**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C.  20549**

** **

**FORM 10-Q**

 

**(Mark One)**

| **ý**                                                                                                                                                                              |   | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934**  |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------------------------------|
|                                                                                                                                                                                    |   |                                                                                          |
| **For  the quarterly period ended March 31, 2003**                                                                                                                                      |
|                                                                                                                                                                                    |   |                                                                                          |
| **OR**                                                                                                                                                                                  |
|                                                                                                                                                                                    |   |                                                                                          |
| **o**                                                                                                                                                                                   |   | **TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934** |
|                                                                                                                                                                                    |   |                                                                                          |
| **For  the transition period  from            to            .** |
|                                                                                                                                                                                    |   |                                                                                          |
| **Commission  File Number: 1-9044**                                                                                                                                                     |

** **

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

 

Indicate by check 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   ý   No  o

 

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

 

Yes   o   No  ý

 

The number of Common Units outstanding as of May 7, 2003 was150,122,770 ($.01 par value).

 

 

----

 

**DUKE REALTY LIMITED PARTNERSHIP**

 

**INDEX**

 
| **Part I - Financial Information**                                                                            |
|---------------------------------------------------------------------------------------------------------------|
|                                                                                                          |
| **Item 1.  Financial Statements**                                                                        |
|                                                                                                          |
|                                                                                                          | Condensed Consolidated Balance  Sheets as of  March 31, 2003 (Unaudited) and December 31, 2002 |
|                                                                                                          |   |
|                                                                                                          | Condensed Consolidated  Statements of Operations (Unaudited)  for the three months ended March 31, 2003 and 2002 |
|                                                                                                          |   |
|                                                                                                          | Condensed Consolidated  Statements of Cash Flows (Unaudited)  for the three months ended March 31, 2003 and 2002 |
|                                                                                                          |   |
|                                                                                                          | Condensed Consolidated  Statement of Partners’ Equity  (Unaudited) for the three months ended March 31, 2003 |
|                                                                                                          |   |
|                                                                                                          | Notes to Condensed Consolidated Financial  Statements  (Unaudited) |
|                                                                                                          |   |
|                                                                                                          | Independent Accountants’ Review Report |
|                                                                                                          |   |
| **Item 2.  Management’s Discussion and Analysis of  Financial Condition and Results of Operations** |
|                                                                                                          |   |
| **Item3.   Quantitative and Qualitative Disclosure About Market Risks**                                  |
|                                                                                                          |   |
| **Item4.   Controls and Procedures**                                                                     |
|                                                                                                          |   |
| **Part II - Other Information**                                                                               |
|                                                                                                          |
|                                                                                                          | Item 1. | Legal  Proceedings |
|                                                                                                          | Item  2. | Changes  in Securities |
|                                                                                                          | Item  3. | Defaults  Upon Senior Securities |
|                                                                                                          | Item 4. | Submission of Matters to a Vote of Security  Holders |
|                                                                                                          | Item 5. | Other  Information |
|                                                                                                          | Item  6. | Exhibits  and Reports on Form 8-K |
|                                                                                                               |  |  |  |

 

----

 

**PART I****- FINANCIALINFORMATION**

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

**DUKE REALTY LIMITED PARTNERSHIP AND SUBSIDIARIES**

**Condensed Consolidated Balance Sheets**

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

 
|                                                                                       |   | **March 31,  2003** |          | **December  31,  2002** |   |
|--------------------------------------------------------------------------------------------|--------|---------------------|---------------|-------------------------|--------|
|                                                                                       |   | **(Unaudited)**     |          |                    |   |
| **ASSETS**                                                                                 |   |                | ** **    |                    |   |
| Real  estate investments:                                                                  |   |                | ** **    |                    |   |
| Land  and improvements                                                                     |   | **$**               | **614,461**   | ** **              | $      | 608,995 |   |
| Buildings  and tenant improvements                                                         |   | **4,291,679**       | ** **    | 4,237,360               |   |
| Construction  in progress                                                                  |   | **87,345**          | ** **    | 85,756                  |   |
| Investments  in unconsolidated companies                                                   |   | **299,829**         | ** **    | 315,589                 |   |
| Land  held for development                                                                 |   | **321,673**         | ** **    | 326,250                 |   |
|                                                                                       |   | **5,614,987**       |          | 5,573,950               |   |
| Accumulated  depreciation                                                                  |   | **(588,629**        | **)**         | (555,858                | )      |
|                                                                                       |   |                | ** **    |                    |   |
| Net  real estate investments                                                               |   | **5,026,358**       | ** **    | 5,018,092               |   |
|                                                                                       |   |                | ** **    |                    |   |
| Cash  and cash equivalents                                                                 |   | **13,170**          | ** **    | 17,129                  |   |
| Accounts  receivable, net of allowance of $2,108 and $2,008                                |   | **14,501**          | ** **    | 15,415                  |   |
| Straight-line  rent receivable, net of allowance of $2,491                                 |   | **55,881**          | ** **    | 52,062                  |   |
| Receivables  on construction contracts                                                     |   | **26,438**          | ** **    | 23,181                  |   |
| Deferred  financing costs, net of accumulated amortization of $15,601 and $15,390          |   | **13,043**          | ** **    | 11,431                  |   |
| Deferred  leasing and other costs, net of accumulated amortization of $53,291 and  $50,543 |   | **121,986**         | ** **    | 112,772                 |   |
| Escrow  deposits and other assets                                                          |   | **107,928**         | ** **    | 96,973                  |   |
|                                                                                       |   | **$**               | **5,379,305** |                    | $      | 5,347,055 |   |
| **LIABILITIES  AND SHAREHOLDERS’ EQUITY**                                             |   |                | ** **    |                    |   |
|                                                                                       |   |                | ** **    |                    |   |
| Indebtedness:                                                                              |   |                | ** **    |                    |   |
| Secured  debt                                                                              |   | **$**               | **275,558**   | ** **              | $      | 299,147 |   |
| Unsecured  notes                                                                           |   | **1,701,077**       | ** **    | 1,526,138               |   |
| Unsecured  lines of credit                                                                 |   | **205,000**         | ** **    | 281,000                 |   |
|                                                                                       |   | **2,181,635**       |          | 2,106,285               |   |
|                                                                                       |   |                | ** **    |                    |   |
| Construction  payables and amounts due subcontractors                                      |   | **37,050**          | ** **    | 43,232                  |   |
| Accounts  payable                                                                          |   | **1,241**           | ** **    | 548                     |   |
| Accrued  expenses:                                                                         |   |                | ** **    |                    |   |
| Real  estate taxes                                                                         |   | **56,887**          | ** **    | 51,472                  |   |
| Interest                                                                                   |   | **23,204**          | ** **    | 27,374                  |   |
| Other                                                                                      |   | **35,494**          | ** **    | 52,485                  |   |
| Other  liabilities                                                                         |   | **103,086**         | ** **    | 106,893                 |   |
| Tenant  security deposits and prepaid rents                                                |   | **39,985**          | ** **    | 33,710                  |   |
| Total  liabilities                                                                         |   | **2,478,582**       | ** **    | 2,421,999               |   |
|                                                                                       |   |                | ** **    |                    |   |
| Minority  interest                                                                         |   | **4,544**           | ** **    | 5,213                   |   |
|                                                                                       |   |                | ** **    |                    |   |
| Partners’  equity:                                                                    |   |                | ** **    |                    |   |
| General  Partner                                                                           |   |                | ** **    |                    |   |
| Common  equity                                                                             |   | **2,185,153**       | ** **    | 2,203,060               |   |
| Preferred  equity (liquidation preference of ($440,869)                                    |   | **415,446**         | ** **    | 415,466                 |   |
|                                                                                       |   | **2,600,599**       |          | 2,618,526               |   |
| Limited  Partners’ common equity                                                      |   | **230,896**         | ** **    | 235,473                 |   |
| Limited  Partners’ preferred equity                                                   |   | **67,955**          | ** **    | 67,955                  |   |
| Accumulated  other comprehensive income                                                    |   | **(3,271**          | **)**         | (2,111                  | )      |
|                                                                                       |   | **2,896,179**       |          | 2,919,843               |   |
|                                                                                       |   | **$**               | **5,379,305** |                    | $      | 5,347,055 |   |

 

See accompanying Notes toCondensed 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 unit amounts)**

**(Unaudited)**

 
|                                                                                    |   | **2003**       |        | **2002**   |   |
|-----------------------------------------------------------------------------------------|--------|----------------|-------------|------------|--------|
| **RENTAL  OPERATIONS**                                                                  |   |           | ** **  |       |   |
| Revenues:                                                                               |   |           | ** **  |       |   |
| Rental  income                                                                          |   | **$**          | **180,747** | ** ** | $      | 168,185 |   |
| Equity  in earnings of unconsolidated companies                                         |   | **4,269**      | ** **  | 6,296      |   |
|                                                                                    |   | **185,016**    |        | 174,481    |   |
| Operating  expenses:                                                                    |   |           | ** **  |       |   |
| Rental  expenses                                                                        |   | **40,471**     | ** **  | 31,164     |   |
| Real  estate taxes                                                                      |   | **20,571**     | ** **  | 19,117     |   |
| Interest  expense                                                                       |   | **32,713**     | ** **  | 27,192     |   |
| Depreciation  and amortization                                                          |   | **47,654**     | ** **  | 42,337     |   |
|                                                                                    |   | **141,409**    |        | 119,810    |   |
| Earnings  from rental operations                                                        |   | **43,607**     | ** **  | 54,671     |   |
|                                                                                    |   |           |        |       |   |
| **SERVICE  OPERATIONS**                                                                 |   |           | ** **  |       |   |
| Revenues:                                                                               |   |           | ** **  |       |   |
| General  contractor gross revenue                                                       |   | **50,142**     | ** **  | 45,933     |   |
| General  contractor costs                                                               |   | **(44,880**    | **)**       | (40,219    | )      |
| Net  general contractor revenue                                                         |   | **5,262**      | ** **  | 5,714      |   |
|                                                                                    |   |           |        |       |   |
| Property  management, maintenance and leasing fees                                      |   | **4,094**      | ** **  | 3,199      |   |
| Construction  and development activity income                                           |   | **(193**       | **)**       | 20,393     |   |
| Other  income                                                                           |   | **19**         | ** **  | 215        |   |
| Total  revenue                                                                          |   | **9,182**      | ** **  | 29,521     |   |
|                                                                                    |   |           |        |       |   |
| Operating  expenses                                                                     |   | **7,300**      | ** **  | 13,989     |   |
| Total  earnings from service operations                                                 |   | **1,882**      | ** **  | 15,532     |   |
|                                                                                    |   |           |        |       |   |
| General  and administrative expense                                                     |   | **(5,919**     | **)**       | (7,238     | )      |
| Operating  income                                                                       |   | **39,570**     | ** **  | 62,965     |   |
|                                                                                    |   |           |        |       |   |
| **OTHER  INCOME (EXPENSE)**                                                             |   |           | ** **  |       |   |
| Interest  income                                                                        |   | **991**        | ** **  | 421        |   |
| Earnings  from land and depreciable property dispositions, net of impairment adjustment |   | **9,402**      | ** **  | 1,111      |   |
| Other  revenue (expense)                                                                |   | **(550**       | **)**       | 212        |   |
| Minority  interest in earnings of subsidiaries                                          |   | **(23**        | **)**       | (385       | )      |
| Income  from continuing operations                                                      |   | **49,390**     | ** **  | 64,324     |   |
|                                                                                    |   |           |        |       |   |
| Discontinued  operations:                                                               |   |           | ** **  |       |   |
| Net  income from discontinued operations                                                |   | **20****2**    | ** **  | 929        |   |
| Gain  on sale of discontinued operations                                                |   | **2,354**      | ** **  | —     |   |
| Income  from discontinued operations                                                    |   | **2,556**      | ** **  | 929        |   |
| Net  income                                                                             |   | **51****,946** | ** **  | 65,253     |   |
| Dividends  on preferred units                                                           |   | **(10,154**    | **)**       | (14,210    | )      |
| Net  income available for common unitholders                                            |   | **$**          | **41,792**  | ** ** | $      | 51,043 |   |
| Basic  net income per common unit:                                                      |   |           | ** **  |       |   |
| Continuing  operations                                                                  |   | **$**          | **0.26**    | ** ** | $      | 0.33 |   |
| Discontinued  operations                                                                |   | **0.02**       | ** **  | 0.01       |   |
| Total                                                                                   |   | **$**          | **0.28**    | ** ** | $      | 0.34 |   |
| Diluted  net income per common unit:                                                    |   |           | ** **  |       |   |
| Continuing  operations                                                                  |   | **$**          | **0.26**    | ** ** | $      | 0.33 |   |
| Discontinued  operations                                                                |   | **0.02**       | ** **  | 0.01       |   |
| Total                                                                                   |   | **$**          | **0.28**    | ** ** | $      | 0.34 |   |
|                                                                                    |   |           | ** **  |       |   |
| Weighted  average number of common units outstanding                                    |   | **149,972**    | ** **  | 148,670    |   |
| Weighted  average number of common and dilutive potential common units                  |   | **150,627**    | ** **  | 150,270    |   |

