | 257,580 |   |
|                                                                   |   |                    | ** **  |                   |   |   | ** ** |   |   |
| Discontinued  operations:                                              |   |                    | ** **  |                   |   |   | ** ** |   |   |
| Net  income from discontinued operations                               |   | **—**              | ** **  | 516                    |   | **930** | ** ** | 1,360 |   |
| Gain  on sale of discontinued operations                               |   | —                  | ** **  | —                 |   | **2,734** | ** ** | — |   |
| Income  from discontinued operations                                   |   | —                  | ** **  | 516                    |   | **3,664** | ** ** | 1,360 |   |
|                                                                   |   |                    | ** **  |                   |   |   | ** ** |   |   |
| Net  income                                                            |   | **57****,160**          | ** **  | 103,367                |   | **190,637** | ** ** | 258,940 |   |
| Dividends  on preferred units                                          |   | **(13,708**             | **)**       | (15,349                | )      | **(42,127** | **)** | (46,640 | ) |
| Net  income available for common unitholders                           |   | **$**                   | **43,452**  | ** **             | $      | 88,018 |   | **$** | **148,510** | ** ** | $ | 212,300 |   |
|                                                                   |   |                    | ** **  |                   |   |   | ** ** |   |   |
| Basic  net income per common unit:                                     |   |                    | ** **  |                   |   |   | ** ** |   |   |
| Continuing  operations                                                 |   | **$**                   | **.29**     | ** **             | $      | .59 |   | **$** | **.98** | ** ** | $ | 1.43 |   |
| Discontinued  operations                                               |   | **—**              | ** **  | —                 |   | **.02** | ** ** | .01 |   |
| Total                                                                  |   | **$**                   | **.29**     | ** **             | $      | .59 |   | **$** | **1.00** | ** ** | $ | 1 44 |   |
| Diluted  net income per common unit:                                   |   |                    | ** **  |                   |   |   | ** ** |   |   |
| Continuing  operations                                                 |   | **$**                   | **.29**     | ** **             | $      | .58 |   | **$** | **.96** | ** ** | $ | 1.41 |   |
| Discontinued  operations                                               |   | **—**              | ** **  | —                 |   | **.02** | ** ** | .01 |   |
| Total                                                                  |   | **$**                   | **.29**     | ** **             | $      | .58 |   | **$** | **.98** | ** ** | $ | 1.42 |   |
|                                                                   |   |                    | ** **  |                   |   |   | ** ** |   |   |
| Weighted  average number of common units outstanding                   |   | **149,810**             | ** **  | 148,396                |   | **149,267** | ** ** | 147,850 |   |
| Weighted  average number of common and dilutive potential common units |   | **151,256**             | ** **  | 158,594                |   | **150,880** | ** ** | 151,623 |   |

 

See accompanying Notes toConsolidated Financial Statements.

 

3

----

 

**DUKE REALTY LIMITED PARTNERSHIP ANDSUBSIDIARIES**

**Condensed Consolidated Statements ofCash FlowsFor the nine months ended September 30**

**(in thousands)**

**(Unaudited)**

 
|                                                                                                |   | **2002**     |        | **2001**   |   |
|-----------------------------------------------------------------------------------------------------|--------|--------------|-------------|------------|--------|
|                                                                                                |   |         | ** **  |       |   |
| Cash  flows from operating activities:                                                              |   |         | ** **  |       |   |
| Net  income                                                                                         |   | **$**        | **190,637** | ** ** | $      | 258,940 |   |
| Adjustments  to reconcile net income to net cash provided by operating activities:                  |   |         | ** **  |       |   |
| Depreciation  of buildings and tenant improvements                                                  |   | **114,569**  | ** **  | 103,949    |   |
| Amortization  of deferred leasing and other costs                                                   |   | **16,317**   | ** **  | 14,582     |   |
| Amortization  of deferred financing costs                                                           |   | **2,815**    | ** **  | 3,611      |   |
| Minority  interest in earnings                                                                      |   | **883**      | ** **  | 1,968      |   |
| Straight-line  rent adjustment                                                                      |   | **(8,085**   | **)**       | (9,316     | )      |
| Earnings  from land and depreciated property dispositions                                           |   | **(10,340**  | **)**       | (45,117    | )      |
| Build-to-suit  operations, net                                                                      |   | **175,658**  | ** **  | (93,093    | )      |
| Construction  contracts, net                                                                        |   | **(16,584**  | **)**       | 9,970      |   |
| Other  accrued revenues and expenses, net                                                           |   | **8,451**    | ** **  | 11,510     |   |
| Equity  in earnings in shortfall of operating distributions received from  unconsolidated companies |   | **3,044**    | ** **  | 9,968      |   |
| **Net  cash provided by operating activities**                                                      |   | **477,365**  | ** **  | 266,972    |   |
|                                                                                                |   |         | ** **  |       |   |
|  Cash  flows from investing activities:                                                        |   |         | ** **  |       |   |
| Development  of real estate investments                                                             |   | **(111,223** | **)**       | (175,891   | )      |
| Acquisition  of real estate investments                                                             |   | **(36,175**  | **)**       | (13,927    | )      |
| Acquisition  of land held for development and infrastructure costs                                  |   | **(16,344**  | **)**       | (69,187    | )      |
| Recurring  tenant improvements                                                                      |   | **(21,221**  | **)**       | (12,236    | )      |
| Recurring  leasing costs                                                                            |   | **(12,216**  | **)**       | (10,515    | )      |
| Recurring  building improvements                                                                    |   | **(8,895**   | **)**       | (6,827     | )      |
| Other  deferred leasing costs                                                                       |   | **(12,728**  | **)**       | (10,758    | )      |
| Other  deferred costs and other assets                                                              |   | **(29,956**  | **)**       | (18,322    | )      |
| Tax  deferred exchange escrow, net                                                                  |   | **0**        | ** **  | 7,157      |   |
| Proceeds  from land and depreciated property sales, net                                             |   | **50,463**   | ** **  | 403,783    |   |
| Capital  distributions from unconsolidated companies                                                |   | **0**        | ** **  | 59,468     |   |
| Advances  to unconsolidated companies                                                               |   | **(9,930**   | **)**       | (16,196    | )      |
| **Net  cash (used) provided by investing activities**                                               |   | **(208,225** | **)**       | 136,549    |   |
|                                                                                                |   |         | ** **  |       |   |
|  Cash  flows from financing activities:                                                        |   |         | ** **  |       |   |
| Contribution  from General Partner                                                                  |   | **21,907**   | ** **  | 106,173    |   |
| Proceeds  from indebtedness                                                                         |   | **200,000**  | ** **  | 175,000    |   |
| Payments  for redemption of preferred equity                                                        |   | **(17,953**  | **)**       | (75,014    | )      |
| Payments  for redemption of preferred units                                                         |   | **(35,000**  | **)**       | **—** |   |
| Payments  on indebtedness including principal amortization                                          |   | **(62,943**  | **)**       | (193,830   | )      |
| Repayments  on lines of credit, net                                                                 |   | **(94,124**  | **)**       | (195,975   | )      |
| Distributions  to partners                                                                          |   | **(202,614** | **)**       | (195,538   | )      |
| Distributions  to preferred unitholders                                                             |   | **(42,127**  | **)**       | (47,208    | )      |
| Distributions  to minority interest                                                                 |   | **(565**     | **)**       | (1,217     | )      |
| Deferred  financing costs                                                                           |   | **(3,040**   | **)**       | (5,146     | )      |
| **Net  cash used for financing activities**                                                         |   | **(236,459** | **)**       | (432,755   | )      |
| **Net  increase (decrease) in cash and cash equivalents**                                           |   | **32,681**   | ** **  | (29,234    | )      |
|                                                                                                |   |         | ** **  |       |   |
|  Cash  and cash equivalents at beginning of period                                             |   | **10,453**   | ** **  | 39,200     |   |
|  Cash  and cash equivalents at end of period                                                   |   | **$**        | **43,134**  | ** ** | $      | 9,966 |   |
|                                                                                                |   |         | ** **  |       |   |
|  Other  non-cash items:                                                                        |   |         | ** **  |       |   |
| Assumption  of debt for real estate acquisitions                                                    |   | **$**        | **9,566**   | ** ** | $      | 6,379 |   |
| Contributions  of land and depreciable property to unconsolidated companies                         |   | **$**        | **0**       | ** ** | $      | 15,812 |   |
| Conversion  of Limited Partner Units to common shares of General Partner                            |   | **$**        | **12,632**  | ** ** | $      | 2,303 |   |
| Transfer  of debt in sale of depreciated property                                                   |   | **$**        | **2,432**   | ** ** | $      | — |   |
| Issuance  of Limited Partner Units for real estate acquisitions                                     |   | **$**        | **5,439**   | ** ** | $      | 2,487 |   |
| Redemption  of Limited Partner Units for sale of depreciated property                               |   | **$**        | **—**  | ** ** | $      | 13,445 |   |

 

See accompanying Notes toCondensed Consolidated Financial Statements

 

4

----

 

