**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington,D.C.  20549**

** **

**FORM 10-Q**

 

(Mark One)

 

| **x**      | ** ** | **QUARTERLY REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**                                                                                                                       |   |
|------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| ** ** | ** ** | ** **                                                                                                                                                                                                         |   |
|       |       | For the quarterly period  ended **March 31, 2006**                                                                                                                                                                 |   |
|       |       |                                                                                                                                                                                                               |   |
|       |       | **OR**                                                                                                                                                                                                             |   |
|       |       |                                                                                                                                                                                                               |   |
| **o**      | ** ** | **TRANSITION REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**                                                                                                                      |   |
| ** ** | ** ** | ** **                                                                                                                                                                                                         |   |
| ** ** |       | For the transition period  from                  to                  . |   |

 

Commission File Number: **0-20625**

 

**DUKEREALTY LIMITED PARTNERSHIP**

(Exact Name of Registrant as Specified in Its Charter)

 

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

** **

**Registrant’stelephone number, including area code: (317) 808-6000**

 

Indicate by check mark whether the registrant (1) has filed all reportsrequired to be filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days.

 

Yes x    No o

 

Indicate by check mark whether the registrant isa large accelerated filer, an accelerated filer, or a non-acceleratedfiler. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

 

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

 

Indicate by check mark whether the registrant is a shell company (asdefined in Rule 12b-2 of the Exchange Act): YES o    NO x

 

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

 

| **Class**                              | ** ** | **Outstanding at May 1, 2006** | ** ** |
|----------------------------------------|------------|--------------------------------|------------|
| Common  Units, $.01 par value per unit |       | 148,269,026  units             |       |

 

----

**DUKE REALTY LIMITED PARTNERSHIP**

 

**INDEX**

 
| **Part I - Financial  Information**                                     | ** ** | **Page**                                                     | ** ** |
|-------------------------------------------------------------------------|------------|--------------------------------------------------------------|------------|
|                                                                    |       |                                                         |       |
| **Item  1. Financial Statements**                                       |       |                                                         |       |
|                                                                    |       |                                                         |       |
| Condensed  Consolidated Balance Sheets as of                            |       |                                                         |       |
| March  31, 2006 (Unaudited and December 31, 2005)                       |       | 2                                                            |       |
|                                                                    |       |                                                         |       |
| Condensed  Consolidated Statements of Operations (Unaudited)            |       |                                                         |       |
| for the three  months ended March 31, 2006 and 2005                     |       | 3                                                            |       |
|                                                                    |       |                                                         |       |
| Condensed  Consolidated Statements of Cash Flows (Unaudited)            |       |                                                         |       |
| for the three  months ended March 31, 2006 and 2005                     |       | 4                                                            |       |
|                                                                    |       |                                                         |       |
| Condensed  Consolidated Statement of Partners’ Equity              |       |                                                         |       |
| (Unaudited  for the three months ended March 31, 2006)                  |       | 5                                                            |       |
|                                                                    |       |                                                         |       |
| Notes  to Condensed Consolidated Financial Statements                   |       |                                                         |       |
| (Unaudited)                                                             |       | 6-18                                                         |       |
|                                                                    |       |                                                         |       |
| Report  of Independent Registered Public Accounting Firm                |       | 19                                                           |       |
|                                                                    |       |                                                         |       |
| **Item 2.  Management’s Discussion and Analysis of Financial**     |       |                                                         |       |
| ** Condition and Results of Operations**                           |       | 20-33                                                        |       |
|                                                                    |       |                                                         |       |
| **Item 3. Quantitative and Qualitative Disclosures About  Market Risk** | ** ** | 33                                                           |       |
|                                                                    |       |                                                         |       |
| **Item  4. Controls and Procedures**                                    |       | 33                                                           |       |
|                                                                    |       |                                                         |       |
|                                                                    |       |                                                         |       |
| **Part  II - Other Information**                                        |       |                                                         |       |
|                                                                    |       |                                                         |       |
|                                                                    | Item 1.    | Legal Proceedings                                            |       | 34 |   |
|                                                                    | Item 1A.   | Risk Factors                                                 |       | 34 |   |
|                                                                    | Item 2.    | Unregistered  Sales of Equity Securities and Use of Proceeds |       | 34 |   |
|                                                                    | Item 3.    | Defaults Upon  Senior Securities                             |       | 35 |   |
|                                                                    | Item 4.    | Submission of  Matters to a Vote of Security Holders         |       | 35 |   |
|                                                                    | Item 5.    | Other Information                                            |       | 35 |   |
|                                                                    | Item 6.    | Exhibits                                                     |       | 35-37 |   |

 

 

----

** **

**PART I - FINANCIAL INFORMATION**

**Item 1. Financial Statements**

**DUKE REALTY LIMITED PARTNERSHIP AND SUBSIDIARIES**

**Condensed Consolidated Balance Sheets**

**(in thousands)**

 
| ** **                                                                                  | ** ** | **March 31,**   | ** **    | December  31, | ** ** |
|---------------------------------------------------------------------------------------------|------------|-----------------|---------------|---------------|------------|
| **ASSETS**                                                                                  | ** ** | **2006**        | ** **    | 2005          | ** ** |
|                                                                                        | ** ** | **(Unaudited)** |          |          |       |
| Real estate investments:                                                                    |       |            |          |          |       |
| Land and improvements                                                                       | ** ** | **$**           | **723,705**   |          | $          | 675,050 |   |
| Buildings and tenant improvements                                                           | ** ** | **4,312,957**   |          | 4,156,456     |       |
| Construction in progress                                                                    | ** ** | **290,408**     |          | 227,066       |       |
| Investments in unconsolidated companies                                                     | ** ** | **293,002**     |          | 301,322       |       |
| Land held for development                                                                   | ** ** | **603,639**     |          | 429,270       |       |
|                                                                                        | ** ** | **6,223,711**   |          | 5,789,164     |       |
| Accumulated depreciation                                                                    | ** ** | **(783,350**    | **)**         | (754,742      | )          |
|                                                                                        | ** ** | **5,440,361**   |          | 5,034,422     |       |
| Real estate investment and  other assets held for sale                                      | ** ** | **621,953**     | ** **    | **—**    | ** ** |
| Net real estate investments                                                                 | ** ** | **6,062,314**   |          | 5,034,422     |       |
|                                                                                        |       |            |          |          |       |
| Cash and cash equivalents                                                                   |       | —          |          | 26,858        |       |
| Accounts receivable, net  of allowance of $1,294 and $1,093                                 | ** ** | **22,020**      |          | 31,342        |       |
| Straight-line rent  receivable, net of allowance of $1,410 and $1,538                       | ** ** | **101,018**     |          | 95,948        |       |
| Receivables on  construction contracts, including retentions                                | ** ** | **49,982**      |          | 50,035        |       |
| Deferred financing costs,  net of accumulated amortization of $15,642 and $14,113           | ** ** | **44,311**      |          | 27,118        |       |
| Deferred leasing and other  costs, net of accumulated amortization of $109,544 and $112,245 | ** ** | **246,265**     |          | 227,648       |       |
| Escrow deposits and other  assets                                                           | ** ** | **179,636**     |          | 153,316       |       |
|                                                                                        | ** ** | **$**           | **6,705,546** |          | $          | 5,646,687 |   |
| **LIABILITIES AND PARTNERS’  EQUITY**                                                  | ** ** | ** **      | ** **    | ** **    | ** ** |
|                                                                                        |       |            |          |          |       |
| Indebtedness:                                                                               |       |            |          |          |       |
| Secured debt                                                                                | ** ** | **$**           | **1,013,312** |          | $          | 167,255 |   |
| Unsecured notes                                                                             | ** ** | **2,100,337**   |          | 2,050,396     |       |
| Unsecured lines of credit                                                                   | ** ** | **508,000**     |          | 383,000       |       |
|                                                                                        | ** ** | **3,621,649**   |          | 2,600,651     |       |
|                                                                                        |       |            |          |          |       |
| Construction payables and  amounts due subcontractors, including retentions                 | ** ** | **87,589**      |          | 93,137        |       |
| Accounts payable                                                                            | ** ** | **5,571**       |          | 781           |       |
| Accrued expenses:                                                                           |       |            |          |          |       |
| Real estate taxes                                                                           | ** ** | **66,426**      |          | 60,883        |       |
| Interest                                                                                    | ** ** | **25,575**      |          | 33,022        |       |
| Other                                                                                       | ** ** | **37,121**      |          | 52,649        |       |
| Other liabilities                                                                           | ** ** | **119,906**     |          | 135,323       |       |
| Tenant security deposits  and prepaid rents                                                 | ** ** | **37,062**      |          | 34,924        |       |
| Total liabilities                                                                           | ** ** | **4,000,899**   |          | 3,011,370     |       |
|                                                                                        |       |            |          |          |       |
| Minority interest                                                                           | ** ** | **105**         |          | 73            |       |
|                                                                                        |       |            |          |          |       |
| Partners’ equity:                                                                      |       |            |          |          |       |
| General Partner                                                                             |       |            |          |          |       |
| Common equity                                                                               | ** ** | **1,796,636**   |          | 1,841,932     |       |
| Preferred equity (liquidation preferences of $766,250 and $657,250)                         | ** ** | **719,514**     |          | 616,780       |       |
|                                                                                        | ** ** | **2,516,150**   |          | 2,458,712     |       |
| Limited Partner’s common equity                                                        | ** ** | **178,587**     |          | 183,650       |       |
| Accumulated other comprehensive income (loss)                                               | ** ** | **9,805**       |          | (7,118        | )          |
| Total Partners’ equity                                                                 | ** ** | **2,704,542**   |          | 2,635,244     |       |
|                                                                                        | ** ** | **$**           | **6,705,546** |          | $          | 5,646,687 |   |

 

 

See accompanying Notes to Condensed Consolidated Financial Statements

 

 

2

----

 

**DUKE REALTY LIMITED PARTNERSHIP AND SUBSIDIARIES**

**Condensed Consolidated Statements of Operations**

**For the three months ended March 31,**

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

**(Unaudited)**

 
| ** **                                                                   |       | Three  Months Ended |             |
|------------------------------------------------------------------------------|------------|---------------------|------------------|
| ** **                                                                   |       | **2006**            | ** **       | 2005 |   |
| **RENTAL OPERATIONS**                                                        |       |                | ** **       |   |   |
| Revenues:                                                                    |       |                | ** **       |   |   |
| Rental income from continuing operations                                     | ** ** | **$**               | **193,745**      | ** ** | $ | 160,676 |   |
| Equity in earnings of unconsolidated companies                               | ** ** | **8,259**           | ** **       | 5,206 |   |
| ** **                                                                   | ** ** | **202,004**         | ** **       | 165,882 |   |
| Operating expenses:                                                          |       |                | ** **       |   |   |
| Rental expenses                                                              | ** ** | **46,338**          | ** **       | 38,606 |   |
| Real estate taxes                                                            | ** ** | **23,138**          | ** **       | 18,967 |   |
| Interest expense                                                             | ** ** | **38,655**          | ** **       | 28,900 |   |
| Depreciation and amortization                                                | ** ** | **60,147**          | ** **       | 53,108 |   |
| ** **                                                                   | ** ** | **168,278**         | ** **       | 139,581 |   |
| Earnings from continuing rental operations                                   | ** ** | **33,726**          | ** **       | 26,301 |   |
| **SERVICE OPERATIONS**                                                       |       |                | ** **       |   |   |
| Revenues:                                                                    |       |                | ** **       |   |   |
| General contractor gross revenue                                             | ** ** | **69,549**          | ** **       | 86,616 |   |
| General contractor costs                                                     | ** ** | **(64,208**         | **)**            | (79,559 | ) |
| Net general contractor revenue                                               | ** ** | **5,341**           | ** **       | 7,057 |   |
| Property management, maintenance and leasing fees                            | ** ** | **3,787**           | ** **       | 3,879 |   |
| Construction management and development activity income                      | ** ** | **722**             | ** **       | 7,994 |   |
| Other income                                                                 | ** ** | **156**             | ** **       | 2,765 |   |
| Total revenue                                                                | ** ** | **10,006**          | ** **       | 21,695 |   |
| Operating expenses                                                           | ** ** | **5,556**           | ** **       | 9,857 |   |
| Total earnings from service operations                                       | ** ** | **4,450**           | ** **       | 11,838 |   |
| General and administrative expense                                           | ** ** | **(13,947**         | **)**            | (8,475 | ) |
| Operating income                                                             | ** ** | **24,229**          | ** **       | 29,664 |   |
| **OTHER INCOME (EXPENSE)**                                                   |       |                | ** **       |   |   |
| Interest income                                                              | ** ** | **2,200**           | ** **       | 1,320 |   |
| Earnings from sale of land, net of impairment adjustments                    | ** ** | **1,890**           | ** **       | 143 |   |
| Other expenses                                                               | ** ** | **(220**            | **)**            | (78 | ) |
| Other minority interest in earnings of subsidiaries                          | ** ** | **(102**            | **)**            | (37 | ) |
| Income from continuing operations                                            | ** ** | **27,997**          | ** **       | 31,012 |   |
| Discontinued operations:                                                     |       |                | ** **       |   |   |
| Net income (loss) from discontinued operations                               | ** ** | **(451**            | **)**            | 5,068 |   |
| Gain on sale of discontinued operations, net of impairment  adjustment       |       | **505**             | **  ** | 3,701 |   |
| ** **                                                                   |
| Income from discontinued operations                                          | ** ** | **54**              | ** **       | 8,769 |   |
|                                                                         |       |                | ** **       |   |   |
| Net income                                                                   | ** ** | **28,051**          | ** **       | 39,781 |   |
| Dividends on preferred units                                                 | ** ** | **(12,712**         | **)**            | (11,620 | ) |
| Adjustments for redemption of preferred units                                | ** ** | **(2,633**          | **)**            | — |   |
| Net income available for common unitholders                                  | ** ** | **$**               | **12,706**       | ** ** | $ | 28,161 |   |
| Basic net income per common unit:                                            |       |                | ** **       |   |   |
| Continuing operations                                                        | ** ** | **$**               | **.09**          | ** ** | $ | .12 |   |
| Discontinued operations                                                      | ** ** | **—**          | ** **       | .06 |   |
| Total                                                                        | ** ** | **$**               | **.09**          | ** ** | $ | .18 |   |
| Diluted net income per common unit:                                          |       |                | ** **       |   |   |
| Continuing operations                                                        | ** ** | **$**               | **.09**          | ** ** | $ | .12 |   |
| Discontinued operations                                                      | ** ** | **—**          | ** **       | .06 |   |
| Total                                                                        | ** ** | **$**               | **.09**          | ** ** | $ | .18 |   |
|                                                                         |       |                | ** **       |   |   |
| Weighted average number of common units outstanding                          | ** ** | **148,175**         | ** **       | 156,947 |   |
| Weighted average number of common units and dilutive  potential common units | ** ** | **149,265**         | ** **       | 157,720 |   |

 

 

See accompanying Notes to Consolidated FinancialStatements.