 

See accompanyingNotes to Consolidated Financial Statements.

 

3

----

 

**DUKE REALTY LIMITED PARTNERSHIP AND SUBSIDIARIES**

**Condensed Consolidated Statements of Cash Flows**

**For the three months ended March 31**

**(in thousands)**

**(Unaudited)**

 
|                                                                                                |       | **2003**        |       | **2002**   |   |
|-----------------------------------------------------------------------------------------------------|------------|-----------------|------------|------------|--------|
|                                                                                                |       |            | ** ** |       |   |
| Cash flows from  operating activities:                                                              |       |            | ** ** |       |   |
| Net income                                                                                          |       | **$**           | **51,946** | ** ** | $      | 65,253 |   |
| Adjustments to  reconcile net income to net cash provided by operating activities:                  |       |            | ** ** |       |   |
| Depreciation of  buildings and tenant improvements                                                  |       | **41,771**      | ** ** | 37,186     |   |
| Amortization of  deferred leasing and other costs                                                   |       | **5****,901**   | ** ** | 5,633      |   |
| Amortization of  deferred financing costs                                                           |       | **999**         | ** ** | 965        |   |
| Minority  interest in earnings                                                                      |       | **23**          | ** ** | 385        |   |
| Straight-line  rent adjustment                                                                      |       | **(4,574**      | **)**      | (1,386     | )      |
| Earnings from  land and depreciated property dispositions                                           |       | **(11,756**     | **)**      | (1,111     | )      |
| Build-to-suit  operations, net                                                                      |       | **(15,257**     | **)**      | 101,178    |   |
| Construction  contracts, net                                                                        |       | **(8,491**      | **)**      | (10,598    | )      |
| Other accrued  revenues and expenses, net                                                           |       | **(8,105**      | **)**      | 8,473      |   |
| Equity in  earnings in shortfall of operating distributions received from unconsolidated  companies |       | **6,408**       | ** ** | 5,288      |   |
| **Net cash provided by operating  activities**                                                      |       | **58,****865**  | ** ** | 211,266    |   |
|                                                                                                |       |            | ** ** |       |   |
| Cash flows from  investing activities:                                                              |       |            | ** ** |       |   |
| Development of  real estate investments                                                             |       | **(28,995**     | **)**      | (36,733    | )      |
| Acquisition of  real estate investments                                                             |       | **(34,602**     | **)**      | (8,375     | )      |
| Acquisition of  land held for development and infrastructure costs                                  |       | **(7,120**      | **)**      | (4,396     | )      |
| Recurring tenant  improvements                                                                      |       | **(8,258**      | **)**      | (5,952     | )      |
| Recurring  leasing costs                                                                            |       | **(4,901**      | **)**      | (4,274     | )      |
| Recurring  building improvements                                                                    |       | **(2,625**      | **)**      | (2,399     | )      |
| Other deferred  leasing costs                                                                       |       | **(6,078**      | **)**      | (3,586     | )      |
| Other deferred  costs and other assets                                                              |       | **2,343**       | ** ** | (315       | )      |
| Exercise  purchase option on ground lease                                                           |       | **(12,042**     | **)**      | **—** |   |
| Tax deferred  exchange escrow, net                                                                  |       | **(8,207**      | **)**      | —     |   |
| Proceeds from  land and depreciated property sales, net                                             |       | **51,368**      | ** ** | 25,395     |   |
| Advances to  unconsolidated companies                                                               |       | **(1,313**      | **)**      | (8,794     | )      |
| **Net cash used by investing  activities**                                                          |       | **(60,430**     | **)**      | (49,429    | )      |
|                                                                                                |       |            | ** ** |       |   |
| Cash flows from  financing activities:                                                              |       |            | ** ** |       |   |
| Contribution  from General Partner                                                                  |       | **2****,861**   | ** ** | 7,023      |   |
| Payments for  General Partner’s redemption of preferred equity                                 |       | **(20**         | **)**      | —     |   |
| Proceeds from  indebtedness                                                                         |       | **175****,000** | ** ** | —     |   |
| Proceeds from  debt refinancing                                                                     |       | **38,340**      | ** ** | **—** |   |
| Payments on  indebtedness including principal amortization                                          |       | **(61,706**     | **)**      | (5,193     | )      |
| Repayments on  lines of credit, net                                                                 |       | **(75,095**     | **)**      | (79,392    | )      |
| Distributions to  partners                                                                          |       | **(68,209**     | **)**      | (66,780    | )      |
| Distributions to  preferred unitholders                                                             |       | **(10,154**     | **)**      | (14,210    | )      |
| Distributions to  minority interest                                                                 |       | **(710**        | **)**      | (330       | )      |
| Deferred  financing costs                                                                           |       | **(2,701**      | **)**      | (154       | )      |
| **Net cash used for financing  activities**                                                         |       | **(2,394**      | **)**      | (159,036   | )      |
| **Net increase (decrease) in cash and  cash equivalents**                                           |       | **(3,959**      | **)**      | 2,801      |   |
|                                                                                                |       |            | ** ** |       |   |
| Cash and cash  equivalents at beginning of period                                                   |       | **17,129**      | ** ** | 10,453     |   |
|                                                                                                |       |            |       |       |   |
| Cash and cash  equivalents at end of period                                                         |       | **$**           | **13,170** | ** ** | $      | 13,254 |   |
|                                                                                                |       |            |       |       |   |
| Other non-cash  items:                                                                              |       |            | ** ** |       |   |
| Assumption of  debt for real estate acquisitions                                                    |       | **$**           | **—** | ** ** | $      | 7,791 |   |
| Conversion of  Limited Partner Units to common shares of General Partner                            | ** ** | **$**           | **968**    | ** ** | $      | 6,712 |   |
| Issuance of  Limited Partner Units for real estate acquisitions                                     |       | **$**           | **—** | ** ** | $      | 4,687 |   |
| Impairment  adjustment on undeveloped land                                                          |       | **$**           | **420**    | ** ** | $      | — |   |

 

See accompanying Notes toCondensed Consolidated Financial Statements

 

4

----

 

**DUKE REALTY LIMITED PARTNERSHIP AND SUBSIDIARIES**

**Condensed Consolidated Statement of Partners’ Equity**

**For the nine months ended March 31, 2003**

**(in thousands,  exceptper unit data)**

**(Unaudited)**

 
|                                                                     |   |                  |          |       |       | **Limited  Partners’  Common  Equity** |       | **Limited  Partners’  Preferred  Equity** |        | **Accumulated  Other  Comprehensive  Income (Loss)** |   | **Total**   |       |
|--------------------------------------------------------------------------|--------|-----------------------|---------------|------------|------------|---------------------------------------------|------------|------------------------------------------------|-------------|------------------------------------------------------|--------|-------------|------------|
| **General  Partner**                                                     |
| **Common  Equity**                                                       |   | **Preferred  Equity** |
|                                                                     |   |                  |          |       |       |                                        |       |                                           |        |                                                 |   |        |       |
| **Balance at December 31, 2002**                                         |   | **$**                 | **2,203,060** | ** ** | **$**      | **415,466**                                 | ** ** | **$**                                          | **235,473** | ** **                                           | **$**  | **67,955**  | ** ** | **$** | **(2,111** | **)** | **$** | **2,919,843** | ** ** |
|                                                                     |   |                  |          |       |       |                                        |       |                                           |        |                                                 |   |        |       |
| Comprehensive income:                                                    |   |                  |          |       |       |                                        |       |                                           |        |                                                 |   |        |       |
| Net income                                                               |   | 37,667                |          | 8,752      |       | 4,125                                       |       | 1,402                                          |        | —                                               |   | 51,946      |       |
| Distributions to preferred unitholders                                   |   | —                |          | (8,752     | )          | —                                      |       | (1,402                                         | )           | —                                               |   | (10,154     | )          |
| Gains (losses) on derivative instruments                                 |   |                  |          |       |       |                                        |       |                                           |        | (1,160                                               | )      | (1,160      | )          |
|                                                                     |   |                  |          |       |       |                                        |       |                                           |        |                                                 |   |        |       |
| Comprehensive income available for common unitholders                    |   | —                |          | —     |       | —                                      |       | —                                         |        | —                                               |   | 40,632      |       |
|                                                                     |   |                  |          |       |       |                                        |       |                                           |        |                                                 |   |        |       |
| Capital contribution from General Partner                                |   | 2,861                 |          | —     |       | —                                      |       | —                                         |        | —                                               |   | 2,861       |       |
|                                                                     |   |                  |          |       |       |                                        |       |                                           |        |                                                 |   |        |       |
| Acquisition of Partnership interest for common stock of General  Partner |   | 2,927                 |          | —     |       | (1,959                                      | )          | —                                         |        | —                                               |   | 968         |       |
|                                                                     |   |                  |          |       |       |                                        |       |                                           |        |                                                 |   |        |       |
| General Partner’s repurchase of Series D Preferred Shares           |   | —                |          | (20        | )          | —                                      |       | —                                         |        | —                                               |   | (20         | )          |
|                                                                     |   |                  |          |       |       |                                        |       |                                           |        |                                                 |   |        |       |
| Tax benefits from employee stock plans                                   |   | 94                    |          | —     |       | —                                      |       | —                                         |        | —                                               |   | 94          |       |
|                                                                     |   |                  |          |       |       |                                        |       |                                           |        |                                                 |   |        |       |
| FASB 123 Compensation expense                                            |   | 10                    |          | —     |       | —                                      |       | —                                         |        | —                                               |   | 10          |       |
|                                                                     |   |                  |          |       |       |                                        |       |                                           |        |                                                 |   |        |       |
| Distributions to General Partner                                         |   | 36                    |          | —     |       | —                                      |       | —                                         |        | —                                               |   | 36          |       |
|                                                                     |   |                  |          |       |       |                                        |       |                                           |        |                                                 |   |        |       |
| Distributions to partners ($.455 per Common Unit)                        |   | (61,502               | )             | —     |       | (6,743                                      | )          | —                                         |        | —                                               |   | (68,245     | )          |
|                                                                     |   |                  |          |       |       |                                        |       |                                           |        |                                                 |   |        |       |
| **Balance at  March 31, 2003**                                           |   | **$**                 | **2,185,153** | ** ** | **$**      | **415,446**                                 | ** ** | **$**                                          | **230,896** | ** **                                           | **$**  | **67,955**  | ** ** | **$** | **(3,271** | **)** | **$** | **2,896,179** | ** ** |
|                                                                     |   |                  |          |       |       |                                        |       |                                           |        |                                                 |   |        |       |
| **Common  units outstanding at March 31, 2003**                          |   | **135,270**           | ** **    |       | ** ** | **14,784**                                  |       |                                           |        |                                                 |   | **150,054** |       |