**DUKE REALTY LIMITED PARTNERSHIP ANDSUBSIDIARIES**

**Condensed Consolidated Statement ofPartners’ EquityFor the nine months ended September 30, 2002**

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

**(Unaudited)**

 
|                                                                                |   |                  |          |       |   | **Limited  Partners’  Common  Equity** |       | **Limited  Partners’  Preferred  Equity** |        | **Accumulated  Other  Comprehensive  Income (Loss)** |   | **Total**   |       |
|-------------------------------------------------------------------------------------|--------|-----------------------|---------------|------------|--------|---------------------------------------------|------------|------------------------------------------------|-------------|------------------------------------------------------|--------|-------------|------------|
| **General  Partner**                                                                |
| **Common  Equity**                                                                  |   | **Preferred  Equity** |
|                                                                                |
|                                                                                |   |                  |          |       |   |                                        |       |                                           |        |                                                 |   |        |       |
| **Balance  at December 31, 2001**                                                   |   | **$**                 | **2,203,291** | ** ** | **$**  | **583,419**                                 | ** ** | **$**                                          | **286,759** | ** **                                           | **$**  | **102,955** | ** ** | **$** | **(192** | **)** | **$** | **3,176,232** | ** ** |
|                                                                                |   |                  |          |       |   |                                        |       |                                           |        |                                                 |   |        |       |
| Comprehensive  income:                                                              |   |                  |          |       |   |                                        |       |                                           |        |                                                 |   |        |       |
| Net  income                                                                         |   | 132,976               |          | 35,968     |   | 15,534                                      |       | 6,159                                          |        | —                                               |   | 190,637     |       |
| Distributions  to preferred unitholders                                             |   | —                |          | (35,968    | )      | —                                      |       | (6,159                                         | )           | —                                               |   | (42,127     | )          |
| Gains  (losses) on derivative instruments                                           |   |                  |          |       |   |                                        |       |                                           |        | 144                                                  |   | 144         |       |
|                                                                                |   |                  |          |       |   |                                        |       |                                           |        |                                                 |   |        |       |
| Comprehensive  income available for common unitholders                              |   | —                |          | —     |   | —                                      |       | —                                         |        | —                                               |   | 148,654     |       |
|                                                                                |   |                  |          |       |   |                                        |       |                                           |        |                                                 |   |        |       |
| Capital  contribution from General Partner                                          |   | 21,969                |          | —     |   | —                                      |       | —                                         |        | —                                               |   | 21,969      |       |
|                                                                                |   |                  |          |       |   |                                        |       |                                           |        |                                                 |   |        |       |
| Acquisition  of Partnership interest for common  stock of General Partner |   | 58,434                |          | —     |   | (45,802                                     | )          | —                                         |        | —                                               |   | 12,632      |       |
|                                                                                |   |                  |          |       |   |                                        |       |                                           |        |                                                 |   |        |       |
| Acquisition  of property in exchange for Limited Partner Units                      |   | —                |          | —     |   | 5,439                                       |       | —                                         |        | —                                               |   | 5,439       |       |
|                                                                                |   |                  |          |       |   |                                        |       |                                           |        |                                                 |   |        |       |
| General  Partner’s repurchase of Series D Preferred Shares                     |   | —                |          | (25        | )      | —                                      |       | —                                         |        | —                                               |   | (25         | )          |
|                                                                                |   |                  |          |       |   |                                        |       |                                           |        |                                                 |   |        |       |
| General  Partner’s redemption of Series B Preferred Shares                     |   | —                |          | (17,928    | )      | —                                      |       | —                                         |        | —                                               |   | (17,928     | )          |
|                                                                                |   |                  |          |       |   |                                        |       |                                           |        |                                                 |   |        |       |
| Redemption  of Series G Preferred Units                                             |   | —                |          | —     |   | —                                      |       | (35,000                                        | )           | —                                               |   | (35,000     | )          |
|                                                                                |   |                  |          |       |   |                                        |       |                                           |        |                                                 |   |        |       |
| Distributions  to General Partner                                                   |   | (332                  | )             | —     |   | —                                      |       | —                                         |        | —                                               |   | (332        | )          |
|                                                                                |   |                  |          |       |   |                                        |       |                                           |        |                                                 |   |        |       |
| Distributions  to partners ($1.36 per Common Unit)                                  |   | (181,087              | )             | —     |   | (21,195                                     | )          | —                                         |        | —                                               |   | (202,282    | )          |
|                                                                                |   |                  |          |       |   |                                        |       |                                           |        |                                                 |   |        |       |
| **Balance  at September 30, 2002**                                                  |   | $                     | 2,235,251     |       | **$**  | **565,466**                                 |       | **$**                                          | **240,735** |                                                 | **$**  | **67,955**  |       | **$** | **(48** | **)** | **$** | **3,109,359** |   |
|                                                                                |   |                  |          |       |   |                                        |       |                                           |        |                                                 |   |        |       |
|                                                                                |   |                  |          | ** ** |   |                                        | ** ** |                                           |        | ** **                                           |   |        | ** ** |   |   |   |   |   | ** ** |

 

See accompanying Notes toCondensed Consolidated Financial Statements

 

5

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**DUKE REALTY LIMITED PARTNERSHIP**

**NOTES TO CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS**

**(Unaudited)**

 

**1.**     **FinancialStatements**

 

The interim condensedconsolidated financial statements included herein have been prepared by DukeRealty Limited Partnership (the “Partnership”) without audit (except for theBalance Sheet as of December 31, 2001). The financial statements have beenprepared in accordance with accounting principles generally accepted in theUnited States of America for interim financial information and in accordancewith Rule 10-01 of Regulation S-X of the 1934 Securities Act. Accordingly, theydo not include all of the information and footnotes required by accountingprinciples generally accepted in the United States of America for completefinancial statements. In the opinion of management, all adjustments (consistingof normal recurring adjustments) considered necessary for a fair presentationhave been included. These financial statements should be read in conjunctionwith the consolidated financial statements and notes thereto included in thePartnership’s Annual Report on Form 10-K for the year ended December 31, 2001.

 

**The Partnership**

 

Duke Realty LimitedPartnership (the “Partnership”) was formed on October 4, 1993, when Duke RealtyCorporation (the “General Partner”) contributed all of its properties andrelated assets and liabilities along with the net proceeds of $309.2 millionfrom the issuance of an additional 14,000,833 units through an offering (the“1993 Offering”) to the Partnership. Simultaneously, the Partnership completedthe acquisition of Duke Associates, a full-service commercial real estate firmoperating in the Midwest. The General Partner was formed in 1985 and qualifiesas a Real Estate Investment Trust (“REIT”) under provisions of the InternalRevenue Code. In connection with the 1993 Offering, the formation of thePartnership and the acquisition of Duke Associates, the General Partnereffected a 1 for 4.2 reverse stock split of its existing common units. TheGeneral Partner is the sole general partner of the Partnership and received16,046,144 units of partnership interest (“General Partner Units”) in exchangefor its original contribution which represented a 78.36% interest in thePartnership. As part of the acquisition, Duke Associates received 4,432,109units of limited partnership interest (“Limited Partner Units”) (together withthe General Partner Units, the (“Common Units”)) which represented a 21.64%interest in the Partnership. The Limited Partner Units are exchangeable forunits of the General Partner’s common stock on a one-for-one basis subjectgenerally to a one-year holding period.

 

The Partnership owns andoperates a portfolio of industrial, office and retail properties in themidwestern and southeastern United States and provides real estate services tothird-party owners. The Partnership conducts Service Operations through DukeRealty Services Limited Partnership (“DRSLP”) and Duke Construction LimitedPartnership (“DCLP”). The consolidated financial statements include theaccounts of the Partnership and its majority-owned or controlled subsidiaries.

 

**2.     Lines of Credit**

 

The Partnership has thefollowing lines of credit available (in thousands):

 
| **Description**           |   | **Borrowing  Capacity  (in 000’s)** |    | **Maturity  Date** |          | **Interest  Rate** |        | **Outstanding  at September 30, 2002  (in 000’s)** |   |
|---------------------------|--------|------------------------------------------|---------|--------------------|---------------|--------------------|-------------|---------------------------------------------------------|--------|
| Unsecured  Line of Credit |   | $                                        | 500,000 |               | February 2004 |               | LIBOR + .65 | %                                                       | $      | 29,000 |   |
| Secured  Line of Credit   |   | 100,000                                  |    | January 2003       |          | LIBOR + 1.05       | %           | 24,466                                                  |   |
|                           |        |                                          |         |                    |               |                    |             |                                                         |        |  |  |

 

6

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

 

The$500 million line of credit provides the Partnership with an option to obtainborrowings from the financial institutions that participate in the unsecuredline of credit at rates lower than the stated interest rate, subject to certainrestrictions. Amounts outstanding on the line of credit at September 30, 2002,are at LIBOR + .65% (2.47% at September 30, 2002).

 

**3.     Related PartyTransactions**

 

The Partnership providesmanagement, maintenance, leasing, construction, and other tenant-relatedservices to properties in which certain of its General Partner’s executiveofficers have ownership interests. The Partnership has an option to acquirethese executive officers’ interest in these properties (the “OptionProperties”). The Partnership received fees totaling approximately $1.1 millionand $1.3 million for services provided to the Option Properties for the ninemonths ended September 30, 2002 and 2001, respectively. The Partnershipbelieves that the fees charged by the Partnership for such services areequivalent to those charged to third-party owners for similar services.

 

The Partnership has otherrelated party transactions that are insignificant and that include terms thatare considered by the Partnership to be at arm’s-length and equal to thosenegotiated with unaffiliated parties.

 

**4.     Net Income PerCommon Unit**

 

Basic net income percommon unit is computed by dividing net income available for common unitholdersby the weighted average number of common units outstanding for the period.Diluted net income per common unit is computed by dividing net income availablefor common units by the sum of the weighted average number of common units outstandingand dilutive potential common units for the period.

 

The following tablereconciles the components of basic and diluted net income per common unit forthe three and nine months ended September 30 (in thousands):

 
|                                                                               |   | **Three  Months Ended  September 30,** |       | **Nine  Months Ended  September 30,** |       |
|------------------------------------------------------------------------------------|--------|----------------------------------------|------------|---------------------------------------|------------|
|                                                                               |   | **2002**                               |       | **2001**                              |       | **2002** |   | **2001** |   |
|                                                                               |   |                                   |       |                                  |       |   |   |   |   |
| Basic  net income available for  common  unitholders                          |   | **$**                                  | **43,452** |                                  | $          | 88,018 | ** ** | **$** | **148,510** |   | $ | 212,300 |   |
| Joint  venture partner convertible ownership net income                            |   | **—**                             |       | 810                                   |       | **—** |   | 2,476 |   |
| Series  D Convertible Preferred shares accrued dividend                            |   | **—**                             |       | 2,466                                 |       | **—** |   | — |   |
| Series  G Convertible Preferred units accrued dividend                             |   | **—**                             |       | 700                                   |       | **—** |   | — |   |
| Diluted  net income available for common units and dilutive potential common units |   | **$**                                  | **43,452** |                                  | $          | 91,994 | ** ** | **$** | 148,510 |   | $ | 214,776 |   |
|                                                                               |   |                                   |       |                                  |       |   |   |   |   |
| Weighted  average number of common units outstanding                               |   | **149,810**                            |       | 148,396                               | ** ** | **149,267** |   | 147,850 |   |
| Joint  venture partner convertible ownership common unit equivalents               |   | **—**                             |       | 2,025                                 |       | **—** |   | 2,086 |   |
| Series  D Convertible Preferred shares common share equivalents                    |   | **—**                             |       | 5,011                                 |       | **—** |   | — |   |
| Series  G Convertible Preferred units common share equivalents                     |   | **—**                             |       | 1,445                                 |       | **—** |   | — |   |
| Dilutive  units for long-term compensation plans                                   |   | **1,446**                              |       | 1,717                                 | ** ** | **1,613** |   | 1,687 |   |
| Weighted  average number of common units and dilutive potential common units       |   | **151,256**                            |       | 158,594                               | ** ** | **150,880** |   | 151,623 |   |

 

The Series D ConvertiblePreferred equity and the Series G preferred limited partner units wereanti-dilutive for the three months and nine months ended September 30, 2002 andthe nine months ended September 20, 2001; therefore, no conversion to commonunits is included in weighted dilutive potential common units. The Series DConvertible Preferred equity and the Series G Convertible Preferred limited

 

7

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partner units weredilutive for the three months ended September 30, 2001; therefore, conversionto common units is included in weighted dilutive potential common units. Thedilutive effect is the result of net income for the three months endedSeptember 30, 2001, being higher due to the significant gain on depreciatedproperty sales for the quarter.

