**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, 2002** |

 

**OR**

 
| **o**  | **TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934**                                                                                                                                                                             |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | **For the transition period  from                   to                   ** |

 

**CommissionFile 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

 

The number of Common Units outstanding as of May 8, 2002 was 15,019,038($.01 par value).

 

 

----

 

**DUKE REALTY LIMITED PARTNERSHIP**

**INDEX**

 
| **Part I - Financial  Information**                                                                           |
|---------------------------------------------------------------------------------------------------------------|
|                                                                                                          |   |   |
| **Item 1.  Financial Statements**                                                                        |
|                                                                                                          |   |   |
|                                                                                                          | Condensed  Consolidated Balance Sheets as of March 31, 2002 (Unaudited) and December 31,  2001 |
|                                                                                                          |   |   |
|                                                                                                          | Condensed  Consolidated Statements of Operations for the three months ended March 31,  2002 and 2001 (Unaudited) |
|                                                                                                          |   |   |
|                                                                                                          | Condensed  Consolidated Statements of Cash Flows for the three months ended March 31,  2002 and 2001 (Unaudited) |
|                                                                                                          |   |   |
|                                                                                                          | Condensed  Consolidated Statement of Partners’ Equity for the three months ended March  31, 2002 (Unaudited) |
|                                                                                                          |   |   |
|                                                                                                          | Notes  to Condensed Consolidated Financial Statements (Unaudited) |
|                                                                                                          |   |   |
|                                                                                                          | Independent  Accountants’ Review Report |
|                                                                                                          |   |   |
| **Item 2.  Management’s  Discussion and Analysis of Financial Condition and Results of Operations** |
|                                                                                                          |   |   |
| **Part II - Other  Information**                                                                              |
|                                                                                                          |   |   |
|                                                                                                          | Item  1. | Legal Proceedings |
|                                                                                                          | Item  2. | Changes in Securities |
|                                                                                                          | Item 3. | Defaults Upon Senior  Securities |
|                                                                                                          | Item 4. | Submission  of Matters to a Vote of Security Holders |
|                                                                                                          | Item 5. | Other Information |
|                                                                                                          | Item 6. | Exhibits and Reports  on Form 8-K |
|                                                                                                          |   |   |
|                                                                                                          | Signatures |   |

 

----

 

**PART I****- FINANCIAL INFORMATION**

**Item 1****.  FinancialStatements**

**DUKE REALTY LIMITED PARTNERSHIP AND SUBSIDIARIES**

**CondensedConsolidated Balance Sheets**

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

 
|                                                                                      |   | **March 31,  2002** |          | **December 31,  2001** |   |
|-------------------------------------------------------------------------------------------|--------|---------------------|---------------|------------------------|--------|
|                                                                                      |   | **(Unaudited)**     |          |                   |   |
| **ASSETS**                                                                                |   |                |          |                   |   |
|                                                                                      |   |                |          |                   |   |
| Real estate investments:                                                                  |   |                |          |                   |   |
| Land and improvements                                                                     |   | **$**               | **585,273**   |                   | $      | 583,909 |   |
| Buildings and tenant improvements                                                         |   | **4,081,974**       |          | 4,068,944              |   |
| Construction in progress                                                                  |   | **100,764**         |          | 154,086                |   |
| Investments in unconsolidated companies                                                   |   | **321,452**         |          | 323,682                |   |
| Land held for development                                                                 |   | **317,967**         |          | 322,528                |   |
|                                                                                      |   | **5,407,430**       |          | 5,453,149              |   |
| Accumulated depreciation                                                                  |   | **(458,568**        | )             | (425,721               | )      |
|                                                                                      |   |                |          |                   |   |
| Net real estate investments                                                               |   | **4,948,862**       |          | 5,027,428              |   |
|                                                                                      |   |                |          |                   |   |
| Cash and cash equivalents                                                                 |   | **13,254**          |          | 10,453                 |   |
| Accounts receivable, net of allowance of $2,674 and  $2,820                               |   | **14,644**          |          | 23,142                 |   |
| Straight-line rent receivable, net of allowance of  $1,929 and $841                       |   | **44,612**          |          | 42,751                 |   |
| Receivables on construction contracts                                                     |   | **26,764**          |          | 30,077                 |   |
| Deferred financing costs, net of accumulated  amortization of $15,246 and $17,459         |   | **11,604**          |          | 12,489                 |   |
| Deferred leasing and other costs, net of accumulated  amortization of $43,991 and $41,284 |   | **95,475**          |          | 97,117                 |   |
| Escrow deposits and other assets                                                          |   | **91,314**          |          | 86,789                 |   |
|                                                                                      |   | **$**               | **5,246,529** |                   | $      | 5,330,246 |   |
| **LIABILITIES AND PARTNERS’ EQUITY**                                                 |   |                |          |                   |   |
|                                                                                      |   |                |          |                   |   |
| Indebtedness:                                                                             |   |                |          |                   |   |
| Secured debt                                                                              |   | **$**               | **323,472**   |                   | $      | 318,484 |   |
| Unsecured notes                                                                           |   | **1,376,315**       |          | 1,376,372              |   |
| Unsecured line of credit                                                                  |   | **38,000**          |          | 120,000                |   |
|                                                                                      |   | **1,737,787**       |          | 1,814,856              |   |
|                                                                                      |   |                |          |                   |   |
| Construction payables and amounts due subcontractors                                      |   | **40,672**          |          | 54,735                 |   |
| Accounts payable                                                                          |   | **2,388**           |          | 2,274                  |   |
| Accrued expenses:                                                                         |   |                |          |                   |   |
| Real estate taxes                                                                         |   | **56,724**          |          | 51,462                 |   |
| Interest                                                                                  |   | **19,294**          |          | 24,313                 |   |
| Other                                                                                     |   | **45,540**          |          | 48,678                 |   |
| Other liabilities                                                                         |   | **122,056**         |          | 117,577                |   |
| Tenant security deposits and prepaid rents                                                |   | **37,125**          |          | 34,644                 |   |
| Total liabilities                                                                         |   | **2,061,586**       |          | 2,148,539              |   |
|                                                                                      |   |                |          |                   |   |
| Minority interest                                                                         |   | **5,730**           |          | 5,475                  |   |
|                                                                                      |   |                |          |                   |   |
| Partners’ equity:                                                                    |   |                |          |                   |   |
| General Partner                                                                           |   |                |          |                   |   |
| Common equity                                                                             |   | **2,229,331**       |          | 2,203,291              |   |
| Preferred equity (liquidation preference of $608,664)                                     |   | **583,419**         |          | 583,419                |   |
|                                                                                      |   | **2,812,750**       |          | 2,786,710              |   |
| Limited partners’ common equity                                                      |   | **263,652**         |          | 286,759                |   |
| Limited partners’ preferred equity                                                   |   | **102,955**         |          | 102,955                |   |
| Accumulated other comprehensive income (loss)                                             |   | **(144**            | )             | (192                   | )      |
|                                                                                      |   | **3,179,213**       |          | 3,176,232              |   |
|                                                                                      |   | **$**               | **5,246,529** |                   | $      | 5,330,246 |   |

 

See accompanying Notes to Consolidated Financial Statements.

 

1

----

 