 

 

3

----

 

**DUKE REALTY LIMITED PARTNERSHIP AND SUBSIDIARIES**

**Condensed Consolidated Statements of Cash Flows**

**For the three months ended March 31,**

**(in thousands)**

**(Unaudited)**

** **
| ** **                                                                                                  | ** ** | **2006**     | ** **  | 2005       | ** ** |
|-------------------------------------------------------------------------------------------------------------|------------|--------------|-------------|------------|------------|
| Cash flows from operating  activities:                                                                      | ** ** | ** **   | ** **  | ** ** | ** ** |
| Net income                                                                                                  | ** ** | **$**        | **28,051**  | ** ** | $          | 39,781 |   |
| Adjustments to reconcile net income to net cash provided by operating  activities:                          |       |         | ** **  |       |       |
| Depreciation of buildings and tenant improvements                                                           | ** ** | **51,271**   | ** **  | 51,563     |       |
| Amortization of deferred leasing and other costs                                                            | ** ** | **9,  311**  | ** **  | 11,663     |       |
| Amortization of deferred financing costs                                                                    | ** ** | **1,707**    | ** **  | 1,544      |       |
| Minority interest in earnings                                                                               | ** ** | **103**      | ** **  | 37         |       |
| Straight-line rent adjustment                                                                               | ** ** | **(5,417**   | **)**       | (6,170     | )          |
| Earnings from land and depreciated property sales                                                           | ** ** | **(2,395**   | **)**       | (3,843     | )          |
| Build-for-sale operations, net                                                                              | ** ** | **(36,042**  | **)**       | 5,562      |       |
| Construction contracts, net                                                                                 | ** ** | **(3,521**   | **)**       | (9,935     | )          |
| Other accrued revenues and expenses, net                                                                    | ** ** | **(8,545**   | **)**       | (24,363    | )          |
| Operating distributions received in excess of (less than) equity in  earnings from unconsolidated companies | ** ** | **(3,323**   | **)**       | (867       | )          |
| **Net cash provided by operating activities**                                                               | ** ** | **31,200**   | ** **  | 64,972     |       |
|                                                                                                        |       |         | ** **  |       |       |
| Cash flows from investing  activities:                                                                      |       |         | ** **  |       |       |
| Development of real estate investments                                                                      | ** ** | **(84,479**  | **)**       | (29,693    | )          |
| Acquisition of real estate investments                                                                      | ** ** | **(631,134** | **)**       | —     |       |
| Acquisition of land held for development and infrastructure costs                                           | ** ** | **(203,159** | **)**       | (34,742    | )          |
| Recurring tenant improvements                                                                               | ** ** | **(13,526**  | **)**       | (13,732    | )          |
| Recurring leasing costs                                                                                     | ** ** | **(1,995**   | **)**       | (8,811     | )          |
| Recurring building improvements                                                                             | ** ** | **(1,769**   | **)**       | (2,446     | )          |
| Other deferred leasing costs                                                                                | ** ** | **(8,450**   | **)**       | (4,401     | )          |
| Other deferred costs and other assets                                                                       | ** ** | **(18,063**  | **)**       | (1,786     | )          |
| Tax deferred exchange escrow, net                                                                           |       | —       | ** **  | —     |       |
| Proceeds from land and depreciated property sales, net                                                      | ** ** | **10,402**   | ** **  | 13,608     |       |
| Distributions from joint venture land and property sales                                                    | ** ** | **17,740**   | ** **  | —     |       |
| Advances to unconsolidated companies                                                                        | ** ** | **(6,313**   | **)**       | (6,441     | )          |
| **Net cash used for investing activities**                                                                  | ** ** | **(940,746** | **)**       | (88,444    | )          |
| Cash flows from financing  activities:                                                                      |       |         | ** **  |       |       |
| Payments for repurchases of common units                                                                    | ** ** | **(11,883**  | **)**       | —     |       |
| Proceeds from issuance of common units, net                                                                 | ** ** | **4,767**    | ** **  | 633        |       |
| Proceeds from issuance of preferred units, net                                                              | ** ** | **177,734**  | ** **  | —     |       |
| Payments for redemption of preferred units                                                                  | ** ** | **(75,000**  | **)**       | —     |       |
| Proceeds from indebtedness                                                                                  | ** ** | **150,000**  | ** **  | —     |       |
| Payments on unsecured debt                                                                                  | ** ** | **(100,000** | **)**       | (100,000   | )          |
| Proceeds from issuance of secured debt                                                                      | ** ** | **710,450**  | ** **  | (65,000    | )          |
| Payments on secured indebtedness including principal amortization                                           | ** ** | **(1,808**   | **)**       | (1,697     | )          |
|  Borrowings (payments) on lines  of credit, net                                                        | ** ** | **125,000**  | ** **  | 272,000    |       |
| Cash overdrafts                                                                                             | ** ** | **4,979**    | ** **  | —     |       |
| Distributions to common unitholders                                                                         | ** ** | **(69,989**  | **)**       | (72,971    | )          |
| Distributions to preferred unitholders                                                                      | ** ** | **(12,712**  | **)**       | (11,620    | )          |
| Distributions to minority interest                                                                          | ** ** | **(71**      | **)**       | —     |       |
| Deferred financing costs                                                                                    | ** ** | **(18,779**  | **)**       | (462       | )          |
| **Net cash provided by financing activities**                                                               | ** ** | **882,688**  | ** **  | 20,883     |       |
| **Net decrease in cash and cash equivalents**                                                               | ** ** | **(26,858**  | **)**       | (2,589     | )          |
|                                                                                                        |       |         | ** **  |       |       |
| Cash and cash equivalents at beginning of period                                                            | ** ** | **26,858**   | ** **  | 5,770      |       |
| Cash and cash equivalents at end of period                                                                  | ** ** | **$**        | **—**  | ** ** | $          | 3,181 |   |
|                                                                                                        |       |         | ** **  |       |       |
| Other non-cash items:                                                                                       |       |         | ** **  |       |       |
| Assumption of secured debt for real estate acquisitions                                                     | ** ** | **$**        | **137,648** | ** ** | $          | — |   |
| Conversion of Limited Partner Units to common shares of General  Partner                                    | ** ** | **$**        | **225**     | ** ** | $          | 708 |   |
| Issuance of Limited Partner Units for acquisition of minority  interest                                     | ** ** | **$**        | **—**  | ** ** | $          | 15,000 |   |

 

 

See accompanying Notes to Condensed Consolidated Financial Statements

 

 

4

----

 

**DUKE REALTY LIMITED PARTNERSHIPAND SUBSIDIARIES**

**Consolidated Statements ofPartners’ Equity**

**For the three months ended March 31, 2006**

**(inthousands, except per unit data)**

**(Unaudited)**

 
| ** **                                            | ** ** | General  Partner |          | Limited

Partners’ |       | Accumulated  Other |       |           | ** **  |
|-------------------------------------------------------|------------|------------------|---------------|-------------------------|------------|--------------------|------------|----------------|-------------|
| ** **                                            | ** ** | Common           |          | Preferred               |       | Common             |       | Comprehensive  |        |   | ** ** |
| ** **                                            | ** ** | Equity           |          | Equity                  |       | Equity             |       | Income  (Loss) |        | Total | ** ** |
| **Balance at December 31, 2005**                      | ** ** | **$**            | **1,841,932** | ** **              | **$**      | **616,780**        | ** ** | **$**          | **183,650** | ** ** | **$** | **(7,118** | **)** | **$** | **2,635,244** | ** ** |
|                                                  |       |             |          |                    |       |               |       |           |        |   |   |
| Comprehensive  income:                                |       |             |          |                    |       |               |       |           |        |   |   |
|                                                  |       |             |          |                    |       |               |       |           |        |   |   |
| Net income                                            |       | 14,081           |          | 12,712                  |       | 1,258              |       | —         |        | 28,051 |   |
|                                                  |       |             |          |                    |       |               |       |           |        |   |   |
| Distributions to preferred unitholders                |       | —           |          | (12,712                 | )          | —             |       | —         |        | (12,712 | ) |
|                                                  |       |             |          |                    |       |               |       |           |        |   |   |
| Gains (losses) on derivative instruments              |       | —           |          | —                  |       | —             |       | 16,923         |        | 16,923 |   |
|                                                  |       |             |          |                    |       |               |       |           |        |   |   |
| Comprehensive income available for common unitholders |       |             |          |                    |       |               |       |           |        | 32,262 |   |
|                                                  |       |             |          |                    |       |               |       |           |        |   |   |
| Capital contribution from  General Partner            |       | 4,797            |          | 177,734                 |       | —             |       | —         |        | 182,531 |   |
|                                                  |       |             |          |                    |       |               |       |           |        |   |   |
| Acquisition of Partnership  interest for              |       |             |          |                    |       |               |       |           |        |   |   |
| common stock of General Partner                       |       | 252              |          | —                  |       | (27                | )          | —         |        | 225 |   |
|                                                  |       |             |          |                    |       |               |       |           |        |   |   |
| Redemption of Series I  Preferred Units               |       | —           |          | (75,000                 | )          | —             |       | —         |        | (75,000 | ) |
|                                                  |       |             |          |                    |       |               |       |           |        |   |   |
| Tax benefits from employee  stock plans               |       | 62               |          | —                  |       | —             |       | —         |        | 62 |   |
|                                                  |       |             |          |                    |       |               |       |           |        |   |   |
| FASB 123 compensation  expense                        |       | 1,421            |          | —                  |       | —             |       | —         |        | 1,421 |   |
|                                                  |       |             |          |                    |       |               |       |           |        |   |   |
| Retirement of common units                            |       | (2,526           | )             | —                  |       | —             |       | —         |        | (2,526 | ) |
|                                                  |       |             |          |                    |       |               |       |           |        |   |   |
| Distribution to General  Partner                      |       | (12              | )             | —                  |       | —             |       | —         |        | (12 | ) |
|                                                  |       |             |          |                    |       |               |       |           |        |   |   |
| Distributions to partners ($.47 per                   |       |             |          |                    |       |               |       |           |        |   |   |
| Common Unit)                                          |       | (63,371          | )             | —                  |       | (6,294             | )          | —         |        | (69,665 | ) |
|                                                  |       |             |          |                    |       |               |       |           |        |   |   |
| **Balance at March 31, 2006**                         | ** ** | **$**            | **1,796,636** | ** **              | **$**      | **719,514**        | ** ** | **$**          | **178,587** | ** ** | **$** | **9,805** | ** ** | **$** | **2,704,542** | ** ** |
|                                                  |       |             |          |                    |       |               |       |           |        |   |   |
| **Common Units outstanding at March 31, 2006**        | ** ** | **134,857**      | ** **    | **13,391**              | ** ** | ** **         | ** ** | ** **     | ** **  | **148,248** | ** ** |

** **

** **

See accompanying Notes to Condensed Consolidated Financial Statements

 

 

5

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**DUKEREALTY LIMITED PARTNERSHIP**

**NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

**1.**              **General****Basis****ofPresentation**

 

The interim condensed consolidated financial statements included hereinhave been prepared by Duke Realty Limited Partnership (the “Partnership”)without audit (except for the Balance Sheet as of December 31, 2005). Thefinancial statements have been prepared in accordance with U.S. generallyaccepted accounting principles (“GAAP”) for interim financial information andin accordance with Rule 10-01 of Regulation S-X of the Securities Exchange Actof 1934. Accordingly, they do not include all of the information and footnotesrequired by GAAP for complete financial statements. In the opinion ofmanagement, all adjustments (consisting of normal recurring adjustments)considered necessary for a fair presentation have been included. Thesefinancial statements should be read in conjunction with Management’s Discussionand Analysis of Financial Condition and Results of Operations included hereinand the condensed consolidated financial statements and notes thereto includedin our Annual Report on Form 10-K for the year ended December 31, 2005.

 

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 from the issuanceof additional shares of the General Partner through an offering, to thePartnership.  Simultaneously, thePartnership completed the acquisition of Duke Associates, a full-servicecommercial real estate firm operating in the Midwest.  The General Partner was formed in 1985 andqualifies as a Real Estate Investment Trust (“REIT”) under provisions of theInternal Revenue Code.  The GeneralPartner is the sole general partner of the Partnership, owning 91.0% of thecommon partnership interests as of March 31, 2006 (“General Partner Units”).  The remaining 9.0% of the Partnership’scommon interest is owned by limited partners (“Limited Partner Units” and,together with the General Partner Units, the “Common Units”).  The Limited Partner Units are exchangeablefor shares of the General Partner’s common stock on a one-for-one basis subjectgenerally to a one-year holding period or, under certain circumstances, theGeneral Partner may repurchase the Limited Partnership Units for cash.  The General Partner also owns preferredpartnership interest in the Partnership (“Preferred Units”).

 

We own and operate a portfolio of industrial, office and retailproperties in the midwestern and southeastern United States and provide realestate services to third-party owners. We conduct our service operations through Duke Realty Services, LLC (“DRS”),Duke Realty Services Limited Partnership (“DRSLP”) and Duke ConstructionLimited Partnership (“DCLP”).

 

**2.****             ****Reclassifications**

 

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

 

 

6

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**3.****             ****Acquisitions**

 

In February 2006, we completed the majorityof the acquisition of a Washington D.C. metropolitan area portfolio of suburbanoffice and light industrial properties (the “Mark Winkler Portfolio”). The assetsacquired for a purchase price of approximately $709 million are comprised of 29properties with approximately 2.5 million square feet for rental and 166 acresof undeveloped land, as well as the related assets of The Mark Winkler Company,a real estate management company. The acquisition was financed primarilythrough assumed mortgage loans and new borrowings (see Note 4). The totalpurchase price upon completion of the portfolio acquisition in the secondquarter of 2006 presently is expected to be approximately $855 million and willinclude three additional office properties with approximately 400,000 squarefeet for rental. The assets of the portfolio related to in-service properties,consisting of $535.6 million of real estate investments and $59.4 million ofacquired lease related intangible assets, are classified and accounted for as heldfor sale based on meeting the applicable criteria of Statement of FinancialAccounting Standard No. 144*, Accounting Forthe Impairment or Disposal of Long-Lived Assets*(“SFAS 144”).  As required by SFAS 144, the results ofoperations of the acquired properties since the date of acquisition have beenincluded in continuing operations, rather than discontinued operations, basedon our intention to sell the majority of our ownership interest in theproperties to an entity in which we will retain a minority equity ownershipinterest. The allocation of purchase price based on the fair value of assetsacquired is preliminary but is not anticipated to be adjusted significantly infuture periods.

 

In January 2006, we completed the majority of the purchase of a portfolioof industrial real estate properties in Savannah, Georgia with the purpose ofexpanding our industrial real estate holdings near major port facilities. Theassets acquired as of March 31, 2006 for a purchase price of approximately $178million are comprised of 17 buildings with approximately 4.7 million squarefeet for rental as well as 60 acres of undeveloped land. The acquisition wasfinanced in part through assumed mortgage loans (see Note 4). The totalpurchase price upon completion of the portfolio acquisition in the secondquarter of 2006 presently is expected to be approximately $196 million and willinclude one additional industrial property with approximately 438,000 squarefeet for rental. The results of operations for the acquired properties sincethe date of acquisition have been included in continuing operations in ourconsolidated financial statements.

 

**4.****             ****Indebtedness**

 

We have one unsecured line of credit available at March 31, 2006,described as follows (dollars in thousands):

 
|                     |   | Borrowing  |   | Maturity      |   | Interest      |   | Outstanding  Balance |   |
|--------------------------|--------|------------|--------|---------------|--------|---------------|--------|----------------------|--------|
| Description              |   | Capacity   |   | Date          |   | Rate          |   | at  March 31, 2006   |   |
| Unsecured Line of Credit |   | $1,000,000 |   | January  2010 |   | LIBOR  + .525 | %      | $508,000             |   |

 

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

 

The line of creditprovides us with an option to obtain borrowings from financial institutionsthat participate in the line, at rates lower than the stated interest rate,subject to certain restrictions. Interest rates on the amounts outstanding onthe unsecured line of credit at March 31, 2006, range from LIBOR + .13 to LIBOR+ .525 (4.9% to 5.4% at March 31, 2006).

 

The line of creditalso contains financial covenants that require us to meet financial ratios anddefined levels of performance, including those related to variable interestindebtedness, consolidated net worth and debt-to-market capitalization. As ofMarch 31, 2006, we were in compliance with all covenants under our line ofcredit.

 

 

7

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We took thefollowing actions during the three-month period ended March 31, 2006, relevantto our indebtedness:

 

•          In January 2006, we renewedour unsecured revolving credit facility. The new facility provides borrowingcapacity up to $1 billion and, subject to certain conditions, may be increasedto $1.3 billion. Under the new facility, which replaced the previous unsecuredline of credit agreement, the interest rate was reduced, the borrowing capacitywas increased by $500 million and the maturity date was extended to January 25,2010.

•          To finance the acquisitionof the Washington D.C. area real estate portfolio (see Note 3) we obtained a$700 million term loan, secured by certain of the acquired real estate properties.The term loan bears interest at LIBOR + .525% and has a six-month term with theoption for an additional six-month extension.

•          In conjunction with our realestate acquisitions (see Note 3) we assumed $148 million of mortgage loans, ofwhich we received $10.5 million of proceeds directly. The assumed mortgageloans bear interest at rates ranging between 5.55% and 8.5% and have maturitiesranging between 2011 and 2026.  Anadjustment of $4.3 million was recorded to increase the assumed loans to fairvalue.

•          In February 2006, we issued$150 million of 5.5% senior unsecured notes due in 2016.  The notes were issued as part of an exchangeof securities for our $100 million 6.72% puttable option reset securities,which we retired. The remaining cash proceeds were used to fund costsassociated with the issuance of the debt and to repay amounts outstanding underour line of credit.