 

A joint venture partnerin one of the Partnership’s unconsolidated ventures has the option to convert aportion of its ownership to General Partner common shares. The effect of theoption on earnings per unit was anti-dilutive for the three and nine monthsended September 30, 2002; therefore no conversion to common units is includedin weighted dilutive potential common units. For the three and nine monthsended September 30, 2001, the effect of the option on earnings per unit wasdilutive. Therefore, additional equity in earnings was included in diluted netincome available for common unitholders and conversion to common units was includedin weighted dilutive potential common units.

 

**5.     Segment Reporting**

 

The Partnership isengaged in four operating segments; the ownership and rental of office,industrial and retail real estate investments (collectively, “RentalOperations”), and the providing of various real estate services such asproperty management, maintenance, leasing, development and constructionmanagement to third-party property owners (“Service Operations”). ThePartnership’s reportable segments offer different products or services and aremanaged separately because each requires different operating strategies andmanagement expertise. There are no material intersegment sales or transfers.

 

Non-segment revenueconsists mainly of equity in earnings of unconsolidated companies. Non-segmentassets consist of corporate assets including cash, deferred financing costs andinvestments in unconsolidated companies.

 

The Partnership assessesand measures segment operating results based upon an industry performancemeasure 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. Interest expense and othernon-property specific revenues and expenses are not allocated to individualsegments in determining the Partnership’s performance measure.

 

The revenues and FFO foreach of the reportable segments for the three and nine months ended September30, 2002 and 2001, and the assets for each of the reportable segments as ofSeptember 30, 2002 and December 31, 2001, are summarized as follows (inthousands):

 
|                                                                 |   | **Three Months Ended September 30,** |        | **Nine Months Ended September 30,** |       |
|----------------------------------------------------------------------|--------|--------------------------------------|-------------|-------------------------------------|------------|
|                                                                 |   | **2002**                             |        | **2001**                            |       | **2002** |   | **2001** |   |
| Revenues                                                             |   |                                 |        |                                |       |   |   |   |   |
| Rental  Operations:                                                  |   |                                 |        |                                |       |   |   |   |   |
| Office                                                               |   | **$**                                | **101,296** |                                | $          | 94,149 | ** ** | **$** | **302,123** |   | $ | 280,589 |   |
| Industrial                                                           |   | **70,132**                           |        | 71,965                              | ** ** | **208,464** |   | 218,117 |   |
| Retail                                                               |   | **2,089**                            |        | 3,607                               | ** ** | **5,563** |   | 17,172 |   |
| Service Operations                                                   |   | **11,584**                           |        | 21,676                              | ** ** | **56,218** |   | 67,625 |   |
| Total Segment Revenues                                               |   | **185,101**                          |        | 191,397                             | ** ** | **572,368** |   | 583,503 |   |
| Non-Segment Revenue                                                  |   | **8,639**                            |        | 7,282                               | ** ** | **22,059** |   | 24,471 |   |
| Consolidated Revenue from continuing operations                      |   | **193,740**                          |        | $                                   | 198,679    | ** ** | **$** | **594,427** |   | $ | 607,974 |   |
| Discontinued Operations                                              |   | **—**                           |        | 1,196                               | ** ** | **3,518** |   | 3,586 |   |
| Consolidated Revenue                                                 |   | **$**                                | **193,740** |                                | $          | 199,875 | ** ** | **$** | **597,945** |   | $ | 611,560 |   |
|                                                                 |   |                                 |        |                                |       |   |   |   |   |
| Funds From Operations                                                |   |                                 |        |                                |       |   |   |   |   |
| Rental  Operations:                                                  |   |                                 |        |                                |       |   |   |   |   |
| Office                                                               |   | **$**                                | **66,756**  | ** **                          | $          | 62,267 | ** ** | **$** | **202,577** | ** ** | $ | 187,747 |   |
| Industrial                                                           |   | **54,070**                           | ** **  | 56,083                              | ** ** | **159,914** | ** ** | 169,042 |   |
| Retail                                                               |   | **1,803**                            | ** **  | 2,872                               | ** ** | **4,754** | ** ** | 14, 063 |   |
| Services Operations                                                  |   | **3,273**                            | ** **  | 11,840                              | ** ** | **25,963** | ** ** | 30,355 |   |
| Total Segment FFO                                                    |   | **125,902**                          | ** **  | 133,062                             | ** ** | **393,208** | ** ** | 401,207 |   |
|                                                                 |   |                                 | ** **  |                                |       |   | ** ** |   |   |
| Non-Segment FFO:                                                     |   |                                 | ** **  |                                |       |   | ** ** |   |   |
| Interest  expense                                                    |   | **(29,797**                          | **)**       | (27,689                             | **)**      | **(84,757** | **)** | (85,260 | ) |
| Interest income                                                      |   | **931**                              | ** **  | 1,587                               | ** ** | **2,694** | ** ** | 4,589 |   |
| General  and administrative expense                                  |   | **(6,621**                           | **)**       | (1,437                              | **)**      | **(20,657** | **)** | (10,152 | ) |
| Gain  on land sales                                                  |   | **1,321**                            | ** **  | 1,082                               | ** ** | **4,412** | ** ** | 4,402 |   |
| Other  expenses                                                      |   | **(1,072**                           | **)**       | (1,523                              | **)**      | **(1,868** | **)** | (2,885 | ) |
| Minority  interest in earnings of subsidiaries                       |   | **(247**                             | **)**       | (727                                | **)**      | **(883** | **)** | (1,968 | ) |
| Joint venture FFO                                                    |   | **12,827**                           | ** **  | 11,532                              | ** ** | **34,200** | ** ** | 34,229 |   |
| Dividends  on preferred units                                        |   | **(13,708**                          | **)**       | (15,349                             | **)**      | **(42,127** | **)** | (46,640 | ) |
| Discontinued  operations                                             |   | **—**                           |        | 837                                 | ** ** | **2,528** | ** ** | 2,514 |   |
| Consolidated  FFO                                                    |   | **89,536**                           | ** **  | 101,375                             | ** ** | **286,750** | ** ** | 300,036 |   |
|                                                                 |   |                                 | ** **  |                                |       |   | ** ** |   |   |
| Depreciation  and amortization on continuing operations              |   | **(45,074**                          | **)**       | (39,249                             | **)**      | **(130,564** | **)** | (117,378 | ) |
| Depreciation  and amortization on discontinued operations            |   | **—**                           | ** **  | (321                                | **)**      | **(322** | **)** | (1,154 | ) |
| Share  of joint venture adjustments                                  |   | **(4,485**                           | **)**       | (4,505                              | **)**      | **(13,283** | **)** | (9,919 | ) |
| Earnings from depreciated property sales on continuing  operations   |   | **3,475**                            | ** **  | 30,718                              | ** ** | **4,471** | ** ** | 40,715 |   |
| Earnings  from depreciated property sales on discontinued operations |   | **—**                           |        | **—**                          |       | **1,458** |   | **—** |   |
|                                                                 |   |                                 |        |                                |       |   |   |   |   |
| Net Income Available for Common Unitholders                          |   | **$**                                | **43,452**  | ** **                          | $          | 88,018 |   | **$** | **148,510** | ** ** | $ | 212,300 |   |

 

8

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|                 |   | **September 30,  2002** |          | **December 31,  2001** |   |
|----------------------|--------|-------------------------|---------------|------------------------|--------|
| Assets               |   |                    |          |                   |   |
| Rental  Operations:  |   |                    |          |                   |   |
| Office               |   | **$**                   | **2,587,711** |                   | $      | 2,625,015 |   |
| Industrial           |   | **2,115,171**           |          | 2,184,234              |   |
| Retail               |   | **67,974**              |          | 64,946                 |   |
| Service Operations   |   | **84,070**              |          | 99,554                 |   |
| Total Segment Assets |   | **4,854,926**           |          | 4,973,749              |   |
| Non-Segment Assets   |   | **443,970**             |          | 356,497                |   |
| Consolidated Assets  |   | **$**                   | **5,298,896** |                   | $      | 5,330,246 |   |

 

**6.     Real EstateAssets Held for Sale**

 

AtSeptember 30, 2002, the Partnership had two office properties and four retailproperties comprising a total of approximately 494,000 square feet classifiedas held for sale. Of these properties, three build-to-suit retail propertiesand one build-to-suit office property were under development at September 30,2002. Net operating income (defined as total property revenues, less propertyexpenses, which include real estate taxes, repairs and maintenance, propertymanagement, utilities, insurance and other expenses) of the properties held forsale was $1.2 million and $585,000 for the nine months ended September 30, 2002and 2001, respectively. Net book value of the properties was $28.7 million atSeptember 30, 2002. There can be no assurances that such properties will besold.

 

**7.     DiscontinuedOperations**

 

The Partnership adopted Statement of FinancialAccounting Standards No. 144, “Accounting for the Impairment or Disposal ofLong Lived Assets”(“SFAS 144”), on January 1, 2002. SFAS 144 requires thePartnership to report in discontinued operations the results of operations of aproperty which has either been disposed or is classified as held for sale,unless certain conditions are met.