**DUKE REALTY LIMITED PARTNERSHIP AND SUBSIDIARIES**

**CondensedConsolidated Statements of Operations**

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

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

**(Unaudited)**

 
|                                                                                   |   | **2002**    |        | **2001** |   |
|----------------------------------------------------------------------------------------|--------|-------------|-------------|----------|--------|
| **RENTAL OPERATIONS**                                                                  |   |        |        |     |   |
| Revenues:                                                                              |   |        |        |     |   |
| Rental income                                                                          |   | **$**       | **168,380** |     | $      | 171,972 |   |
| Equity in earnings of unconsolidated companies                                         |   | **6,296**   |        | 9,970    |   |
|                                                                                   |   | **174,676** |        | 181,942  |   |
| Operating expenses:                                                                    |   |        |        |     |   |
| Rental expenses                                                                        |   | **31,216**  |        | 30,601   |   |
| Real estate taxes                                                                      |   | **19,100**  |        | 17,759   |   |
| Interest expense                                                                       |   | **27,720**  |        | 29,613   |   |
| Depreciation and amortization                                                          |   | **42,397**  |        | 40,021   |   |
|                                                                                   |   | **120,433** |        | 117,994  |   |
|                                                                                   |   |        |        |     |   |
| Earnings from rental operations                                                        |   | **54,243**  | ** **  | 63,948   |   |
|                                                                                   |   |        |        |     |   |
| **SERVICE OPERATIONS**                                                                 |   |        |        |     |   |
| Revenues:                                                                              |   |        |        |     |   |
| General contractor gross revenue                                                       |   | **45,933**  |        | 61,168   |   |
| General contractor costs                                                               |   | **(40,219** | )           | (49,878  | )      |
| Net general contractor revenue                                                         |   | **5,714**   |        | 11,290   |   |
|                                                                                   |   |        |        |     |   |
| Construction management and development activity  income                               |   | **20,393**  |        | 4,162    |   |
| Property management, maintenance and leasing fees                                      |   | **3,199**   |        | 6,598    |   |
| Other income                                                                           |   | **215**     |        | 272      |   |
| Total revenue                                                                          |   | **29,521**  |        | 22,322   |   |
|                                                                                   |   |        |        |     |   |
| Operating expenses                                                                     |   | **13,989**  |        | 13,034   |   |
|                                                                                   |   |        |        |     |   |
| Total earnings from service operations                                                 |   | **15,532**  |        | 9,288    |   |
|                                                                                   |   |        |        |     |   |
| General and administrative expense                                                     |   | **(7,237**  | )           | (4,025   | )      |
|                                                                                   |   |        |        |     |   |
| Operating income                                                                       |   | **62,538**  |        | 69,211   |   |
|                                                                                   |   |        |        |     |   |
| **OTHER INCOME (EXPENSE)**                                                             |   |        |        |     |   |
| Interest income                                                                        |   | **425**     |        | 1,434    |   |
| Earnings from land and depreciable property  dispositions, net of impairment allowance |   | **1,111**   |        | 12,786   |   |
| Other revenue (expense)                                                                |   | **212**     |        | (939     | )      |
| Other minority interest in earnings of subsidiaries                                    |   | **(385**    | )           | (911     | )      |
| Income from continuing operations                                                      |   | **63,901**  |        | 81,581   |   |
|                                                                                   |   |        |        |     |   |
| Discontinued operations:                                                               |   |        |        |     |   |
| Net income from discontinued operations                                                |   | **1,352**   |        | 1,198    |   |
| Net income                                                                             |   | **65,253**  |        | 82,779   |   |
| Dividends on preferred units                                                           |   | **(14,210** | )           | (15,374  | )      |
| Net income available for common unitholders                                            |   | **$**       | **51,043**  |     | $      | 67,405 |   |
|                                                                                   |   |        |        |     |   |
| Basic net income per common unit:                                                      |   |        |        |     |   |
| Continuing operations                                                                  |   | **$**       | **.33**     |     | $      | .45 |   |
| Discontinued operations                                                                |   | **.01**     |        | .01      |   |
| Total                                                                                  |   | **$**       | **.34**     |     | $      | .46 |   |
|                                                                                   |   |        |        |     |   |
| Diluted net income per common unit                                                     |   |        |        |     |   |
| Continuing operations                                                                  |   | **$**       | **.33**     |     | $      | .44 |   |
| Discontinued operations                                                                |   | **.01**     |        | .01      |   |
| Total                                                                                  |   | **$**       | **.34**     |     | $      | .45 |   |
|                                                                                   |   |        |        |     |   |
| Weighted average number of common units outstanding                                    |   | **148,670** |        | 147,240  |   |
| Weighted average number of common and dilutive  potential common units                 |   | **150,270** |        | 151,031  |   |

 

See accompanying Notes to Consolidated Financial Statements.

 

2

----

 

**DUKE REALTY LIMITED PARTNERSHIP AND SUBSIDIARIES**

**CondensedConsolidated Statements of Cash Flows**

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

**(in thousands)**

**(Unaudited)**

 
|                                                                                                         |   | **2002**     |       | **2001** |   |
|--------------------------------------------------------------------------------------------------------------|--------|--------------|------------|----------|--------|
| Cash  flows from operating activities:                                                                       |   |         |       |     |   |
| Net income                                                                                                   |   | **$**        | **65,253** |     | $      | 82,779 |   |
| Adjustments to reconcile net income to net cash  provided by operating activities:                           |   |         |       |     |   |
| Depreciation of buildings and tenant improvements                                                            |   | **37,186**   |       | 36,129   |   |
| Amortization of deferred leasing and other costs                                                             |   | **5,633**    |       | 4,454    |   |
| Amortization of deferred financing costs                                                                     |   | **965**      |       | 1,565    |   |
| Minority interest in earnings                                                                                |   | **385**      |       | 911      |   |
| Straight-line rent adjustment                                                                                |   | **(1,386**   | )          | (3,634   | )      |
| Earnings from land and depreciable property  dispositions                                                    |   | **(1,111**   | )          | (12,786  | )      |
| Build-to-suit operations, net                                                                                |   | **101,178**  |       | (18,624  | )      |
| Construction contracts, net                                                                                  |   | **(10,598**  | )          | 6,164    |   |
| Other accrued revenues and expenses, net                                                                     |   | **8,473**    |       | (13,665  | )      |
| Equity in earnings in  (excess)/shortfall of operating distributions received from unconsolidated  companies |   | **5,288**    |       | (5,668   | )      |
| **Net cash provided by operating activities**                                                                |   | **211,266**  |       | 77,625   |   |
|                                                                                                         |   |         |       |     |   |
| Cash flows from investing activities:                                                                        |   |         |       |     |   |
| Development of real estate investments                                                                       |   | **(36,733**  | )          | (92,633  | )      |
| Acquisition of real estate investments                                                                       |   | **(8,375**   | )          | (13,927  | )      |
| Acquisition of land held for development and  infrastructure costs                                           |   | **(4,396**   | )          | (17,538  | )      |
| Recurring tenant improvements                                                                                |   | **(5,952**   | )          | (3,529   | )      |
| Recurring leasing costs                                                                                      |   | **(4,274**   | )          | (2,824   | )      |
| Recurring building improvements                                                                              |   | **(2,399**   | )          | (1,975   | )      |
| Other deferred leasing costs                                                                                 |   | **(3,586**   | )          | (5,400   | )      |
| Other deferred costs and other assets                                                                        |   | **(315**     | )          | 13,464   |   |
| Tax deferred exchange escrow, net                                                                            |   | **—**   |       | (5,775   | )      |
| Proceeds from land and depreciated property sales, net                                                       |   | **25,395**   |       | 93,518   |   |
| Capital distributions from unconsolidated companies                                                          |   | **—**   |       | 6,810    |   |
| Advances from (to) unconsolidated companies, net                                                             |   | **(8,794**   | )          | 2,248    |   |
| **Net cash used by investing activities**                                                                    |   | **(49,429**  | )          | (27,561  | )      |
|                                                                                                         |   |         |       |     |   |
| Cash flows from  financing activities:                                                                       |   |         |       |     |   |
|                                                                                                         |   |         |       |     |   |
| Contribution from General Partner                                                                            |   | **7,023**    |       | 86,149   |   |
| Proceeds from indebtedness                                                                                   |   | **—**   |       | 175,000  |   |
| Payments on indebtedness including principal  amortization                                                   |   | **(5,193**   | )          | (28,446  | )      |
| Repayments on lines of credit, net                                                                           |   | **(79,392**  | )          | (199,679 | )      |
| Distributions to partners                                                                                    |   | **(66,780**  | )          | (63,264  | )      |
| Distributions to preferred unitholders                                                                       |   | **(14,210**  | )          | (15,374  | )      |
| Distributions to minority interest                                                                           |   | **(330**     | )          | (328     | )      |
| Deferred financing costs                                                                                     |   | **(154**     | )          | (4,250   | )      |
| **Net cash used for financing activities**                                                                   |   | **(159,036** | )          | (50,192  | )      |
|                                                                                                         |   |         |       |     |   |
| **Net increase (decrease) in cash and cash equivalents**                                                     |   | **2,801**    |       | (128     | )      |
|                                                                                                         |   |         |       |     |   |
| Cash and cash equivalents at beginning of period                                                             |   | **10,453**   |       | 39,200   |   |
|                                                                                                         |   |         |       |     |   |
| Cash and cash equivalents at end of period                                                                   |   | **$**        | **13,254** |     | $      | 39,072 |   |
|                                                                                                         |   |         |       |     |   |
| Other non-cash items:                                                                                        |   |         |       |     |   |
| Assumption of debt for real estate transactions                                                              |   | **$**        | **7,791**  |     | $      | 6,379 |   |
| Contributions of land and depreciable property to  unconsolidated companies                                  |   | **$**        | **—** |     | $      | 15,812 |   |
| Conversion of Limited Partner Units to common shares of  General Partner                                     |   | **$**        | **6,712**  |     | $      | 518 |   |
| Issuance of Limited Partner Units for real estate  acquisitions                                              |   | **$**        | **4,687**  |     | $      | 526 |   |

 

See accompanying Notes to Consolidated Financial Statements.