 

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

 

We provide property management, leasing, construction and othertenant-related services to companies in which we have equity interests. For thethree months ended March 31, 2006 and 2005, respectively, we receivedmanagement fees of $1.1 million and $1.2 million, leasing fees of $665,000 and$922,000 and construction and development fees of $1.6 million and $517,000from these companies. We recorded these fees at market rates and we eliminatedour ownership percentage of these fees in the condensed consolidated financialstatements.

 

**6.****             ****Net Income Per Common Unit**

 

Basic net income per common unit is computed bydividing net income available for common units by the weighted average numberof common units outstanding for the period. Diluted net income per common unitis computed by dividing the sum of net income available for common unitholdersby the sum of the weighted average number of common units outstanding,including any dilutive potential common units for the period.

 

The following table reconciles the components ofbasic and diluted net income per common unit for the three months ended March 31,2006 and 2005, respectively (in thousands):

 
| ** **                                                                   | ** ** | **2006**    | ** ** | 2005    | ** ** |
|------------------------------------------------------------------------------|------------|-------------|------------|---------|------------|
| Basic and diluted net  income available for common unitholders               | ** ** | **$**       | **12,706** |    | $          | 28,161 |   |
|                                                                         |       |        |       |    |       |
| Weighted average number of  common units outstanding                         | ** ** | **148,175** |       | 156,947 |       |
| Dilutive shares for stock-based  compensation plans                          | ** ** | **1,090**   |       | 773     |       |
| Weighted average number of  common units and dilutive potential common units |       | **149,265** |       | 157,720 |       |
|                                                                              |            |             |            |         |            |  |  |

 

 

8

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**7.****             ****SegmentReporting**

 

We are engaged in three operating segments, the first two of whichconsist of the ownership and rental of office and industrial real estateinvestments (collectively, “Rental Operations”). The third segment consists ofour build-to-suit for sale operations and the providing of various real estateservices such as property management, maintenance, leasing, development andconstruction management to third-party property owners and joint ventures (“ServiceOperations”). Our reportable segments offer different products and services andare managed separately because each segment requires different operatingstrategies and management expertise. During the three-month periods ended March31, 2006 and 2005, there were no material intersegment sales or transfers.

 

Non-segment revenue consists mainly of equity in earnings ofunconsolidated companies. Segment FFO information (FFO is defined below) iscalculated by subtracting operating expenses attributable to the applicablesegment from segment revenues. Non-segment assets consist of corporate assets includingcash, deferred financing costs and investments in unconsolidated companies.Interest expense and other non-property specific revenues and expenses are notallocated to individual segments in determining our performance measure.

 

We assess and measure segment operating results based upon an industryperformance measure referred to as Funds From Operations (“FFO”), whichmanagement believes is a useful indicator of our operating performance. Funds From Operations is used by industryanalysts and investors as a supplemental operating performance measure of anequity real estate investment trust (“REIT”) like our General Partner. FFO iscalculated in accordance with the definition that was adopted by the Board ofGovernors of the National Association of Real Estate Investment Trusts (“NAREIT”).NAREIT created FFO as a supplemental measure of REIT operating performance thatexcludes historical cost depreciation, among other items, from net incomedetermined in accordance with GAAP. FFO is a non-GAAP financial measuredeveloped by NAREIT to compare the operating performance of REITs. The mostcomparable GAAP measure is net income (loss). FFO should not be considered as a substitute for net income or any othermeasures derived in accordance with GAAP and may not be comparable to othersimilarly titled measure of other companies.

 

Historical cost accounting for real estate assets in accordance withGAAP implicitly assumes that the value of real estate assets diminishespredictably over time.  Since real estatevalues instead have historically risen or fallen with market conditions, manyindustry investors and analysts have considered presentation of operatingresults for real estate companies that use historical cost accounting to beinsufficient by themselves.  FFO, asdefined by NAREIT, represents GAAP net income (loss), excluding extraordinaryitems as defined under GAAP and gains or losses from sales of previouslydepreciated operating real estate assets, plus certain non-cash items such asreal estate asset depreciation and amortization, and after similar adjustmentsfor unconsolidated partnerships and joint ventures.

 

Management believes that the use of FFO, combined with the requiredprimary GAAP presentations, improves the understanding of operating results ofREITs among the investing public and makes comparisons of REIT operatingresults more meaningful.  Managementconsiders FFO to be a useful measure for reviewing comparative operating andfinancial performance (although FFO should be reviewed in conjunction with netincome which remains the primary measure of performance) because by excludinggains or losses related to sales of previously depreciated operating realestate assets and excluding real estate asset depreciation and amortization,FFO provides a useful comparison of the operating performance of thePartnership’s real estate between periods or as compared to differentcompanies.

 

 

9

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The following table shows (i) the revenues and FFO for each of thereportable segments and (ii) a reconciliation of net income available forcommon unitholders to the calculation of FFO for the three months ended March31, 2006, and 2005, respectively (in thousands):

 
| ** **                                                               | ** ** | Three  Months Ended March 31, | ** **  |
|--------------------------------------------------------------------------|------------|-------------------------------|-------------|
| ** **                                                               | ** ** | **2006**                      | ** **  | 2005 | ** ** |
| Revenues                                                                 |       |                          |        |   |   |
| Rental Operations:                                                       |       |                          |        |   |   |
| Office                                                                   | ** ** | **$**                         | **139,033** |   | $ | 116,777 |   |
| Industrial                                                               | ** ** | **52,063**                    |        | 41,741 |   |
| Service Operations                                                       | ** ** | **10,006**                    |        | 21,695 |   |
| Total Segment Revenues                                                   | ** ** | **201,102**                   |        | 180,213 |   |
| Non-Segment Revenue                                                      | ** ** | **10,908**                    |        | 7,364 |   |
| Consolidated Revenue from continuing operations                     |       | **212,010**                   |        | 187,577 |   |
| Discontinued Operations                                                  | ** ** | **861**                       |        | 31,889 |   |
| Consolidated Revenue                                                     | ** ** | **$**                         | **212,871** |   | $ | 219,466 |   |
| Funds  From Operations                                                   |       |                          |        |   |   |
| Rental Operations:                                                       |       |                          |        |   |   |
| Office                                                                   | ** ** | **$**                         | **84,882**  |   | $ | 72,107 |   |
| Industrial                                                               | ** ** | **38,221**                    |        | 30,248 |   |
| Service Operations                                                       | ** ** | **4,450**                     |        | 10,920 |   |
| Total Segment FFO                                                        | ** ** | **127,553**                   |        | 113,275 |   |
|                                                                     |       |                          |        |   |   |
| Non-Segment FFO:                                                         |       |                          |        |   |   |
| Interest expense                                                         | ** ** | **(38,655**                   | )           | (28,900 | ) |
| Interest income                                                          | ** ** | **2,200**                     |        | 1,320 |   |
| General and administrative expense                                       | ** ** | **(13,947**                   | )           | (7,558 | ) |
| Gain on land sales, net of impairment                                    | ** ** | **1,890**                     |        | 143 |   |
| Impairment charges on depreciable property                               |       | —                        |        | (2,809 | ) |
| Other income (expense) on non-segment FFO                                | ** ** | **947**                       |        | 670 |   |
| Minority interest in earnings of subsidiaries                            | ** ** | **(102**                      | )           | (37 | ) |
| Joint venture FFO                                                        | ** ** | **9,998**                     |        | 10,072 |   |
| Dividends on preferred units                                             | ** ** | **(12,712**                   | )           | (11,620 | ) |
| Adjustment for redemption of preferred units                             | ** ** | **(2,633**                    | )           | — |   |
| Discontinued operations                                                  | ** ** | **(16**                       | )           | 15,186 |   |
| Consolidated FFO                                                         | ** ** | **74,523**                    |        | 89,742 |   |
| Depreciation and amortization on continuing operations                   |       | **(60,147**                   | )           | (53,108 | ) |
| Depreciation and amortization on discontinued operations                 |       | **(435**                      | )           | (10,118 | ) |
| Partnership’s share of joint venture adjustments                    | ** ** | **(4,702**                    | )           | (4,865 | ) |
| Earnings from depreciated property sales on discontinued operations |       | **505**                       |        | 6,510 |   |
| Earnings from depreciated property sales -  joint venture                | ** ** | **2,962**                     | ** **  | **—** | ** ** |
| Net income available for common unitholders                              | ** ** | **$**                         | **12,706**  |   | $ | 28,161 |   |
|                                                                          |            |                               |             |  |  |  |  |  |

 

 

10

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The assets for each of the reportable segments asof March 31, 2006 and December 31, 2005, respectively, are as follows (inthousands):

 
| ** **            | ** ** | **March 31,** | ** **    | **December 31,** | ** ** |
|-----------------------|------------|---------------|---------------|------------------|------------|
| ** **            | ** ** | **2006**      | ** **    | **2005**         | ** ** |
| Assets                |       |          |          |             |       |
| Rental Operations:    |       |          |          |             |       |
| Office                | ** ** | **$**         | **4,032,781** |             | $          | 3,396,985 |   |
| Industrial            | ** ** | **1,935,427** |          | 1,577,631        |       |
| Service Operations    | ** ** | **224,299**   |          | 177,463          |       |
| Total  Segment Assets | ** ** | **6,192,507** |          | 5,152,079        |       |
| Non-Segment Assets    | ** ** | **513,039**   |          | 494,608          |       |
| Consolidated  Assets  | ** ** | **$**         | **6,705,546** |             | $          | 5,646,687 |   |
|                       |            |               |               |                  |            |  |  |  |  |

 

In addition to revenues and FFO, we also reviewour recurring capital expenditures in measuring the performance of ourindividual Rental Operations segments. These recurring capital expendituresconsist of tenant improvements, leasing commissions and building improvements.We review these expenditures to determine the costs associated with re-leasingvacant space and maintaining the condition of our properties. Our recurringcapital expenditures by segment are summarized as follows for the three monthsended March 31, 2006 and 2005, respectively (in thousands):

 
| ** **                      | ** ** | **2006**  | ** ** | 2005   | ** ** |
|---------------------------------|------------|-----------|------------|--------|------------|
| Recurring Capital  Expenditures |       |      |       |   |       |
| Office                          | ** ** | **$**     | **12,691** |   | $          | 13,761 |   |
| Industrial                      | ** ** | **4,585** |       | 11,228 |       |
| Non-segment                     | ** ** | **14**    |       | — |       |
| Total                           | ** ** | **$**     | **17,290** |   | $          | 24,989 |   |

 

**8.****             ****DiscontinuedOperations**

 

Wehave classified operations of 240 buildings as discontinued operations as ofMarch 31, 2006. These 240 buildings consist of 226 industrial, 13 office andone retail properties. Of these properties, two were sold during the firstquarter of 2006, 234 were sold during 2005 and four operating properties areclassified as held-for-sale at March 31, 2006.

 

The following tableillustrates the operations of the 240 buildings reflected in discontinuedoperations, at March 31, 2006 and 2005, respectively (in thousands):

 
| ** **                                                       | ** ** | **Three Months Ended March 31,** | ** ** |
|------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                       | ** ** | **2006**                         | ** ** | 2005 | ** ** |
| Statement of Operations:                                         |       |                             |       |   |   |
| Revenues                                                         | ** ** | **$**                            | **861**    |   | $ | 31,889 |   |
| Expenses:                                                        |       |                             |       |   |   |
| Operating                                                        | ** ** | **560**                          |       | 10,092 |   |
| Interest                                                         | ** ** | **306**                          |       | 6,587 |   |
| Depreciation and Amortization                                    | ** ** | **435**                          |       | 10,118 |   |
| General and Administrative                                       | ** ** | **11**                           |       | 24 |   |
| Income (loss) from discontinued operations, before gain on sales |       | **(451**                         | )          | 5,068 |   |
| Gain on sale of property, net of impairment adjustment           |       | **505**                          |       | 3,701 |   |
| Income from discontinued operations                              | ** ** | **$**                            | **54**     |   | $ | 8,769 |   |

 

 

11

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AtMarch 31, 2006, in addition to the acquired properties discussed in Note 3, wehad classified as held-for-sale two industrial and two office propertiescomprising approximately 711,000 square feet. While we have entered intoagreements for the sale of these properties, there can be no assurances thatsuch properties actually will be sold. The following table illustrates the aggregate balance sheet of theaforementioned four properties included in discontinued operations, as well asthose held-for-sale properties whose results are included in continuingoperations, at March 31, 2006 (in thousands):

 
| ** **                    | ** ** | **Properties**   | ** ** | **Properties**  | ** ** | ** **        | ** ** |
|-------------------------------|------------|------------------|------------|-----------------|------------|-------------------|------------|
| ** **                    | ** ** | **Included in**  | ** ** | **Included in** | ** ** | **Total**         | ** ** |
| ** **                    | ** ** | **Discontinued** | ** ** | **Continuing**  | ** ** | **Held-for-Sale** | ** ** |
| ** **                    | ** ** | **Operations**   | ** ** | **Operations**  | ** ** | **Properties**    | ** ** |
| Balance Sheet:                |       |             |       |            |       |              |       |
| Real estate investments,  net |       | $                | 25,802     |            | $          | 535,555           |       | $ | 561,357 |   |
| Other Assets                  |       | 1,172            |       | 59,424          |       | 60,596            |       |
| Total Assets                  |       | $                | 26,974     |            | $          | 594,979           |       | $ | 621,953 |   |
|                          |       |             |       |            |       |              |       |
| Accrued Expenses              |       | $                | 366        |            | $          | 503               |       | $ | 869 |   |
| Other Liabilities             |       | 344              |       | —          |       | 344               |       |
| Equity                        |       | 26,264           |       | 594,476         |       | 620,740           |       |
| Total Liabilities and Equity  |       | $                | 26,974     |            | $          | 594,979           |       | $ | 621,953 |   |
|                               |            |                  |            |                 |            |                   |            |  |  |  |  |  |  |  |

 

We allocate interestexpense to discontinued operations as permitted under Emerging Issues TaskForce (“EITF”) Issue No. 87-24, *Allocationof Interest to Discontinued Operations,*and have included suchinterest expense in computing net income from discontinued operations. Interestexpense allocable to discontinued operations includes interest on any debt onsecured properties included in discontinued operations and an allocable shareof our consolidated unsecured interest expense for unencumbered properties. Theallocation of unsecured interest expense to discontinued operations was basedupon the gross book value of the discontinued operations unencumberedpopulation as it related to our entire unencumbered population.

 

We recorded no impairment adjustments for thethree months ended March 31, 2006 and $2.8 million for the three months endedMarch 31, 2005. The $2.8 million impairment adjustment recorded in the firstquarter of 2005 reflects the write-down of the carrying value of one officebuilding, four industrial buildings and one land parcel that were later sold in2005 and one industrial building that was sold in the first quarter of 2006.

 

**9.****             ****Partners’Equity**

 

The General Partner periodically accesses the public equity markets tofund the development and acquisition of additional rental properties or to paydown debt. The proceeds of these offerings are contributed to us in exchangefor additional interests in the Partnership. In January 2006 the GeneralPartner issued $184 million of 6.95% Series M Cumulative Redeemable PreferredUnits, from which a portion of the net proceeds were used to redeem its $75million of 8.45% Series I Cumulative Redeemable Preferred Units. Offering costsof $2.6 million were charged against net income available to common unitholdersin conjunction with the redemption of the Series I Cumulative RedeemablePreferred Units.

 

The following series of preferred units are outstanding as of March 31,2006 (in thousands, except percentage data):

 
|               |       | Units       |       | Dividend   |       | Redemption          |       | Liquidation |       |        | ** ** |
|--------------------|------------|-------------|------------|------------|------------|---------------------|------------|-------------|------------|-------------|------------|
| Description        |       | Outstanding |       | Rate       |       | Date                |       | Preference  |       | Convertible | ** ** |
| ** **         | ** ** | ** **  | ** ** | ** ** | ** ** | ** **          | ** ** | ** **  | ** ** | ** **  | ** ** |
| Series B Preferred |       | 265         |       | 7.990      | %          | September  30, 2007 |       | $           | 132,250    |        | No         |   |
| Series J Preferred |       | 400         |       | 6.625      | %          | August  29, 2008    |       | 100,000     |       | No          |       |
| Series K Preferred |       | 600         |       | 6.500      | %          | February  13, 2009  |       | 150,000     |       | No          |       |
| Series L Preferred |       | 800         |       | 6.600      | %          | November  30, 2009  |       | 200,000     |       | No          |       |
| Series M Preferred |       | 736         |       | 6.950      | %          | January  31, 2011   |       | 184,000     |       | No          |       |
|                    |            |             |            |            |            |                     |            |             |            |             |            |  |

 

 

12

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

 

All series of preferred units require cumulative distributions and haveno stated maturity date (although we may redeem all such preferred units on orfollowing their optional redemption dates).