 

The Partnership has classified two buildings asdiscontinued operations in accordance with SFAS 144. These two buildings weresold in 2002, but were not identified as held for sale prior to the adoption of

 

9

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SFAS 144. As a result, the Partnership classifiednet income of $930,000 and $1.4 million as net income from discontinuedoperations for the nine months ended September 30, 2002 and 2001, respectively.In addition, the Partnership classified the gain on the sale of these buildingsof $2.7 million as gain on sale of discontinued operations for the nine monthsended September 30, 2002. The properties identified as held for sale inFootnote 6 are not classified as discontinued operations as they were eitheridentified as held for sale prior to the adoption of SFAS 144 or they meetcertain conditions of held for sale properties that exclude them from SFAS 144.

 

**8.     Partners’ Equity**

 

TheGeneral Partner periodically accesses the public equity markets and contributesthe net proceeds to the Partnership to fund the development and acquisition ofadditional properties. The following series of preferred equity are outstandingas of September 30, 2002 (in thousands, except percentages):

 
| **Description**     |   | **Units  Outstanding** |   | **Dividend  Rate** |   | **Initial  Optional  Redemption  Date** |   | **Liquidation  Preference** |   | **Convertible** |   |
|---------------------|--------|------------------------|--------|--------------------|--------|-----------------------------------------|--------|-----------------------------|--------|-----------------|--------|
| Series  B Preferred |   | 300                    |   | 7.990              | %      | September 30,  2007                     |   | 150,000                     |   | No              |   |
| Series  D Preferred |   | 535                    |   | 7.375              | %      | December 31,  2003                      |   | 133,750                     |   | 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 6, 2006                        |   | 75,000                      |   | No              |   |

 

 

All series of preferredequity require cumulative distributions, have no stated maturity date (althoughthe Partnership may redeem them on or following their initial optionalredemption dates), and the redemption price of each series may only be paidfrom the proceeds of other capital shares of the General Partner, which mayinclude other classes or series of preferred equity.

 

The Series D Preferredequity is convertible at a conversion rate of 9.3677 common units for eachpreferred unit outstanding.

 

The dividend rate on theSeries B Preferred equity increases to 9.99% after September 12, 2012. ThePartnership repurchased 355,000 units of the Series B Preferred units inSeptember 2002. The repurchase transaction was initiated by a group of Series BPreferred unitholders who voluntarily approached the Partnership with regardsto a buyback of these units.

 

All of the Series FPreferred units were redeemed on October 10, 2002.

 

**9.     Other Matters**

 

**Reclassifications**

 

Certain2001 balances have been reclassified to conform to 2002 presentation.

 

**10.  DerivativeInstruments**

 

The Partnership has oneinterest rate swap contract that does not meet the criteria of Statement ofFinancial Accounting Standards No. 133, “Accounting for Derivative Instrumentsand Hedging Activities” (“SFAS 133”) to qualify for hedge accounting. SFAS 133requires that unrealized gains and losses on derivatives not qualifying ashedge accounting be recognized currently in earnings.

 

10

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During the nine monthsended September 30, 2002, the Partnership recognized income of $877,000 fromthis interest rate swap contract compared to an expense of $1.4 million for thenine months ended September 30, 2001.

 

**11.  Stock BasedCompensation**

 

ThePartnership elected to adopt Statement of Financial Accounting Standards No.123, “*Accounting for Stock BasedCompensation”* effective January 1, 2002. As a result, thePartnership will expense stock options based upon estimated fair value of theoptions at the date of grant. Additionally, the Partnership will expense thediscount given to employees under the employee stock purchase plan. ThePartnership recorded expense of $325,000 for the first nine months of 2002related to stock compensation from this accounting change.

 

**12.  Investment inUnconsolidated Companies**

 

ThePartnership has equity interests ranging from 10-50% in unconsolidatedpartnerships and joint ventures that own and operate rental properties and holdland for development. The equity method of accounting is used for theseinvestments in which the Partnership has the ability to exercise significantinfluence, but not control, over operating and financial policies. Anydifference between the carrying amount of these investments and the underlyingequity in net assets is amortized to equity in earnings of unconsolidatedcompanies over the depreciable life of the property, generally 40 years. Thecost method of accounting is used for non-majority owned joint ventures overwhich the Partnership does not have the ability to exercise significantinfluence. The difference between the cost and equity methods for such venturesdoes not significantly affect the financial position or results of operationsof the Partnership.

 

**13.  Subsequent Events**

 

The Board of Directors ofthe General Partner declared the following distributions at its July 31, 2002regularly scheduled Board meeting:

 
| **Class**                          |   | **Quarterly  Amount/Unit** |    | **Record  Date** |               | **Payment  Date** |               |
|------------------------------------|--------|----------------------------|---------|------------------|--------------------|-------------------|--------------------|
| Common                             |   | $                          | 0.455   |             | November 14,  2002 |              | November 29,  2002 |   |
| Preferred  (per depositary share): |   |                       |    |             |               |              |               |
| Series  B                          |   | $                          | 0.99875 |             | December 16,  2002 |              | December 31,  2002 |   |
| Series  D                          |   | $                          | 0.46094 |             | December 16,  2002 |              | December 31,  2002 |   |
| Series  E                          |   | $                          | 0.51563 |             | December 16, 2002  |              | December 31,  2002 |   |
| Series  I                          |   | $                          | 0.52813 |             | December 16,  2002 |              | December 31,  2002 |   |

 

The Partnership redeemedthe Series F Preferred units in October 2002.

 

11

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The Partners

**DukeRealty Limited Partnership****:**

 

We have reviewed the condensed consolidated balance sheet of DukeRealty Limited Partnership and subsidiaries as of September 30, 2002, therelated condensed consolidated statements of operations for the three monthsand the nine months ended September 30, 2002 and 2001, the related condensedconsolidated statements of cash flows for the nine months ended September 30,2002 and 2001, and the related condensed consolidated statement of partners’equity for the nine months ended September 30, 2002. These condensedconsolidated financial statements are the responsibility of the Partnership’smanagement.

 

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

 

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

 

We have previously audited, in accordance with auditing standardsgenerally accepted in the United States of America, the consolidated balancesheet of Duke Realty Limited Partnership and subsidiaries as of December 31,2001, and the related consolidated statements of operations, partners’ equityand cash flows for the year then ended (not presented herein); and in ourreport dated January 30, 2002, except as to Note 15, which is as of October 9,2002, 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, 2001 is fairlypresented, in all material respects, in relation to the consolidated balancesheet from which it has been derived.

 

 

KPMG LLP

Indianapolis, Indiana

October 30, 2002

 

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**Item2.  Management’s Discussion and Analysisof Financial Condition and Results of Operations**

 

**BusinessOverview**

 

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, and Section21E of the Securities Exchange Act of 1934, as amended. Such forward-lookingstatements involve known and unknown risks, uncertainties and other importantfactors that could cause the actual results, performance or achievements of thePartnership, or industry results, to differ materially from any future results,performance or achievements expressed or implied by such forward-lookingstatements. Such risks, uncertainties and other important factors include,among others: general economic and business conditions; continued qualificationas a real estate investment trust; competition for tenants; increases in realestate construction costs; changes in interest rates; accessibility of debt andequity capital markets and other risks inherent in the real estate businessincluding tenant defaults, potential liability relating to environmentalmatters and liquidity of real estate investments. The words “believe,”“estimate,” “expect” and similar expressions or statements regarding futureperiods are intended to identify forward-looking statements. Allforward-looking statements are inherently uncertain as they involve substantialrisks and uncertainties beyond the Partnership’s control. The Partnershipundertakes no obligation to update or revise any forward-looking statements forevents or circumstances after the date on which such statement is made. Newfactors emerge from time to time, and it is not possible for the Partnership topredict all such factors. Further, the Partnership cannot assess the impact ofeach such factor on its business or the extent to which any factor, orcombination of factors, may cause actual results to differ materially fromthose contained in any forward-looking statements.

 

The Partnership’s operating results depend primarily upon income fromthe Rental Operations of its industrial, office and retail properties locatedin its primary markets. This rental income is substantially influenced by thesupply and demand for the Partnership’s rental space in its primary markets. Inaddition, the Partnership’s growth is dependent upon its ability to increaseand maintain occupancy rates and increase rental rates of its in-serviceportfolio. The Partnership’s strategy for growth also includes developing andacquiring additional rental properties in its primary markets.

 

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

 

***Same PropertyPerformance*:**The Partnership tracks Same Propertyperformance, which compares those properties that were in-service for allreported portions of a two-year period. The net operating income from the sameproperty portfolio increased .8% for the nine months ended September 30, 2002,compared to the nine months ended September 30, 2001.

 

***Occupancy Analysis:***The following table sets forth information regarding thePartnership’s in-service portfolio of rental properties as of September 30,2002 and 2001 (square feet, in thousands):

 

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|             |   | **Total  Square Feet** |   | **Percent of  Total Square Feet** |       | **Percent  Occupied** |       |
|------------------|--------|------------------------|--------|-----------------------------------|------------|-----------------------|------------|
| **Type**         |   | **2002**               |   | **2001**                          |       | **2002**              |       | **2001** |   | **2002** |   | **2001** | ** ** |
| **Industrial**   |   |                   |   |                              |       |                  | ** ** |   |   |   |   |   |   |
| Service  Centers |   | **13,686**             |   | 13,784                            | ** ** | **13.2**              | **%**      | 13.8 | % | **87.9** | % | 89.2 | % |
| Bulk             |   | **65,304**             |   | 62,374                            | ** ** | **62.8**              | **%**      | 62.2 | % | **88.0** | % | 91.1 | % |
| **Office**       |   | **24,171**             |   | 23,301                            | ** ** | **23.2**              | **%**      | 23.3 | % | **85.4** | % | 86.9 | % |
| **Retail**       |   | **839**                |   | 745                               | ** ** | **.8**                | **%**      | .7 | % | **99.4** | % | 96.0 | % |
|             |   |                   |   |                              |       |                  | ** ** |   |   |   |   |   |   |
| Total            |   | **104,000**            |   | 100,204                           | ** ** | **100.0**             | **%**      | 100.0 | % | **87.5** | % | 89.9 | % |

 