 

3

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**DUKE REALTY LIMITED PARTNERSHIP AND SUBSIDIARIES**

 

**CondensedConsolidated Statement of Partners’ Equity**

**For the three months ended March 31, 2002**

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

**(Unaudited)**

 
|                                                                     |   | **General Partner** |          | **Limited  Partners’** |   | **Limited  Partners’** |       | **Accumulated  Other** |        |                           |   |
|--------------------------------------------------------------------------|--------|---------------------|---------------|-----------------------------|--------|-----------------------------|------------|------------------------|-------------|--------------------------------|--------|
|                                                                     |   | **CommonEquity**    |          | **PreferredEquity**         |   | **CommonEquity**            |       | **PreferredEquity**    |        | **ComprehensiveIncome (Loss)** |   | **Total** |   |
|                                                                     |   |                |          |                        |   |                        |       |                   |        |                           |   |   |   |
| **Balance at December 31, 2001**                                         |   | **$**               | **2,203,291** | ** **                  | **$**  | **583,419**                 | ** ** | **$**                  | **286,759** | ** **                     | **$**  | **102,955** | ** ** | **$** | **(192** | **)** | **$** | **3,176,232** | ** ** |
|                                                                     |   |                |          |                        |   |                        |       |                   |        |                           |   |   |   |
| Comprehensive  income:                                                   |   |                |          |                        |   |                        |       |                   |        |                           |   |   |   |
|                                                                     |   |                |          |                        |   |                        |       |                   |        |                           |   |   |   |
| Net income                                                               |   | 45,295              |          | 12,108                      |   | 5,748                       |       | 2,102                  |        | —                         |   | 65,253 |   |
|                                                                     |   |                |          |                        |   |                        |       |                   |        |                           |   |   |   |
| Distributions to  preferred unitholders                                  |   | —              |          | (12,108                     | )      | —                      |       | (2,102                 | )           | —                         |   | (14,210 | ) |
|                                                                     |   |                |          |                        |   |                        |       |                   |        |                           |   |   |   |
| Gains (losses)  on derivative instruments                                |   |                |          |                        |   |                        |       |                   |        | 48                             |   | 48 |   |
|                                                                     |   |                |          |                        |   |                        |       |                   |        |                           |   |   |   |
| Comprehensive  income available for common unitholders                   |   | —              |          | —                      |   | —                      |       | —                 |        | —                         |   | 51,091 |   |
|                                                                     |   |                |          |                        |   |                        |       |                   |        |                           |   |   |   |
| Capital  contribution from General Partner                               |   | 7,271               |          | —                      |   | —                      |       | —                 |        | —                         |   | 7,271 |   |
|                                                                     |   |                |          |                        |   |                        |       |                   |        |                           |   |   |   |
| Acquisition of  Partnership interest for common stock of General Partner |   | 32,772              |          | —                      |   | (26,060                     | )          | —                 |        | —                         |   | 6,712 |   |
|                                                                     |   |                |          |                        |   |                        |       |                   |        |                           |   |   |   |
| Acquisition of  property in exchange for Limited Partner Units           |   | —              |          | —                      |   | 4,687                       |       | —                 |        | —                         |   | 4,687 |   |
|                                                                     |   |                |          |                        |   |                        |       |                   |        |                           |   |   |   |
| Distributions to  partners ($.45 per Common Unit)                        |   | (59,298             | )             | —                      |   | (7,482                      | )          | —                 |        | —                         |   | (66,780 | ) |
|                                                                     |   |                |          |                        |   |                        |       |                   |        |                           |   |   |   |
| **Balance at March 31, 2002**                                            |   | **$**               | **2,229,331** | ** **                  | **$**  | **583,419**                 | ** ** | **$**                  | **263,652** | ** **                     | **$**  | **102,955** | ** ** | **$** | **(144** | **)** | **$** | **3,179,213** | ** ** |

 

See accompanying Notes toCondensed Consolidated Financial Statements

 

4

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**DUKE REALTY LIMITED PARTNERSHIP**

**NOTESTO CONDENSED 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 asof December 31, 2001). The statements have been prepared in accordance withaccounting principles generally accepted in the United States of America forinterim financial information and in accordance with Rule 10-01 of RegulationS-X. Accordingly, they do not include all of the information and footnotesrequired by accounting principles generally accepted in the United States ofAmerica for complete financial statements. In the opinion of management, alladjustments (consisting of normal recurring adjustments) considered necessaryfor a fair presentation have been included. These financial statements shouldbe read in conjunction with the consolidated financial statements and notesthereto included in the Partnership’s Annual Report on Form 10-K.

 

**The Partnership**

 

DukeRealty Limited Partnership (the “Partnership”) was formed on October 4, 1993,when Duke Realty Corporation (the “General Partner”) contributed all of itsproperties and related assets and liabilities along with the net proceeds of$309.2 million from the issuance of an additional 14,000,833 shares through anoffering (the “1993 Offering”) to the Partnership. Simultaneously, thePartnership completed the acquisition of Duke Associates, a full-servicecommercial real estate firm operating in the Midwest. The General Partner wasformed in 1985 and qualifies as a Real Estate Investment Trust (“REIT”) underprovisions of the Internal Revenue Code. In connection with the 1993 Offering, the formation of the Partnershipand the acquisition of Duke Associates, the General Partner effected a 1 for4.2 reverse stock split of its existing common shares. The General Partner isthe sole general partner of the Partnership and received 16,046,144 units ofpartnership interest (“General Partner Units”) in exchange for its originalcontribution which represented a 78.36% interest in the Partnership. As part ofthe acquisition, Duke Associates received 4,432,109 units of limitedpartnership interest (“Limited Partner Units”) (together with the GeneralPartner Units, the (“Common Units”)) which represented a 21.64% interest in thePartnership. The Limited Partner Units are exchangeable for shares of theGeneral Partner’s common stock on a one-for-one basis subject generally to aone-year holding period.

 

ThePartnership owns and operates a portfolio of industrial, office and retailproperties in the midwestern and southeastern United States and provides realestate services to third-party owners. The Partnership conducts ServiceOperations through Duke Realty Services Limited Partnership (“DRSLP”) and DukeConstruction Limited Partnership (“DCLP”). The consolidated financialstatements include the accounts of the Partnership and its majority-owned orcontrolled subsidiaries.

 

**2.     Lines of Credit**

 

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

 
| **Description**          |   | **Borrowing  Capacity** |    | **Maturity  Date** |          | **Interest  Rate** |        | **Outstanding  at March 31,  2002** |   |
|--------------------------|--------|-------------------------|---------|--------------------|---------------|--------------------|-------------|-------------------------------------|--------|
| Unsecured Line of Credit |   | $                       | 500,000 |               | February 2004 |               | LIBOR + .65 | %                                   | $      | 38,000 |   |
| Unsecured Line of Credit |   | 150,000                 |    | July 2002          |          | LIBOR + .675       | %           | —                              |   |
| Secured Line of Credit   |   | 100,000                 |    | January 2003       |          | LIBOR + 1.05       | %           | 30,198                              |   |
|                          |        |                         |         |                    |               |                    |             |                                     |        |  |  |  |

 

5

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The lines of credit are used to fund development andacquisition of additional rental properties and to provide working capital.

 

The $500 million line of credit allows the Partnershipan option to obtain borrowings from the financial institutions that participatein the line of credit at rates lower than the stated interest rate, subject tocertain restrictions. Amounts outstanding on the line of credit at March 31,2002 are at LIBOR + .65% (2.56% at March 31, 2002).

 

The Partnership terminated the $150 million unsecuredline of credit on April 11, 2002.

 

**3.     Related Party Transactions**

 

The Partnership provides management, maintenance,leasing, construction, and other tenant-related services to properties in whichcertain of its executive officers have ownership interests. The Partnership hasan option to acquire these executive officers’ interest in these properties(the “Option Properties”). The Partnership received fees totaling approximately$316,000 and $519,000 for services provided to the Option Properties for thethree months ended March 31, 2002 and 2001, respectively. The Partnershipbelieves that the fees charged by the Partnership for such services areequivalent to those charged to third-party owners for similar services.

 

The Partnership has 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 per common unit is computed bydividing net income available for common unitholders by the weighted averagenumber of common units outstanding for the period. Diluted net income percommon unit is computed by dividing net income available for common units by thesum of the weighted average number of common units outstanding and dilutivepotential common units for the period.

 

The following table reconciles the components of basicand diluted net income per common unit for the three months ended March 31 (inthousands):

 
|                                                                               |   | **2002**    |       | **2001** |   |
|------------------------------------------------------------------------------------|--------|-------------|------------|----------|--------|
|                                                                               |   |        |       |     |   |
| Basic net income available for common unitholders                                  |   | **$**       | **51,043** |     | $      | 67,405 |   |
| Joint venture partner convertible ownership net income                             |   | —      |       | 729      |   |
| Diluted net income available for common units and  dilutive potential common units |   | **$**       | **51,043** |     | $      | 68,134 |   |
|                                                                               |   |        |       |     |   |
| Weighted average number of common units outstanding                                |   | **148,670** |       | 147,240  |   |
| Joint venture partner convertible ownership common  unit equivalents               |   | —      |       | 2,101    |   |
| Dilutive units for long-term compensation plans                                    |   | **1,600**   |       | 1,690    |   |
| Weighted average number of common units and dilutive  potential common units       |   | **150,270** |       | 151,031  |   |

 

The Preferred D Series Convertible equity and the G SeriesConvertible Preferred Limited Partner units were anti-dilutive at March 31,2002 and 2001; therefore, no conversion to common units is included in weighteddilutive potential common units.