 

The Series B, Series J, Series K, Series L and Series M preferred unitsmay be redeemed on or after the dates noted above only at the General Partner’soption, in whole or in part.

** **

**10.  Financial Instruments**

 

We are exposed to capital market risk, such as changes in interestrates. In order to manage the volatility relating to interest rate risk, we mayenter into interest rate hedging arrangements from time to time. We do notutilize derivative financial instruments for trading or speculative purposes.We account for derivative instruments under Statement of Financial AccountingStandard No. 133, *Accounting for DerivativeInstruments and Hedging Activities* (“SFAS 133”) as amended.

 

In March 2005, we entered into $300 million of cash flow hedges throughforward-starting interest rate swaps to hedge interest rates on $300 million ofestimated debt offerings in 2006. The swaps qualify for hedge accounting underSFAS 133 with any changes in fair value recorded in Accumulated OtherComprehensive Income (“OCI”). The market value of these interest rate swaps isdependent upon existing market interest rates, which change over time.  In March 2006 we issued $150 million of 5.5%senior unsecured notes due 2016 (see Note 4) and terminated a correspondingamount of the cash flow hedges designated for this transaction.  The settlement amount payable ofapproximately $1 million will be recognized to earnings through interestexpense ratably over the life of the senior notes and the ineffective portionof the hedge was insignificant. At March 31, 2006, the estimated fair value ofthe remaining $150 million swaps was approximately $1.5 million in an assetposition as the effective rates of the swaps were lower than current interest ratesat March 31, 2006.

 

In August 2005, we entered into $300 million of cash flow hedgesthrough forward-starting interest rate swaps to hedge interest rates on $300million of estimated debt offerings in 2007. The swaps qualify for hedgeaccounting under SFAS 133 with any changes in fair value recorded in OCI. AtMarch 31, 2006, the fair value of these swaps was approximately $14.9 millionin an asset position as the effective rates of the swaps were lower thancurrent interest rates at March 31, 2006.

 

Statement of Financial Accounting Standard No.150, *Accounting for Certain FinancialInstruments with Characteristics of both Liabilities and Equity* (“SFAS150”), establishes standards for classifying and measuring as liabilitiescertain financial instruments that embody obligations of the issuer and havecharacteristics of both liabilities and equity. We include the operations ofsix joint ventures in our condensed consolidated financial statements at March31, 2006 that are partially owned by unaffiliated parties that havenoncontrolling interests. SFAS 150 requires the disclosure of the estimatedsettlement value of these noncontrolling interests. As of March 31, 2006, theestimated settlement value of the noncontrolling interest in one of theconsolidated joint ventures was approximately $1.2 million as compared to the$11,000 minority interest liability reported in our financial statements forthis joint venture.  The estimatedsettlement values of the noncontrolling interests in the remaining five joint venturesapproximate their carrying value.

 

 

13

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**11.****      ****StockBased Compensation**

 

Under the limited partnership agreement of thePartnership, we are required to issue one Common Unit to the General Partnerfor each share of common stock issued by the General Partner. Accordingly, theissuance of common shares by the General Partner under its stock basedcompensation plans requires the issuance of a corresponding number of CommonUnits by the Partnership to the General Partner.

The General Partner’s stock based employee andnon-employee compensation plans are described more fully below.  The General Partner is authorized to issue upto 11,320,552 shares of its common stock under these compensation plans.  New shares of the General Partner’s commonstock are issued to employees upon exercise of share-based awards that aresettled in the General Partner’s stock.

For all stock-based awards issued by the GeneralPartner prior to 2002, we applied the recognition and measurement provisions ofAccounting Principles Board Opinion No. 25, Accounting for Stock Issued toEmployees (“APB 25”), and related interpretations, in accounting forstock-based compensation.

 

Accordingly, for stock options granted prior to2002, no compensation expense is reflected in net income as all options grantedhad an exercise price equal to the market value of the General Partner’sunderlying common shares on the date of the grant.

 

Effective January 1, 2002, we prospectivelyadopted the fair value recognition provisions of Statement of FinancialAccounting Standard No. 123, Accounting for Stock-Based Compensation (“SFAS 123”),and applied SFAS 123 to all awards granted after January 1, 2002.

 

Effective January 1, 2006 we adopted Statement ofFinancial Accounting Standard No. 123(R), *Share Based Payment*, (“SFAS 123(R)”), usingthe modified prospective application method. Under this method, as of January1, 2006, we will apply the provisions of SFAS 123(R) to new and modifiedawards, as well as to the nonvested portion of awards granted before therequired effective date and outstanding at such time. The adoption of thispronouncement had no effect on compensation cost recorded in fiscal year 2005.

 

Some of the General Partner’s stock-basedcompensation awards, including both stock options and restricted stock units,have a retirement eligible provision, whereby awards granted to employees whohave reached the age of 55 automatically vest when they retire. We havepreviously accounted for this type of arrangement by recognizing compensationcost (for both pro forma and expense recognition purposes) over the full statedvesting period of the award and, if the employee retired before the end of thevesting period, recognizing any remaining unrecognized compensation cost at thedate of retirement. Upon adoption of SFAS 123(R), new awards granted toretirement eligible employees are subject to accelerated vesting over a periodwhen the employee’s retention of the award is no longer contingent on providingadditional service.  Had we appliedaccelerated vesting to all existing unvested awards issued to retirementeligible employees prior to January 1, 2006, we would have recognized anadditional $1.4 million in stock-based employee compensation expense for the threemonths ended March 31, 2006.

 

An additional requirement of SFAS 123(R) is thatestimated forfeitures be considered in determining compensation expense. Aspreviously permitted, we recorded forfeitures when they occurred. The effect ofthis accounting change on existing nonvested stock compensation wasinsignificant.

 

As a result of adopting SFAS 123(R) onJanuary 1, 2006, our net income available for common unitholders for thequarter ended March 31, 2006, is $255,000 lower than if we had continuedto account for share-based compensation under SFAS 123 and APB 25. There was noeffect on basic and diluted earnings per unit from continuing operations as aresult of the adoption of SFAS 123(R).

 

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

 

 

14

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The following table illustrates the effect on net income and earningsper unit if we had applied the fair value recognition provisions of SFAS 123 toall stock-based employee compensation for the three months ended March 31, 2005(in thousands, except per unit data):

 
| ** **                                                                                                | ** ** | Three  Months   | ** ** |
|-----------------------------------------------------------------------------------------------------------|------------|-----------------|------------|
| ** **                                                                                                | ** ** | Ended           | ** ** |
| ** **                                                                                                | ** ** | March  31, 2005 | ** ** |
| Net income available for common unitholders, as reported                                                  |       | $               | 28,161     |   |
| Add: Stock-based employee compensation expense included in net income  determined under fair value method |       | 282             |       |
| Deduct: Total stock-based compensation expense determined under fair  value method for all awards         |       | (415            | )          |
| Proforma net income available for common unitholders                                                      |       | $               | 28,028     |   |
|                                                                                                      |       |            |       |
| Basic net income per  common unit                                                                         |       |            |       |
| As reported                                                                                               |       | $               | .18        |   |
| Pro forma                                                                                                 |       | $               | .18        |   |
|                                                                                                      |       |            |       |
| Diluted net income per  common unit                                                                       |       |            |       |
| As reported                                                                                               |       | $               | .18        |   |
| Pro forma                                                                                                 |       | $               | .18        |   |
|                                                                                                           |            |                 |            |  |  |

# **Fixed Stock Option Plans**

 

The General Partner had options outstanding under sixfixed option plans as of March 31, 2006. Additional grants may be made underone of those plans. Stock option awards granted under the General Partner’sstock based employee and non-employee compensation plans generally vest overfive years at 20% per year and have contractual lives of ten years.

 

The following tablesummarizes transactions under the General Partner’s stock option plans for thefirst three months of 2006:

 
| ** **                            | ** ** | ** ** | ** ** | **Weighted** | ** ** | **Weighted**    | ** ** | **Aggregate**     | ** ** |
|---------------------------------------|------------|------------|------------|--------------|------------|-----------------|------------|-------------------|------------|
| ** **                            | ** ** | ** ** | ** ** | **Average**  | ** ** | **Average**     | ** ** | **Intrinsic**     | ** ** |
| ** **                            | ** ** | ** ** | ** ** | **Exercise** | ** ** | **Contractual** | ** ** | **Value (1)**     | ** ** |
| ** **                            | ** ** | **Shares** | ** ** | **Price**    | ** ** | **Term**        | ** ** | **(in millions)** | ** ** |
| Outstanding, beginning of year        |       | 3,828,157  |       | $            | 25.50      |            |       |              |       |   |
| Granted                               |       | 829,167    |       | 34.13        |       |            |       |              |       |
| Exercised                             |       | (245,901   | )          | 22.17        |       |            |       |              |       |
| Forfeited                             |       | (71,406    | )          | 29.41        |       |            |       |              |       |
| Outstanding at March 31, 2006         |       | 4,340,017  |       | 27.27        |       | 6.72            |       | $                 | 46.4       |   |
| Options exercisable at March 31, 2006 |       | 2,355,863  |       | $            | 23.69      |            | 4.93       |              | $          | 33.6 |   |

----

(1)   Theaggregate intrinsic value represents the total pre-tax intrinsic value, basedon the closing stock price of $37.95 at March 31, 2006, which would have beenreceived by the option holders had all option holders exercised their optionsas of that date.  This amount changescontinuously based on the fair value of the stock.

 

Options granted in the three month periodsended March 31, 2006 and 2005, respectively, had a weighted average fair valueof $3.58 and $3.03. As of March 31, 2006, there was $5.7 million of totalunrecognized compensation expense related to stock options granted under theplans, which is expected to be recognized over a weighted average remainingperiod of 3.8 years. The total intrinsic value of options exercised during thethree month periods ended March 31, 2006 and 2005, respectively, was $3.4million and $700,000.  Compensationexpense recognized for fixed stock option plans was $325,000 and $310,000 inthe first three months of 2006 and 2005, respectively.

 

 

15

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The fair values of the options for the threemonths ended March 31, 2006 and 2005, were determined using the Black-Scholesoption-pricing model with the following assumptions:

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

 

The risk free interest rate assumption isbased upon observed interest rates appropriate for the term of the GeneralPartner’s employee stock options. The dividend yield assumption is based on thehistory and our expectation of dividend payouts. The computation of expectedvolatility for the valuation of stock options granted in the quarters endedMarch 31, 2006 and 2005, is based on historic volatility over a time equal tothe expected term. The expected life of employee stock options represents theweighted average period the stock options are expected to remain outstanding.

 

## ***Performance Share Plans***

 

Performance shares are granted under the 2000Performance Share Plan, with each performance share economically equivalent toone share of the General Partner’s common stock. Compensation cost isdetermined based on the fair value of the General Partner’s common stock at theend of each applicable reporting period.

 

The performance shares vest over a five-year periodwith the vesting percentage for a year dependent upon our attainment of certainpredefined levels of earnings growth for such year.  The performance shares have a contractuallife of five years. The value of vested performance shares are payable in cashupon the retirement or termination of employment of the participant. Under theGeneral Partner’s 2005 Long-Term Incentive Plan approved in April 2005,additional performance shares may be granted on such terms and conditions asmay be selected by the General Partner’s compensation committee, includingwhether payment will be made in cash, shares of the General Partner’s commonstock, DRLP Units or other property.

 

The following table summarizes transactions for theGeneral Partner’s performance shares for the first three months of 2006:

 
| **2005 Performance Share Plan**                                    | ** ** | ** ** | **Vested** | ** ** | **Unvested** | ** ** | **Total** | ** ** |
|--------------------------------------------------------------------|------------|------------|------------|------------|--------------|------------|-----------|------------|
|                                                               |       |       |       |       |         |       |      |
| Performance  Share Plan units at  December 31, 2005                |       | 84,466     |       | 99,001     |         | 183,467    |      |
| Granted                                                            |       | —     |       | —     |         | —     |      |
| Vested                                                             |       | 25,487     |       | (25,487    | )            | —     |      |
| Forfeited                                                          |       | —     |       | (3,746     | )            | (3,746     | )         |
| Dividend reinvestments                                             |       | 2,238      |       | —     |         | 2,238      |      |
| Disbursements                                                      |       | (2,997     | )          | —     |         | (2,997     | )         |
| Total  Performance Share Plan units  outstanding at March 31, 2006 |       | 109,194    |       | 69,768     |         | 178,962    |      |

## ***Compensation expense recognized for Performance Share Plan units was$630,000 and ($65,000) for the three-month periods ended March 31, 2006 and2005, respectively.  As of March 31,2006, there was $650,000 of total unrecognized compensation expense related tononvested performance shares granted under the Plan, which will be recognizedbased on the Partnership’s actual performance. The total vest date fair value of the General Partner’s shares vestingduring the three-month period ended March 31, 2006 was $918,000.***

 

 

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## ***Shareholder Value Plan Awards***

 

In October 2002, the General Partner amendedits 1995 Shareholder Value Plan (“1995 SVP Plan”) by requiring that payouts bein cash only. Payments made under the General Partner’s 1995 SVP Plan are basedupon its cumulative shareholder return for a three-year period as compared tothe cumulative total return of the S&P 500 and the NAREIT Equity REIT TotalReturn indices.

 

## ***During the first three months of 2006, the 2003 award made under the1995 SVP Plan was distributed for a total of $600,000.  Compensation cost recognized under the 1995SVP Plan was $210,000 for the three-month period ended March 31, 2006.***

 

The General Partner’s 2005 Shareholder ValuePlan (“2005 SVP Plan”), a sub-plan of its 2005 Long-Term Incentive Plan, wasapproved by its shareholders in April 2005. Upon vesting, payout of the 2005Shareholder Value Plan awards will be made in shares of the General Partner’scommon stock. Under the 2005 SVP Plan, shareholder value awards fully vestthree years after the date of grant. The number of General Partner commonshares to be issued can be 0%-300% of the target shares awarded and will bebased upon the General Partner’s total shareholder return for such three-yearperiod as compared to the S & P 500 Index and the NAREIT Real Estate 50Index. Each index is weighted at 50%.

 

Awards made under the 2005 SVP Plan aremeasured at fair value, which is determined using a Monte Carlo simulationmodel that was developed to accommodate the unique features of the ShareholderValue Plans. Compensation costs recognized under the 2005 SVP Plan was $180,000for the three-month period ended March 31, 2006.

 

The following table summarizes transactionsfor the General Partner’s awards under the 2005 SVP Plan for the first threemonths of 2006:

 
| ** **                              | ** ** | ** **    | ** ** | **Weighted**   | ** ** |
|-----------------------------------------|------------|---------------|------------|----------------|------------|
| ** **                              | ** ** | **Number of** | ** ** | **Average**    | ** ** |
| ** **                              | ** ** | **Share**     | ** ** | **Grant Date** | ** ** |
| **2005 Shareholder Value Plan  Awards** | ** ** | **Units**     | ** ** | **Fair Value** | ** ** |
| SVP awards at December 31,  2005        |       | 75,678        |       | $              | 30.64      |   |
| Granted                                 |       | 87,056        |       | $              | 34.13      |   |
| Forfeited                               |       | (2,890        | )     | $              | 30.85      |   |
| SVP awards at March 31,  2006           |       | 159,844       |       | $              | 32.54      |   |

 

## ***As of March 31, 2006, there was $2.5 million of total unrecognizedcompensation expense related to nonvested SVP Plan awards granted under the2005 SVP Plan, which will be recognized over a weighted average period of 2.5years.  All 2005 SVP Plan awards have acontractual life of three years.***

 

## ***Restricted Stock Units***

 

Under the General Partner’s 2005 Long-Term Incentive Plan and theGeneral Partner’s 2005 Non-Employee Directors Compensation Plan approved by itsshareholders in April 2005, restricted stock units (“RSUs”) may be granted tonon-employee directors, executive officers and selected management employees.An RSU is economically equivalent to one share of the General Partner’s commonstock. RSUs granted prior to January 1, 2006 vest 20% per year over five years,have contractual lives of five years and are payable in shares of our commonstock.  RSUs granted to existingnon-employee directors subsequent to January 1, 2006 vest 100% over one year,and have contractual lives of one year. We recognize the value of the grantedRSUs over this vesting period as expense.