***Lease Expiration:***Thefollowing table reflects the Partnership’s in-service portfolio leaseexpiration schedule as of September 30, 2002, by property type indicatingsquare footage and annualized net effective rents under expiring leases (inthousands, except per square foot amounts):

 
|                    |   | **Total  Portfolio** |   | **Industrial**         |    | **Office**              |   | **Retail**       |   |
|-------------------------|--------|----------------------|--------|------------------------|---------|-------------------------|--------|------------------|--------|
| **Year of  Expiration** |   | **Square  Feet**     |   | **Ann. Rent  Revenue** |    | **Percent of  Revenue** |   | **Square  Feet** |   | **Ann. Rent  Revenue** |   | **Square  Feet** |   | **Ann. Rent  Revenue** |   | **Square  Feet** |   | **Ann. Rent  Revenue** |   |
| 2002                    |   | 3,468                |   | $                      | 18,463  |                    | 3      | %                | 3,120  |   | $ | 14,337 |   | 348 |   | $ | 4,126 |   | — |   | $ | — |   |
| 2003                    |   | 9,637                |   | 63,514                 |    | 10                      | %      | 7,597            |   | 38,465 |   | 2,040 |   | 25,049 |   | — |   | — |   |
| 2004                    |   | 11,234               |   | 75,615                 |    | 12                      | %      | 8,759            |   | 41,897 |   | 2,452 |   | 33,311 |   | 23 |   | 407 |   |
| 2005                    |   | 14,086               |   | 97,222                 |    | 14                      | %      | 11,194           |   | 55,607 |   | 2,854 |   | 41,111 |   | 38 |   | 504 |   |
| 2006                    |   | 11,030               |   | 80,217                 |    | 13                      | %      | 8,514            |   | 44,406 |   | 2,509 |   | 35,702 |   | 7 |   | 109 |   |
| 2007                    |   | 10,818               |   | 74,458                 |    | 12                      | %      | 8,350            |   | 41,193 |   | 2,404 |   | 32,460 |   | 64 |   | 805 |   |
| 2008                    |   | 7,574                |   | 48,139                 |    | 8                       | %      | 5,967            |   | 26,331 |   | 1,583 |   | 21,438 |   | 24 |   | 370 |   |
| 2009                    |   | 6,136                |   | 37,897                 |    | 6                       | %      | 5,041            |   | 22,398 |   | 1,076 |   | 15,130 |   | 19 |   | 369 |   |
| 2010                    |   | 5,662                |   | 44,640                 |    | 7                       | %      | 4,012            |   | 18,718 |   | 1,634 |   | 25,658 |   | 16 |   | 264 |   |
| 2011                    |   | 3,597                |   | 31,388                 |    | 5                       | %      | 2,325            |   | 11,193 |   | 1,256 |   | 19,950 |   | 16 |   | 245 |   |
| 2012 and Thereafter     |   | 7,705                |   | 63,902                 |    | 10                      | %      | 4,581            |   | 20,999 |   | 2,497 |   | 37,653 |   | 627 |   | 5,250 |   |
| Total Leased            |   | 90,947               |   | $                      | 635,455 |                    | 100    | %                | 69,460 |   | $ | 335,544 |   | 20,653 |   | $ | 291,588 |   | 834 |   | $ | 8,323 |   |
|                    |   |                 |   |                   |    |                    |   |             |   |   |   |   |   |   |   |   |   |   |   |
| Total Portfolio         |   |                 |   |                   |    |                    |   |             |   |   |   |   |   |   |   |   |   |   |   |
| Square Feet             |   | 104,000              |   |                   |    |                    |   | 78,991           |   |   |   | 24,170 |   |   |   | 839 |   |   |   |
|                    |   |                 |   |                   |    |                    |   |             |   |   |   |   |   |   |   |   |   |   |   |
| Percent Occupied        |   | 87.45                | %      |                   |    |                    |   | 87.94            | %      |   |   | 85.44 | % |   |   | 99.40 | % |   |   |

 

***Future Development:***The Partnership alsoexpects to realize growth in earnings from Rental Operations through thedevelopment and acquisition of additional rental properties in its primarymarkets. Specifically, the Partnership has 3.4 million square feet ofproperties under development at September 30, 2002. These properties underdevelopment should provide future earnings through Service Operations incomeupon sale or from Rental Operations growth as they are placed in service asfollows (in thousands, except percent leased and stabilized returns):

 
| **Anticipated  In-Service  Date** |   | **Square  Feet** |   | **Percent  Leased** |   | **Project  Costs** |    | **Estimated  Stabilized  Return** |   |
|-----------------------------------|--------|------------------|--------|---------------------|--------|--------------------|---------|-----------------------------------|--------|
|                              |   |             |   |                |   |               |    |                              |   |
| Held For Rental:                  |   |             |   |                |   |               |    |                              |   |
|                              |   |             |   |                |   |               |    |                              |   |
| 4th  Quarter 2002                 |   | 434              |   | 49                  | %      | $                  | 19,427  |                              | 11.0   | % |
| 1st   Quarter 2003           |   | 1,052            |   | 82                  | %      | 40,040             |    | 10.6                              | %      |
| 2nd  Quarter 2003                 |   | 402              |   | 58                  | %      | 40,748             |    | 10.7                              | %      |
| Thereafter                        |   | 1,232            |   | 65                  | %      | 47,555             |    | 10.3                              | %      |
|                              |   | 3,120            |   | 68                  | %      | $                  | 147,770 |                              | 10.6   | % |
| Build-to-Suit  for Sale:          |   |             |   |                |   |               |    |                              |   |
|                              |   |             |   |                |   |               |    |                              |   |
| 4th  Quarter 2002                 |   | —           |   | —              |   | $                  | —  |                              | — |   |
| 1st   Quarter 2003           |   | 17               |   | 53                  | %      | 2,335              |    | 12.2                              | %      |
| 2nd  Quarter 2003                 |   | 61               |   | 71                  | %      | 6,887              |    | 10.9                              | %      |
| Thereafter                        |   | 159              |   | 70                  | %      | 15,204             |    | 12.0                              | %      |
|                              |   | 237              |   | 69                  | %      | $                  | 24,426  |                              | 11.7   | % |
| Total                             |   | 3,357            |   | 68                  | %      | $                  | 172,196 |                              | 10.7   | % |

 

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***Lease Renewals:***ThePartnership renewed 75.0% of leases up for renewal in the three months endedSeptember 30, 2002, totaling 2.3 million square feet on which it attained a3.2% growth in net effective rent. This compares to renewals of 68.6% for thethree months ended September 30, 2001, totaling 1.8 million square feet and10.5% growth in net effective rent.

 

**Resultsof Operations**

 

A summary of the Partnership’s operating results and propertystatistics for the three and nine months ended September 30, 2002 and 2001, isas follows (in thousands, except number of properties and per unit amounts):

 
|                                                         |   | **Three Months Ended September 30,** |        | **Nine Months Ended September 30,** |       |
|--------------------------------------------------------------|--------|--------------------------------------|-------------|-------------------------------------|------------|
|                                                         |   | **2002**                             |        | **2001**                            |       | **2002** |   | **2001** |   |
|                                                         |   |                                 |        |                                |       |   |   |   |   |
| Rental  Operations revenue                                   |   | **$**                                | **182,156** |                                | $          | 177,004 | ** ** | **$** | **538,209** |   | $ | 540,349 |   |
| Service  Operations revenue                                  |   | **11,584**                           |        | 21,676                              | ** ** | **56,218** |   | 67,625 |   |
| Earnings  from Rental Operations                             |   | **55,122**                           |        | 60,703                              | ** ** | **170,830** |   | 191,922 |   |
| Earnings  from Service Operations                            |   | **3,273**                            |        | 11,840                              | ** ** | **25,963** |   | 30,355 |   |
| Operating  income                                            |   | **51,774**                           |        | 71,106                              | ** ** | **176,136** |   | 212,125 |   |
| Net  income available for common unitholders                 |   | **$**                                | **43,452**  |                                | $          | 88,018 | ** ** | **$** | **148,510** |   | $ | 212,300 |   |
| Weighted  average common units outstanding                   |   | **149,810**                          |        | 148,396                             | ** ** | **149,267** |   | 147,850 |   |
| Weighted  average common and dilutive potential common units |   | **151,256**                          |        | 158,594                             | ** ** | **150,880** |   | 151,623 |   |
| Basic  income per common share:                              |   |                                 |        |                                |       |   |   |   |   |
| Continuing  operations                                       |   | **$**                                | **.29**     |                                | $          | .59 | ** ** | **$** | **.98** |   | $ | 1.43 |   |
| Discontinued  operations                                     |   | **$**                                | **—**  |                                | $          | — | ** ** | **$** | **.02** |   | $ | .01 |   |
| Diluted  income per common share:                            |   |                                 |        |                                |       |   |   |   |   |
| Continuing  operations                                       |   | **$**                                | **.29**     |                                | $          | .58 | ** ** | **$** | **.96** |   | $ | 1.41 |   |
| Discontinued  operations                                     |   | **$**                                | **—**  |                                | $          | — | ** ** | **$** | **.02** |   | $ | .01 |   |
|                                                         |   |                                 |        |                                |       |   |   |   |   |
| Number  of in-service properties at end of period            |   | **904**                              |        | 878                                 | ** ** | **904** |   | 878 |   |
| In-service  square footage at end of period                  |   | **104,000**                          |        | 100,204                             | ** ** | **104,000** |   | 100,204 |   |
| Under  development square footage at end of period           |   | **3,357**                            |        | 6,256                               | ** ** | **3,357** |   | 6,256 |   |

 

**Comparisonof Three Months Ended September 30, 2002 to Three Months Ended September 30,2001**

 

Rental Operations

 

Rental Operations revenue increased to $182.2 million from $177.0million for the three months ended September 30, 2002, compared to the threemonths ended September 30, 2001. Rental Operations revenue is comprised ofrental income from held for rental properties (“Rental Income”) and equity inearnings from unconsolidated companies (“Equity in Earnings”). Rental Incomeincreased from $170.0 million in 2001 to $173.8 million in 2002. This increaseis primarily the result of the Partnership recognizing $6.4 million of leasetermination fees for the three months ended September 30, 2002, compared to$4.6 million for the three months ended September 30, 2001. The occupancy levelof in-service properties decreased from 89.9% at September 30, 2001, to 87.5%at September 30, 2002. The decrease is attributable to a combination of severalproperties with un-leased space being completed and placed in-service over thelast 12 months, the slow economy and related slowdown in demand, and theeffects of the Partnership’s disposition activities in 2000 and 2001 during whichover $1 billion of assets were sold in an effort to de-leverage thePartnership’s balance sheet as well as dispose of lower performing assets. Thefollowing is a summary of the Partnership’s in-service portfolio since January1, 2001:

 

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|                           |   | **Buildings** |   | **Square  Feet** |   |
|--------------------------------|--------|---------------|--------|------------------|--------|
| Properties in service as of:   |   |          |   |             |   |
| January 1, 2001                |   | 913           |   | 100,962          |   |
| Acquisitions                   |   | 5             |   | 258              |   |
| Developments placed in service |   | 55            |   | 9,906            |   |
| Dispositions                   |   | (85           | )      | (8,234           | )      |
|                           |   |          |   |             |   |
| December 31, 2001              |   | 888           |   | 102,892          |   |
| Acquisitions                   |   | 5             |   | 585              |   |
| Developments placed in service |   | 24            |   | 4,454            |   |
| Dispositions                   |   | (13           | )      | (3,931           | )      |
|                           |   |          |   |             |   |
| September 30, 2002             |   | 904           |   | 104,000          |   |

 

Equity in Earnings increased to $8.3 million from $7.0 million for thethree months ended September 30, 2002, compared to the same period in 2001. Inthe third quarter of 2002, the Partnership recognized $1.8 million resultingfrom a gain on the sale of a property in a joint venture in which thePartnership had a 50% ownership interest. This increase was offset by a$740,000 decrease in termination fees from 2001 to 2002.