 

6

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A joint venture partner in oneof the Partnership’s unconsolidated ventures has the option to convert aportion of its ownership to General Partner common shares. The effect of theoption on earnings per unit was anti-dilutive at March 31, 2002; therefore, noconversion to common units is included in weighted dilutive potential commonunits. At March 31, 2001, the effect of the option on earnings per unit wasdilutive. Therefore, additional equity in earnings was included in diluted netincome available for common unitholders and conversion to common units wasincluded in weighted dilutive potential common units.

 

**5.****              SegmentReporting**

 

The Partnership is engaged in four operating segments;the ownership and rental of office, industrial and retail real estateinvestments (“Rental Operations”) and the providing of various real estateservices such as property management, maintenance, leasing and constructionmanagement to third-party property owners (“Service Operations”). The Partnership’s reportable segments offerdifferent products or services and are managed separately because each requiresdifferent operating strategies and management expertise. There are no materialintersegment sales or transfers.

 

Non-segment revenue to reconcile to total revenueconsists mainly of equity in earnings of joint ventures. Non-segment assets toreconcile to total assets consist of corporate assets including cash, deferredfinancing costs and investments in unconsolidated subsidiaries.

 

The Partnership assesses and measures segmentoperating results based on a performance measure referred to as Funds FromOperations (“FFO”). The National Association of Real Estate Investment Trustsdefines FFO as 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. FFO is not a measure of operating results or cash flows fromoperating activities as measured by generally accepted accounting principles,is not necessarily indicative of cash available to fund cash needs and should notbe considered an alternative to cash flows as a measure of liquidity. Interestexpense and other non-property specific revenues and expenses are not allocatedto individual segments in determining the Partnership’s performance measure.

 

The revenues and FFO for each of the reportablesegments for the three months ended March 31, 2002 and 2001, and the assets foreach of the reportable segments as of March 31, 2002 and December 31, 2001, aresummarized as follows (in thousands):

 
|                                            |   | **Three Months Ended March 31** |        |
|-------------------------------------------------|--------|---------------------------------|-------------|
|                                            |   | **2002**                        |        | **2001** |   |
| Revenues                                        |   |                            |        |   |   |
| Rental  Operations:                             |   |                            |        |   |   |
| Office                                          |   | **$**                           | **97,064**  |   | $ | 91,717 |   |
| Industrial                                      |   | **69,014**                      |        | 73,236 |   |
| Retail                                          |   | **1,728**                       |        | 7,004 |   |
| Service Operations                              |   | **29,521**                      |        | 22,322 |   |
| Total Segment Revenues                          |   | **197,327**                     |        | 194,279 |   |
| Non-Segment Revenue                             |   | **6,870**                       |        | 9,985 |   |
| Consolidated Revenue from continuing operations |   | **204,197**                     |        | 204,264 |   |
| Discontinued Operations                         |   | **2,042**                       |        | 2,026 |   |
| Consolidated Revenue                            |   | **$**                           | **206,239** |   | $ | 206,290 |   |

 

7

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|                                                      |   | **Three Months Ended March 31** |       |
|-----------------------------------------------------------|--------|---------------------------------|------------|
|                                                      |   | **2002**                        |       | **2001** |   |
| Funds From Operations                                     |   |                            |       |   |   |
| Rental  Operations:                                       |   |                            |       |   |   |
| Office                                                    |   | **$**                           | **64,504** |   | $ | 61,136 |   |
| Industrial                                                |   | **52,584**                      |       | 56,259 |   |
| Retail                                                    |   | **1,477**                       |       | 5,723 |   |
| Service Operations                                        |   | **15,532**                      |       | 9,288 |   |
| Total Segment FFO                                         |   | **134,097**                     |       | 132,406 |   |
|                                                      |   |                            |       |   |   |
| Non-Segment FFO:                                          |   |                            |       |   |   |
| Interest expense                                          |   | **(27,720**                     | )          | (29,613 | ) |
| Interest income                                           |   | **425**                         |       | 1,434 |   |
| General and  administrative expense                       |   | **(7,237**                      | )          | (4,025 | ) |
| Gain on land  sales                                       |   | **1,208**                       |       | 677 |   |
| Other expenses                                            |   | **(355**                        | )          | (526 | ) |
| Minority  interest in earnings of subsidiaries            |   | **(385**                        | )          | (911 | ) |
| Joint venture FFO                                         |   | **10,776**                      |       | 11,188 |   |
| Dividends on  preferred units                             |   | **(14,210**                     | )          | (15,374 | ) |
| Discontinued  operations                                  |   | **1,774**                       |       | 1,760 |   |
| Consolidated FFO                                          |   | **98,****373**                  |       | 97,016 |   |
|                                                      |   |                            |       |   |   |
| Depreciation and  amortization on continuing operations   |   | **(42,397**                     | )          | (40,021 | ) |
| Depreciation and  amortization on discontinued operations |   | **(422**                        | )          | (562 | ) |
| Share of joint  venture adjustments                       |   | **(4,415**                      | )          | (1,137 | ) |
| Earnings (loss) from depreciated property sales           |   | **(96**                         | )          | 12,109 |   |
|                                                      |   |                            |       |   |   |
| Net Income Available for Common Unitholders               |   | **$**                           | **51,043** |   | $ | 67,405 |   |

 
|                     |   | **March 31,  2002** |          | **December 31,  2001** |   |
|--------------------------|--------|---------------------|---------------|------------------------|--------|
| Assets                   |   |                |          |                   |   |
| Rental  Operations:      |   |                |          |                   |   |
| Office                   |   | **$**               | **2,613,336** |                   | $      | 2,625,015 |   |
| Industrial               |   | **2,101,916**       |          | 2,184,234              |   |
| Retail                   |   | **66,314**          |          | 64,946                 |   |
| Service Operations       |   | **89,593**          |          | 99,554                 |   |
| Total Non-Segment Assets |   | **4,871,159**       |          | 4,973,749              |   |
| Non-Segment Assets       |   | **375,370**         |          | 356,497                |   |
| Consolidated Assets      |   | **$**               | **5,246,529** |                   | $      | 5,330,246 |   |

 

**6.     Real Estate Assets Held for Sale**

 

The Partnershipadopted Statement of Financial Accounting Standards No. 144, “Accounting forthe Impairment or Disposal of Long Lived Assets” (“SFAS 144”), on January 1,2002. SFAS 144 requires the Partnership to report in discontinued operationsthe results of operations of a property that has either been disposed of or isclassified as held for sale, when certain conditions are met.

 

At March 31, 2002, the Partnership had sevenindustrial properties, seven office properties and one retail propertycomprising over 1.7 million square feet classified as held for sale. Of theseproperties, three build-to-suit office, one build-to-suit industrial propertyand one build-to-suit retail property were under development at March 31, 2002.Net operating income (defined as total property revenues, less propertyexpenses, which include real estate taxes, repairs and maintenance, propertymanagement, utilities, insurance and other expenses) of the properties held forsale for the three months ended March 31, 2002 and 2001, respectively, was $2.6million and $2.4 million. Net book value of the properties was $126.4 millionat March 31, 2002. There can be no assurances that such properties will besold.

 

8

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The Partnership classified the results of operationsof five buildings in its held for sale portfolio as discontinued operations inaccordance with SFAS 144. The results of operations for the remaining ten heldfor sale properties are included in continuing operations and these propertieswere identified for sale prior to the adoption of SFAS 144. During the threemonths ended March 31, 2002, the Partnership sold seven properties that wereall identified as held for sale prior to adoption of SFAS 144 and, therefore,results of operations and any gains or losses on disposal are reported incontinuing operations. The effect of the adoption of SFAS 144 resulted in netincome of $1.4 million and $1.2 million being classified as discontinuedoperations for the three months ended March 31, 2002 and 2001, respectively.

 

**7.     Partners’ Equity**

 

The General Partner periodically accesses the publicequity markets and contributes the net proceeds to the Partnership to fund thedevelopment and acquisition of additional rental properties.