 

See accompanying Notes toCondensed Consolidated Financial Statements

 

5

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**DUKE REALTY LIMITED PARTNERSHIP**

**NOTES****TOCONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

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

 

The interim condensed consolidated financialstatements included herein have been prepared by Duke Realty LimitedPartnership (the “Partnership”) without audit (except for the Balance Sheet as ofDecember 31, 2002). The financial statements have been prepared in accordancewith accounting principles generally accepted in the United States of Americafor interim financial information and in accordance with Rule 10-01 ofRegulation S-X of the Securities Exchange Act of 1934. Accordingly, they do notinclude all of the information and footnotes required by accounting principlesgenerally accepted in the United States of America for complete financialstatements. In the opinion of management, all adjustments (consisting of normalrecurring adjustments) considered necessary for a fair presentation have beenincluded. These financial statements should be read in conjunction with theconsolidated financial statements and notes thereto included in the Partnership’sAnnual Report on Form 10-K for the year ended December 31, 2002.

 

**The Partnership**

 

Duke Realty Limited Partnership (the “Partnership”)was formed on October 4, 1993, when Duke Realty Corporation (the “GeneralPartner”) contributed all of its properties and related assets and liabilities,along with the net proceeds of $309.2 million from the issuance of anadditional 14,000,833 shares of the General Partner through an offering to thePartnership. Simultaneously, the Partnership completed the acquisition of DukeAssociates, a full-service commercial real estate firm operating in theMidwest. The General Partner was formed in 1985 and qualifies as a Real EstateInvestment Trust (“REIT”) under provisions of the Internal Revenue Code.  The General Partner is the sole generalpartner of the Partnership, owning 90.1% of the partnership interest as ofMarch 31, 2003 (“General Partner Units”). The remaining 9.9% of the Partnershipis owned by limited partners (“Limited Partner Units” and, together with theGeneral Partner Units, the “Common Units”). The Limited Partner Units areexchangeable for shares of the General Partner’s common stock on a one-for-onebasis subject generally to a one-year holding period.

 

The Partnership owns and operates a portfolio ofindustrial, office and retail properties in the midwestern and southeasternUnited States and provides real estate services to third-party owners. ThePartnership conducts Service Operations through Duke Realty Services LimitedPartnership (“DRSLP”) and Duke Construction Limited Partnership (“DCLP”). Theconsolidated financial statements include the accounts of the Partnership andits majority-owned or controlled subsidiaries.

 

**2.**              **Lines of Credit**

 

The Partnership has the following lines of creditavailable (in thousands):

 
| **Description**           |   | **Borrowing  Capacity  (in 000’s)** |    | **Maturity  Date** |          | **Interest  Rate** |        | **Outstanding  at March 31, 2003  (in 000’s)** |   |
|---------------------------|--------|------------------------------------------|---------|--------------------|---------------|--------------------|-------------|-----------------------------------------------------|--------|
| Unsecured Line  of Credit |   | $                                        | 500,000 |               | February 2004 |               | LIBOR + .65 | %                                                   | $      | 205,000 |   |
| Secured Line of  Credit   |   | 100,000                                  |    | January 2006       |          | LIBOR + .60        | %           | 24,800                                              |   |
|                           |        |                                          |         |                    |               |                    |             |                                                     |        |  |  |

 

6

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The lines of credit are used tofund development activities to acquire additional rental properties and toprovide working capital.

 

The $500 million line of creditprovides the Partnership with an option to obtain borrowings from the financialinstitutions that participate in the line of credit at rates lower than thestated interest rate, subject to certain restrictions. Amounts outstanding onthe line of credit at March 31, 2003, are at LIBOR + .65% (1.95% at March 31,2003).

 

**3.**              **Related Party Transactions**

 

The Partnership provides management, maintenance,leasing, construction, and other tenant-related services to properties in whichcertain of its General Partner’s executive officers have ownership interests.The Partnership has an option to acquire these executive officers’ interest inthese properties (the “Option Properties”). The Partnership received feestotaling approximately $364,000  and$316,000 for services provided to the Option Properties for the three monthsended March 31, 2003 and 2002, respectively. The Partnership believes that thefees charged by the Partnership for such services are equivalent to thosecharged to third-party owners for similar services.

 

The Partnership has other related party transactionsthat are insignificant and that include terms that are considered by thePartnership to be at arm’s-length and equal to those negotiated withunaffiliated parties.

 

**4.**              **Net Income Per Common Unit**

 

Basic net income percommon unit is computed by dividing net income available for common units bythe weighted average number of common units outstanding for the period. Dilutednet income per common unit is computed by dividing net income available for commonunits by the sum of the weighted average number of common units outstanding anddilutive potential common units for the period.

 

The following tablereconciles the components of basic and diluted net income per common unit forthe three months ended March 31 (in thousands):

 
|                                                                         |   | **2003**    |       | **2002** |   |
|------------------------------------------------------------------------------|--------|-------------|------------|----------|--------|
|                                                                         |   |        |       |     |   |
| Basic  and diluted net income available for common unitholders               |   | **$**       | **41,792** |     | $      | 51,043 |   |
|                                                                         |   |        |       |     |   |
| Weighted  average number of common units outstanding                         |   | **149,972** |       | 148,670  |   |
| Dilutive  units for stock based compensation plans                           |   | **655**     |       | 1,600    |   |
| Weighted  average number of common units and dilutive potential common units |   | **150,627** |       | 150,270  |   |
|                                                                              |        |             |            |          |        |  |  |

 

The Series D ConvertiblePreferred equity was anti-dilutive for the three months ended March 31, 2003and 2002; therefore, no conversion to common units is included in weighteddilutive potential common units.

 

7

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**5.****              SegmentReporting**

 

The Partnership is engaged in four operating segments;the ownership and rental of office, industrial and retail real estateinvestments (collectively, “Rental Operations”), and the providing of variousreal estate services such as property management, maintenance, leasing,development and construction management to third-party property owners(“Service Operations”). The Partnership’s reportable segments offer differentproducts or services and are managed separately because each requires differentoperating strategies and management expertise. There are no materialintersegment sales or transfers.

 

Non-segment revenue consists mainly of equity inearnings of unconsolidated companies. Non-segment assets consist of corporateassets including cash, deferred financing costs and investments inunconsolidated companies.

 

The Partnership assesses and measures segmentoperating results based upon an industry performance measure referred to asFunds From Operations (“FFO”), which management believes is a useful indicatorof the Partnership’s operating performance. The National Association of RealEstate Investment Trusts defines FFO as net income or loss, excluding gains orlosses from sales of depreciated operating property, plus operating propertydepreciation and amortization and adjustments for minority interest andunconsolidated companies on the same basis. Interest expense and othernon-property specific revenues and expenses are not allocated to individualsegments in determining the Partnership’s performance measure.

 

The revenues and FFO for each of the reportablesegments for the three months ended March 31, 2003 and 2002, and the assets foreach of the reportable segments as of March 31, 2003 and December 31, 2002, aresummarized as follows (in thousands):

 
|                                            |   | **Three Months Ended March 31,** |        |
|-------------------------------------------------|--------|----------------------------------|-------------|
|                                            |   | **2003**                         |        | **2002** |   |
| Revenues                                        |   |                             |        |   |   |
| Rental Operations:                              |   |                             |        |   |   |
| Office                                          |   | **$**                            | **107,105** |   | $ | 96,654 |   |
| Industrial                                      |   | **70,531**                       |        | 69,369 |   |
| Retail                                          |   | **2,096**                        |        | 1,588 |   |
| Service Operations                              |   | **9,182**                        |        | 29,521 |   |
| Total Segment Revenues                          |   | **188,914**                      |        | 197,132 |   |
| Non-Segment Revenue                             |   | **5,284**                        |        | 6,870 |   |
| Consolidated Revenue from continuing operations |   | **194****,198**                  |        | 204,002 |   |
| Discontinued Operations                         |   | **504**                          |        | 2,237 |   |
| Consolidated Revenue                            |   | **$**                            | **194,702** |   | $ | 206,239 |   |

 

8

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|                                                                      |   | **Three Months Ended March 31,** |       |
|---------------------------------------------------------------------------|--------|----------------------------------|------------|
|                                                                      |   | **2003**                         |       | **2002** |   |
| Funds From Operations                                                     |   |                             |       |   |   |
| Rental Operations:                                                        |   |                             |       |   |   |
| Office                                                                    |   | **$**                            | **68,654** | ** ** | $ | 64,194 |   |
| Industrial                                                                |   | **50,065**                       | ** ** | 52,839 |   |
| Retail                                                                    |   | **1,608**                        | ** ** | 1,372 |   |
| Services Operations                                                       |   | **1,882**                        | ** ** | 15,532 |   |
| Total Segment FFO                                                         |   | **122,209**                      | ** ** | 133,937 |   |
| Non-Segment FFO:                                                          |   |                             | ** ** |   |   |
| Interest expense                                                          |   | **(32,713**                      | **)**      | (27,192 | ) |
| Interest income                                                           |   | **991**                          | ** ** | 421 |   |
| General and administrative expense                                        |   | **(5,919**                       | **)**      | (7,238 | ) |
| Gain on land sales                                                        |   | **3****,143**                    | ** ** | 1,208 |   |
| Other expenses                                                            |   | **(1,271**                       | **)**      | (355 | ) |
| Minority interest in earnings of  subsidiaries                            |   | **(23**                          | **)**      | (385 | ) |
| Joint venture FFO                                                         |   | **9****,371**                    | ** ** | 10,776 |   |
| Dividends on preferred units                                              |   | **(10,154**                      | **)**      | (14,210 | ) |
| Discontinued operations                                                   |   | **220**                          | ** ** | 1,411 |   |
| Consolidated FFO                                                          |   | **85,854**                       | ** ** | 98,373 |   |
|                                                                      |   |                             | ** ** |   |   |
| Depreciation and amortization on  continuing operations                   |   | **(47,654**                      | **)**      | (42,337 | ) |
| Depreciation and amortization on  discontinued operations                 |   | **(18**                          | **)**      | (482 | ) |
| Share of joint venture adjustments                                        |   | **(5,003**                       | **)**      | (4,415 | ) |
| Earnings (loss) from depreciated property sales on continuing  operations |   | **6,259**                        | ** ** | (96 | ) |
| Earnings from depreciated property sales on discontinued operations       |   | **2,354**                        | ** ** | — |   |
|                                                                      |   |                             | ** ** |   |   |
| Net Income Available for Common Unitholders                               |   | **$**                            | **41,792** | ** ** | $ | 51,043 |   |

 
|                 |   | **March 31,  2003** |          | **December 31,  2002** |   |
|----------------------|--------|---------------------|---------------|------------------------|--------|
| Assets               |   |                |          |                   |   |
| Rental Operations:   |   |                |          |                   |   |
| Office               |   | **$**               | **2,705,254** |                   | $      | 2,677,427 |   |
| Industrial           |   | **2,155,966**       |          | 2,144,686              |   |
| Retail               |   | **71****,488**      |          | 71,072                 |   |
| Service Operations   |   | **91,852**          |          | 91,399                 |   |
| Total Segment Assets |   | **5****,024,560**   |          | 4,984,584              |   |
| Non-Segment Assets   |   | **354,745**         |          | 362,471                |   |
| Consolidated Assets  |   | **$**               | **5,379,305** |                   | $      | 5,347,055 |   |

 

**6.****             ****Real Estate Investments**

 

The Partnership adoptedStatement of Financial Accounting Standards No. 144, “*Accounting for the Impairment or Disposal of LongLived Assets*” (“SFAS 144”), on January 1, 2002. SFAS 144 requiresthe Partnership to report in discontinued operations the results of operationsof a property which has either been disposed or is classified as held for sale,unless certain conditions are met.