 

Operating expenses from Rental Operations increased in total from$116.3 million for the three months ended September 30, 2001, to $127.0 millionfor the same period in 2002. The primary increase was in depreciation andamortization expense due to increases in building asset basis and additionalinvestments in tenant improvements. Rental expenses and real estate taxesincreased slightly in relation to the increased number of in-service propertiesfrom September 30, 2001 to September 30, 2002.

 

Interest expense for the three months ended September 2002 remainedcomparable to the same period in 2001. The Partnership has reduced secured debtand related interest expense over the past twelve months by paying off maturingmortgage loans, but the savings have been mitigated by less capitalizedinterest on development projects due to decreased development activity over thepast twelve months.

 

As a result of the above-mentioned items, earnings from RentalOperations decreased $5.6 million from $60.7 million for the three months endedSeptember 30, 2001, to $55.1 million for the three months ended September 30,2002.

 

Service Operations

 

Service Operations revenues decreased from $21.7 million for the threemonths ended September 30, 2001, to $11.6 million for the three months endedSeptember 30, 2002. The prolonged effect of the slow economy has been theprimary factor in the overall decrease in revenues from Service Operations. Netrevenues from general contractor work on third-party construction projects hasdecreased $3.3 million for the three months ended September 30, 2002, comparedto the same period in 2001 as customer decisions on expansions and newconstruction have been delayed due to economic conditions.

 

Construction management and development activity income representsconstruction and development fees earned on projects where the Partnership actsas the construction manager and profits from the Partnership’s held for sale programwhereby a property is developed in DCLP and sold upon completion to a thirdparty. There were no sales during the third quarter of 2002 from thePartnership’s held for sale portfolio compared to three sales in the thirdquarter of 2001.

 

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Property management, maintenance and leasing fee revenues decreased to$3.8 million from $4.8 million for the three months ended September 30, 2002,compared to the same period in 2001. The $1.0 million decrease is due mainly toa decrease in landscaping maintenance revenue resulting from the sale of thelandscaping business in the third quarter of 2001.

 

As a result, earnings from Service Operations decreased from $11.8million for the three months ended September 30, 2001, to $3.3 million for thethree months ended September 30, 2002.

 

General and Administrative Expense

 

General and administrative expense increased from $1.4 million for thethree months ended September 30, 2001 to $6.6 million for the three monthsended September 30, 2002. While the Partnership has implemented severalinitiatives that have reduced total operating and administration costs, reducedconstruction and development activity resulted in a greater amount of overheadbeing charged to general and administrative expense during the third quarter2002 instead of being capitalized into development projects.

 

Other Income and Expenses

 

Earnings from land and depreciable property dispositions is primarilydriven by the sale of held for investment rental properties. Throughout 2000and 2001, the Partnership actively pursued favorable opportunities to disposeof real estate assets that no longer met long-term investment objectives. Thisdisposition strategy generated approximately $31.8 million of gain on sales ofdepreciable property during the third quarter of 2001, compared to only $4.8million for the three months ended September 30, 2002, in conjunction with thePartnership’s decision to slow dispositions in 2002 in light of the currentbusiness climate.

 

Discontinued Operations

 

The Partnership adopted Statement of Financial Accounting Standards No.144 “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS144”) on January 1, 2002. In conjunction with the adoption of SFAS 144, thePartnership is required to classify operations of properties identified as heldfor sale as discontinued operations when certain conditions are met. As notedin Footnote 7 to the financial statements, the Partnership classified twobuildings that were sold in 2002 as discontinued operations. The sale of bothof these buildings occurred in the second quarter of 2002, therefore, there isno effect on discontinued operations in the third quarter of 2002. ThePartnership classified $516,000 of net income from operations of theseproperties in the third quarter of 2001 to discontinued operations.

 

Net Income Available for Common Unitholders

 

Net income available for common unitholders for the three months endedSeptember 30, 2002, was $43.5 million compared to $88.0 million for the sameperiod in 2001. This decrease results primarily from the operating fluctuationsin Rental Operations, Service Operations, general and administrative expensesand sales of depreciable property as discussed above.

 

**Comparisonof Nine Months Ended September 30, 2002 to Nine Months Ended September 30, 2001**

 

Rental Operations

 

RentalOperations revenue decreased to $538.2 million for the nine months endedSeptember 30, 2002, from $540.3 million for the nine months ended September 30,2001. Rental Income increased from $516.0 million in 2001 to $517.3 million in2002. The Partnership continues to feel the impact of a

 

17

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slowedeconomy as businesses are delaying decisions to expand operations and, in somecases, are downsizing occupied space currently rented from the Partnership. Asa result of the slowed economy, the occupancy of the Partnership’s in-serviceportfolio has decreased to 87.5% at September 30, 2002, from 89.9% at September30, 2001. Also contributing to the decline in occupancy is the effect of thePartnership’s property dispositions. Throughout 2000 and 2001, and the firstnine months of 2002, the Partnership has sold over $1 billion of held forinvestment rental properties from its in-service portfolio. A majority of theseproperties were over 90% leased and the new developments placed in-service overthe same time period have leased at lower percentages and, therefore, thePartnership has realized less rental income. The Partnership has mitigated thedecreased occupancy effects on Rental Income through the recognition of $22.2million of lease termination fees for the nine months ended September 30, 2002.These fees are the result of negotiated terms for tenants vacating or downsizingpreviously leased space from the Partnership. During the nine months endedSeptember 30, 2001, the Partnership recognized $9.7 million in leasetermination fees.

 

Equityin Earnings decreased to $20.9 million from $24.3 million for the nine monthsended September 30, 2002, compared to the same period in 2001. In the firstquarter of 2001, the Partnership recognized a $2.9 million gain resulting fromthe sale of a property in a joint venture that the Partnership had a 50%ownership interest. In addition, the Partnership recognized $1.5 million intermination fees for the nine months ended September 30, 2001, compared to$584,000 for the nine months ended September 30, 2002. During 2001, two of thePartnership’s 50% joint ventures incurred additional debt, resulting inincreased interest expense for the nine months ended September 30, 2002,compared to nine months ended September 30, 2001. These decreases were offsetby the Partnership recognizing in the third quarter 2002, a $1.8 million gainfrom the sale of a property in a joint venture in which the Partnership had a50% ownership interest.

 

Rental and real estate tax expenses increased for the nine months endedSeptember 30, 2002, compared to the same period in 2001. Generally, theseincreases resulted from a combination of increasing operating costs of thePartnership’s properties and an overall increase in the Partnership’sin-service portfolio from 878 buildings at September 30, 2001, to 904 atSeptember 30, 2002. The majority of the operating expenses are recovered fromthe tenants through increased rental billings. Depreciation and amortizationexpense for the nine months ended September 30, 2002, increased over the prioryear, due to an increase in the Partnership’s building asset basis, investmentsin tenant improvements and the expensing of undepreciated tenant improvementsassociated with the early terminations of tenants.

 

Interest expense for the nine months ended September 30, 2002, remainedcomparable to the same period in 2001. The Partnership paid off over $128million of secured debt throughout 2001, which has translated into a savings of$7.3 million in secured debt interest expense for the nine months endedSeptember 30, 2002, compared to the same period in 2001. The Partnership has alsorealized an interest expense savings of nearly $2 million on its unsecured lineof credit as the result of carrying a lower balance on the line in 2002 andlower interest rates on the line. These savings have been offset by a $9.1million decrease in capitalized interest from the nine months ended September30, 2001, compared to the same period in 2002. This is due to decreaseddevelopment activity during 2002 from the effects of the slowed economy andreduced development opportunities in the Partnership’s markets.

 

As a result of the above-mentioned items, earnings from RentalOperations decreased $21.1 million from $191.9 million for the nine monthsended September 30, 2001, to $170.8 million for the nine months ended September30, 2002.

 

18

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Service Operations

 

Service Operations revenues decreased from $67.6 million for the ninemonths ended September 30, 2001, to $56.2 million for the nine months endedSeptember 30, 2002. Overall, Service Operations has experienced decreasedlevels of construction volume during the nine months ended September 30, 2002,compared to the same period in 2001, as the effects of a slowed economy havecontinued to affect customer decisions to expand operations into new office orindustrial buildings. However, the completion of projects in the Partnership’sheld for sale pipeline (see below) helped to offset the decrease inconstruction volume.

 

The Partnership experienced a $12.1 million decrease in net generalcontractor revenues from third party projects as the delay in economic recoveryhas forced many businesses to delay expansion and development decisions.

 

Construction management and development activity income wassignificantly higher for the nine months ended September 30, 2002, compared tothe same period in 2001, due to profits generated from the Partnership’s heldfor sale program in DCLP. While the number of properties sold out of DCLPactually decreased from ten in 2001 to eight during 2002, the profit margins onthese sales were greater in 2002 due to the types of properties sold andnegotiated tenant purchase options on four properties sold in 2002 whichyielded higher margins.

 

Property management, maintenance and leasing fee revenues decreased to$10.4 million from $19.3 million for the nine months ended September 30, 2002,compared to the same period in 2001. The $8.9 million decrease is due mainly toa decrease in landscaping maintenance revenue resulting from the sale of thelandscape business in the third quarter of 2001.