 

The following series of preferred equity outstandingas of March 31, 2002 (in thousands, except percentages):

 
| **Description**     |   | **Units  Outstanding** |   | **Dividend  Rate** |   | **Redemption  Date** |   | **Liquidation  Preference** |   | **Convertible** |   |
|---------------------|--------|------------------------|--------|--------------------|--------|----------------------|--------|-----------------------------|--------|-----------------|--------|
| Preferred  B Series |   | 300                    |   | 7.990              | %      | September 30, 2007   |   | 150,000                     |   | No              |   |
| Preferred  D Series |   | 535                    |   | 7.375              | %      | December 31, 2003    |   | 133,750                     |   | Yes             |   |
| Preferred E Series  |   | 400                    |   | 8.250              | %      | January 20, 2004     |   | 100,000                     |   | No              |   |
| Preferred F Series  |   | 600                    |   | 8.000              | %      | October 10, 2002     |   | 150,000                     |   | No              |   |
| Preferred I Series  |   | 300                    |   | 8.450              | %      | February 6, 2006     |   | 75,000                      |   | No              |   |

 

All series of preferred equity require cumulativedistributions, have no stated maturity date, and the redemption price of eachseries may only be paid from the proceeds of other capital shares of theGeneral Partner, which may include other classes or series of preferred equity.

 

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

 

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

 

**8.     Other Matters**

 

**Reclassifications**

Certain 2001 balances have been reclassified toconform to 2002 presentation.

 

**9.****              DerivativeInstruments**

 

The Partnership has one interest rate swap contractthat does not meet the criteria of Statement of Financial Accounting StandardsNo. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS133”) to qualify for hedge accounting. SFAS 133 requires that unrealized gainsand losses on derivatives not qualifying as hedge accounting be recognizedcurrently in earnings. The cumulative effect of a change in accountingprinciple due to the adoption of SFAS 133 as of January 1, 2001, was $398,000and was recorded in accumulated other comprehensive income as a transitionadjustment. During the three months ended March 31, 2002, the Partnership recognizedincome of $391,000 from this interest rate swap contract compared to an expenseof $659,000 for the three months ended March 31, 2001.

 

9

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**10.****       SubsequentEvents**

 

The Board of Directors of the General Partner declaredthe following distributions on April 24, 2002:

 

| **Class**  |   | **Quarterly  Amount/Unit** |    | **Record  Date** |          | **Payment  Date** |          |
|------------|--------|----------------------------|---------|------------------|---------------|-------------------|---------------|
| Common     |   | $                          | 0.45    |             | May 15, 2002  |              | May 31, 2002  |   |
| Preferred: |   |                       |    |             |          |              |          |
| Series B   |   | $                          | 0.99875 |             | June 15, 2002 |              | June 29, 2002 |   |
| Series D   |   | $                          | 0.46094 |             | June 15, 2002 |              | June 29, 2002 |   |
| Series E   |   | $                          | 0.51563 |             | June 15, 2002 |              | June 29, 2002 |   |
| Series F   |   | $                          | 0.50000 |             | July 17, 2002 |              | July 31, 2002 |   |
| Series I   |   | $                          | 0.52813 |             | June 15, 2002 |              | June 29, 2002 |   |

 

10

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**IndependentAccountants’ Review Report**

 

The Partners

**Duke Realty Limited Partnership:**

 

We have reviewedthe condensed consolidated balance sheet of Duke Realty Limited Partnership andsubsidiaries as of March 31, 2002, the related condensed consolidatedstatements of operations for the three months ended March 31, 2002 and 2001,the related condensed consolidated statements of cash flows for the threemonths ended March 31, 2002 and 2001, and the related condensed consolidatedstatement of partners’ equity for the three months ended March 31, 2002. Thesecondensed consolidated financial statements are the responsibility of thePartnership’s management.

 

We conducted ourreview in accordance with standards established by the American Institute ofCertified Public Accountants. A review of interim financial informationconsists principally of applying analytical procedures to financial data andmaking inquiries of persons responsible for financial and accounting matters.It is substantially less in scope than an audit conducted in accordance withauditing standards generally accepted in the United States of America, theobjective of which is the expression of an opinion regarding the financialstatements taken as a whole. Accordingly, we do not express such an opinion.

 

Based on ourreview, we are not aware of any material modifications that should be made tothe condensed consolidated financial statements referred to above for them tobe in conformity with accounting principles generally accepted in the UnitedStates of America.

 

We have previouslyaudited, in accordance with auditing standards generally accepted in the UnitedStates of America, the consolidated balance sheet of Duke Realty LimitedPartnership and subsidiaries as of December 31, 2001, and the relatedconsolidated statements of operations, partners’ equity and cash flows for theyear then ended (not presented herein); and in our report dated January 30,2002, we expressed an unqualified opinion on those consolidated financial statements.In our opinion, the information set forth in the accompanying condensedconsolidated balance sheet as of December 31, 2001 is fairly presented, in allmaterial respects, in relation to the consolidated balance sheet from which ithas been derived.

 

KPMG LLP

Indianapolis,Indiana

April 24, 2002

 

11

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**Item 2****.****                                   Management’s Discussion and Analysis ofFinancial Condition and Results of Operations**

 

**BusinessOverview**

 

Certain statements in this“Management’s Discussion and Analysis of Financial Condition and Results ofOperations,” including those related to the Partnership’s future operations,constitute “forward-looking statements” within the meaning of Section 27A ofthe Securities Act of 1933, as amended, and Section 21E of the SecuritiesExchange Act of 1934, as amended. Such forward-looking statements involve knownand unknown risks, uncertainties and other important factors that could causethe actual results, performance or achievements of the Partnership, or industryresults, to differ materially from any future results, performance orachievements expressed or implied by such forward-looking statements. Suchrisks, uncertainties and other important factors include, among others: generaleconomic and business conditions; continued qualification as a real estateinvestment trust; competition for tenants; increases in real estateconstruction costs; interest rates, accessibility of debt and equity capitalmarkets and other risks inherent in the real estate business including tenantdefaults, potential liability relating to environmental matters and liquidityof real estate investments. The words “believe,” “estimate,” “expect” andsimilar expressions or statements regarding future periods are intended to identifyforward-looking statements. All forward-looking statements are inherentlyuncertain as they involve substantial risks and uncertainties beyond thePartnership’s control. The Partnership undertakes no obligation to update orrevise any forward-looking statements for events or circumstance after the dateon which such statement is made. New factors emerge from time to time, and itis not possible for the Partnership to predict all such factors. Further, thePartnership cannot assess the impact of each such factor on its business or theextent to which any factor, or combination of factors, may cause actual resultsto differ materially from those contained in any forward-looking statements.

 

The Partnership’s operating results depend primarily upon income fromthe Rental Operations of its industrial, office and retail properties locatedin its primary markets. This rental income is substantially influenced by thesupply and demand for the Partnership’s rental space in its primary markets. Inaddition, the Partnership’s continued growth is dependent upon its ability tomaintain occupancy rates andincrease rental rates of its in-service portfolio.  The Partnership’s strategy for continued growth also includesdeveloping and acquiring additional rental properties in its primary marketsand expanding into other attractive markets.

 

For the three months endedMarch 31, 2002, the Partnership’s rental income decreased by 2% from the sameperiod in 2001. This slowdown in growth resulted from a combination of a slowereconomy reducing overall portfolio occupancy and the sale of over $500 millionof assets in 2001. While these events have affected growth and related rentalincome, the Partnership has a debt to market capitalization ratio of 27.5% andonly $38 million drawn on its $650 million unsecured lines of credit as ofMarch 31, 2002. Additionally, the Partnership has experienced continued demandfor third party and build-to-suit construction services through its ServiceOperations and has continued to manage its corporate general and administrativeexpenses to offset the reductions in rental income.

 

As noted above, the Partnership’s operating results depend primarilyupon income from the Rental Operations of its industrial, office and retailproperties. The following highlights the areas of Rental Operations that thePartnership considers critical for future revenue growth (all square footage totals and occupancypercentages reflect 100% of both wholly-owned properties and properties injoint ventures that the Partnership has ownership interests):

 

12

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***Same Property Performance*:**ThePartnership tracks Same Property performance, which compares those propertiesthat were in-service for all of a two-year period. The net operating incomefrom the same property portfolio increased 1.5% for the three months endedMarch 31, 2002, compared to the three months ended March 31, 2001.