 

 

17

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The following table summarizes transactionsfor the General Partner’s RSUs, excluding dividend equivalents, for the firstthree months of 2006:

 
| ** **                 | ** ** | ** **    | ** ** | **Weighted**   | ** **     |
|----------------------------|------------|---------------|------------|----------------|----------------|
| ** **                 | ** ** | ** **    | ** ** | **Average**    | ** **     |
| ** **                 | ** ** | **Number of** | ** ** | **Grant Date** | ** **     |
| **Restricted Stock Units** | ** ** | ** **    | **RSUs**   | ** **     | **Fair Value** | ** ** |
| RSUs at December 31, 2005  |       | 172,095       |       | $              | 32.19          |   |
| Granted                    |       | 104,927       |       | 34.13          |           |
| Vested                     |       | —        |       | N/A            |           |
| Forfeited                  |       | (6,568        | )     | 33.94          |           |
| RSUs at March 31, 2006     |       | 270,454       |       | $              | 32.94          |   |
|                            |            |               |            |                |                |  |  |

 

Compensation cost recognized for RSUs totaled $925,000 for three-monthperiod ended March 31, 2006.

 

As of March 31, 2006, there was $7.5 millionof total unrecognized compensation expense related to nonvested RSUs grantedunder the Plan, which is expected to be recognized over a weighted averageperiod of 4.3 years.

 

In addition, all RSUs earn dividendequivalents that are deemed to be reinvested in additional RSUs.  Dividend equivalents vest immediately andwill be paid in shares of the General Partner’s common stock when thecorresponding portion of the original RSU award vests or upon termination ofthe participant. Dividend equivalents of 3,714 RSUs were earned in the firstthree months of 2006, of which 9,783 were outstanding as of March 31, 2006. Acharge to retained earnings of $130,000 was recorded for the value of thesedividend equivalents during the first three months of 2006.

 

**12.****      ****RecentAccounting Pronouncement**

 

 In April 2006, the Financial Accounting Standards Board (“FASB”)issued FASB Staff Position (“FSP”) FIN 46R-6, *Determiningthe Variability to Be Considered in Applying FASB Interpretation No. 46(R).*ThisFSP addresses certain implementation issues related to FASB Interpretation No.46 (Revised December 2003), *Consolidation ofVariable Interest Entities*. Specifically, FSP FIN 46R-6 addresseshow a reporting enterprise should determine the variability to be considered inapplying FIN 46R. The variability that is considered in applying FIN 46Raffects the determination of (a) whether an entity is a variable interestentity (“VIE”), (b) which interests are “variable interests” in the entity, and(c) which party, if any, is the primary beneficiary of the VIE. That variabilityaffects any calculation of expected losses and expected residual returns, ifsuch a calculation is necessary. The Partnership is required to apply theguidance in this FSP prospectively to all entities (including newly createdentities) and to all entities previously required to be analyzed under FIN 46Rwhen a “reconsideration event” has occurred, beginning July 1, 2006. We willevaluate the impact of this Staff Position at the time any such “reconsiderationevent” occurs, and for any new entities.

 

**13.****      ****SubsequentEvents**

 

*Declaration of Distributions*

The General Partner’s Board of Directors declared the followingdistributions at its April 27, 2006, regularly scheduled Board meeting:

 

| ** **                        | ** ** | **Quarterly**   | ** ** | ** **      | ** ** | ** **       | ** ** |
|-----------------------------------|------------|-----------------|------------|-----------------|------------|------------------|------------|
| **Class**                         | ** ** | **Amount/Unit** | ** ** | **Record Date** | ** ** | **Payment Date** | ** ** |
| Common                            |       | $0.47           |       | May  12, 2006   |       | May  31, 2006    |       |
| Preferred (per depositary  unit): |       |            |       |            |       |             |       |
| Series B                          |       | $0.99875        |       | June  16, 2006  |       | June  30, 2006   |       |
| Series J                          |       | $0.41406        |       | May  17, 2006   |       | May  31, 2006    |       |
| Series K                          |       | $0.40625        |       | May  17, 2006   |       | May  31, 2006    |       |
| Series L                          |       | $0.41250        |       | May  17, 2006   |       | May  31, 2006    |       |
| Series M                          |       | $0.43438        |       | June  16, 2006  |       | June  30, 2006   |       |

 

 

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REPORTOF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

 

The Partners

**Duke Realty Limited Partnership:**

 

We have reviewed the condensed consolidated balance sheet of DukeRealty Limited Partnership and subsidiaries as of March 31, 2006, the relatedcondensed consolidated statements of operations and cash flows for the threemonths ended March 31, 2006 and 2005, and the related condensed consolidatedstatement of partners’ equity for the three months ended March 31, 2006. Thesecondensed consolidated financial statements are the responsibility of thePartnership’s management.

 

We conducted our review in accordance with standards of the PublicCompany Accounting Oversight Board (United States). A review of interimfinancial information consists principally of applying analytical procedures tofinancial data and making inquiries of persons responsible for financial andaccounting matters. It is substantially less in scope than an audit conductedin accordance with the standards of the Public Company Accounting OversightBoard (United States), the objective of which is the expression of an opinionregarding the financial statements taken as a whole. Accordingly, we do notexpress such an opinion.

 

Based on our review, we are not aware of any material modificationsthat should be made to the condensed consolidated financial statements referredto above for them to be in conformity with U.S. generally accepted accountingprinciples.

 

We have previously audited, in accordance with standards established bythe Public Company Accounting Oversight Board (United States), the consolidatedbalance sheet of Duke Realty Limited Partnership and subsidiaries as ofDecember 31, 2005, and the related consolidated statements of operations,partners’ equity and cash flows for the year then ended (not presented herein);and in our report dated March 10, 2006, we expressed an unqualified opinion onthose consolidated financial statements. In our opinion, the information setforth in the accompanying condensed consolidated balance sheet as of December31, 2005, is fairly presented, in all material respects, in relation to the consolidatedbalance sheet from which it has been derived.

 

 

 

KPMG LLP

Indianapolis, Indiana

May 12, 2006

 

 

19

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

 

**Cautionary Statement RegardingForward Looking Statements**

 

Certain statements contained in this Report,including those related to our future operations, constitute “forward-lookingstatements” within the meaning of Section 27A of the Securities Act of 1933, asamended, and Section 21E of the Securities Exchange Act of 1934, as amended.These forward-looking statements involve known and unknown risks, uncertaintiesand other important factors that could cause our actual results, performance or achievements, or industry results, todiffer materially from any predictionsof future results, performance or achievements that we express or imply in thisReport. Some of the risks, uncertainties and other important factors that mayaffect future results include, among others:

 

•     Changes in general economic and business conditions, includingperformance of financial markets;

•     The General Partner’s continued qualification as a real estateinvestment trust;

•     Heightened competition for tenants and potential decreases in propertyoccupancy;

•     Potential increases in real estate construction costs;

•     Potential changes in the financial markets and interest rates;

•     Our continuing ability to favorably raise debt and equity in thecapital markets;

•     Our ability to successfully identify, acquire, develop and/or manageproperties on terms that are favorable to us;

•     Our ability to successfully dispose of properties on terms that arefavorable to us;

•     Inherent risks in the real estate business including tenant defaults,potential liability relating to environmental matters and liquidity of realestate investments; and

•     Other risks and uncertainties described herein, including, withoutlimitation, under the caption “Item 1A. Risk Factors”, and in our reports andother filings with the Securities and Exchange Commission (“SEC”).

 

This list of risks and uncertainties, however, isnot intended to be exhaustive. Additional risk factor information is includedin our Annual Report on Form 10-K for the fiscal year ended December 31, 2005.

 

The words “believe,” “estimate,” “expect,” “anticipate,” “intend,” “plan,”“seek,” “may” and similar expressions or statements regarding future periodsare intended to identify forward-lookingstatements. Although we believe that the plans, expectations and resultsexpressed in or suggested by the forward-looking statements are reasonable, allforward-looking statements are inherently uncertain as they involve substantialrisks and uncertainties beyond our control. New factors emerge from time totime, and it is not possible for us to predict the nature or assess thepotential impact of each new factor on our business. Given these uncertainties,we caution you not to place undue reliance on these forward-looking statements.We undertake no obligation to update or revise any of our forward-lookingstatements for events or circumstances that arise after the statement is made.

 

 

20

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**Business Overview**

 

As of March 31, 2006, we:

•                 Owned or jointly controlled 735 industrial, office and retailproperties (including properties under development), consisting ofapproximately 112.2 million square feet; and

•                 Owned or jointly controlled more than 5,000 acres of land with anestimated future development potential of approximately 73 million square feetof industrial, office and retail properties.

 

We provide the following services for ourproperties and for certain properties owned by third parties and jointventures:

•                 Property leasing;

•                 Property management;

•                 Construction;

•                 Development; and

•                 Other tenant-related services.

 

**Acquisitions**

 

In February 2006, we completed themajority of the acquisition of a Washington D.C. metropolitan area portfolio ofsuburban office and light industrial properties (the “Mark Winkler Portfolio”).The assets acquired for a purchase price of approximately $709 millionare comprised of 29 properties with approximately 2.5 million square feet forrental and 166 acres of undeveloped land, as well as related assets of the MarkWinkler Company, a real estate management company.  The acquisition was financed primarilythrough assumed mortgage loans and new borrowings. The total purchase priceupon completion of the portfolio acquisition in the second quarter of 2006presently is expected to be approximately $855 million and will include threeadditional office properties with approximately 400,000 square feet for rental.The assets of the portfolio related to in-service properties, consisting of$535.6 million of real estate investments and $59.4 million of acquired leaserelated intangible assets, are classified and accounted for as held for salebased on meeting the applicable criteria of Statement of Financial AccountingStandard No. 144, *Accounting for theImpairment of Disposal of Long-Lived Assets*(“SFAS 144”).  As required by SFAS 144, the results ofoperations of the acquired properties since the date of acquisition have beenincluded in continuing operations, rather than discontinued operations, basedon our intention to sell the majority of our ownership interest in theproperties to an entity in which we will retain a minority equity ownershipinterest. The allocation of purchase price based on the fair value of assetsacquired is preliminary but is not anticipated to be adjusted significantly infuture periods.

 

In January 2006, we completed the majority of the purchase of aportfolio of industrial real estate properties in Savannah, Georgia with thepurpose of expanding our industrial real estate holdings near major portfacilities. The assets acquired as of March 31, 2006 for a purchase price ofapproximately $178 million are comprised of 17 buildings with approximately 4.7million square feet for rental as well as 60 acres of undeveloped land. Theacquisition was financed in part through assumed mortgage loans. The totalpurchase price upon completion of the portfolio acquisition in the secondquarter of 2006 presently is expected to be approximately $196 million and willinclude one additional industrial property with approximately 438,000 squarefeet for rental. The results of operations for the acquired properties sincethe date of acquisition have been included in continuing operations in ourconsolidated financial statements.

 

 

21

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**Key Performance Indicators**

 

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

 

***OccupancyAnalysis:*** Our ability to maintainoccupancy rates is a principal driver of our results of operations. The followingtable sets forth occupancy information regarding our in-service portfolio ofrental properties as of March 31, 2006 and 2005, respectively (in thousands,except percentage data):

 

|            |       | Total        |       | Percent  of        |       |              |       |       | ** ** |
|-----------------|------------|--------------|------------|--------------------|------------|-------------------|------------|------------|------------|
|            |       | Square  Feet |       | Total  Square Feet |       | Percent  Occupied | ** ** |
| Type            | ** ** | **2006**     | ** ** | 2005               | ** ** | **2006**          | ** ** | 2005       | ** ** | **2006** | ** ** | 2005 | ** ** |
| **Industrial**  | ** ** | ** **   | ** ** | ** **         | ** ** | ** **        | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Service Centers |       | 5,457        |       | 12,889             |       | 5.2               | %          | 11.6       | %          | 93.0 | % | 86.4 | % |
| Bulk            |       | 68,161       |       | 69,508             |       | 64.7              | %          | 62.6       | %          | 94.8 | % | 92.3 | % |
| **Office**      |       | 31,114       |       | 28,098             |       | 29.5              | %          | 25.3       | %          | 89.6 | % | 87.5 | % |
| **Retail**      |       | 611          |       | 596                |       | 0.6               | %          | 0.5        | %          | 99.1 | % | 96.8 | % |
| Total           |       | 105,343      |       | 111,091            |       | 100.0             | %          | 100.0      | %          | 93.2 | % | 90.4 | % |

 

***LeaseExpiration and Renewal:*** Ourability to maintain and grow occupancy rates primarily depends upon ourcontinuing ability to re-lease expiring space.******The following table reflects ourin-service lease expiration schedule by property type as of March 31, 2006. Thetable indicates square footage and annualized net effective rents (based onMarch 2006 rental revenue) under expiring leases (in thousands, exceptpercentage data):

 
| ** **                    | ** ** | **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 | ** ** |
| 2006                          |       | 6,111                |       | $                  | 39,827     |                | 5          | %            | 4,538      |   | $ | 19,822 |   | 1,572 |   | $ | 19,987 |   | 1 |   | $ | 18 |   |
| 2007                          |       | 11,166               |       | 70,890             |       | 11                  | %          | 8,380        |       | 33,600 |   | 2,777 |   | 37,167 |   | 9 |   | 123 |   |
| 2008                          |       | 13,469               |       | 86,339             |       | 13                  | %          | 9,850        |       | 40,862 |   | 3,600 |   | 45,142 |   | 19 |   | 335 |   |
| 2009                          |       | 12,409               |       | 80,990             |       | 12                  | %          | 8,872        |       | 34,831 |   | 3,533 |   | 46,081 |   | 4 |   | 78 |   |
| 2010                          |       | 11,534               |       | 93,588             |       | 14                  | %          | 7,365        |       | 34,633 |   | 4,162 |   | 58,850 |   | 7 |   | 105 |   |
| 2011                          |       | 10,612               |       | 68,603             |       | 10                  | %          | 7,874        |       | 32,028 |   | 2,695 |   | 35,849 |   | 43 |   | 726 |   |
| 2012                          |       | 6,762                |       | 41,383             |       | 6                   | %          | 4,870        |       | 17,087 |   | 1,885 |   | 23,963 |   | 7 |   | 333 |   |
| 2013                          |       | 5,575                |       | 51,437             |       | 8                   | %          | 2,918        |       | 12,835 |   | 2,623 |   | 38,023 |   | 34 |   | 579 |   |
| 2014                          |       | 4,598                |       | 24,380             |       | 4                   | %          | 3,779        |       | 13,469 |   | 819 |   | 10,911 |   | — |   | — |   |
| 2015                          |       | 7,283                |       | 54,495             |       | 8                   | %          | 5,288        |       | 21,097 |   | 1,995 |   | 33,398 |   | — |   | — |   |
| 2016 and Thereafter |       | 8,470                |       | 58,009             |       | 9                   | %          | 5,779        |       | 22,599 |   | 2,211 |   | 32,189 |   | 480 |   | 3,221 |   |
| Total Leased                  |       | 97,989               |       | $                  | 669,941    |                | 100        | %            | 69,513     |   | $ | 282,863 |   | 27,872 |   | $ | 381,560 |   | 604 |   | $ | 5,518 |   |
| Total Portfolio               |       |                 |       |               |       |                |       |         |       |   |   |   |   |   |   |   |   |   |   |
| Square Feet                   |       | 105,343              |       |               |       |                |       | 73,618       |       |   |   | 31,114 |   |   |   | 611 |   |   |   |
|                          |       |                 |       |               |       |                |       |         |       |   |   |   |   |   |   |   |   |   |   |
| Percent Occupied              |       | 93.2                 | %          |               |       |                |       | 94.6         | %          |   |   | 89.6 | % |   |   | 99.1 | % |   |   |

 

We renewed 76.6% and 75.4% of leases up forrenewal totaling approximately 1.9 million and 1.8 million square feet on whichwe attained a 3.6% and 2.5% growth in net effective rents in the three monthsended March 31, 2006 and 2005, respectively.