 

The Partnership has classified operations of tenbuildings as discontinued operations in accordance with SFAS 144. As a result,the Partnership classified net income, net of minority interest, of $182,000and $824,000 as net income from discontinued operations for the three monthsended March 31, 2003 and 2002. In addition, five of the properties classifiedin discontinued operations were sold during the first quarter of 2003;therefore, the gains on disposal for these properties, net of minorityinterest, of $2.1 million are also reported in discontinued operations.

 

At March 31, 2003, thePartnership had 2 industrial, 5 office and 6 retail properties comprisingapproximately 1.1 million square feet held for sale. Of these properties, 4build-to-suit office and 3 build-to-suit retail properties were underdevelopment. Net operating income (defined as total property revenues, lessproperty expenses, which include real estate taxes, repairs and maintenance,property management, utilities, insurance and other expenses) of the propertiesheld for sale for the three months ended March 31, 2003 and 2002 isapproximately $882,000 and $382,000, respectively. Net book value of theproperties held for sale at March 31, 2003, is approximately $53.7 million.There can be no assurance that such properties held for sale will be sold.

 

9

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In association with a contract for a sale of oneparcel of land entered into by the Partnership in the first quarter of 2003,the Company recognized an impairment adjustment of $420,000 to reflect theanticipated loss on the sale of this land.

 

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

 

The General Partner periodically accesses the publicequity markets to fund the development and acquisition of additional rentalproperties. The proceeds of these offerings are contributed to the Partnershipin exchange for additional interests in the Partnership.

 

The following series of preferred equity areoutstanding as of March 31, 2003 (in thousands, except percentages):

 
| **Description**     |   | **Shares  Outstanding** |   | **Dividend  Rate** |   | **Initial  Optional  Redemption  Date** |   | **Liquidation  Preference** |    | **Convertible** |   |
|---------------------|--------|-------------------------|--------|--------------------|--------|-----------------------------------------|--------|-----------------------------|---------|-----------------|--------|
| Series  B Preferred |   | 265                     |   | 7.990              | %      | March 31, 2007                          |   | $                           | 132,250 |            | No     |   |
| Series  D Preferred |   | 535                     |   | 7.375              | %      | December 31,  2003                      |   | $                           | 133,619 |            | Yes    |   |
| Series  E Preferred |   | 400                     |   | 8.250              | %      | January 20, 2004                        |   | $                           | 100,000 |            | No     |   |
| Series  I Preferred |   | 300                     |   | 8.450              | %      | February 6, 2006                        |   | $                           | 75,000  |            | No     |   |

 

All series of preferredequity require cumulative distributions and have no stated maturity date(although the General Partner may redeem them on or following their initialoptional redemption dates).

 

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

 

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

 

**8.****             ****Other Matters**

 

**Reclassifications**

 

Certain 2002 balanceshave been reclassified to conform to 2003 presentation.

 

**9.****              DerivativeInstruments**

 

The Partnership isexposed to capital market risk, such as changes in interest rates.  In order to manage the volatility relatingto interest rate risk, the Partnership may enter into interest rate hedgingarrangements from time to time. The Partnership does not utilize derivativefinancial instruments for trading or speculative purposes. The Partnershipaccounts for derivative instruments under Statement of Financial AccountingStandard No. 133, “Accounting for Derivative Instruments and Hedging Activities”as amended (“SFAS 133”).

 

In December 2002, thePartnership simultaneously entered into two $50 million forward-startinginterest rate swaps. The Partnership designated the aggregate $100 millionswaps as a hedge to effectively fix the rate on financing expected in 2003. ThePartnership expects and intends that the financing will be a ten-yearfixed-rate semi-annual financing, pricing between May 1, 2003 and November 1,2003. The fair value of the swaps was a liability of ($3.3) million as of March31, 2003, and is recorded in other liabilities in the accompanying balancesheet. The swaps qualify for hedge accounting under SFAS 133; therefore,changes in fair value are recorded in other comprehensive income.

 

10

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In February 2003, thePartnership simultaneously entered into two $25 million forward-startinginterest rate swaps. The Partnership designated the aggregate $50 million swapsas a hedge to effectively fix the rate on financing expected in 2003. ThePartnership expects and intends that the financing will be a ten-yearfixed-rate semi-annual financing, pricing between May 1, 2003 and November 1,2003. The fair value of the swaps was an asset of $75,000 as of March 31, 2003,and is netted in other liabilities in the accompanying balance sheet. The swapsqualify for hedge accounting under SFAS 133; therefore, changes in fair valueare recorded in other comprehensive income.

 

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

 

Forall issuances prior to 2002, the Partnership applies the recognition andmeasurement provisions of APB Opinion No. 25, *Accounting for Stock Issued to Employees*, and relatedInterpretations in accounting for these plans.

 

Effective January 1,2002, the Partnership prospectively adopted the fair value recognitionprovisions of FASB Statement No. 123, *Accountingfor Stock-Based Compensation*, to all awards granted after January 1,2002.

 

The following tableillustrates the effect on net income and earnings per share if the fair valuemethod had been applied to all outstanding and unvested awards in each period.

 
|                                                                                                            |   | **2003** |       | **2002** |   |
|-----------------------------------------------------------------------------------------------------------------|--------|----------|------------|----------|--------|
| Net income, as  reported                                                                                        |   | **$**    | **41,792** |     | $      | 51,043 |   |
| Add:  Stock-based employee compensation expense  included in net income determined under fair value method |   | **178**  |       | 101      |   |
| Deduct:  Total stock based compensation expense  determined under fair value method for all awards         |   | **(353** | **)**      | (333     | )      |
| Proforma Net  Income                                                                                            |   | **$**    | **41,617** |     | $      | 50,811 |   |

 
|                         |   |        |   | **2003** |    | **2002**   |   |
|------------------------------|--------|-------------|--------|----------|---------|------------|--------|
|                         |   |        |   |     |    |       |   |
| Basic net income  per unit   |   | As reported |   | **$**    | **.28** | ** ** | $      | .34 |   |
|                         |   | Pro forma   |   | **$**    | **.28** |       | $      | .34 |   |
|                         |   |        |   |     |    |       |   |
| Diluted net  income per unit |   | As reported |   | **$**    | **.28** | ** ** | $      | .34 |   |
|                         |   | Pro forma   |   | **$**    | **.28** |       | $      | .34 |   |

 

**11.****       SubsequentEvents**

 

The Board of Directors of the General Partner declaredthe following distributions at its April 30, 2003 regularly scheduled Boardmeeting:

 
| **Class**                          |   | **Quarterly  Amount/Share** |    | **Record  Date** |          | **Payment  Date** |          |
|------------------------------------|--------|-----------------------------|---------|------------------|---------------|-------------------|---------------|
| Common                             |   | $                           | 0.455   |             | May 14, 2003  |              | May 30, 2003  |   |
| Preferred (per  depositary share): |   |                        |    |             |          |              |          |
| Series B                           |   | $                           | 0.99875 |             | June 16, 2003 |              | June 30, 2003 |   |
| Series D                           |   | $                           | 0.46094 |             | June 16, 2003 |              | June 30, 2003 |   |
| Series E                           |   | $                           | 0.51563 |             | June 16, 2003 |              | June 30, 2003 |   |
| Series I                           |   | $                           | 0.52813 |             | June 16, 2003 |              | June 30, 2003 |   |

 

11

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The Partners

**Duke Realty Limited Partnership:**

 

We have reviewed the condensed consolidated balancesheet of Duke Realty Limited Partnership and subsidiaries as of March 31, 2003,the related condensed consolidated statements of operations for the threemonths ended March 31, 2003 and 2002, the related condensed consolidated statementsof cash flows for the three months ended March 31, 2003 and 2002, and therelated condensed consolidated statement of partners’ equity for the threemonths ended March 31, 2003. These condensed consolidated financial statementsare the responsibility of the Partnership’s management.

 

We conducted our review in accordance with standardsestablished by the American Institute of Certified Public Accountants. A reviewof interim financial information consists principally of applying analyticalprocedures to financial data and making inquiries of persons responsible forfinancial and accounting matters. It is substantially less in scope than anaudit conducted in accordance with auditing standards generally accepted in theUnited States of America, the objective of which is the expression of anopinion regarding the financial statements taken as a whole. Accordingly, we donot express such an opinion.

 

Based on our review, we are not aware of any materialmodifications that should be made to the condensed consolidated financialstatements referred to above for them to be in conformity with accountingprinciples generally accepted in the United States of America.

 

We have previously audited, in accordance withauditing standards generally accepted in the United States of America, theconsolidated balance sheet of Duke Realty Limited Partnership and subsidiariesas of December 31, 2002, and the related consolidated statements of operations,partners’ equity and cash flows for the year then ended (not presented herein);and in our report dated January 29, 2003, we expressed an unqualified opinionon those consolidated financial statements. In our opinion, the information setforth in the accompanying condensed consolidated balance sheet as of December31, 2002 is fairly presented, in all material respects, in relation to theconsolidated balance sheet from which it has been derived.

 

 

KPMG LLP

Indianapolis, Indiana

April 30, 2003

 

12

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| **Item 2.** | **Management’s  Discussion and Analysis of Financial Condition and Results of Operations** |
|-------------|-------------------------------------------------------------------------------------------------|

 

**Cautionary Statement RegardingForward Looking Statements**

 

Certain statements in this quarterly report, includingthose related to the Partnership’s 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 the actual results, performance orachievements of the Partnership, or industry results, to differ materially fromany predictions of future results, performance or achievements that we expressor imply in this report. Some of the risks, uncertainties and other importantfactors that may affect future results include, among others:

 

•                  Generaleconomic and business conditions;

•                  ThePartnership’s continued qualification as a real estate investment trust;

•                  Competitionfor tenants and decrease in property occupancy;

•                  Potentialincreases in real estate construction costs;

•                  Potentialchanges in interest rates;

•                  Continuingability to favorably raise debt and equity in the capital markets; and

•                  Otherrisks inherent in the real estate business including tenant defaults, potentialliability relating to environmental matters and liquidity of real estateinvestments.