 

***Occupancy Analysis:***The following table sets forth informationregarding the Partnership’s in-service portfolio of rental properties as ofMarch 31, 2002 and 2001 (square feet, in thousands):

 

|            |   | **Total  Square Feet** |   | **Percent of  Total Square Feet** |       | **Percent Occupied** |   |
|-----------------|--------|------------------------|--------|-----------------------------------|------------|----------------------|--------|
| **Type**        |   | **2002**               |   | **2001**                          |       | **2002**             |   | **2001** |   | **2002** |   | **2001** |   |
| **Industrial**  |   |                   |   |                              |       |                 |   |   |   |   |   |   |   |
| Service Centers |   | **13,868**             |   | 13,667                            | ** ** | **13.6**             | %      | 13.5 | % | **88.0** | % | 90.7 | % |
| Bulk            |   | **63,450**             |   | 63,407                            | ** ** | **62.1**             | %      | 62.5 | % | **88.8** | % | 93.5 | % |
| **Office**      |   | **24,056**             |   | 21,916                            | ** ** | **23.6**             | %      | 21.6 | % | **85.3** | % | 90.6 | % |
| **Retail**      |   | **745**                |   | 2,463                             | ** ** | **.7**               | %      | 2.4 | % | **97.5** | % | 96.7 | % |
|            |   |                   |   |                              |       |                 |   |   |   |   |   |   |   |
| Total           |   | **102,119**            |   | 101,453                           | ** ** | **100.0**            | %      | 100.0 | % | **87.9** | % | 92.6 | % |

 

***Lease Expiration:***The following table reflects the Partnership’sin-service portfolio lease expiration schedule as of March 31, 2002, by producttype indicating square footage and annualized net effective rents underexpiring leases (in thousands, except per square foot amounts):

 
|                        |   | **Total  Portfolio** |   | **Industrial**         |    | **Office**  |   | **Retail**       |   |                   |
|-----------------------------|--------|----------------------|--------|------------------------|---------|-------------|--------|------------------|--------|------------------------|
| **Year of  Expiration**     |   | **Square  Feet**     |   | **Ann. Rent  Revenue** |    | **Percent** |   | **Square  Feet** |   | **Ann. Rent  Revenue** |   | **Square  Feet** |   | **Ann. Rent  Revenue** |   | **Square  Feet** |   | **Ann. Rent  Revenue** |   |
| 2002                        |   | 7,539                |   | $                      | 44,878  |        | 7      | %                | 6,442  |                   | $ | 31,828 |   | 1,095 |   | $ | 13,010 |   | 2 |   | $ | 40 |   |   |
| 2003                        |   | 9,694                |   | 65,013                 |    | 10          | %      | 7,512            |   | 37,292                 |   | 2,182 |   | 27,721 |   | — |   | — |   |
| 2004                        |   | 11,413               |   | 77,186                 |    | 12          | %      | 8,827            |   | 42,109                 |   | 2,563 |   | 34,670 |   | 23 |   | 407 |   |
| 2005                        |   | 13,997               |   | 95,272                 |    | 15          | %      | 11,132           |   | 53,612                 |   | 2,827 |   | 41,158 |   | 38 |   | 502 |   |
| 2006                        |   | 11,467               |   | 81,450                 |    | 13          | %      | 8,954            |   | 45,643                 |   | 2,506 |   | 35,698 |   | 7 |   | 109 |   |
| 2007                        |   | 8,242                |   | 59,717                 |    | 10          | %      | 6,270            |   | 32,573                 |   | 1,934 |   | 26,602 |   | 38 |   | 542 |   |
| 2008                        |   | 6,236                |   | 41,342                 |    | 7           | %      | 4,819            |   | 21,983                 |   | 1,391 |   | 18,952 |   | 26 |   | 407 |   |
| 2009                        |   | 5,866                |   | 36,443                 |    | 6           | %      | 4,781            |   | 20,849                 |   | 1,066 |   | 15,225 |   | 19 |   | 369 |   |
| 2010                        |   | 5,501                |   | 43,857                 |    | 7           | %      | 3,878            |   | 18,265                 |   | 1,604 |   | 25,278 |   | 19 |   | 314 |   |
| 2011                        |   | 3,600                |   | 31,503                 |    | 5           | %      | 2,325            |   | 11,224                 |   | 1,259 |   | 20,034 |   | 16 |   | 245 |   |
| 2012 and Thereafter         |   | 6,217                |   | 51,824                 |    | 8           | %      | 3,593            |   | 16,449                 |   | 2,086 |   | 31,347 |   | 538 |   | 4,025 |   |
| Total  Leased               |   | 89,772               |   | $                      | 628,485 |        | 100    | %                | 68,533 |                   | $ | 331,827 |   | 20,513 |   | $ | 289,695 |   | 726 |   | $ | 6,960 |   |   |
|                        |   |                 |   |                   |    |        |   |             |   |                   |   |   |   |   |   |   |   |   |   |
| Total Portfolio Square Feet |   | 102,119              |   |                   |    |        |   | 77,318           |   |                   |   | 24,056 |   |   |   | 745 |   |   |   |
|                        |   |                 |   |                   |    |        |   |             |   |                   |   |   |   |   |   |   |   |   |   |
| Percent Occupied            |   | 87.91                | %      |                   |    |        |   | 88.64            | %      |                   |   | 85.26 | % |   |   | 97.50 | % |   |   |
|                             |        |                      |        |                        |         |             |        |                  |        |                        |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

***Future Development:***The Partnership also expects to realize growth inearnings from Rental Operations through (i) the development and acquisition ofadditional rental properties in its primary markets. Specifically, thePartnership has 3.7 million square feet of properties under development atMarch 31, 2002. These properties under development should provide futureearnings through Service Operations income upon sale or from Rental Operationsgrowth as they are placed in service as follows (in thousands, except percentleased and stabilized returns):

 

13

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| **Anticipated  In-Service Date** |   | **Square  Feet** |   | **Percent  Leased** |   | **Project  Costs** |    | **Stabilized  Return** |   |
|----------------------------------|--------|------------------|--------|---------------------|--------|--------------------|---------|------------------------|--------|
|                             |   |             |   |                |   |               |    |                   |   |
| **Held for Rental:**             |   |             |   |                |   |               |    |                   |   |
|                             |   |             |   |                |   |               |    |                   |   |
| 2nd Quarter 2002                 |   | 2,052            |   | 24                  | %      | $                  | 60,845  |                   | 10.95  | % |
| 3rd Quarter 2002                 |   | 135              |   | 66                  | %      | 10,067             |    | 11.75                  | %      |
| 4th Quarter 2002                 |   | 159              |   | 100                 | %      | 3,731              |    | 9.90                   | %      |
| Thereafter                       |   | 324              |   | 48                  | %      | 35,550             |    | 11.54                  | %      |
|                             |   | 2,670            |   | 34                  | %      | $                  | 110,193 |                   | 11.18  | % |
|                             |   |             |   |                |   |               |    |                   |   |
| **Build-to-Suit for Sale:**      |   |             |   |                |   |               |    |                   |   |
|                             |   |             |   |                |   |               |    |                   |   |
| 2nd Quarter 2002                 |   | 404              |   | 50                  | %      | $                  | 43,589  |                   | 11.01  | % |
| 3rd Quarter 2002                 |   | 601              |   | 100                 | %      | 8,227              |    | 10.02                  | %      |
| 4th Quarter 2002                 |   | —           |   | —              | %      | —             |    | —                 |   |
| Thereafter                       |   | 43               |   | 100                 | %      | 4,482              |    | 10.39                  | %      |
|                             |   | 1,048            |   | 81                  | %      | $                  | 56,298  |                   | 10.81  | % |
|                             |   |             |   |                |   |               |    |                   |   |
| Total                            |   | 3,718            |   | 47                  | %      | $                  | 166,491 |                   | 11.06  | % |
|                                  |        |                  |        |                     |        |                    |         |                        |        |  |  |

 

***Lease Renewals:***The Partnership renewed 70.0% of leases up forrenewal in the three months ended March 31, 2002, totaling 2.0 million squarefeet on which it attained a 1.6% growth in net effective rent. This compares torenewals of 72.6% for the three months ended March 31, 2001, totaling 2.6million square feet and 13.3% growth in net effective rent. The reduced growthin rent experienced in 2002 reflects a temporary operating strategy of pricereductions to increase leasing activity and reduce overall vacancies.

 

**Results ofOperations**

 

A summary of the Partnership’s operating results and propertystatistics for the three months ended March 31, 2002 and 2001, is as follows(in thousands, except number of properties and per unit amounts):

 
|                                                         |   | **2002**    |        | **2001** |   |
|--------------------------------------------------------------|--------|-------------|-------------|----------|--------|
|                                                         |   |        |        |     |   |
| Rental Operations revenue                                    |   | **$**       | **174,676** |     | $      | 181,942 |   |
| Service Operations revenue                                   |   | **29,521**  |        | 22,322   |   |
| Earnings from Rental Operations                              |   | **54,243**  |        | 63,948   |   |
| Earnings from Service Operations                             |   | **15,532**  |        | 9,288    |   |
| Operating income                                             |   | **62,538**  |        | 69,211   |   |
| Net income available for common units                        |   | **$**       | **51,043**  |     | $      | 67,405 |   |
| Weighted average common units outstanding                    |   | **148,670** |        | 147,240  |   |
| Weighted average common and dilutive potential common  units |   | **150,270** |        | 151,031  |   |
| Basic income per common unit:                                |   |        |        |     |   |
| Continuing operations                                        |   | **$**       | **.33**     |     | $      | .45 |   |
| Discontinued operations                                      |   | **$**       | **.01**     |     | $      | .01 |   |
| Diluted income per common unit:                              |   |        |        |     |   |
| Continuing operations                                        |   | **$**       | **.33**     |     | $      | .44 |   |
| Discontinued operations                                      |   | **$**       | **.01**     |     | $      | .01 |   |
|                                                         |   |        |        |     |   |
| Number of in-service properties at end of period             |   | **894**     |        | 912      |   |
| In-service square footage at end of period                   |   | **102,119** |        | 101,453  |   |
| Under development square footage at end of period            |   | **3,718**   |        | 8,940    |   |