 

Service Operations expenses decreased by $7.0 million from $37.3million for the nine months ended September 30, 2001, to $30.3 million for thenine months ended September 30, 2002. This decrease is attributable to thedecrease in construction and development activity associated with the slowdownin the economy and the reduced overhead costs from the sale of the landscapingbusiness in the third quarter of 2001.

 

As a result of the above, earnings from Service Operations decreasedfrom $30.4 million for the nine months ended September 30, 2001, to $26.0million for the nine months ended September 30, 2002.

 

General and Administrative Expense

 

General and administrative expense increased from $10.2 million for thenine months ended September 30, 2001 to $20.7 million for the nine months endedSeptember 30, 2002. The Partnership has reduced total operating andadministration costs, however, reduced construction and development activitieshave resulted in a greater amount of overhead being charged to general andadministrative expense instead of being capitalized into development projects.

 

Other Income and Expenses

 

Earnings from land and depreciable property dispositions is primarilydriven by the sale of held for investment rental properties. Throughout 2000and 2001, the Partnership actively pursued favorable opportunities to disposeof real estate assets that no longer met long-term investment objectives. Thisdisposition strategy generated approximately $45.1 million of gain on sales ofdepreciable property during the first nine months of 2001. In 2002, thePartnership significantly reduced its disposition strategy as the desired levelof liquidity was achieved. As a result, dispositions of land and depreciableproperty in 2002 has yielded a significantly lower gain of $8.9 million.

 

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Other revenue for the nine months ended September 30, 2002, includes$877,000 of gain related to an interest rate swap that does not qualify forhedge accounting. During the nine months ended September 30, 2001, thePartnership recognized a $1.4 million loss on the same interest rate swap.

 

Discontinued Operations

 

The Partnership classified net income of $930,000 and $1.4 million asdiscontinued operations for the nine months ended September 30, 2002 and 2001,respectively, pertaining to two properties sold in 2002 which are classified asdiscontinued operations under SFAS 144. Additionally, the gain on the sale ofthese properties of $2.4 million is classified in discontinued operations in2002.

 

Net Income Available for Common Unitholders

 

Net income available for common unitholders for the nine months endedSeptember 30, 2002, was $148.5 million compared to $212.3 million for the sameperiod in 2001. This decrease results primarily from the operating fluctuationsin Rental Operations, Service Operations, general and administrative expensesand earnings from sales of depreciable property as explained above.

 

**Liquidityand Capital Resources**

 

Operating Activities

 

Net cash flow provided by operating activities totaled $477.4 millionand $267.0 million for the nine months ended September 30, 2002 and 2001,respectively. Operating activity cash flows represents the primary source ofliquidity to fund distributions to unitholders and the other minorityinterests. The significant increase in 2002 is due to the Partnership receivingapproximately $197.0 million of net proceeds from the sale of buildings fromits build-to-suit portfolio.

 

InvestingActivities

 

Netcash used by investing activities totaled $208.2 million for the nine monthsended September 30, 2002, compared to net cash provided by investing activitiesof $136.5 million for the nine months ended September 30, 2001.  Investing activities represent theinvestment of funds by the Partnership to lease, improve and expand itsportfolio of held for rental properties through the development and acquisitionof additional rental properties, net of proceeds received from depreciableproperty sales. As noted in the comparison of 2002 to 2001, the Partnershipsold a significant amount of held for rental property in 2001. During the ninemonths ended September 30, 2002, the Partnership generated proceeds of $50.5million from depreciable property sales compared to $403.8 million for the sameperiod in 2001.

 

FinancingActivities

 

Netcash used for financing activities totaled $236.5 million for the nine monthsended September 30, 2002 compared to $432.8 million for the same period in2001. During the third quarter, the Partnership completed two new issuances ofunsecured debt totaling $200.0 million. The first offering was $150.0 millionof senior notes bearing interest at 5.875% due 2012. The second offering was a$50.0 million medium term note offering bearing interest at 5.45% due 2012. Theproceeds from the offerings were used primarily to reduce the Partnership’sunsecured line of credit. Also during the third quarter of 2002, thePartnership redeemed all of the Series G preferred units for $35.0 million andrepurchased 355,000 shares of its Series B preferred equity for nearly $18million.

 

20

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Duringthe nine months of 2001, the General Partner and the Partnership issued $75.0million of preferred stock and $175.0 million of unsecured debt that was usedto pay off outstanding balances on its unsecured lines of credit.

 

ThePartnership made a $1.36 per share distribution to common and limited partnerunitholders during the nine months ended September 30, 2002, compared to a $1.33per share distribution for the same period in 2001.

 

Debtand Equity

 

TheGeneral Partner and the Partnership currently have on file with the Securitiesand Exchange Commission (the “SEC”) one Form S-3 Registration Statement (the“Shelf Registration”), which, as of September 30, 2002, has remainingavailability of $345.8 million to issue additional common shares, preferredshares and unsecured debt securities. The Partnership filed an additional $500million Shelf Registration in October 2002.

 

The Partnership has the following lines of credit available (inthousands):

 
| **Description**           |   | **Borrowing  Capacity** |    | **Maturity  Date** |          | **Interest  Rate** |        | **Outstanding  at September 30, 2002  in (000’s)** |   |
|---------------------------|--------|-------------------------|---------|--------------------|---------------|--------------------|-------------|---------------------------------------------------------|--------|
| Unsecured  Line of Credit |   | $                       | 500,000 |               | February 2004 |               | LIBOR + .65 | %                                                       | $      | 29,000 |   |
| Secured  Line of Credit   |   | 100,000                 |    | January 2003       |          | LIBOR + 1.05       | %           | 24,466                                                  |   |
|                           |        |                         |         |                    |               |                    |             |                                                         |        |  |  |

 

 

Thelines of credit are used to fund development and acquisition of 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 unsecured line of credit at September30, 2002 are at LIBOR + .65% (2.47% at September 30, 2002).

 

Thetotal debt outstanding at September 30, 2002, totals $1.9 billion with aweighted average interest rate of 6.90% maturing at various dates through 2028.Scheduled principal amortization of such debt totaled $8.5 million for the ninemonths ended September 30, 2002.

 

Followingis a summary of the scheduled future amortization and maturities of thePartnership’s indebtedness at September 30, 2002 (in thousands):

 

| **Year**                    |   | **Future  Repayments** |   | **Weighted Average  Interest Rate of  Future Repayments** |   |
|-----------------------------|--------|------------------------|--------|-----------------------------------------------------------|--------|
| **Scheduled  Amortization** |   | **Maturities**         |   | **Total**                                                 |
| 2002                        |   | $                      | 2,974  |                                                      | $      | 3,705 |   | $ | 6,679 |   | 7.31 | % |
| 2003                        |   | 10,264                 |   | 302,341                                                   |   | 312,605 |   | 7.26 | % |
| 2004                        |   | 8,592                  |   | 205,186                                                   |   | 213,778 |   | 6.54 | % |
| 2005                        |   | 7,492                  |   | 219,642                                                   |   | 227,134 |   | 7.18 | % |
| 2006                        |   | 6,931                  |   | 146,179                                                   |   | 153,110 |   | 7.08 | % |
| 2007                        |   | 5,099                  |   | 116,555                                                   |   | 121,654 |   | 7.09 | % |
| 2008                        |   | 4,775                  |   | 100,000                                                   |   | 104,775 |   | 6.75 | % |
| 2009                        |   | 4,802                  |   | 275,000                                                   |   | 279,802 |   | 7.31 | % |
| 2010                        |   | 4,190                  |   | —                                                    |   | 4,190 |   | 6.38 | % |
| 2011                        |   | 3,463                  |   | 175,000                                                   |   | 178,463 |   | 6.93 | % |
| Thereafter                  |   | 11,919                 |   | 250,000                                                   |   | 261,919 |   | 5.95 | % |
| Total                       |   | $                      | 70,501 |                                                      | $      | 1,793,608 |   | $ | 1,864,109 |   | 6.90 | % |

 

**AccountingChanges**

 

The Partnership elected to adopt Statement ofFinancial Accounting Standards No. 123, *“Accountingfor Stock Based Compensation,”*effective January 1, 2002. As aresult, the Partnership expenses stock options based upon the estimated fairvalue of the options at the date of grant. Additionally, the

 

21

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Partnership expenses the discount given toemployees under the employee stock purchase plan. The Partnership recordedexpense of $325,000 for the first nine months of 2002 related to stockcompensation from this accounting change.

 

**FundsFrom Operations**

 

Management believes that Funds From Operations (“FFO”), which isdefined by the National Association of Real Estate Investment Trusts as GAAPnet income or loss, excluding gains or losses from sales of depreciatedoperating property, plus operating property depreciation and amortization andadjustments for minority interest and unconsolidated companies on the samebasis, is the industry standard for reporting the operations of real estateinvestment 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,** |   |
|--------------------------------------------------|--------|---------------------------------------|-------------|--------------------------------------|--------|
|                                             |   | **2002**                              |        | **2001**                             |   | **2002** |   | **2001** |   |
|                                             |   |                                  | ** **  |                                 |   |   | ** ** |   |   |
| Net  income available for common unitholders     |   | **$**                                 | **43,452**  | ** **                           | $      | 88,018 |   | **$** | **148,510** | ** ** | $ | 212,300 |   |
| Add  back (deduct):                              |   |                                  | ** **  |                                 |   |   | ** ** |   |   |
| Depreciation  and amortization                   |   | **45,074**                            | ** **  | 39,570                               |   | **130,886** | ** ** | 118,532 |   |
| Share  of joint venture adjustments              |   | **4,484**                             | ** **  | 4,505                                |   | **13,282** | ** ** | 9,919 |   |
| Earnings  from depreciable property dispositions |   | **(3,474**                            | **)**       | (30,718                              | )      | **(5,928** | **)** | (40,715 | ) |
| **Funds  From Operations**                       |   | **$**                                 | **89,536**  | ** **                           | $      | 101,375 |   | **$** | **286,750** | ** ** | $ | 300,036 |   |
| **Cash  flow provided by (used by):**            |   |                                  | ** **  |                                 |   |   | ** ** |   |   |
| Operating  activities                            |   | **$**                                 | **102,277** | ** **                           | $      | 167,802 |   | **$** | **477,365** | ** ** | $ | 266,972 |   |
| Investing  activities                            |   | **(55,738**                           | **)**       | 38,918                               |   | **(208,225** | **)** | 136,549 |   |
| Financing  activities                            |   | **(4,840**                            | **)**       | (296,623                             | )      | **(236,459** | **)** | (432,755 | ) |

 

 

Whilemanagement believes that FFO is the most relevant and widely used measure ofthe Partnership’s operating performance, such amount does not represent cashflow from operations as defined by generally accepted accounting principles,should not be considered as an alternative to net income as an indicator of thePartnership’s operating performance, and is not indicative of cash available tofund all cash flow needs.