 

This list of risks and uncertainties, however, is notintended to be exhaustive. The General Partner has on file with the Securitiesand Exchange Commission (“SEC”) a Report on Form 8K dated December 6, 2001,with additional risk factor information.

 

The words “believe,” “estimate,” “expect” and similarexpressions or statements regarding future periods are intended to identifyforward-looking statements. Although we believe that the plans, expectationsand results expressed in or suggested by our forward-looking statements arereasonable, all forward-looking statements are inherently uncertain as theyinvolve substantial risks and uncertainties beyond the Partnership’s control.New factors emerge from time to time, and it is not possible for us to predictthe nature or assess the potential impact of each new factor on thePartnership’s business. Given these uncertainties, we caution you not to placeundue reliance on these forward-looking statements. The Partnership undertakesno obligation to update or revise any of its forward-looking statements forevents or circumstances that arise after the statement is made.

 

**BusinessOverview**

 

The Partnership is a self-administered and selfmanaged real estate investment trust that began operations through a relatedentity in 1972. As of March 31, 2003, the Partnership:

 

•                 Ownedor controlled 924 industrial, office and retail properties (includingproperties under development), consisting of nearly 109 million square feetlocated in 12 states; and

•                 Ownedor controlled more than 4,000 acres of land with an estimated futuredevelopment potential of more than 62 million square feet of industrial, officeand retail properties.

 

13

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The Partnership provides the following services forits properties and for certain properties owned by third parties:

 

•                 leasing;

•                 management;

•                 construction;

•                 development;and

•                 othertenant-related services.

 

The Partnership’s operating results depend primarilyupon income from the Rental Operations of its properties. This rental income issubstantially influenced by the supply and demand for the Partnership’s rentalspace. The Partnership’s continued growth is dependent upon its ability tomaintain occupancy rates and increase rental rates of its in-service portfolio.The Partnership’s strategy for growth also includes developing and acquiringadditional rental properties.

 

The following highlights the areas of RentalOperations that the Partnership considers critical for future revenue growth(all square footage totals and occupancy percentages reflect 100% of bothwholly-owned properties and properties in joint ventures):

*** ***

***Same Property Performance:*** ThePartnership tracks same property performance, which measures the performance ofproperties that were in-service for all reported portions of a two-year periodby comparing the results of the second year with the results of the first year.For the three months ended March 31, 2003, net operating income from the sameproperty portfolio decreased 3.1% from the same period in 2002. The decreaseresulted from lower occupancies in the properties that rolled into the sameproperty population in 2003, coupled with the fact that a majority of theproperties sold over the past two and a half years were from the same propertypopulation and were over 90% leased.

 

***Occupancy Analysis:*** As discussedabove, the ability to maintain occupancy rates is a principal driver of thePartnership’s results of operations. The following table sets forth informationregarding the Partnership’s in-service portfolio of rental properties as ofMarch 31, 2003 and 2002 (square feet in thousands):

 

|             |   | **Total  Square Feet** |   | **Percent of  Total Square Feet** |       | **Percent  Occupied** |       |
|------------------|--------|------------------------|--------|-----------------------------------|------------|-----------------------|------------|
| **Type**         |   | **2003**               |   | **2002**                          |       | **2003**              |       | **2002** |   | **2003** |   | **2002** |   |
| **Industrial**   |   |                   |   |                              |       |                  |       |   |   |   |   |   |   |
| Service  Centers |   | **13,758**             |   | 13,868                            | ** ** | **13.1**              | **%**      | 13.6 | % | **86.4** | **%** | 88.0 | % |
| Bulk             |   | **66,077**             |   | 63,450                            | ** ** | **62.7**              | **%**      | 62.1 | % | **88.5** | **%** | 88.8 | % |
| **Office**       |   | **24,709**             |   | 24,056                            | ** ** | **23.4**              | **%**      | 23.6 | % | **85.1** | **%** | 85.3 | % |
| **Retail**       |   | **840**                |   | 745                               | ** ** | **.8**                | **%**      | .7 | % | **99.3** | **%** | 97.5 | % |
|             |   |                   |   |                              |       |                  | ** ** |   |   |   | ** ** |   |   |
| Total            |   | **105,384**            |   | 102,119                           | ** ** | **100.0**             | **%**      | 100.0 | % | **87.5** | **%** | 87.9 | % |

 

The Partnership’s loweroccupancy percentage in the three months ended March 31, 2003 as compared tothe three months ended March 31, 2002 was primarily caused by slower lease-upof new developments placed in service during 2002 and reduced demand forexisting space.

 

14

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***Lease Expiration:***The following tablereflects the Partnership’s in-service portfolio lease expiration schedule as ofMarch 31, 2003, by property type indicating square footage and annualized neteffective rents under expiring leases (in thousands, except per square footamounts):

 
|                        |   | **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** |   |
| 2003                        |   | 8,170                |   | $                      | 48,434  |                    | 8      | %                | 7,029  |   | $ | 33,802 |   | 1,141 |   | $ | 14,632 |   | — |   | $ | — |   |
| 2004                        |   | 11,059               |   | 77,193                 |    | 12                      | %      | 8,398            |   | 39,732 |   | 2,641 |   | 37,080 |   | 20 |   | 381 |   |
| 2005                        |   | 13,556               |   | 94,784                 |    | 14                      | %      | 10,716           |   | 53,982 |   | 2,808 |   | 40,372 |   | 32 |   | 430 |   |
| 2006                        |   | 11,101               |   | 76,845                 |    | 12                      | %      | 8,820            |   | 45,963 |   | 2,279 |   | 30,849 |   | 2 |   | 33 |   |
| 2007                        |   | 10,554               |   | 74,838                 |    | 12                      | %      | 7,945            |   | 39,764 |   | 2,557 |   | 34,412 |   | 52 |   | 662 |   |
| 2008                        |   | 9,560                |   | 59,615                 |    | 9                       | %      | 7,614            |   | 33,958 |   | 1,919 |   | 25,201 |   | 27 |   | 456 |   |
| 2009                        |   | 7,142                |   | 44,361                 |    | 7                       | %      | 5,754            |   | 25,107 |   | 1,367 |   | 18,853 |   | 21 |   | 401 |   |
| 2010                        |   | 6,484                |   | 50,421                 |    | 8                       | %      | 4,657            |   | 22,295 |   | 1,811 |   | 27,862 |   | 16 |   | 264 |   |
| 2011                        |   | 3,603                |   | 31,284                 |    | 5                       | %      | 2,335            |   | 11,252 |   | 1,247 |   | 19,682 |   | 21 |   | 350 |   |
| 2012                        |   | 4,373                |   | 27,450                 |    | 4                       | %      | 3,347            |   | 13,114 |   | 1,004 |   | 13,745 |   | 22 |   | 591 |   |
| 2013 and Thereafter         |   | 6,631                |   | 56,525                 |    | 9                       | %      | 3,749            |   | 16,986 |   | 2,261 |   | 34,600 |   | 621 |   | 4,939 |   |
| Total Leased                |   | 92,233               |   | $                      | 641,750 |                    | 100    | %                | 70,364 |   | $ | 335,955 |   | 21,035 |   | $ | 297,288 |   | 834 |   | $ | 8,507 |   |
|                        |   |                 |   |                   |    |                    |   |             |   |   |   |   |   |   |   |   |   |   |   |
| Total Portfolio Square Feet |   | 105,384              |   |                   |    |                    |   | 79,835           |   |   |   | 24,709 |   |   |   | 840 |   |   |   |
|                        |   |                 |   |                   |    |                    |   |             |   |   |   |   |   |   |   |   |   |   |   |
| Percent Occupied            |   | 87.52                | %      |                   |    |                    |   | 88.14            | %      |   |   | 85.13 | % |   |   | 99.33 | % |   |   |

 

***FutureDevelopment:***The Partnership expects to realize growth in earnings fromRental Operations through the development and acquisition of additional rentalproperties in its primary markets. Specifically, the Partnership has 3.5million square feet of properties under development at March 31, 2003. Theseproperties should provide future earnings through Service Operations incomeupon sale or from Rental Operations growth as they are placed in service asfollows (in thousands, except percent leased and stabilized returns):

 
| **Anticipated  In-Service  Date** |   | **Square  Feet** |   |   | **Percent  Leased** |   |   | **Project  Costs** |    | **Estimated  Stabilized  Return** |   |
|-----------------------------------|--------|------------------|--------|--------|---------------------|--------|--------|--------------------|---------|-----------------------------------|--------|
|                              |   |             |   |   |                |   |   |               |    |                              |   |
| Held  For Rental:                 |   |             |   |   |                |   |   |               |    |                              |   |
|                              |   |             |   |   |                |   |   |               |    |                              |   |
| 2nd  Quarter 2003                 |   | 349              |   |   | 77%                 |   |   | $                  | 38,988  |                              | 10.8   | % |
| 3rd  Quarter 2003                 |   | 38               |   |   | 69%                 |   |   | 3,373              |    | 11.9                              | %      |
| 4th  Quarter 2003                 |   | 973              |   |   | 87%                 |   |   | 37,522             |    | 10.8                              | %      |
| Thereafter                        |   | 1,581            |   |   | 79%                 |   |   | 65,492             |    | 9.9                               | %      |
|                              |   | 2,941            |   |   | 81%                 |   |   | $                  | 145,375 |                              | 10.4   | % |
| Build-to-Suit  for Sale:          |   |             |   |   |                |   |   |               |    |                              |   |
|                              |   |             |   |   |                |   |   |               |    |                              |   |
| 2nd  Quarter 2003                 |   | 61               |   |   | 77%                 |   |   | $                  | 6,942   |                              | 11.1   | % |
| 3rd  Quarter 2003                 |   | 159              |   |   | 70%                 |   |   | 15,204             |    | 12.1                              | %      |
| 4th  Quarter 2003                 |   | 274              |   |   | 100%                |   |   | 30,857             |    | 8.9                               | %      |
| Thereafter                        |   | 110              |   |   | 100%                |   |   | 12,377             |    | 10.5                              | %      |
|                              |   | 604              |   |   | 90%                 |   |   | $                  | 65,380  |                              | 10.2   | % |
| Total                             |   | 3,545            |   |   | 82%                 |   |   | $                  | 210,755 |                              | 10.3   | % |

 

***Lease Renewals:***The Partnershiprenewed 61.6% of leases up for renewal in the three months ended March 31,2003, totaling 1.1 million square feet. This compares to renewals of 70.0% forthe three months ended March 31, 2002, totaling 2.0 million square feet.