 

**Comparison of Three Months Ended March 31, 2002 toThree Months Ended March 31, 2001**

 

Rental Operations

 

Rental Operations revenue decreased to $174.7 million for the threemonths ended March 31, 2002, from $181.9 million for the three months endedMarch 31, 2001. Rental Operations revenue is primarily comprised of rentalincome from held for rental properties (“Rental Income”) and equity in earningsfrom unconsolidated companies (“Equity in earnings”). Rental Income decreasedfrom $172.0 million in 2001 to $168.4 million in 2002. This decrease is theresult of an overall decrease in

 

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occupancy of in-service properties from 92.6% at March 31, 2001, to87.9% at March 31, 2002. Also contributing to the decline is the effects of thePartnership’s property dispositions. Throughout 2001, the Partnership sold over $420 million of held forinvestment rental properties from its in-service portfolio. A majority of theseproperties were over 90% leased and the new developments placed in-service overthe same time period were leased at lower percentages and, therefore, thePartnership has realized less rental income. The effects of the decreasedoccupancy and significant property sales were somewhat mitigated by thePartnership recognizing $5.3 million of lease termination fees for the threemonths ended March 31, 2002, compared to approximately $900,000 for the threemonths ended March 31, 2001. The following is a summary of the Partnership’s in-serviceportfolio since January 1, 2001:

 

|                           |   | **Buildings** |   | **Square  Feet** |   |
|--------------------------------|--------|---------------|--------|------------------|--------|
| Properties owned as of:        |   |          |   |             |   |
| January 1, 2001                |   | 913           |   | 100,962          |   |
| Acquisitions                   |   | 5             |   | 258              |   |
| Developments placed in service |   | 55            |   | 9,906            |   |
| Dispositions                   |   | (85           | )      | (8,234           | )      |
|                           |   |          |   |             |   |
| December 31, 2001              |   | 888           |   | 102,892          |   |
| Acquisitions                   |   | 2             |   | 297              |   |
| Developments placed in service |   | 10            |   | 1,411            |   |
| Dispositions                   |   | (6            | )      | (2,481           | )      |
|                           |   |          |   |             |   |
| March 31, 2002                 |   | 894           |   | 102,119          |   |

 

Equity in earnings decreased to $6.3 million from approximately $10.0million for the three months ended March 31, 2002, compared to the same periodin 2001. In the first quarter of 2001, the Partnership recognized a $2.9million gain resulting from the sale of a property in a joint venture that thePartnership had a 50% ownership interest. In addition, two of the Partnership’s50% joint ventures acquired additional debt during 2001, resulting in increasedinterest expense in the first quarter of 2002.

 

Rental and realestate tax expenses increased for the three months ended March 31, 2002, comparedto the same period in 2001.  Generally,these increases resulted from increasing operating costs of the Partnership’sproperties with no individually significant fluctuations or variances.  The majority of these operating expenses arerecovered from the tenants through increased renewal billings.  Depreciation and amortization expense forthe period ended March 31, 2002, increased over the prior year as a result ofadditional investments in tenantimprovements and write-offs associated with early terminations of tenants.

 

Interest expensedecreased by $1.9 million for the three months ended March 31, 2002, comparedto the same period in 2001. The decrease is attributable to a combination oflower outstanding balances on the Partnership’s lines of credit and payoffs ofsecured debt throughout 2001. The Partnership has maintained a lower balance onits unsecured lines of credit stemming from the effects of significant paydowns in 2001 from proceeds from property sales coupled with lower development volume.Additionally, the Partnership paid off $128.5 million of secured debtthroughout 2001, resulting in lower interest expense in the first quarter of2002. These decreases were offset bya decrease in the amount of interest capitalized by the Partnership in thefirst quarter of 2002, resulting from the decreased development volume comparedto 2001.

 

As a result of theabove-mentioned items, earnings from Rental Operations decreased $9.7 millionfrom $63.9 million for the three months ended March 31, 2001, to $54.2 millionfor the three months ended March 31, 2002.

 

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Service Operations

 

Service Operationsrevenues increased from $22.3 million for the three months ended March 31,2001, to $29.5 million for the three months ended March 31, 2002. Overall, theService Operations has experienced decreased levels of construction volumeduring the first three months of 2002 when compared to the same period in 2001,as the effects of a slowed economy have continued to affect businesses’decisions to expand operations into new office or industrial buildings.However, the timing of completion of projects in the Partnership’s held forsale pipeline (see below) allowed for an increase in overall profits of theService Operations.

 

The Partnershipexperienced a $5.6 million decrease in net general contractor revenues fromthird party jobs due to continued decreases in volume as the economy continuesto be slower than in previous  years.

 

Constructionmanagement and development activity income represents construction anddevelopment fees earned on projects where the Partnership acts as theconstruction manager, and profits from the Partnership’s held for sale programwhereby a property is developed in Duke Construction Limited Partnership(“DCLP”), and, upon completion, is sold to a third party. The significantincrease for the first quarter of 2002 is attributable to the Partnershipselling five properties from its held for sale portfolio compared to only twofor the first quarter of 2001.

 

Propertymanagement, maintenance and leasing fee revenues decreased to $3.2 million from$6.6 million for the three months ended March 31, 2002, compared to the sameperiod in 2001.  The $3.4 milliondecrease is due mainly to a decrease in landscaping maintenance revenueassociated with the sale of the landscape business in the third quarter of2001.

 

As a result,earnings from Service Operations increased from $9.3 million for the threemonths ended March 31, 2001, to $15.5 million for the three months ended March31, 2002.

 

General andAdministrative Expense

 

General andAdministrative Expense increased from $4.0 million for the three months endedMarch 31, 2001 to $7.2 million for the three months ended March 31, 2002. Whilethe Partnership continues to implement several initiatives that are reducingtotal operating and administration costs reduced construction and developmentactivity cause a greater amount of overhead to be temporarily absorbed inCorporate General and Administrative expense.

 

Other Income andExpenses

 

Gain on sale ofland and depreciable property dispositions, net of impairment allowance, iscomprised of the following amounts at March 31, 2002 and 2001 (in thousands):

 

|                                            |   | **March 31, 2002** |      | **March 31,  2001** |   |
|-------------------------------------------------|--------|--------------------|-----------|---------------------|--------|
|                                            |   |               |      |                |   |
| Gain (loss) on  sales of depreciable properties |   | $                  | **(96**   | **)**               | $      | 12,109 |   |
| Gain on land  sales                             |   | **1,207**          |      | 677                 |   |
|                                            |   |               |      |                |   |
| Total                                           |   | $                  | **1,111** |                | $      | 12,786 |   |

 

Gain/(loss) onsales of depreciable properties represent sales of previously held forinvestment rental properties. The Partnership pursues favorable opportunities to dispose of real estate assets that nolonger meet long-term investment objectives. In conjunction with thisdisposition strategy, the Partnership disposed of 11 properties for the threemonths ended March 31, 2001, compared to only two for the same period in 2002.

 

16

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Gain on land salesrepresents sales of undeveloped land owned by the Partnership.  The Partnership pursues opportunities todispose of land in markets with a high concentration of undeveloped land andthose markets where the land no longer meets strategic development plans of thePartnership.

 

Other revenue forthe three months ended March 31, 2002, includes $391,000 of gain related to an interest rate swap that does notqualify for hedge accounting. During the three months ended March 31, 2001, thePartnership recognized a $659,000 loss on the same interest rate swap.

 

DiscontinuedOperations

 

The Partnershipadopted Statement of Financial Accounting Standards No. 144 “Accounting for theImpairment or Disposal of Long-Lived Assets” (“SFAS 144”) on January 1,2002.  In conjunction with the adoptionof SFAS 144, the Partnership is required to classify operations of propertiesidentified as held for sale as discontinued operations when certain conditionsare met. The Partnership classified net income of $1.4 million and $1.2 millionas discontinued operations for the three months ended March 31, 2002 and 2001,respectively, pertaining to five properties in its held for sale portfolioduring the first quarter of 2002.

 

Net Income Available for Common Units

 

Net income available for common units for the three months ended March31, 2002, was $51.0 million compared to $67.4 million for the same period in 2001.This decrease results primarily from the operating result fluctuations inRental and Service Operations and earnings from sales of real estateinvestments explained above.

 

**Liquidity andCapital Resources**

 

Operating Activities

 

Net cash flow provided by operating activities totaled $211.3 millionand $77.6 million for the three months ended March 31, 2002 and 2001,respectively.  Operating activity cashflows represents the primary source of liquidity to fund distributions toshareholders, unitholders and the other minority interests and to fundrecurring costs associated with the renovation and re-letting of thePartnership’s properties. The significant increase in 2002 is due to thePartnership receiving $101.2 million of net proceeds from the sale of fivebuildings in its build-to-suit portfolio.

