Duke Realty Limited PARTNERSHIP 10-Q 2002 Q1 Quarterly report

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

Commission File Number: 1-9044

DUKE REALTY LIMITED PARTNERSHIP

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing 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.  Financial Statements

DUKE REALTY LIMITED PARTNERSHIP AND SUBSIDIARIES

Condensed Consolidated 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.

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DUKE REALTY LIMITED PARTNERSHIP AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

For the three months ended March 31,

(in thousands, except per unit amounts)

(Unaudited)

	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.

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DUKE REALTY LIMITED PARTNERSHIP AND SUBSIDIARIES

Condensed Consolidated 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

DUKE REALTY LIMITED PARTNERSHIP AND SUBSIDIARIES

Condensed Consolidated 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
	Common Equity			Preferred Equity			Common Equity			Preferred Equity			Comprehensive Income (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 to Condensed Consolidated Financial Statements

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DUKE REALTY LIMITED PARTNERSHIP

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.     Financial Statements

The interim condensed consolidated financial statements included herein have been prepared by Duke Realty Limited Partnership (the “Partnership”) without audit (except for the balance sheet as of December 31, 2001). The statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and in accordance with Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. These financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Partnership’s Annual Report on Form 10-K.

The Partnership

Duke Realty Limited Partnership (the “Partnership”) was formed on October 4, 1993, when Duke Realty Corporation (the “General Partner”) contributed all of its properties 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 an offering (the “1993 Offering”) to the Partnership. Simultaneously, the Partnership completed the acquisition of Duke Associates, a full-service commercial real estate firm operating in the Midwest. The General Partner was formed in 1985 and qualifies as a Real Estate Investment Trust (“REIT”) under provisions of the Internal Revenue Code.  In connection with the 1993 Offering, the formation of the Partnership and the acquisition of Duke Associates, the General Partner effected a 1 for 4.2 reverse stock split of its existing common shares. The General Partner is the sole general partner of the Partnership and received 16,046,144 units of partnership interest (“General Partner Units”) in exchange for its original contribution which represented a 78.36% interest in the Partnership. As part of the acquisition, Duke Associates received 4,432,109 units of limited partnership interest (“Limited Partner Units”) (together with the General Partner Units, the (“Common Units”)) which represented a 21.64% interest in the Partnership. The Limited Partner Units are exchangeable for shares of the General Partner’s common stock on a one-for-one basis subject generally to a one-year holding period.

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

2.     Lines of Credit

The Partnership has 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

5

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

The $500 million line of credit allows the Partnership an option to obtain borrowings from the financial institutions that participate in the line of credit at rates lower than the stated interest rate, subject to certain 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 unsecured line 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 which certain of its executive officers have ownership interests. The Partnership has an 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 the three months ended March 31, 2002 and 2001, respectively. The Partnership believes that the fees charged by the Partnership for such services are equivalent to those charged to third-party owners for similar services.

The Partnership has other related party transactions that are insignificant and that include terms that are considered by the Partnership to be at arm’s-length and equal to those negotiated with unaffiliated parties.

4.     Net Income Per Common Unit

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

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

	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 Series Convertible Preferred Limited Partner units were anti-dilutive at March 31, 2002 and 2001; therefore, no conversion to common units is included in weighted dilutive potential common units.

6

A joint venture partner in one of the Partnership’s unconsolidated ventures has the option to convert a portion of its ownership to General Partner common shares. The effect of the option on earnings per unit was anti-dilutive at March 31, 2002; therefore, no conversion to common units is included in weighted dilutive potential common units. At March 31, 2001, the effect of the option on earnings per unit was dilutive. Therefore, additional equity in earnings was included in diluted net income available for common unitholders and conversion to common units was included in weighted dilutive potential common units.

5.Segment Reporting

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

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

The Partnership assesses and measures segment operating results based on a performance measure referred to as Funds From Operations (“FFO”). The National Association of Real Estate Investment Trusts defines FFO as net income or loss, excluding gains or losses from sales of depreciated operating property, plus operating property depreciation and amortization and adjustments for minority interest and unconsolidated companies on the same basis. FFO is not a measure of operating results or cash flows from operating activities as measured by generally accepted accounting principles, is not necessarily indicative of cash available to fund cash needs and should not be considered an alternative to cash flows as a measure of liquidity. Interest expense and other non-property specific revenues and expenses are not allocated to individual segments in determining the Partnership’s performance measure.

The revenues and FFO for each of the reportable segments for the three months ended March 31, 2002 and 2001, and the assets for each of the reportable segments as of March 31, 2002 and December 31, 2001, are summarized 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

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

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

8

The Partnership classified the results of operations of five buildings in its held for sale portfolio as discontinued operations in accordance with SFAS 144. The results of operations for the remaining ten held for sale properties are included in continuing operations and these properties were identified for sale prior to the adoption of SFAS 144. During the three months ended March 31, 2002, the Partnership sold seven properties that were all 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 in continuing operations. The effect of the adoption of SFAS 144 resulted in net income of $1.4 million and $1.2 million being classified as discontinued operations for the three months ended March 31, 2002 and 2001, respectively.

7.     Partners’ Equity

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

The following series of preferred equity outstanding as 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 cumulative distributions, have no stated maturity date, and the redemption price of each series may only be paid from the proceeds of other capital shares of the General Partner, which may include other classes or series of preferred equity.

The Preferred D Series equity are convertible at a conversion rate of 9.3677 common units for each preferred unit outstanding.