 

15

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**Results of Operations**

 

A summary of thePartnership’s operating results and property statistics for the three monthsended March 31, 2003 and 2002, is as follows (in thousands, except number ofproperties and per share amounts):

 
|                                                        |   | **2003**    |        | **2002** |   |
|-------------------------------------------------------------|--------|-------------|-------------|----------|--------|
|                                                        |   |        |        |     |   |
| Rental  Operations revenue                                  |   | **$**       | **185,016** |     | $      | 174,481 |   |
| Service  Operations revenue                                 |   | **9,182**   |        | 29,521   |   |
| Earnings  from Rental Operations                            |   | **43,607**  |        | 54,671   |   |
| Earnings  from Service Operations                           |   | **1,882**   |        | 15,532   |   |
| Operating  income                                           |   | **39,570**  |        | 62,965   |   |
| Net  income available for common unitholders                |   | **$**       | **41,792**  |     | $      | 51,043 |   |
| Weighted  average common units outstanding                  |   | **149,972** |        | 148,670  |   |
| Weighted  average common and dilutive potential common unit |   | **150,627** |        | 150,270  |   |
| Basic  income per common unit:                              |   |        |        |     |   |
| Continuing  operations                                      |   | **$**       | **.26**     |     | $      | .33 |   |
| Discontinued  operations                                    |   | **$**       | **.02**     |     | $      | .01 |   |
| Diluted  income per common unit:                            |   |        |        |     |   |
| Continuing  operations                                      |   | **$**       | **.26**     |     | $      | .33 |   |
| Discontinued  operations                                    |   | **$**       | **.02**     |     | $      | .01 |   |
|                                                        |   |        |        |     |   |
| Number  of in-service properties at end of period           |   | **908**     |        | 894      |   |
| In-service  square footage at end of period                 |   | **105,384** |        | 102,119  |   |
| Under  development square footage at end of period          |   | **3,545**   |        | 3,718    |   |

 

**Comparison of Three Months EndedMarch 31, 2003 to Three Months Ended March 31, 2002**

 

Rental Operations

 

Rental Operations arecomprised of net income from rental properties (“Rental Net Income”) and equityin earnings from unconsolidated companies (“Equity in Earnings”). Rental NetIncome is defined as rental income less rental expenses and real estate taxes.Overall, Rental Net Income increased from $117.9 million in 2002 to $119.7million in 2003. The increase is primarily attributable to the Partnershiprecognizing $9.3 million of lease termination fees during the three monthsended March 31, 2003 and 2002, compared to $5.3 million for the same period in2002. This increase was offset somewhat by an increase in rental expenses as aresult of snow removal and other weather related expenses increasingsignificantly in the first quarter of 2003 as several of the Partnership’smarkets experienced prolonged effects of winter weather. The Partnership hasexperienced a slight decrease in occupancy of its in-service portfolio from87.9% at March 31, 2002 to 87.5% at March 31, 2003; however, occupancy hasincreased slightly since the fourth quarter of 2002.

 

The Partnership analyzesthe results of Rental Operations by office, industrial and retail portfolios.The following highlights the financial results for each of the Partnership’sRental Operations portfolios.

 

16

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Office

 

Rental Net Income forOffice properties increased from $64.2 million for the three months ended March31, 2002, to $68.7 million for the three months ended March 31, 2003 as aresult of the following:

 

•                  The Partnership experienced aslight decrease in its in-service Office portfolio occupancy from 85.3% atMarch 31, 2002, to 85.1% at March 31, 2003.

•                  The Partnership’s in-service Officeportfolio has increased from 233 properties at March 31, 2002, to 239properties at March 31, 2003.

•                  The Partnership recognized $8.2million in termination fees associated with this segment for the three monthsended March 31, 2003, compared to $4.8 million for the same period in 2002.

 

Industrial

 

Rental Net Income forIndustrial properties decreased from $52.8 million for the three months endedMarch 31, 2002, to $50.1 million for the three months ended March 31, 2003 as aresult of the following:

 

•                  The Partnership experienced adecrease in its in-service Industrial portfolio occupancy from 88.6% at March31, 2002, to 88.1% at March 31, 2003.

•                  The Partnership’s in-serviceIndustrial portfolio increased from 651 properties at March 31, 2002 to 659properties at March 31, 2003.

 

Retail

 

Rental Net Income forRetail properties increased to $1.6 million for the three months ended March31, 2003, from $1.4 million for the same period in 2002.

 

Equity in earningsdecreased from $6.3 million for the first quarter of 2002 to $4.3 million forthe same period in 2003. The decrease is primarily the result of increasedrental expenses for snow removal from prolonged winter weather in many of themarkets in which the Partnership is a joint venture partner.  There were no significant effects on equityin earnings from lease terminations during the three months ended March 31,2003 or 2002. Combined occupancy of all the Partnership’s investments in unconsolidatedcompanies was 92.2% at March 31, 2003 compared to 89.5% at March 31, 2002.  During the first quarter of 2003, thePartnership sold its 50% interest in an office joint venture in South Florida,recognizing a gain of $6.3 million, which is reflected in earnings from landand depreciable property dispositions as the venture owned and operated realestate property and held land for future development.

 

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Depreciation andamortization expense increased from $42.3 million for the first three months of2002 to $47.7 million for the same period in 2003 as a result of the followingtrends:

 

•                  ThePartnership increased its building basis in its held for investment propertyportfolio by approximately $100 million from March 31, 2002 to March 31, 2003,primarily through developments placed in-service throughout 2002 and a $50million building acquisition in December of 2002;

•                  Tenantimprovements increased from $318.0 million at March 31, 2002 to $374.4 millionat March 31, 2003 as the Partnership continues to incur capital expenditures tolease-up vacant space.

 

The $5.5 million increase in interest expense isattributable to the following:

 

•                  Interestcapitalized on development projects decreased from $4.6 million in 2002 to $1.9million in 2003 as a result of decreased development activity by thePartnership over the past twelve months in response to soft demand in most ofthe Partnership’s markets.

•                  Interest expenseon corporate unsecured debt increased from $24.5 million in 2002 to $28.4 millionin 2003. The Partnership issued $175 million of seven-year unsecured debt inJanuary 2003 at an effective interest rate of 5.365%.  Interest expense on this new issuance for the first quartertotaled $1.9 million. In addition, interest expense on two debt issuances fromthe third quarter of 2002 totaled $2.9 million for the first quarter of 2003.

 

As a result of theabove-mentioned items, earnings from Rental Operations decreased $11.1 millionfrom $54.7 million for the three months ended March 31, 2002, to $43.6 millionfor the three months ended March 31, 2003.

 

Service Operations

 

Service Operationsprimarily consist of leasing, management, construction and development servicesfor joint venture properties and properties owned by third parties. ServiceOperations revenues decreased from $29.5 million for the three months endedMarch 31, 2002, to $9.2 million for the three months ended March 31, 2003. Thedecrease is primarily attributable to a decline in activity from thePartnership’s held for sale program whereby the Partnership develops a propertyfor sale upon completion. During the first quarter of 2002, the Partnershiprecognized gains totaling $19.9 million on sales of properties developed forimmediate sale compared to no such sales in the first quarter of 2003.

 

Service Operationsexpenses decreased from $14.0 million in 2002 to $7.3 million in 2003 as aresult of income tax expense of $6.6 million being recognized in 2002 on thesale of properties sold from the Partnership’s held for sale program as notedabove.

 

As a result of the above,earnings from Service Operations decreased from $15.5 million for the threemonths ended March 31, 2002, to $1.9 million for the same period in 2003.

 

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General andAdministrative Expense

 

General andAdministrative Expense decreased from $7.2 million for the three months endedMarch 31, 2002 to $5.9 million for the same period in 2003. The decrease isattributable to a combination of the following:

 

•                  A decrease instate and local tax expense based upon estimated revenues for 2003 being lowerthan 2002;

 

•                  Anincrease in levels of construction and leasing activity during the end of 2002and into 2003 which allowed for more overhead costs to be applied to projectsversus expensed in general and administrative expenses.

 

Other Income and Expenses

 

Gain on sale of land anddepreciable property dispositions, net of impairment adjustment, is comprisedof the following amounts for the three months ended March 31,  2003 and 2002:

 

|                                            |   | **2003**  |   | **2002** |   |
|-------------------------------------------------|--------|-----------|--------|----------|--------|
|                                            |   |      |   |     |   |
| Gain (loss) on  sales of depreciable properties |   | **$**     | — |     | $      | (96 | ) |
| Gain on land  sales                             |   | **3,563** |   | 1,207    |   |
| Gain on sale of  joint venture interest         |   | **6,259** |   | 0        |   |
| Impairment  adjustment                          |   | **(420**  | **)**  | 0        |   |
|                                            |   |      |   |     |   |
| Total                                           |   | **$**     | 9,402  |     | $      | 1,111 |   |

 

Gain on sales ofdepreciable properties represent sales of previously identified held for salerental properties prior to adoption of FASB 144. All future sales of held forinvestment properties will be classified as discontinued operations.

 

Gain on land salesrepresents sales of undeveloped land owned by the Partnership. The Partnershippursues opportunities to dispose of land in markets with a high concentrationof undeveloped land and those markets where the land no longer meets strategicdevelopment plans of the Partnership.

 

In January 2003, thePartnership sold its 50% interest in a joint venture for $16.1 million inproceeds.  The joint venture developsand operates real estate assets; thus the gain was not included in operatingincome.

 

The Partnership recordeda $420,000 adjustment in 2003 associated with a contract to sell one parcel ofland.

 

Discontinued Operations

 

The Partnership adoptedStatement of Financial Accounting Standards No. 144, “*Accounting for the Impairment or Disposal of LongLived Assets*” (“SFAS 144”), on January 1, 2002. SFAS 144 requiresthe Partnership to report in discontinued operations the results of operationsof a property that has either been sold or is classified as held for sale,unless certain conditions are met.

 

19

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The Partnership hasclassified operations of ten buildings as discontinued operations in accordancewith SFAS 144. As a result, the Partnership classified net income, of $202,000and $929,000 as net income from discontinued operations for the three monthsended March 31, 2003 and 2002. In addition, five of the properties classifiedin discontinued operations were sold during the first quarter of 2003;therefore, the gains on disposal for these properties of $2.4 million are alsoreported in discontinued operations.

 

Net IncomeAvailable for Common Unitholders

 

Net income available forcommon unitholders for the three months ended March 31, 2003 was $41.8 millioncompared to $51.0 million for the same period ended March 31, 2002. Thisdecrease results primarily from the operating result fluctuations in RentalOperations, Service Operations, General and Administrative Expenses andearnings from sales of depreciable property as discussed above.

 

**Liquidity and Capital Resources**

 

Sources ofLiquidity

 

The Partnership expectsto meet liquidity requirements over the next twelve months, including paymentsof dividends and distributions as well as recurring capital expendituresrelating to maintaining the Partnership’s current real estate assets, primarilythrough the following:

 

•                 working capital;and

•                 net cash providedby operating activities.

 

The Partnership expectsto meet long-term liquidity requirements, such as scheduled mortgage debtmaturities, the retirement of unsecured notes and amounts outstanding under theunsecured credit facility, property acquisitions, financing of developmentactivities and other non-recurring capital improvements, through the following:

 

•                 issuance ofadditional unsecured notes;

•                 undistributedcash available for distribution, if any; and

•                 proceeds receivedfrom real estate dispositions.

 

*CreditFacilities*

 

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

 

| **Description**           |   | **Borrowing  Capacity** |    | **Maturity  Date** |          | **Interest  Rate** |         | **Amount  Outstanding  at March 31, 2003** |   |
|---------------------------|--------|-------------------------|---------|--------------------|---------------|--------------------|--------------|--------------------------------------------|--------|
| Unsecured Line  of Credit |   | $                       | 500,000 |               | February 2004 |               | LIBOR + .65% |                                       | $      | 205,000 |   |
| Secured Line of  Credit   |   | $                       | 50,000  |               | January 2006  |               | LIBOR + .60% |                                       | $      | 24,800 |   |

 

The lines of credit areused to fund development and acquisition of additional rental properties and toprovide working capital.