 

The average term of renewals decreased from 3.5years as of March 31, 2005 to 3.0 years as of March 31, 2006.

 

***Future Development:***Another source of growth in earnings is the developmentof additional properties. These properties should provide future earningsthrough Service Operations income upon sale or from Rental Operations growth asthey are placed in service. At March 31, 2006, we had 9.3 million square feetof property under development with total estimated costs upon completion of$718 million, which were 38% pre-leased.

 

 

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This compares to3.2 million square feet with a total estimated cost upon completion of $200million, which were 52% pre-leased at March 31, 2005. We have increased ourheld-for-rental development volume as a result of improving market conditions.This increase includes additional speculative developments that generallyresult in lower pre-leased levels.

 

A summary of properties under development as of March 31, 2006, follows(in thousands, except percentage data):

 

| ** **              | ** ** | ** ** | ** ** | ** **  | ** ** | **Total**     | ** ** | ** **      | ** ** |
|-------------------------|------------|------------|------------|-------------|------------|---------------|------------|-----------------|------------|
| **Anticipated**         | ** ** | ** ** | ** ** | ** **  | ** ** | **Estimated** | ** ** | **Anticipated** | ** ** |
| **In-Service**          | ** ** | **Square** | ** ** | **Percent** | ** ** | **Project**   | ** ** | **Stabilized**  | ** ** |
| **Date**                | ** ** | **Feet**   | ** ** | **Leased**  | ** ** | **Costs**     | ** ** | **Return**      | ** ** |
| Held for Rental:        |       |       |       |        |       |          |       |            |       |
| 2nd Quarter 2006        |       | 3,243      |       | 37          | %          | $             | 131,260    |            | 9.61       | % |
| 3rd  Quarter  2006 |       | 1,264      |       | 15          | %          | 64,109        |       | 9.65            | %          |
| 4th Quarter 2006        |       | 1,615      |       | 32          | %          | 73,829        |       | 9.25            | %          |
| Thereafter              |       | 710        |       | 50          | %          | 93,954        |       | 9.35            | %          |
|                    |       | 6,832      |       | 33          | %          | $             | 363,152    |            | 9.48       | % |
| Held-for-sale:          |       |       |       |        |       |          |       |            |       |
| 2nd Quarter 2006        |       | 1,279      |       | 29          | %          | 98,532        |       | 8.77            | %          |
| 3rd  Quarter  2006 |       | 178        |       | 60          | %          | 28,279        |       | 10.20           | %          |
| 4th Quarter 2006        |       | 308        |       | 87          | %          | 54,121        |       | 8.71            | %          |
| Thereafter              |       | 748        |       | 67          | %          | 173,913       |       | 8.60            | %          |
|                    |       | 2,513      |       | 50          | %          | 354,845       |       | 8.81            | %          |
| Total                   |       | 9,345      |       | 38          | %          | $             | 717,997    |            | 9.16       | % |

 

***Acquisition andDisposition Activity:*******Sales proceeds from dispositions of whollyowned held-for-rental properties for the first quarter of 2006 and 2005 were$7.4 million and $13.6 million, respectively. The disposition proceeds from thefirst quarter 2005 sales were used to fund acquisitions of $12.5 million duringthat quarter.  The disposition proceedsfrom the first quarter 2006 sales, along with proceeds from a major disposition(the “Industrial Portfolio Sale”) completed in the third quarter of 2005 wereused to fund two major acquisitions in the first quarter of 2006, as previouslydescribed.  We will continue to pursueboth disposition and acquisition opportunities that arise and are in line withour business plan.

 

**Funds From Operations**

 

Funds From Operations (“FFO”) is used by industryanalysts and investors as a supplemental operating performance measure of anequity REIT like our General Partner. FFO is calculated in accordance with thedefinition that was adopted by the Board of Governors of the NationalAssociation of Real Estate Investment Trusts (“NAREIT”). NAREIT created FFO asa supplemental measure of REIT operating performance that excludes historicalcost depreciation, among other items, from net income determined in accordancewith accounting principles generally accepted in the United States of America (“GAAP”).FFO is a non-GAAP financial measure developed by NAREIT to compare theoperating performance of REITs. The most comparable GAAP measure is net income(loss). FFO should not be considered as a substitute for net income or anyother measures derived in accordance with GAAP and may not be comparable toother similarly titled measure of other companies.

 

Historical cost accounting for real estate assetsin accordance with GAAP implicitly assumes that the value of real estate assetsdiminishes predictably over time. Since real estate values instead havehistorically risen or fallen with market conditions, many industry investorsand analysts have considered presentation of operating results for real estatecompanies that use historical cost accounting to be insufficient by themselves.FFO, as defined by NAREIT, represents GAAP net income (loss), excludingextraordinary items as defined under GAAP and gains or losses from sales ofpreviously depreciated operating real estate assets, plus certain non-cashitems such as real estate depreciation and amortization, and after similaradjustments for unconsolidated partnerships and joint ventures.

 

 

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Management believes that the use of FFO, combinedwith the required primary GAAP presentations, improves the understanding ofoperating results of REITs among the investing public and makes comparisons ofREIT operating results more meaningful. Management considers FFO to be a usefulmeasure for reviewing comparative operating and financial performance  (although FFO should be reviewed inconjunction with net income which remains the primary measure of performance)because, by excluding gains or losses related to sales of previouslydepreciated operating real estate assets and excluding real estate assetdepreciation and amortization, FFO provides a useful comparison of theoperating performance of the Partnership’s real estate between periods or ascompared to different companies.

 

The following table shows a reconciliation of netincome available for common unitholders to the calculation of FFO for the threemonths ended March 31, 2006 and 2005, respectively (in thousands):

 
| ** **                                                             | ** ** | **2006**   | ** ** | 2005   | ** ** |
|------------------------------------------------------------------------|------------|------------|------------|--------|------------|
| Net income available for  common unitholders                           | ** ** | **$**      | **12,706** |   | $          | 28,161 |   |
| Adjustments:                                                           |       |       |       |   |       |
| Depreciation and amortization                                          | ** ** | **60,582** |       | 63,226 |       |
| Share of joint venture adjustments                                     | ** ** | **4,702**  |       | 4,865  |       |
| Earnings from depreciable property sales — wholly owned           | ** ** | **(505**   | )          | (6,510 | )          |
| Earnings from depreciable property sales — share of joint venture | ** ** | **(2,962** | )          | — |       |
| **Funds From Operations**                                              | ** ** | **$**      | **74,523** |   | $          | 89,742 |   |

 

**Results of Operations**

 

A summary of our operating results and propertystatistics for the three months ended March 31, 2006 and 2005, is as follows(in thousands, except number of properties and per unit data):

 
| ** **                                                   | ** ** | **2006**    | ** **  | 2005    | ** ** |
|--------------------------------------------------------------|------------|-------------|-------------|---------|------------|
| Rental Operations revenues  from Continuing Operations       | ** ** | **$**       | **202,004** |    | $          | 165,882 |   |
| Service Operations  revenues from Continuing Operations      | ** ** | **10,006**  |        | 21,695  |       |
| Earnings from Continuing  Rental Operations                  | ** ** | **33,726**  |        | 26,301  |       |
| Earnings from Continuing  Service Operations                 | ** ** | **4,450**   |        | 11,838  |       |
| Operating income                                             | ** ** | **24,229**  |        | 29,664  |       |
| Net income available for  common unitholders                 | ** ** | **$**       | **12,706**  |    | $          | 28,161 |   |
| Weighted average common  units outstanding                   | ** ** | **148,175** |        | 156,947 |       |
| Weighted average common  and dilutive potential common units | ** ** | **149,265** |        | 157,720 |       |
| Basic income per common  units:                              |       |        |        |    |       |
| Continuing operations                                        | ** ** | **$**       | **.09**     |    | $          | .12 |   |
| Discontinued operations                                      | ** ** | **$**       | **—**  |    | $          | .06 |   |
| Diluted income per common  unit:                             |       |        |        |    |       |
| Continuing operations                                        | ** ** | **$**       | **.09**     |    | $          | .12 |   |
| Discontinued operations                                      | ** ** | **$**       | **—**  |    | $          | .06 |   |
| Number of in-service  properties at end of period            | ** ** | **709**     |        | 876     |       |
| In-service square footage  at end of period                  | ** ** | **105,343** |        | 111,091 |       |
| Under development square  footage at end of period           | ** ** | **6,832**   |        | 2,824   |       |
|                                                              |            |             |             |         |            |  |  |  |  |

 

 

 

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**Comparison of Three Months EndedMarch 31, 2006 to Three Months Ended March 31, 2005**

 

Rental Income From Continuing Operations

 

Overall, rental revenuesfrom continuing operations increased from $160.7 million for the three monthsended March 31, 2005, to $193.7 million for the same period in 2006. Thefollowing table reconciles rental income from continuing operations by reportablesegment to our total reported rental income from continuing operations for thethree months ended March 31, 2006 and 2005 (in thousands):

 
| ** **    | ** ** | **2006**    | ** ** | 2005    | ** ** |
|---------------|------------|-------------|------------|---------|------------|
| Rental Income |       |        |       |    |       |
| Office        | ** ** | **139,033** |       | 116,777 |       |
| Industrial    | ** ** | **52,063**  |       | 41,741  |       |
| Non-segment   | ** ** | **2,649**   |       | 2,158   |       |
| Total         | ** ** | **193,745** |       | 160,676 |       |

 

•                  We acquired 55 propertiesand placed 17 developments in service from April 1, 2005 to March 31,2006.  These acquisitions anddevelopments provided revenues of $21.4 million in the first quarter of 2006 including$8.7 million from rental properties acquired in the first quarter of 2006.

 

•                  Lease termination feestotaled $4.1 million in the first quarter of 2006 compared to $1.8 million forthe same period of 2005.  $3.8 million ofthe termination fees recorded in the first quarter of 2006 were the result ofthe termination of one lease.

 

Equity in Earnings of Unconsolidated Companies

 

Equity in earnings increased from $5.2 million for the first quarter of2005 to $8.3 million for the same period in 2006.  During the first quarter of 2006, one of our50% owned joint ventures sold the two buildings and land in its portfolio withour share of the gain totaling $3.0 million.

 

Rental Expenses and Real Estate Taxes

 

The following table reconciles rental expenses and real estate taxes byreportable segment to our total reported amounts in the statement of operationsfor the three months ended March 31, 2006 and 2005, respectively (inthousands):

 
| ** **         | ** ** | **2006**   | ** ** | 2005    |
|--------------------|------------|------------|------------|---------|
| Rental Expenses:   |       |       |       |    |
| Office             | ** ** | **37,733** |       | 31, 974 |
| Industrial         | ** ** | **7,889**  |       | 6,376   |
| Non-segment        | ** ** | **716**    |       | 256     |
| Total              | ** ** | **46,338** |       | 38,606  |
|               |       |       |       |    |
| Real Estate Taxes: |       |       |       |    |
| Office             | ** ** | **15,858** |       | 12,695  |
| Industrial         | ** ** | **5,953**  |       | 5,118   |
| Non-segment        | ** ** | **1,327**  |       | 1,154   |
| Total              |       | **23,138** | ** ** | 18,967  |

 

•                  The increase in rentalexpenses was attributable to the acquisition of 55 properties and 17developments being placed in service from April 1, 2005 to March 31, 2006.

 

Interest Expense

 

Interest expense increased from $28.9 million in the first quarter of2005 to $38.7 million in the first quarter of 2006 primarily due to increasesin secured and unsecured debt entered in conjunction with acquisition anddevelopment activities during the first three months of 2006.

 

 

25

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Depreciation and Amortization

 

Depreciation and amortization expense increased from $53.1 millionduring the three months ended March 31, 2005 to $60.1 million for the sameperiod in 2006.

 

The following highlights the significant changes in depreciation expensefor these time periods:

•                  Building depreciationexpense increased by $1.8 million due to increases in our held-for-rental assetbase from acquisitions and developments.

•                  Depreciation expense ontenant improvements increased by $6.3 million due to acquisition activity anddevelopments placed in service.

 

Service Operations

 

Service Operations primarily consist of our merchant building sales andthe leasing, management, construction and development services for jointventure properties and properties owned by third parties. These operations areheavily influenced by the current state of the economy as leasing andmanagement fees are dependent upon occupancy while construction and developmentservices rely on the expansion of business operations. Service Operationsearnings decreased from $11.8 million for the three months ended March 31, 2005to $4.5 million for the three months ended March 31, 2006, primarily as aresult of the following:

 

•                  Our merchant buildingdevelopment and sales program, whereby a building is developed and then sold,is a significant component of construction and development income. During thefirst quarter of 2006, we sold no such properties compared to two properties inthe first quarter of 2005 for a gain of $4.6 million.

•                  During the first quarter of2005, we recognized $2.7 million of a previously deferred gain associated withthe sale of our landscaping operations in 2001. The gain was deferred as aresult of future performance provisions contained in the original sale agreement.As a result of contract renegotiations effective in the first quarter of 2005,all future performance provisions were removed and the gain was recognized.

 

General and AdministrativeExpense

 

General and administrative expenses increased from $8.5 million for thethree months ended March 31, 2005 to $13.9 million for the same period in 2006.General and administrative expenses are comprised of two components. The firstcomponent is direct expenses that are not attributable to specific assets suchas legal fees, external audit fees, marketing costs, investor relation expensesand other corporate overhead. The second component is the unallocated overheadcosts associated with the operation of our owned properties and ServiceOperations, including construction, leasing and maintenance operations. Thoseoverhead costs not allocated to these operations are charged to general andadministrative expenses. The overall increase in general and administrativeexpenses is primarily the result of an increase in our overall pool of overheadcosts in our Service Operations to meet anticipated future increases inleasing, development, and construction activities. Our first quarter of eachfiscal year has historically lower levels of these activities due to seasonalfactors such as inclement weather in many of our markets and as such it isexpected that significantly greater amounts of these costs will be absorbed insubsequent periods resulting in substantially reduced general andadministrative expenses.

 

 

26

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Other Income and Expenses

 

Earnings from sales of land, net of impairment adjustments, arecomprised of the following amounts for the three months ended March 31, 2006and 2005, respectively (in thousands):

 
| ** **                      | ** ** | **2006**   | ** ** | 2005   | ** ** |
|---------------------------------|------------|------------|------------|--------|------------|
| Gain on land sales              | ** ** | **$**      | **1,890**  |   | $          | 177 |   |
| Impairment adjustment for  land | ** ** | **—** |       | (34    | )          |
| Total                           | ** ** | **$**      | **1,890**  |   | $          | 143 |   |

 

Gain on land sales is derived from sales of undeveloped land that weown. Gains from land sales increased $1.7 million from the first quarter of2005 compared to the first quarter of 2006. In the first quarter of 2006, wesold five parcels of land versus only one parcel in the first quarter of 2005.We pursue opportunities to dispose of land in markets with a high concentrationof undeveloped land and those markets where the land no longer meets ourstrategic development plans.

 

We recorded no impairment charge in the first quarter of 2006 and$34,000 for the same period in 2005 associated with the contracted sale of landparcels. The land parcel with the $34,000 impairment was later sold in 2005.

 

Discontinued Operations

 

Theresults of operations for properties sold during the year or designated asheld-for-sale to unrelated parties at the end of the period are required to beclassified as discontinued operations. The property specific components of netearnings that are classified as discontinued operations include rentalrevenues, rental expenses, real estate taxes, allocated interest expense anddepreciation expense, as well as the net gain or loss on the disposition ofproperties.

 

Wehave classified the operations of 240 buildings as discontinued operations asof March 31, 2006. These 240 buildings consist of 226 industrial, 13 office andone retail properties. As a result, we classified net income (loss) fromoperations of $(451,000) and $5.1 million as net income (loss) fromdiscontinued operations for the three months ended March 31, 2006 and 2005,respectively. Of these properties, two were sold during the first quarter of2006, and 234 properties were sold during 2005 and four operating propertiesare classified as held-for-sale at March 31, 2006. The gains on disposal ofthese properties, net of impairment adjustment, of $505,000 and $3.7 millionfor the three months ended March 31, 2006 and 2005, respectively, are alsoreported in discontinued operations. We have also classified 29 buildings asheld for sale, but have not included these buildings in discontinuedoperations, based on our intention to sell the majority of our ownershipinterest in these properties to an entity in which we will retain a minorityequity ownership interest.