 

**Item 3.  Quantativeand Qualitative Disclosure About Market Risks**

 

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

 

**Item 4.  Controls andProcedures**

 

ThePartnership maintains disclosure controls and procedures that are designed toensure that information required to be disclosed in our annual and periodicreports filed with the SEC is recorded, processed, summarized and reportedwithin the time periods specified in the SEC’s rules and forms. Thesedisclosure controls and procedures are further designed to ensure that suchinformation is accumulated and communicated to our management, including ourchief executive officer and chief financial officer, to allow timely decisionsregarding required disclosure.

 

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Basedon the most recent evaluation, which was completed within 90 days of the filingof this report, our chief executive officer and chief financial officer believethat our disclosure controls and procedures are effective. There have been nosignificant changes in our internal controls or in other factors that couldsignificantly affect the internal controls subsequent to the date we completedour evaluation.

**PartII – Other Information**

 

Item 1.  Legal Proceedings

 

None

 

Item 2. Changes in Securities

 

None

 

Item 3. Defaults upon Senior Securities

 

None

 

Item 4. Submission of Matters to a Vote of Security Holders

 

None

 

Item 5.  Other Information

 

None

 

Item 6. Exhibits and Reports on Form 8-K

 

(a)   Exhibits

 

 
| **Number** |   | **Description**                                                                                                                                                                                                                          |
|------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |   |                                                                                                                                                                                                                                     |
| 4.1        |   | Second Amendment to  1998 Shareholder Rights Agreement incorporated by reference to Exhibit 4.1 to  the General Partner’s Form 10-Q filed November 13, 2002.                                                                        |
|       |   |                                                                                                                                                                                                                                     |
| 10.1       |   | Amendment seven to the  1995 Key Employees’ Stock Option Plan of Duke Realty Investments, Inc.  incorporated by reference to Exhibit 10.1 to the General Partner’s Form 10-Q  filed November 13, 2002.                         |
|       |   |                                                                                                                                                                                                                                     |
| 10.2       |   | Amendment four to the  1995 Shareholder Value Plan of Duke Realty Services Limited Partnership  incorporated by reference to Exhibit 10.2 to the General Partner’s Form 10-Q  filed November 13, 2002.                              |
|       |   |                                                                                                                                                                                                                                     |
| 10.3       |   | Amendment one to the  1999 Salary Replacement Stock Option and Dividend Increase Unit Plan of Duke  Realty Investments, Inc. incorporated by reference to Exhibit 10.3 to the  General Partner’s Form 10-Q filed November 13, 2002. |
|       |   |                                                                                                                                                                                                                                     |
| 10.4       |   | Amendment two to the  1999 Salary Replacement Stock Option and Dividend Increase Unit Plan of Duke  Realty Investments, Inc. incorporated by reference to Exhibit 10.4 to the  General Partner’s Form 10-Q filed November 13, 2002. |
|       |   |                                                                                                                                                                                                                                     |
| 10.5       |   | Amendment three to the  Amended and Restated Dividend Increase Unit Plan of Duke Realty Services  Limited Partnership incorporated by reference to Exhibit 10.5 to the General  Partner’s Form 10-Q filed November 13, 2002.        |
|       |   |                                                                                                                                                                                                                                     |
| 10.6       |   | Amendment one to the  2000 Performance Share Plan of Duke-Weeks Realty Corporation incorporated by  reference to Exhibit 10.6 to the General Partner’s Form 10-Q filed November  13, 2002.                                          |
|       |   |                                                                                                                                                                                                                                     |
| 15         |   | Letter regarding  unaudited interim financial information                                                                                                                                                                                |

 

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|   | (b)    |   | Reports on Form 8-K                                                                                                                                                                                                                                                                                                                                                                                                                             |
|--------|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   |   |   | The Partnership filed a Current Report on Form 8-K  dated August 26, 2002, in conjunction with a $150 million unsecured debt  offering completed by the Partnership                                                                                                                                                                                                                                                                             |
|   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   |   |   | The Partnership filed a Current Report on Form 8-K,  dated October 9, 2002, setting forth audited consolidated statements of  operations of the Partnership for the years ended December 31, 2001, 2000 and  1999, including an additional note thereto, which reflect the impact of the  Partnership’s adoption of SFAS 144, *Accounting  for the Impairment or Disposal of Long-Lived**Assets*, which became effective January  1, 2002. |

 

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**SIGNATURES**

 

 

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

 
|                          | DUKE REALTY LIMITED  PARTNERSHIP                                                    |
|-------------------------------|-------------------------------------------------------------------------------------|
|                          | By:                                                                                 | Duke Realty Corporation |
|                          |                                                                                | Its General Partner |
|                          |                                                                                |
|                          |                                                                                |
|                          |                                                                                |
| Date:  November 13, 2002 | /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/          Matthew  A. Cohoat   |   |
|                          | Matthew A. Cohoat                                                                   |
|                          | Senior  Vice President and  Corporate Controller                                    |
|                               |                                                                                     |  |  |

 

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**CERTIFICATIONPURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002**

 

I, Thomas L. Hefner,certify that:

 

1.     I have reviewed thisquarterly report on Form 10-Q of Duke Realty Limited Partnership;

 

2.     Based on my knowledge, thisquarterly report does not contain any untrue statement of a material fact oromit to state a material fact necessary to make the statements made, in lightof the circumstances under which such statements were made, not misleading withrespect to the period covered by this quarterly report;

 

3.     Based on my knowledge, thefinancial statements, and other financial information included in thisquarterly report, fairly present in all material respects the financialcondition, results of operations and cash flows of the Partnership as of, andfor, the periods presented in this quarterly report;

 

4.     The Partnership’s othercertifying officers and I are responsible for establishing and maintainingdisclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and15d-14) for the registrant and we have:

 

(a)   designed such disclosure controls andprocedures to ensure that material information relating to the Partnership,including its consolidated subsidiaries, is made known to us by others withinthose entities, particularly during the period in which this quarterly reportis being prepared;

 

(b)   evaluated the effectiveness of thePartnership’s disclosure controls and procedures as of a date within 90 daysprior to the filing date of this quarterly report (the “Evaluation Date”); and

 

(c)   presented in this quarterly report ourconclusions about the effectiveness of the disclosure controls and proceduresbased on our evaluation as of the Evaluation Date;

 

5.     The Partnership’s othercertifying officers and I have disclosed, based on our most recent evaluation,to the Partnership’s auditors and the audit committee of the General Partner’sboard of directors (or persons performing the equivalent function):

 

(a)   all significant deficiencies in the design oroperation of internal controls which could adversely affect the Partnership’sability to record, process, summarize and report financial data and haveidentified for the Partnership’s auditors any material weaknesses in internalcontrols; and

 

(b)   any fraud, whether or not material, thatinvolves management or other employees who have a significant role in thePartnership’s internal controls; and

 

6.     The Partnership’s othercertifying officers and I have indicated in this quarterly report whether ornot there were significant changes in internal controls or in other factorsthat could significantly affect internal controls subsequent to the date of ourmost recent evaluation, including any corrective actions with regard tosignificant deficiencies and material weaknesses.

 
| Date:  November 13, 2002             |
|-------------------------------------------|
|                                      |
|                                      |
| /s/ Thomas L. Hefner                      |   |
| Thomas L. Hefner                          |
| President and Chief  Executive Officer    |
| Duke  Realty Corporation  General Partner |

 

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**CERTIFICATIONPURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002**

 

I, Darell E. Zink, Jr.,certify that:

 

1.     I have reviewed thisquarterly report on Form 10-Q of Duke Realty Limited Partnership;

 

2.     Based on my knowledge, thisquarterly report does not contain any untrue statement of a material fact oromit to state a material fact necessary to make the statements made, in lightof the circumstances under which such statements were made, not misleading withrespect to the period covered by this quarterly report;

 

3.     Based on my knowledge, thefinancial statements, and other financial information included in thisquarterly report, fairly present in all material respects the financialcondition, results of operations and cash flows of the Partnership as of, andfor, the periods presented in this quarterly report;

 

4.     The Partnership’s othercertifying officers and I are responsible for establishing and maintainingdisclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and15d-14) for the Partnership and we have:

 

(a)   designed such disclosure controls andprocedures to ensure that material information relating to the Partnership,including its consolidated subsidiaries, is made known to us by others withinthose entities, particularly during the period in which this quarterly reportis being prepared;

 

(b)   evaluated the effectiveness of thePartnership’s disclosure controls and procedures as of a date within 90 daysprior to the filing date of this quarterly report (the “Evaluation Date”); and

 

(c)   presented in this quarterly report ourconclusions about the effectiveness of the disclosure controls and proceduresbased on our evaluation as of the Evaluation Date;

 

5.     The Partnership’s othercertifying officers and I have disclosed, based on our most recent evaluation,to the Partnership’s auditors and the audit committee of the General Partner’sboard of directors (or persons performing the equivalent function):

 

(a)   all significant deficiencies in the design oroperation of internal controls which could adversely affect the Partnership’sability to record, process, summarize and report financial data and haveidentified for the Partnership’s auditors any material weaknesses in internalcontrols; and

 

(b)   any fraud, whether or not material, thatinvolves management or other employees who have a significant role in thePartnership’s internal controls; and

 

6.     The Partnership’s othercertifying officers and I have indicated in this quarterly report whether ornot there were significant changes in internal controls or in other factorsthat could significantly affect internal controls subsequent to the date of ourmost recent evaluation, including any corrective actions with regard tosignificant deficiencies and material weaknesses.

 
| Date:  November 13, 2002                         |
|-------------------------------------------------------|
|                                                  |
|                                                  |
| /s/ Darell E. Zink, Jr.                               |   |
| Darell E. Zink, Jr.                                   |
| Executive Vice  President and Chief Financial Officer |
| Duke  Realty Corporation  General Partner             |

 

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