 

Associated with the $500million line of credit are financial covenants that require the Partnership tomeet defined levels of performance.  Asof March 31, 2003, the Partnership is in compliance with all covenantspertaining to the $500 million line of credit.

 

20

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*Debt and EquitySecurities*

 

The Partnership currentlyhas on file with the SEC an effective shelf registration statement that permitsthe Partnership to sell up to an additional $420 million of unsecured debtsecurities.  In addition, the GeneralPartner has on file with the SEC an effective shelf registration statement thatpermits the General Partner to sell up to an additional $250.7 million ofcommon and preferred stock. From time-to-time, the Partnership and GeneralPartner expects to issue additional securities under these registrationstatements to fund development and acquisition of additional rental propertiesand to fund the repayment of the credit facilities and other long-term debtupon maturity.

 

The indenture governingthe Partnership’s unsecured notes also requires the Partnership to comply withfinancial ratios and other covenants regarding the operations of thePartnership. The Partnership is currently in compliance with all such covenantsand expects to remain in compliance in the foreseeable future.

 

In January 2003, thePartnership completed an issuance of unsecured debt totaling $175.0 million bearingan effective interest rate of 5.365%, due 2010.

 

Uses of Liquidity

 

The Partnership’s principal uses ofliquidity include the following:

 

•                 Property investments and recurringleasing/capital costs;

•                 Dividends and distributions toshareholders and unitholders;

•                 Long-term debt maturities; and

•                 The General Partner’s common stockrepurchase program.

 

*PropertyInvestments and Other Capital Expenditures*

 

One of the Partnership’sprincipal uses of its liquidity is for the development, acquisition and recurringleasing/capital expenditures of its real estate investments.

 

A summary of thePartnership’s recurring capital expenditures is as follows (in thousands):

 
|                   |   | **March 31,  2003** |       | **March 31,****2002** |   |
|------------------------|--------|---------------------|------------|-----------------------|--------|
| Tenant  improvements   |   | **$**               | **8,258**  |                  | $      | 5,952 |   |
|                   |   |                |       |                  |   |
| Leasing costs          |   | **4,901**           |       | 4,274                 |   |
| Building  improvements |   | **2,625**           |       | 2,399                 |   |
| Totals                 |   | **$**               | **15,784** |                  | $      | 12,625 |   |

 

*Debt Maturities*

 

Debt outstanding at March31, 2003, totals $2.2 billion with a weighted average interest rate of 6.29%maturing at various dates through 2028. The Partnership had $1.9 billion ofunsecured debt and $275.6 million of secured debt outstanding at March 31,2003. Scheduled principal amortization of such debt totaled $2.4 million forthe quarter ended March 31, 2003.

 

21

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Following is a summary ofthe scheduled future amortization and maturities of the Partnership’sindebtedness at March 31, 2003 (in thousands):

 
| **Weighted****Average** |   | **Future  Repayments**      |   |
|-------------------------|--------|-----------------------------|--------|
| **Year**                |   | **Scheduled  Amortization** |   | **Maturities** |   | **Total** |   | **Interest  Rate of  Future Repayments** |   |
|                    |   |                        |   |   |   |   |   |   |   |
| 2003                    |   | $                           | 6,845  |   | $ | 249,436 |   | $ | 256,281 |   | 7.62 | % |
| 2004                    |   | 7,793                       |   | 372,386 |   | 380,179 |   | 4.34 | % |
| 2005                    |   | 7,825                       |   | 205,980 |   | 213,805 |   | 7.16 | % |
| 2006                    |   | 7,409                       |   | 164,986 |   | 172,395 |   | 6.33 | % |
| 2007                    |   | 5,933                       |   | 114,616 |   | 120,549 |   | 7.07 | % |
| 2008                    |   | 5,021                       |   | 134,028 |   | 139,049 |   | 6.31 | % |
| 2009                    |   | 4,802                       |   | 275,000 |   | 279,802 |   | 7.31 | % |
| 2010                    |   | 4,193                       |   | 175,000 |   | 179,193 |   | 5.27 | % |
| 2011                    |   | 3,463                       |   | 175,000 |   | 178,463 |   | 6.93 | % |
| 2012                    |   | 1,977                       |   | 200,000 |   | 201,977 |   | 5.76 | % |
| Thereafter              |   | 9,942                       |   | 50,000 |   | 59,942 |   | 6.53 | % |
|                    |   | $                           | 65,203 |   | $ | 2,116,432 |   | $ | 2,181,635 |   | 6.29 | % |

 

Historical Cash Flows

 

Cash and cash equivalentswere $13.2 million and $13.3 million at March 31, 2003 and 2002,respectively.  The decrease is theresult of the following increases/(decreases) in cash flows (amounts inthousands):

 

|                                       |   | **Three  Months Ended March 31,** |       |
|--------------------------------------------|--------|-----------------------------------|------------|
|                                       |   | **2003**                          |       | **2002** |   |
| Net Cash  Provided by Operating Activities |   | **$**                             | **58.9**   |   | $ | 211.3 |   |
|                                       |   |                              |       |   |   |
| Net Cash Used by  Investing Activities     |   | **$**                             | **(60.4**  | **)** | $ | (49.4 | ) |
|                                       |   |                              | ** ** |   |   |
| Net Cash Used  for Financing Activities    |   | **$**                             | **(2.4**   | **)** | $ | (159.0 | ) |

 

*OperatingActivities*

 

The decrease in net cashprovided by operating activities resulted primarily from the following:

 

•                  The Partnershipreceived net proceeds of $101.2 million from its Build-to-Suit operationsduring the three months ended March 31, 2002, compared to incurring netdevelopment costs of $15.3 million for the same period in 2003.  During the first quarter of 2002, thePartnership sold five properties from its Build-to-Suit portfolio.

 

22

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*InvestingActivities*

 

The increase in net cashused by investing activities from the first quarter of 2002 to 2003 wasattributable to the following:

 

•                  Dispositions ofland and depreciated property provided $51.4 million in net proceeds during thefirst quarter of 2003, compared to $25.4 million in 2002.  The Partnership pursues opportunisticdispositions when conditions and terms are favorable.

•                  Real estatedevelopment costs decreased from $36.7 million in 2002 to $29.0 million in 2003,due to a reduction in new development starts in 2002 in response to weakeneddemand in many of the Partnership’s markets.

•                  The Partnershipacquired $34.6 million of real estate assets during the first quarter of 2003compared to $8.4 million during the same period in 2002.  The acquisitions in 2003 consisted of twooffice buildings that are each 100% leased.

•                  The Partnershippaid $12.0 million when it exercised a purchase option on a ground lease duringthe first quarter of 2003.

 

*FinancingActivities*

 

The decrease in net cashused for financing activities resulted from the following:

 

•                  In 2003, thePartnership issued $175.0 million of unsecured debt.

•                  The Partnershippaid off $21.0 million of secured debt, net of a $38.3 million secured debtrefinancing during the first quarter of 2003 compared to $2.7 million in 2002.

 

*DerivativeFinancial Instruments*

 

The Partnership isexposed to capital market risk, such as changes in interest rates.  In order to manage the volatility relatingto interest rate risk, the Partnership may enter into interest rate hedgingarrangements from time to time. The Partnership does not utilize derivativefinancial instruments for trading or speculative purposes.

 

In December 2002, thePartnership simultaneously entered into two $50 million forward-startinginterest rate swaps. The Partnership designated the aggregate $100 millionswaps as a hedge to effectively fix the rate on financing expected in 2003. ThePartnership expects and intends that the financing will be a ten-yearfixed-rate semi-annual financing, pricing between May 1, 2003 and November 1,2003. The fair value of the swaps was a liability of ($3.3) million as of March31, 2003, and is recorded in other liabilities in the accompanying balancesheet. The swaps qualify for hedge accounting under SFAS 133; therefore,changes in fair value will be recorded in other comprehensive income.

 

In February 2003, thePartnership simultaneously entered into two $25 million forward-startinginterest rate swaps. The Partnership designated the aggregate $50 million swapsas a hedge to effectively fix the rate on financing expected in 2003. ThePartnership expects and intends that the financing will be a ten-yearfixed-rate semi-annual financing, pricing between May 1, 2003 and November 1,2003. The fair value of the swaps was an asset of $75,000 as of March 31, 2003,and is

 

23

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netted in otherliabilities in the accompanying balance sheet. The swaps qualify for hedgeaccounting under SFAS 133; therefore, changes in fair value will be recorded inother comprehensive income.

 

**Investments in UnconsolidatedCompanies**

 

The Partnership hasequity interests ranging from 10 – 64% 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 thePartnership has the ability to exercise significant influence, but not control,over operating and financial policies. As a result, the assets and liabilitiesof these joint ventures are not included on the Partnership’s balance sheet.

 

The Partnership’sinvestment in unconsolidated companies represents less than 6% of thePartnership’s total assets as of March 31, 2003. This investment providesseveral benefits to the Partnership including increased market share and anadditional source of capital to fund real estate projects.

 

**Funds From Operations**

 

Funds From Operations(“FFO”), which is defined by the National Association of Real Estate InvestmentTrusts as GAAP net income or loss, excluding gains or losses from sales ofdepreciated operating property, plus operating property depreciation andamortization and adjustments for minority interest and unconsolidated companieson the same basis, is the industry standard for comparing and reporting theoperating performance of real estate companies.  Management believes that FFO is a useful indicator of thePartnership’s operating performance.

 

The following tableprovides a reconciliation of GAAP net income to FFO for the three months endedMarch 31 as follows (in thousands):

 
|                                                    |   | **2003**   |       | **2002** |   |
|---------------------------------------------------------|--------|------------|------------|----------|--------|
|                                                    |   |       |       |     |   |
| Net  income available for common units                  |   | **$**      | **41,792** |     | $      | 51,043 |   |
| Add  back (deduct):                                     |   |       |       |     |   |
| Depreciation  and amortization                          |   | **47,672** |       | 42,819   |   |
| Share  of joint venture adjustments                     |   | **5,003**  | ** ** | 4,415    |   |
| (Earnings)  loss from depreciable property dispositions |   | **(8,613** | **)**      | 96       |   |
|                                                    |   |       | ** ** |     |   |
| **Funds  From Operations**                              |   | **$**      | **85,854** |     | $      | 98,373 |   |

 

**RecentAccounting Pronouncements**

 

In January 2003, FASB issued Interpretation 46, *Consolidation of Variable Interest Entities*(“Interpretation46”)*,* which addressesconsolidation of certain variable interest entities.  Interpretation 46 applies immediately to variable interestentities created after January 31, 2003, and to variable interest entities inwhich an enterprise obtains an interest after that date.  The interpretation applies in the firstfiscal year or interim period beginning after June 15, 2003, to variableinterest entities in which an enterprise holds a variable interest that itacquired before February 1, 2003. The Partnership will review its investmentsin unconsolidated companies based on this new accounting pronouncement, butdoes not anticipate that the adoption of Interpretation 46 will have a materialimpact on its financial statements

 

24

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**Item 3****.   Quantitative and Qualitative DisclosureAbout Market Risks**

 

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

 

**Item 4****.  Controls and Procedures**

 

The Partnership maintains disclosure controls andprocedures that are designed to ensure that information required to bedisclosed in our annual and periodic reports filed with the SEC is recorded,processed, summarized and reported within the time periods specified in theSEC’s rules and forms. These disclosure controls and procedures are furtherdesigned to ensure that such information is accumulated and communicated to ourmanagement, including our chief executive officer, chief financial officer andchief operating officer, to allow timely decisions regarding requireddisclosure.