 

**Liquidity and Capital Resources**

 

Sources of Liquidity

 

We expect to continue to meet our short-term liquidity requirementsover the next twelve months, including payments of dividends and distributions as well as recurringcapital expenditures relating to maintaining our current real estate assets,primarily through the following:

 

•            working capital; and

•            net cash provided byoperating activities.

 

 

27

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Although we historically have not used any other sources of funds topay for recurring capital expenditures on our current real estate investments,we may rely on the temporary use of borrowings or property disposition proceedsto fund such expenditures during periods of high leasing volume.

 

We expect to meet long-termliquidity requirements, such as scheduled mortgage debt maturities, refinancingof long-term debt, preferred unit redemptions, the retirement of unsecurednotes and amounts outstanding under the unsecured credit facility, propertyacquisitions, financing of development activities and other non-recurringcapital improvements, primarily through the following sources:

 

•        issuance of General Partner equity;

•            issuance of additionalnotes;

•            issuance of additionalGeneral Partner preferred equity;

•            undistributed cash providedby operating activities, if any; and

•            proceedsreceived from real estate dispositions.  

 

### ***Rental Operations***

We believe that ourprincipal source of liquidity, cash flows from Rental Operations, provides astable source of cash to fund operational expenses. We believe that thiscash-based revenue stream is substantially aligned with revenue recognition(except for periodic straight-line rental income accruals and amortization ofabove or below market rents) as cash receipts from the leasing of rentalproperties are generally received in advance of or in a short time followingthe actual revenue recognition.

We are subject to risksof decreased occupancy through market conditions as well as tenant defaults andbankruptcies, and potential reduction in rental rates upon renewal orre-letting of properties, which would result in reduced cash flow fromoperations. However, we believe that these risks may be mitigated by ourrelatively strong market presence in most of our locations and the fact that weperform in-house credit review and analysis on major tenants and allsignificant leases before they are executed.

*Credit Facilities*

We have one unsecured line of credit available at March 31, 2006,summarized as follows (dollars in thousands):

 
|                     |   | Borrowing |      | Maturity |          | Interest |          | Outstanding  Balance | ** ** |
|--------------------------|--------|-----------|-----------|----------|---------------|----------|---------------|----------------------|------------|
| Description              |   | Capacity  |      | Date     |          | Rate     |          | at  March 31, 2006   | ** ** |
| Unsecured Line of Credit |   | $         | 1,000,000 |     | January  2010 |     | LIBOR  + .525 | %                    | $          | 508,000 |   |
|                          |        |           |           |          |               |          |               |                      |            |  |  |

 

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

 

The line of creditprovides us with an option to obtain borrowings from financial institutionsthat participate in the line, at rates lower than the stated interest rate,subject to certain restrictions. Interest rates on the amounts outstanding onthe unsecured line of credit at March 31, 2006, range from LIBOR + .13% toLIBOR +  .525% (4.9% to 5.4% at March 31,2006).

 

The line of creditalso contains financial covenants that require us to meet financial ratios anddefined levels of performance, including those related to variable interestindebtedness, consolidated net worth and debt-to-market capitalization.  As of March 31, 2006, we were in compliancewith all financial covenants under our line of credit.

 

 

28

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*Debtand Equity Securities*

 

At March 31, 2006, we had on file with the SEC an effective shelfregistration statement that permits us to sell up to an additional $350 millionof debt securities. In addition, the General Partner has on file with the SECan effective shelf registration statement that permits the Genaral Partner tosell up to an additional $116 million of common and preferred stock. Fromtime-to-time, we and the General Partner expect to issue additional securitiesunder these registration statements to fund development and acquisition ofadditional rental properties and to fund the repayment of the credit facilityand other long-term debt upon maturity.

 

The indenturegoverning our unsecured notes requires us to comply with financial ratios andother covenants regarding our operations. We were in compliance with all suchcovenants as of March 31, 2006.

 

*Sale of Real Estate Assets*

 

We utilize sales of real estate assets as an additional source ofliquidity. We pursue opportunities to sell real estate assets at favorableprices to capture value created by us as well as to improve the overall qualityof our portfolio by recycling sales proceeds into new properties with greatervalue creation opportunities.

 

Uses of Liquidity

 

Our principal usesof liquidity include the following:

 

•                 Property investments;

•                 Recurring leasing/capital costs;

•                 Distributions to unitholders;

•                 Long-term debt maturities; and

•                 Other contractual obligations.

 

*PropertyInvestment*

 

We evaluatedevelopment and acquisition opportunities based upon market outlook, supply andlong-term growth potential.

 

*RecurringExpenditures*

 

One of our principal uses of our liquidity is to fund the development,acquisition and recurring leasing/capital expenditures of our real estateinvestments. The following is a summary of our recurring capital expendituresfor the three months ended March 31, 2006 and 2005, respectively (inthousands):

 
| ** **            | ** ** | **2006**  | ** ** | 2005   | ** ** |
|-----------------------|------------|-----------|------------|--------|------------|
| Tenant improvements   | ** ** | **$**     | **13,526** |   | $          | 13,732 |   |
| Leasing costs         | ** ** | **1,995** |       | 8,811  |       |
| Building improvements | ** ** | **1,769** |       | 2,446  |       |
| Totals                | ** ** | **$**     | **17,290** |   | $          | 24,989 |   |

 

*DebtMaturities*

 

Debt outstanding at March 31, 2006, totaled $3.6 billion with aweighted average interest rate of 5.70% maturing at various dates through 2028.We had $2.6 billion of unsecured debt and approximately $1.0 billion of secureddebt outstanding at March 31, 2006. Scheduled principal amortization of suchdebt totaled $1.8 million for the three months ended March 31, 2006.

 

 

 

29

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The following is a summary of the scheduled future amortization andmaturities of our indebtedness at March 31, 2006 (in thousands, exceptpercentage data):

 

| ** ** | ** ** | **Future Repayments** | ** ** | **Weighted****Average** | ** ** |
|------------|------------|-----------------------|------------|-------------------------|------------|
| ** ** | ** ** | **Scheduled**         | ** ** | ** **              | ** ** | ** ** | ** ** | **Interest Rate of** | ** ** |
| **Year**   | ** ** | **Amortization**      | ** ** | **Maturities**          | ** ** | **Total** | ** ** | **Future Repayments** | ** ** |
|       |       |                  |       |                    |       |   |   |   |   |
| 2006       |       | $                     | 8,608      |                    | $          | 990,249 |   | $ | 998,857 |   | 5.49 | % |
| 2007       |       | 11,528                |       | 214,615                 |       | 226,143 |   | 5.54 | % |
| 2008       |       | 10,868                |       | 268,968                 |       | 279,836 |   | 5.04 | % |
| 2009       |       | 10,467                |       | 275,000                 |       | 285,467 |   | 7.37 | % |
| 2010       |       | 10,181                |       | 683,000                 |       | 693,181 |   | 5.16 | % |
| 2011       |       | 9,994                 |       | 187,139                 |       | 197,133 |   | 6.97 | % |
| 2012       |       | 7,803                 |       | 201,216                 |       | 209,019 |   | 5.89 | % |
| 2013       |       | 7,659                 |       | 150,000                 |       | 157,659 |   | 4.71 | % |
| 2014       |       | 7,678                 |       | 272,112                 |       | 279,790 |   | 6.44 | % |
| 2015       |       | 11,491                |       | —                  |       | 11,491 |   | 7.20 | % |
| Thereafter |       | 26,289                |       | 256,784                 |       | 283,073 |   | 6.01 | % |
|       |       | $                     | 122,566    |                    | $          | 3,499,083 |   | $ | 3,621,649 |   | 5.70 | % |

 

$700 million ofdebt maturing in 2006 relates to a secured term loan used to financeacquisitions in the first three months of 2006. The loan is expected to berepaid from the proceeds received from selling the majority of our ownershipinterest in certain acquired properties to an entity in which we will retain aminority equity ownership interest.

 

Historical Cash Flows

Cash and cash equivalents were zero and $3.7 million at March 31, 2006and 2005, respectively. The following highlights significant changes in netcash associated with our operating, investing and financing activities (inmillions):

 

| ** **           | ** ** | **Three Months Ended March 31,** | ** ** |
|----------------------|------------|----------------------------------|------------|
| ** **           | ** ** | **2006**                         | ** ** | **2005** | ** ** |
| Net Cash Provided by |       |                             |       |   |   |
| Operating Activities |       | $                                | 31.2       |   | $ | 65.0 |   |
|                 |       |                             |       |   |   |
| Net Cash Used for    |       |                             |       |   |   |
| Investing Activities |       | $                                | (940.7     | ) | $ | (88.4 | ) |
|                 |       |                             |       |   |   |
| Net Cash Provided by |       |                             |       |   |   |
| Financing Activities |       | $                                | 882.7      |   | $ | 20.9 |   |
|                      |            |                                  |            |  |  |  |  |  |  |

 

*OperatingActivities*

Cash flows from operating activities represents the cash necessary tomeet normal operational requirements of our rental operations and merchantbuilding activities. The receipt of rental income from rental operationscontinues to provide the primary source of our revenues and operating cashflows. In addition, we also develop buildings with the intent to sell them,which provides another significant source of operating cash flow activity.

•                  Duringthe three-month period ended March 31, 2006, we incurred merchant buildingdevelopment costs of $36.3 million compared to $13.6 million for the period endedMarch 31, 2005. The difference is reflective of the timing of activity in ourheld-for-sale pipeline. The anticipated cost in our pipeline of held-for-saleprojects under construction as of March 31, 2006, was $354.8 million.

•                  Wesold two merchant buildings in the first quarter of 2005 for net after taxgains of $4.6 million.  We had no merchantbuilding sales in the first quarter of 2006.

 

 

30

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*Investing Activities*

Investingactivities are one of the primary uses of our liquidity. Development andacquisition activities typically generate additional rental revenues andprovide cash flows for operational requirements. Highlights of significant cashuses are as follows:

•                  Development costs increasedto $84.5 million for the period March 31, 2006 from $29.5 million for the sameperiod in 2005 as the result of an increase in development activity in 2006.

•                  During the first quarter of2006, we paid cash of $631.1 million for real estate acquisitions and $203.2million for undeveloped land acquisitions compared to no real estateacquisitions and $34.5 million in acquisitions of undeveloped land in the sameperiod in 2005. The significant activity in the first quarter of 2006 consistedof the purchase of the majority of a portfolio of suburban office and lightindustrial properties and undeveloped land in the Washington, D.C. area for$709 million, the purchase of the majority of a portfolio of industrialproperties in Savannah, Georgia for $178 million, the purchase of land held forindustrial development in Baltimore, Maryland for $28.3 million, and thepurchase of land suitable for retail development for $28.3 million.

•                  Sales of land anddepreciated property provided $10.4 million in net cash proceeds for the periodended March 31, 2006, compared to $13.6 million for the same period in 2005. Inaddition, we received distributions of $17.7 million for our share of proceedson the sale of land and depreciated property within one of our joint ventures.We continue to dispose of non-strategic and older properties as part of ourcapital recycling program to fund acquisitions and new development whileimproving the overall quality of our investment portfolio.

 

*Financing Activities*

Thefollowing significant items highlight fluctuations in net cash provided by financingactivities:

 

•                  In January 2006, we receivedapproximately $177.7 million in net proceeds from the General Partner’sissuance of its Series M Cumulative Redeemable preferred stock. This preferredstock was issued at a dividend yield of 6.95%. We applied a portion of the netproceeds from the Series M preferred equity issuance to redeem the GeneralPartner’s $75.0 million of Series I preferred units in February, which carriedan 8.45% dividend rate.

•                  In February 2006, weobtained a $700 million secured term loan, which was priced at LIBOR +.525%.The proceeds were used to finance the acquisition of the Mark Winkler Portfolioin the Washington, D.C. metropolitan area, and the loan is secured by theseproperties.

•                  In March 2006, we issued$150 million of 5.50% unsecured notes due in 2016. These notes were issued aspart of an exchange of securities for $100 million principal amount of our6.72% unsecured debt, which subsequently was retired. The remaining cashproceeds were used to reduce outstanding borrowings on the unsecured line ofcredit.

•                  During the first quarter of2006, we increased net borrowings on our $1 billion line of credit by $125million. These borrowings were used to fund our development and acquisitionactivity in the first quarter.

 

*FinancialInstruments*

We are exposed to capital market risk, such as changes in interestrates. In order to manage the volatility relating to interest rate risk, we mayenter into interest rate hedging arrangements from time to time. We do notutilize derivative financial instruments for trading or speculative purposes.We account for derivative instruments under Statement of Financial AccountingStandard No. 133, *Accounting for DerivativeInstruments and Hedging Activities*, (“SFAS 133”) as amended.

 

 

31

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In March 2005, we entered into $300 million of cash flow hedges throughforward-starting interest rate swaps to hedge interest rates on $300 million ofestimated debt offerings in 2006. The swaps qualify for hedge accounting underSFAS 133 with any changes in fair value recorded in Accumulated OtherComprehensive Income (“OCI”). The market value of these interest rate swaps isdependent upon existing market interest rates, which change over time. In March2006 we issued $150 million of 5.5% senior unsecured notes due 2016 andterminated a corresponding amount of the cash flow hedges designated for thistransaction. The settlement amount payable of approximately $1 million will berecognized to earnings ratably over the life of the senior notes and theineffective portion of the hedge was insignificant. At March 31, 2006, theestimated fair value of the remaining $150 million swaps was approximately $1.5million in an asset position as the effective rates of the swaps were lowerthan current interest rates at March 31, 2006.

 

In August 2005, we entered into $300 million of cash flow hedgesthrough forward-starting interest rate swaps to hedge interest rates on $300million of estimated debt offerings in 2007. The swaps qualify for hedgeaccounting under SFAS 133 with any changes in fair value recorded in OCI. AtMarch 31, 2006, the fair value of these swaps was approximately $14.9 millionin an asset position as the effective rates of the swaps were lower than currentinterest rates at March 31, 2006.

 

*Recent AccountingPronouncement*

 

In April 2006, the Financial Accounting Standards Board (“FASB”) issuedFASB Staff Position (FSP) FIN 46R-6, *Determiningthe Variability to Be Considered in Applying FASB Interpretation No. 46(R)*.This FSP addresses certain implementation issues related to FASB InterpretationNo. 46 (Revised December 2003), *Consolidationof Variable Interest Entities*. Specifically, FSP FIN 46R-6 addresseshow a reporting enterprise should determine the variability to be considered inapplying FIN 46R. The variability that is considered in applying FIN 46Raffects the determination of (a) whether an entity is a variable interestentity (“VIE”), (b) which interests are “variable interests” in the entity, and(c) which party, if any, is the primary beneficiary of the VIE. Thatvariability affects any calculation of expected losses and expected residualreturns, if such a calculation is necessary. The Partnership is required toapply the guidance in this FSP prospectively to all entities (including newlycreated entities) and to all entities previously required to be analyzed underFIN 46R when a “reconsideration event” has occurred, beginning July 1, 2006. Wewill evaluate the impact of this Staff Position at the time any such “reconsiderationevent” occurs, and for any new entities.

 

**Investments in UnconsolidatedCompanies**

 

We analyze our investments in joint ventures under FASB InterpretationNo. 46(R), *Consolidation of VariableInterest Entities* (“FIN 46(R)”)*,*todetermine if the joint venture is a VIE and would require consolidation. To theextent that our joint ventures do not qualify as VIEs, we further assess underthe guidelines of EITF No. 04-5, *DeterminingWhether a General Partner, or the General Partners as a Group, Controls aLimited Partnership or Similar Entity when the Limited Partners Have CertainRights* (“EITF 04-5”); Statement of Position 78-9, *Accounting for Investments in Real Estate Ventures;*Accounting Research Bulletin No. 51*,**Consolidated Financial Statements*and FASB No. 94, *Consolidation of AllMajority-Owned Subsidiaries,* to determine if the venture should beconsolidated.

 

We have five 50/50 joint ventures with a medical office developer todevelop healthcare facilities. Under the terms of these ventures, we providethe project financing and construction services, while our partner provides thebusiness development, leasing and property management of the co-developedproperties. We

 

 

32

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evaluated these partnerships under the guidelines of FIN 46(R) anddetermined that the joint ventures qualify as variable interest entitiessubject to consolidation. We are the primary beneficiary as determined underFIN 46(R) and fully consolidate the joint ventures. At March 31, 2006, therewere five properties under development with these joint ventures. Theproperties total 380,000 square feet and have an aggregate constructionin-process balance of approximately $25.3 million that are consolidated into ourbalance sheet.