 

Investing Activities

 

Net cash used by investing activities totaled $49.4 million and $27.6million for the three months ended March 31, 2002 and 2001, respectively.  Investing activities represent the investmentof funds by the Partnership to lease, improve and expand its portfolio of heldfor rental properties through the development and acquisition of additionalrental properties, net of proceeds received from property sales. As noted inthe comparison of 2002 to 2001, the Partnership sold a significant amount ofheld for rental property in 2001. During the three months ended March 31, 2002, the Partnership generatedproceeds of $25.4 million from property sales compared to $93.5 million for thesame period in 2001.  The Partnershipwill continue as needed to sell non-strategic investment assets as anadditional source of capital to find future investment needs.

 

Financing Activities

 

Net cash used for financing activities was $159.0 million for the threemonths ended March 31, 2002 compared to $50.2 million for the same period in2001. During the first three months of 2002, the Partnership utilized proceedsfrom property sales and cash flows from operations to reduce the amountsoutstanding on its unsecured lines of credit. During the first three months of2001, the Partnership issued $75.0 million of preferred equity and $175.0million of unsecured debt that was used to pay off

 

17

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outstanding balances on its unsecured lines of credit. The Partnershipmade a $.45 per share distribution to common unitholders during the firstquarter of 2002, compared to a $.43 per share distribution in the first quarterof 2001.

 

The General Partner and the Partnership currently have on file with theSecurities and Exchange Commission (the “SEC”) one Form S-3 RegistrationStatement (the “Shelf Registration”), which, as of March 31, 2002, hasremaining availability of $542.8 million to issue additional common shares,preferred shares and unsecured debt securities. The General Partner and thePartnership may from time to time issue additional securities under this ShelfRegistration Statement to fund the development and acquisition of additionalrental properties. The General Partner and the Partnership also have a ShelfRegistration Statement on file for at-the-market offerings of 1.5 millioncommon shares of the General Partner.

 

The Partnershiphas the following lines of credit available (in thousands):

 
| **Description**          |   | **Borrowing  Capacity** |    | **Maturity  Date** |          | **Interest  Rate** |                          | **Outstanding  at March  31, 2002** |   |
|--------------------------|--------|-------------------------|---------|--------------------|---------------|--------------------|-------------------------------|-------------------------------------|--------|
| Unsecured Line of Credit |   | $                       | 500,000 |               | February 2004 |               | LIBOR + .65    | %                                   | $      | 38,000 |   |
| Unsecured Line of Credit |   | 150,000                 |    | July 2002          |          | LIBOR + .675       | %                             | —                              |   |
| Secured Line of Credit   |   | 100,000                 |    | January 2003       |          | LIBOR + 1.05       | %                             | 30,198                              |   |
|                          |        |                         |         |                    |               |                    |                               |                                     |        |  |  |  |

 

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

 

The $500 million line of credit allows the Partnership an option toobtain borrowings from the financial institutions that participate in the lineof credit at rates lower than the stated interest rate, subject to certainrestrictions. Amounts outstanding on the line of credit at March 31, 2002 areat LIBOR + .65%.

 

The Partnership terminated the $150 million line of credit on April 11,2002.

 

The total debt outstanding at March 31, 2002, totals $1.7 billion witha weighted average interest rate of 7.01% maturing at various dates through2028. The Partnership has $1.4 billion of unsecured debt and $323.5 million ofsecured debt outstanding at March 31, 2002. Scheduled principal amortization ofsuch debt totaled $2.5 million for the three months ended March 31, 2002.

 

Following is a summary of the scheduled future amortization andmaturities of the Partnership’s indebtedness at March 31, 2002 (in thousands):

 

|       |   | **Future  Repayments**      |   | **Weighted  Average  Interest Rate of  Future Repayments** |   |
|------------|--------|-----------------------------|--------|------------------------------------------------------------|--------|
| **Year**   |   | **Scheduled  Amortization** |   | **Maturities**                                             |   | **Total** |   |   |
| 2002       |   | $                           | 9,350  |                                                       | $      | 53,749 |   | $ | 63,100 |   | 7.24 | % |
| 2003       |   | 11,039                      |   | 308,269                                                    |   | 319,308 |   | 7.19 | % |
| 2004       |   | 9,425                       |   | 214,186                                                    |   | 223,610 |   | 6.39 | % |
| 2005       |   | 8,025                       |   | 219,642                                                    |   | 227,667 |   | 7.18 | % |
| 2006       |   | 6,976                       |   | 146,179                                                    |   | 153,155 |   | 7.08 | % |
| 2007       |   | 5,148                       |   | 116,554                                                    |   | 121,702 |   | 7.09 | % |
| 2008       |   | 4,828                       |   | 100,000                                                    |   | 104,828 |   | 6.75 | % |
| 2009       |   | 4,844                       |   | 275,000                                                    |   | 279,844 |   | 7.31 | % |
| 2010       |   | 4,190                       |   | —                                                     |   | 4,190 |   | 6.34 | % |
| 2011       |   | 3,463                       |   | 175,000                                                    |   | 178,463 |   | 6.93 | % |
| Thereafter |   | 11,920                      |   | 50,000                                                     |   | 61,920 |   | 6.49 | % |
| Total      |   | $                           | 79,208 |                                                       | $      | 1,658,579 |   | $ | 1,737,787 |   | 7.01 | % |

 

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**Funds FromOperations**

 

Management believes that Funds From Operations (“FFO”), which isdefined by the National Association of Real Estate Investment Trusts as GAAPnet income or loss, excluding gains or losses from sales of depreciated operatingproperty, plus operating property depreciation and amortization and adjustmentsfor minority interest and unconsolidated companies on the same basis, is theindustry standard for reporting the operations of real estate investmenttrusts.

 

The following table reflects the calculation of the Partnership’s FFOfor the three months ended March 31 as follows (in thousands):

 
|                                                   |   | **2002**     |        | **2001** |   |
|--------------------------------------------------------|--------|--------------|-------------|----------|--------|
|                                                   |   |         |        |     |   |
| Net income available for common units                  |   | **$**        | **51,043**  |     | $      | 67,405 |   |
| Add back (deduct):                                     |   |         |        |     |   |
| Depreciation and amortization                          |   | **42,819**   |        | 40,583   |   |
| Share of joint venture adjustments                     |   | **4,415**    |        | 1,137    |   |
| (Earnings) Loss from depreciable property dispositions |   | **96**       |        | (12,109  | )      |
| **Funds From Operations**                              |   | **$**        | **98,373**  |     | $      | 97,016 |   |
| **Cash flow provided by (used by):**                   |   |         |        |     |   |
| Operating activities                                   |   | **$**        | **211,266** |     | $      | 77,625 |   |
| Investing activities                                   |   | **(49,429**  | )           | (27,561  | )      |
| Financing activities                                   |   | **(159,036** | )           | (50,192  | )      |

 

The increase in FFO for the three months ended March 31, 2002 comparedto the three months ended March 31, 2001 results primarily from increasedService Operation earnings through the completed disposition of five held forsale properties along with other operating result fluctuations discussed above.

 

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

 

**Part II****- Other Information**

 

Item1.  Legal Proceedings

 

None

 

Item2.  Changes in Securities

 

None

 

Item3.  Defaults upon Senior Securities

 

None

 

Item4.  Submission of Matters to a Vote ofSecurity Holders

 

None

 

Item5.  Other Information

 

None

 

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Item6.  Exhibits and Reports on Form 8-K

 
| (a)    | Exhibits                                                                    |   |
|--------|-----------------------------------------------------------------------------|--------|
|   |                                                                        |
|   | Exhibit 15.   Letter regarding unaudited interim financial information |
|   |                                                                        |
| (b)    | Reports on Form 8-K                                                         |   |
|   |                                                                        |
|   | None                                                                        |
|        |                                                                             |        |  |

 

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**SIGNATURES**

 

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.

 
|                      | DUKE REALTY LIMITED PARTNERSHIP                        |
|---------------------------|--------------------------------------------------------|
|                      | By:                                                    | Duke Realty Corporation |
|                      |                                                   | Its General Partner |
|                      |                                                   |
| Date:  May  14, 2002 | /s/                                                    | Thomas L. Hefner |   |
|                      | Thomas L. Hefner                                       |
|                      | President and  Chief  Executive Officer                |
|                      |                                                   |
|                      | /s/                                                    | Darell E. Zink, Jr. |   |
|                      | Darell E. Zink, Jr.                                    |
|                      | Executive Vice  President and  Chief Financial Officer |
|                      |                                                   |
|                      | /s/                                                    | Matthew A. Cohoat |   |
|                      | Matthew A. Cohoat                                      |
|                      | Senior Vice  President and  Corporate Controller       |
|                           |                                                        |  |  |  |  |

 

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