 

Based on the most recent evaluation, which wascompleted within 90 days of the filing of this report, our chief executiveofficer and chief financial officer believe that our disclosure controls andprocedures are effective. There have been no significant changes in ourinternal controls or in other factors that could significantly affect theinternal controls subsequent to the date we completed our evaluation.

 

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**PartII****– Other Information**

 

Item 1.  Legal Proceedings

 

None

 

Item 2.  Changes in Securities

 

None

 

Item 3.  Defaults upon SeniorSecurities

 

None

 

Item 4.  Submission of Mattersto a Vote of Security Holders

 

None

 

Item 5.  Other Information

 

None

 

Item 6.  Exhibits and Reports onForm 8-K

 
| (a)    | Exhibits                                                                                                                           |
|--------|------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                               |   |
|   | Exhibit 15.                                                                                                                        | Letter regarding unaudited interim financial  information |
|   |                                                                                                                               |   |
|   | Exhibit 99.1                                                                                                                       | Certification Pursuant to 18 U.S. C. Section 13.50,  as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|   |                                                                                                                               |   |
|   | Exhibit 99.2                                                                                                                       | Certification Pursuant to 18 U.S. C. Section 13.50,  as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|   |                                                                                                                               |   |
|   | Exhibit 99.3                                                                                                                       | Certification Pursuant to 18 U.S. C. Section 13.50,  as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|   |                                                                                                                               |   |
| (b)    | Reports on Form 8-K                                                                                                                |
|   |                                                                                                                               |
|   | The Partnership filed a Current Report on Form 8-K,  dated January 9, 2003, to report to a $175.0 million unsecured debt offering. |

 

 

26

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**SIGNATURES**

 

 

Pursuant to the requirements of the SecuritiesExchange Act of 1934, the registrant has duly caused this report to be signedon its behalf by the undersigned thereunto duly authorized.

 
| DUKE REALTY  LIMITED PARTNERSHIP |                                                                                                              |
|----------------------------------|-------------------------------------------------------------------------------------------------------------------|
|                             |                                                                                                              |
|                             |                                                                                                              |
|                             | By:                                                                                                               | Duke Realty Corporation |
|                             |                                                                                                              | Its General Partner |
|                             |                                                                                                              |
|                             |                                                                                                              |
| Date:  May 13, 2003         | /s/               Thomas  L. Hefner    |   |
|                             | Thomas L. Hefner                                                                                                  |
|                             | Chairman and Chief Executive Officer  and Director of the General Partner                                         |
|                             |                                                                                                              |
|                             |                                                                                                              |
|                             | /s/               Darell  E. Zink, Jr. |   |
|                             | Darell E. Zink, Jr.                                                                                               |
|                             | Vice Chairman, Executive Vice  President and Chief Financial Officer of  the General Partner                      |
|                             |                                                                                                              |
|                             |                                                                                                              |
|                             | /s/               Dennis  D. Oklak     |   |
|                             | Dennis D. Oklak                                                                                                   |
|                             | President and Chief Operating Officer of  the General Partner                                                     |
|                             |                                                                                                              |
|                             |                                                                                                              |
|                             | /s/               Matthew  A. Cohoat   |   |
|                             | Matthew A. Cohoat                                                                                                 |
|                             | Senior Vice President and  Corporate Controller of the General  Partner                                           |
|                                  |                                                                                                                   |  |  |

 

27

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**CERTIFICATION PURSUANT TO SECTION 302OF THE SARBANES-OXLEY ACT OF 2003**

 

I, Thomas L. Hefner, certify that:

 

1.             Ihave reviewed this quarterly report on Form 10-Q of Duke Realty LimitedPartnership;

 

2.             Basedon my knowledge, this quarterly report does not contain any untrue statement ofa material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements weremade, not misleading with respect to the period covered by this quarterlyreport;

 

3.             Basedon my knowledge, the financial statements, and other financial informationincluded in this quarterly report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the Partnership asof, and for, the periods presented in this quarterly report;

 

4.             ThePartnership’s other certifying officers and I are responsible for establishingand maintaining disclosure controls and procedures (as defined in Exchange ActRules 13a-14 and 15d-14) for the Partnership and we have:

 

(a)           designed suchdisclosure controls and procedures to ensure that material information relatingto the Partnership, including its consolidated subsidiaries, is made known tous by others within those entities, particularly during the period in whichthis quarterly report is being prepared;

 

(b)           evaluated theeffectiveness of the Partnership’s disclosure controls and procedures as of adate within 90 days prior to the filing date of this quarterly report (the“Evaluation Date”); and

 

(c)           presented in thisquarterly report our conclusions about the effectiveness of the disclosure controlsand procedures based on our evaluation as of the Evaluation Date;

 

5.             ThePartnership’s other certifying officers and I have disclosed, based on our mostrecent evaluation, to the Partnership’s auditors and the audit committee of theGeneral Partner’s board of directors (or persons performing the equivalentfunction):

 

(a)           all significantdeficiencies in the design or operation of internal controls which couldadversely affect the Partnership’s ability to record, process, summarize andreport financial data and have identified for the Partnership’s auditors anymaterial weaknesses in internal controls; and

 

(b)           any fraud, whetheror not material, that involves management or other employees who have asignificant role in the Partnership’s internal controls; and

 

6.             ThePartnership’s other certifying officers and I have indicated in this quarterlyreport whether or not there were significant changes in internal controls or inother factors that could significantly affect internal controls subsequent tothe date of our most recent evaluation, including any corrective actions withregard to significant deficiencies and material weaknesses.

 

Date:  May 13, 2003

 

 
| /s/               Thomas  L. Hefner |   |   |
|----------------------------------------------------------------------------------------------------------------|--------|--------|
| Thomas L. Hefner                                                                                               |   |
| Chairman and Chief Executive Officer                                                                           |   |
| Duke Realty Corporation of the                                                                                 |   |
| General Partner                                                                                                |   |

 

28

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**CERTIFICATIONPURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2003**

 

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

 

1.             Ihave reviewed this quarterly report on Form 10-Q of Duke Realty LimitedPartnership;

 

2.             Basedon my knowledge, this quarterly report does not contain any untrue statement ofa material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements weremade, not misleading with respect to the period covered by this quarterlyreport;

 

3.             Basedon my knowledge, the financial statements, and other financial informationincluded in this quarterly report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the Partnership asof, and for, the periods presented in this quarterly report;

 

4.             ThePartnership’s other certifying officers and I are responsible for establishing andmaintaining disclosure controls and procedures (as defined in Exchange ActRules 13a-14 and 15d-14) for the Partnership and we have:

 

(a)           designed suchdisclosure controls and procedures to ensure that material information relatingto the Partnership, including its consolidated subsidiaries, is made known tous by others within those entities, particularly during the period in whichthis quarterly report is being prepared;

 

(b)           evaluated theeffectiveness of the Partnership’s disclosure controls and procedures as of adate within 90 days prior to the filing date of this quarterly report (the“Evaluation Date”); and

 

(c)           presented in thisquarterly report our conclusions about the effectiveness of the disclosurecontrols and procedures based on our evaluation as of the Evaluation Date;

 

5.             ThePartnership’s other certifying officers and I have disclosed, based on our mostrecent evaluation, to the Partnership’s auditors and the audit committee of theGeneral Partner’s board of directors (or persons performing the equivalentfunction):

 

(a)           all significantdeficiencies in the design or operation of internal controls which couldadversely affect the Partnership’s ability to record, process, summarize andreport financial data and have identified for the Partnership’s auditors anymaterial weaknesses in internal controls; and

 

(b)           any fraud, whetheror not material, that involves management or other employees who have asignificant role in the Partnership’s internal controls; and

 

6.             ThePartnership’s other certifying officers and I have indicated in this quarterlyreport whether or not there were significant changes in internal controls or inother factors that could significantly affect internal controls subsequent tothe date of our most recent evaluation, including any corrective actions withregard to significant deficiencies and material weaknesses.

 

Date:  May 13, 2003

 

 
| /s/               Darell  E. Zink, Jr. |   |   |
|-------------------------------------------------------------------------------------------------------------------|--------|--------|
| Darell E. Zink, Jr.                                                                                               |   |
| Vice Chairman, Executive Vice                                                                                     |   |
| President and Chief Financial Officer                                                                             |   |
| Duke Realty Corporation of General Partner                                                                        |   |

 

29

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**CERTIFICATIONPURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2003**

 

I, Dennis D. Oklak, certify that:

 

I have reviewed this quarterly report on Form 10-Q ofDuke Realty Limited Partnership;

 

2.             Basedon my knowledge, this quarterly report does not contain any untrue statement ofa material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements weremade, not misleading with respect to the period covered by this quarterlyreport;

 

3.             Basedon my knowledge, the financial statements, and other financial informationincluded in this quarterly report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the Partnership asof, and for, the periods presented in this quarterly report;

 

4.             ThePartnership’s other certifying officers and I are responsible for establishingand maintaining disclosure controls and procedures (as defined in Exchange ActRules 13a-14 and 15d-14) for the Partnership and we have:

 

(a)           designed suchdisclosure controls and procedures to ensure that material information relatingto the Partnership, including its consolidated subsidiaries, is made known tous by others within those entities, particularly during the period in whichthis quarterly report is being prepared;

 

(b)           evaluated theeffectiveness of the Partnership’s disclosure controls and procedures as of a datewithin 90 days prior to the filing date of this quarterly report (the“Evaluation Date”); and

 

(c)           presented in thisquarterly report our conclusions about the effectiveness of the disclosurecontrols and procedures based on our evaluation as of the Evaluation Date;

 

5.             ThePartnership’s other certifying officers and I have disclosed, based on our mostrecent evaluation, to the Partnership’s auditors and the audit committee of theGeneral Partner’s board of directors (or persons performing the equivalentfunction):

 

(a)           all significantdeficiencies in the design or operation of internal controls which couldadversely affect the Partnership’s ability to record, process, summarize andreport financial data and have identified for the Partnership’s auditors anymaterial weaknesses in internal controls; and

 

(b)           any fraud, whetheror not material, that involves management or other employees who have asignificant role in the Partnership’s internal controls; and

 

6.             ThePartnership’s other certifying officers and I have indicated in this quarterlyreport whether or not there were significant changes in internal controls or inother factors that could significantly affect internal controls subsequent tothe date of our most recent evaluation, including any corrective actions withregard to significant deficiencies and material weaknesses.

 

Date:  May 13, 2003

 

 
| /s/               Dennis  D. Oklak |   |   |
|---------------------------------------------------------------------------------------------------------------|--------|--------|
| Dennis D. Oklak                                                                                               |   |
| President and Chief Operating Officer                                                                         |   |
| Duke Realty Corporation of the General Partner                                                                |   |

 

30

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