 

We have equity interests in unconsolidated partnerships and jointventures that own and operate rental properties and hold land for development.The equity method of accounting is used for these investments in which we havethe ability to exercise significant influence, but not control, over operatingand financial policies. As a result, the assets and liabilities of these jointventures are not included on our balance sheet. Our investment inunconsolidated companies represents less than 5% of our total assets as ofMarch 31, 2006.

 

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

 

We are exposed tointerest rate changes primarily as a result of our line of credit and long-termdebt used to maintain liquidity and fund capital expenditures and expansion ofour real estate investment portfolio and operations. Our interest rate riskmanagement objective is to limit the impact of interest rate changes onearnings and cash flows and to lower our overall borrowing costs. To achieveour objectives, we borrow primarily at fixed rates and may enter intoderivative financial instruments such as interest rate swaps, caps and treasurylocks in order to mitigate our interest rate risk on a related financialinstrument. We do not enter into derivative or interest rate transactions forspeculative purposes. For a discussion of the market risk with respect to ouroutstanding cash flow hedges, see “Management’s Discussion and Analysis ofFinancial Condition and Results of Operations — Liquidity and Capital Resources— Financial Instruments.”

 

**Item4.  Controls and Procedures**

 

(a)          Evaluation of Disclosure Controls and Procedures

 

We maintaindisclosure controls and procedures that are designed to ensure that informationrequired to be disclosed by us in the reports that we file or submit under theSecurities and Exchange Act of 1934 is recorded, processed, summarized andreported within the time periods specified in the SEC’s rules and forms. Thesedisclosure controls and procedures are further designed to ensure that suchinformation is accumulated and communicated to management, including theGeneral Partner’s Chief Executive Officer and the General Partner’s ChiefFinancial Officer, to allow timely decisions regarding required disclosure.

 

We carried out anevaluation, under the supervision and with the participation of management,including the General Partner’s Chief Executive Officer and the General Partner’sChief Financial Officer, of the effectiveness of the design and operation ofour disclosure controls and procedures pursuant to Exchange Act Rule 13a-15.Based upon the foregoing, the General Partner’s Chief Executive Officer and theGeneral Partner’s Chief Financial Officer, concluded that, as of the end of theperiod covered by this Report, our disclosure controls and procedures areeffective in all material respects.

 

(b)  Changes in Internal Control Over FinancialReporting

 

During the threemonths ended March 31, 2006, there have been no changes in our internal controlover financial reporting during the period covered by this report that havematerially affected, or are reasonably likely to materially affect, ourinternal control over financial reporting.

 

 

 

33

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**Part II - Other Information**

**Item 1.Legal Proceedings**

 

From time to time, we are parties to a variety of legal proceedings andclaims arising in the ordinary course of our businesses. While these mattersgenerally are covered by insurance, there is no assurance that our insurancewill cover any particular proceeding or claim. We presently believe that all ofthese proceedings to which we were subject as of March 31, 2006, taken as awhole, will not have a material adverse effect on our liquidity, business financialcondition or results of operations.

 

**Item 1A.  Risk Factors**

 

In addition to the other information setforth in this Report, you should carefully consider the factors discussed inPart I under the caption “Item 1A. Risk Factors” in our Annual Report on Form10-K for the year ended December 31, 2005, which could materially affect ourbusiness, financial condition or future results. The risks described in ourAnnual Report on Form 10-K are not the only risks facing our Partnership.  Additional risks and uncertainties notcurrently known to us or that we currently deem to be immaterial also maymaterially adversely affect our business, financial conditions and/or operatingresults.

 

**Item2.  Unregistered Sales of EquitySecurities and Use of Proceeds**

 

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

None

 

**(b) Use ofProceeds**

None

 

**(c) IssuerPurchases of Equity Securities**

From time to time, the General Partner may repurchase its common sharesunder a $750 million repurchase program that initially was approved by theGeneral Partner’s Board of Directors and publicly announced in October 2001(the “Repurchase Program”). In July 2005, the General Partner’s Board ofDirectors authorized management to purchase up to $750 million of the GeneralPartner’s common shares pursuant to this plan. Under the Repurchase Program,the General Partner also executes share repurchases on an ongoing basisassociated with certain employee elections under the General Partner’scompensation and benefit programs.

 

The following table shows the General Partner’s sharerepurchase activity for each of the three months in the quarter ended March 31,2006:
| ** **                   | ** ** | ** **          | ** ** | ** **         | ** ** | ** **              | ** ** | **Maximum Number**     | ** ** |
|------------------------------|------------|---------------------|------------|--------------------|------------|-------------------------|------------|------------------------|------------|
| ** **                   | ** ** | ** **          | ** ** | ** **         | ** ** | ** **              | ** ** | **(or Approximate**    | ** ** |
| ** **                   | ** ** | ** **          | ** ** | ** **         | ** ** | ** **              | ** ** | **Dollar Value) of**   | ** ** |
| ** **                   | ** ** | ** **          | ** ** | ** **         | ** ** | **Shares Purchased as** | ** ** | **Shares that May**    | ** ** |
| ** **                   | ** ** | **Total Number of** | ** ** | ** **         | ** ** | **Part of Publicly**    | ** ** | **Yet be Purchased**   | ** ** |
| ** **                   | ** ** | **Shares**          | ** ** | **Average Price**  | ** ** | **Announced Plans or**  | ** ** | **Under the Plans or** | ** ** |
| **Month**                    | ** ** | **Purchased (1)**   | ** ** | **Paid per Share** | ** ** | **Programs**            | ** ** | **Programs (2)**       | ** ** |
| ** **                   | ** ** | ** **          | ** ** | ** **         | ** ** | ** **              | ** ** | ** **             | ** ** |
| January 1 through 31, 2006   |       | 100,442             |       | $                  | 34.29      |                    | 100,442    |                   |       |   |
| February 1 through 28,  2006 |       | 15,797              |       | $                  | 34.83      |                    | 15,797     |                   |       |   |
| March 1 through 31, 2006     |       | 7,465               |       | $                  | 37.08      |                    | 7,465      |                   |       |   |
|                         |       |                |       |               |       |                    |       |                   |       |
| Total                        |       | 123,704             |       | $                  | 34.53      |                    | 123,704    |                   |       |   |

----

(1) Includes 26,839 common shares of theGeneral Partner  repurchased under itsEmployee Stock Purchase Plan,  18,849common shares swapped to pay the exercise price of stock options,  3,016 common shares repurchased through aRabbi Trust under the General Partner’s Executives’ Deferred Compensation Plan and 75,000 common sharesrepurchased under the General Partner’s Share Repurchase Plan.

 

(2) The number of common shares of the GeneralPartner  that may yet be repurchased inthe open market to fund shares purchased under the General Partner’s EmployeeStock Purchase Plan was 196,549 as of March 31, 2006, and approximately$450.4  million under the General Partner’sShare Repurchase Plan.

 

 

34

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**Item3.  Defaults upon Senior Securities**

 

During the period covered by this Report, we did not default under theterms of any of our material indebtedness, nor has there been any materialarrearage of dividends or other material uncured delinquency with respect toany class of our preferred equity.

 

**Item4.  Submission of Matters to a Vote ofSecurity Holders**

 

None

 

**Item5.  Other Information**

 

During the period covered by this Report, there was no informationrequired to be disclosed by us in a Current Report on Form 8-K that was not soreported, nor were there any material changes to the procedures by which oursecurity holders may recommend nominees to the General Partner’s Board ofDirectors.

 

**Item 6.  Exhibits**

 
| **(a)** | ** ** | **Exhibits**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|---------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 1.1     |       | Terms Agreement, dated as  of January 5, 2006, by and among Duke Realty Corporation, DRLP, and the  several underwriters named in the Terms Agreement (including the terms of the  related Underwriting Agreement attached as Annex A to the Terms Agreement and  made a part thereof) (filed as Exhibit 1.1 to the General Partner’s Current  Report on Form 8-K, as filed with the SEC on January 31, 2006, File No.  001-09044, and incorporated herein by this reference).                                                                                                                                                   |
|    |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 1.2     |       | Terms Agreement, dated as  of February 22, 2006 (including the related Underwriting Agreement, dated as  of January 5, 2006, attached as Annex A thereto and made a part thereof,  which Underwriting Agreement is incorporated by reference herein from Exhibit  1.1 to the Current Report on Form 8-K filed by DRLP with the SEC on January  31, 2006), by and among DRLP, Duke Realty Corporation and Deutsche Bank  Securities Inc. (filed as Exhibit 1.1 to the General Partner’s Current Report  on Form 8-K, as filed with the SEC on February 24, 2006, File No. 001-09044,  and incorporated herein by this reference). |
|    |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 1.3     |       | Terms Agreement, dated as  of March 9, 2006 (including the related Underwriting Agreement, dated as of  January 5, 2006, attached as Annex A thereto and made a part thereof, which  Underwriting Agreement is incorporated by reference herein from Exhibit 1.1  to the Current Report on Form 8-K filed by DRLP with the SEC on January 31,  2006), by and among DRLP, Duke Realty Corporation and Deutsche Bank  Securities Inc. (filed as Exhibit 1.1 to the Partnership’s Current Report on  Form 8-K, as filed with the SEC on March 14, 2006, File No. 000-20625, and  incorporated herein by this reference).            |
|    |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 3.1     |       | Third Restated Articles of  Incorporation of Duke Realty Corporation (filed as Exhibit 3.1 to the General  Partner’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2003,  as filed with the SEC on May 13, 2003, File No. 001-09044, and incorporated  herein by this reference).                                                                                                                                                                                                                                                                                                                                |

 

 

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| 3.2    |   | Third Amended and Restated  Bylaws of Duke Realty Corporation (filed as Exhibit 3.2 to the General  Partner’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2003,  as filed with the SEC on May 13, 2003, File No. 001-09044, and incorporated  herein by this reference).                                                                                                                                                                                                                                                                                          |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 3.3    |   | Amendment to the Third  Restated Articles of Incorporation of Duke Realty Corporation (filed as  Exhibit 3 to the General Partner’s Current Report on Form 8-K, as filed with  the SEC on August 27, 2003, File No. 001-09044, and incorporated herein by  this reference).                                                                                                                                                                                                                                                                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 3.4    |   | Amendment to the Third  Restated Articles of Incorporation of Duke Realty Corporation (filed as  Exhibit 3 to the General Partner’s Current Report on Form 8-K, as filed with  the SEC on February 26, 2003, File No. 001-09044, and incorporated herein by  this reference).                                                                                                                                                                                                                                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 3.5    |   | Amendment to the Third  Restated Articles of Incorporation of Duke Realty Corporation (filed as  Exhibit 3.1 to the General Partner’s Current Report on Form 8-K, as filed  with the SEC on November 29, 2004, File No. 001-09044, and incorporated  herein by this reference).                                                                                                                                                                                                                                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 3.6    |   | Amendment to the Third  Restated Articles of Incorporation of Duke Realty Corporation (filed as  Exhibit 3.6 to the General Partner’s Annual Report on Form 10-K, as filed  with the SEC on March 6, 2006, File No. 001-09044, and incorporated herein by  this reference).                                                                                                                                                                                                                                                                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 4.1    |   | Deposit Agreement, dated  as of January 31, 2006, by and among Duke Realty Corporation, American Stock  Transfer & Trust Company, as depositary, and the holders from time to  time of the Depositary Receipts (which includes as an exhibit the form of  Depositary Receipts filed as Exhibit 4.1 to the General Partner’s Current  Report on Form 8-K, as filed with the SEC January 31, 2006, File No.  001-09044, and incorporated herein by this reference).                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 10.1   |   | Commercial Multi-Property  Agreement of Purchase and Sale, dated January 24, 2006, by and among DRLP,  The Mark Winkler Company, and each of the other entities controlled by or  affiliated with The Mark Winkler Company named therein, as amended by the  First Amendment to Commercial Multi-Property Agreement of Purchase and Sale  dated February 28, 2006, the Second Amendment to Commercial Multi-Property  Agreement of Purchase and Sale dated March 10, 2006, and the Third Amendment  to Commercial Multi-Property Agreement of Purchase and Sale dated April 21,  2006. * |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 10.2   |   | Fifth Amended and Restated  Revolving Credit Agreement, dated January 25, 2006, by and among DRLP, as  borrower, Duke Realty Corporation as General Partner and Guarantor, and J.P.  Morgan Chase Bank, N.A. as Administrative Agent and Lender, J.P. Morgan  Securities, Inc. as Lead Arranger and Sole Book Runner, and each of the other  lenders named therein (filed as Exhibit 99.1 to the General Partner’s Current  Report on Form 8-K, as filed with the SEC January 31, 2006, File No.  001-09044, and incorporated herein by this reference).                            |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 10.3   |   | Amendment Two to Duke  Realty Corporation’s 2005 Non-Employee Directors Compensation Plan dated  February 2, 2006 (filed as Exhibit 99.1 to the General Partner’s Current  Report on Form 8-K, as filed with the SEC February 2, 2006, File No.  001-09044, and incorporated herein by this reference).                                                                                                                                                                                                                                                                        |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 10.4   |   | Nineteenth Supplemental  Indenture, dated as of March 1, 2006, by and between DRLP and J.P. Morgan  Trust Company, National Association (successor in interest to Bank One Trust  Company, N.A.), including the form of global note evidencing the 5.5% Senior  Notes Due 2016 (filed as Exhibit 4.1 to the Partnership’s Current Report on  Form 8-K, as filed with the SEC on March 3, 2006, File No. 000-20625, and  incorporated herein by this reference).                                                                                                                     |

 

 

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| 10.5   |   | Term Loan Agreement, dated  as of February 28, 2006, by and among DRLP, as borrower, Duke Realty  Corporation, as General Partner and Guarantor, certain of their respective  subsidiaries, as guarantors, Bank of America, N.A., individually and as  Administrative Agent, Banc of America Securities LLC, as Lead Arranger and  Sole Book Runner, and each of the other lenders named therein (filed as  Exhibit 10.1 to the Partnership’s Current Report on Form 8-K, as filed with  the SEC on March 3, 2006, File No. 000-20625, and incorporated herein by this  reference). |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 11.1   |   | Ratio of Earnings to  Combined Fixed Charges and Preferred Distributions.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 11.2   |   | Ratio of Earnings to Debt  Service.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 15.1   |   | Letter regarding unaudited  interim financial information.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 31.1   |   | Rule 13a-14(a)  Certification of the General Partner’s Chief Executive Officer.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 31.2   |   | Rule 13a-14(a)  Certification of the General Partner’s Chief Financial Officer.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 32.1   |   | Section 1350 Certification  of the General Partner’s Chief Executive Officer.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 32.2   |   | Section 1350 Certification  of the General Partner’s Chief Financial Officer.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |

----

*           Certain informationcontained in the originally executed copy of the Commercial Multi-PropertyAgreement of Purchase and Sale, and in each of the related amendments thereto,has been omitted from Exhibit 10.1, as filed with this Form 10-Q, pursuant to arequest for confidential treatment delivered by the Registrant to the Office ofthe Secretary of the Securities and Exchange Commission simultaneously with thefiling of this Form 10-Q. The omitted information has been replaced with thesymbol “***” to notify readers that such information has been omitted. Theomission of this information appears on many of the pages of the CommercialMulti-Property Agreement of Purchase and Sale, and in each of the relatedamendments thereto.

 

 

37

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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                                                  |
|--------|--------------------|--------|-----------------------------------------------------------------------------------|
|   |               |   |                                                                              |
|   | Date: May 15, 2006 |   | /s/           Dennis D. Oklak   |
|   |               |   | Dennis D. Oklak                                                                   |
|   |               |   | Chairman and Chief  Executive Officer                                             |
|   |               |   | of the General Partner                                                            |
|   |               |   |                                                                              |
|   |               |   |                                                                              |
|   |               |   | /s/           Matthew A. Cohoat |
|   |               |   | Matthew A. Cohoat                                                                 |
|   |               |   | Executive Vice President  and                                                     |
|   |               |   | Chief Financial Officer of the                                                    |
|   |               |   | General Partner                                                                   |

 

 

 

 

 

 

 

 

 

 

 

 

 

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