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

8.     Other Matters

Reclassifications

Certain 2001 balances have been reclassified to conform to 2002 presentation.

9.Derivative Instruments

The Partnership has one interest rate swap contract that does not meet the criteria of Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS 133”) to qualify for hedge accounting. SFAS 133 requires that unrealized gains and losses on derivatives not qualifying as hedge accounting be recognized currently in earnings. The cumulative effect of a change in accounting principle due to the adoption of SFAS 133 as of January 1, 2001, was $398,000 and was recorded in accumulated other comprehensive income as a transition adjustment. During the three months ended March 31, 2002, the Partnership recognized income of $391,000 from this interest rate swap contract compared to an expense of $659,000 for the three months ended March 31, 2001.

9

10.Subsequent Events

The Board of Directors of the General Partner declared the 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

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Independent Accountants’ Review Report

The Partners

Duke Realty Limited Partnership:

We have reviewed the condensed consolidated balance sheet of Duke Realty Limited Partnership and subsidiaries as of March 31, 2002, the related condensed consolidated statements of operations for the three months ended March 31, 2002 and 2001, the related condensed consolidated statements of cash flows for the three months ended March 31, 2002 and 2001, and the related condensed consolidated statement of partners’ equity for the three months ended March 31, 2002. These condensed consolidated financial statements are the responsibility of the Partnership’s management.

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

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

We have previously audited, in accordance with auditing standards generally accepted in the United States of America, the consolidated balance sheet of Duke Realty Limited Partnership and subsidiaries as of December 31, 2001, and the related consolidated statements of operations, partners’ equity and cash flows for the year then ended (not presented herein); and in our report dated January 30, 2002, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2001 is fairly presented, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

KPMG LLP

Indianapolis, Indiana

April 24, 2002

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

Business Overview

Certain statements in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” including those related to the Partnership’s future operations, constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause the actual results, performance or achievements of the Partnership, or industry results, to differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements. Such risks, uncertainties and other important factors include, among others: general economic and business conditions; continued qualification as a real estate investment trust; competition for tenants; increases in real estate construction costs; interest rates, accessibility of debt and equity capital markets and other risks inherent in the real estate business including tenant defaults, potential liability relating to environmental matters and liquidity of real estate investments. The words “believe,” “estimate,” “expect” and similar expressions or statements regarding future periods are intended to identify forward-looking statements. All forward-looking statements are inherently uncertain as they involve substantial risks and uncertainties beyond the Partnership’s control. The Partnership undertakes no obligation to update or revise any forward-looking statements for events or circumstance after the date on which such statement is made. New factors emerge from time to time, and it is not possible for the Partnership to predict all such factors. Further, the Partnership cannot assess the impact of each such factor on its business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

The Partnership’s operating results depend primarily upon income from the Rental Operations of its industrial, office and retail properties located in its primary markets. This rental income is substantially influenced by the supply and demand for the Partnership’s rental space in its primary markets. In addition, the Partnership’s continued growth is dependent upon its ability to maintain occupancy rates and increase rental rates of its in-service portfolio.  The Partnership’s strategy for continued growth also includes developing and acquiring additional rental properties in its primary markets and expanding into other attractive markets.

For the three months ended March 31, 2002, the Partnership’s rental income decreased by 2% from the same period in 2001. This slowdown in growth resulted from a combination of a slower economy reducing overall portfolio occupancy and the sale of over $500 million of assets in 2001. While these events have affected growth and related rental income, the Partnership has a debt to market capitalization ratio of 27.5% and only $38 million drawn on its $650 million unsecured lines of credit as of March 31, 2002. Additionally, the Partnership has experienced continued demand for third party and build-to-suit construction services through its Service Operations and has continued to manage its corporate general and administrative expenses to offset the reductions in rental income.

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

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

Occupancy Analysis: The following table sets forth information regarding the Partnership’s in-service portfolio of rental properties as of March 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’s in-service portfolio lease expiration schedule as of March 31, 2002, by product type indicating square footage and annualized net effective rents under expiring 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 in earnings from Rental Operations through (i) the development and acquisition of additional rental properties in its primary markets. Specifically, the Partnership has 3.7 million square feet of properties under development at March 31, 2002. These properties under development should provide future earnings through Service Operations income upon sale or from Rental Operations growth as they are placed in service as follows (in thousands, except percent leased and stabilized returns):

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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 for renewal in the three months ended March 31, 2002, totaling 2.0 million square feet on which it attained a 1.6% growth in net effective rent. This compares to renewals of 72.6% for the three months ended March 31, 2001, totaling 2.6 million square feet and 13.3% growth in net effective rent. The reduced growth in rent experienced in 2002 reflects a temporary operating strategy of price reductions to increase leasing activity and reduce overall vacancies.

Results of Operations

A summary of the Partnership’s operating results and property statistics 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 to Three Months Ended March 31, 2001

Rental Operations

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

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occupancy of in-service properties from 92.6% at March 31, 2001, to 87.9% at March 31, 2002. Also contributing to the decline is the effects of the Partnership’s property dispositions.  Throughout 2001, the Partnership sold over $420 million of held for investment rental properties from its in-service portfolio. A majority of these properties were over 90% leased and the new developments placed in-service over the same time period were leased at lower percentages and, therefore, the Partnership has realized less rental income. The effects of the decreased occupancy and significant property sales were somewhat mitigated by the Partnership recognizing $5.3 million of lease termination fees for the three months ended March 31, 2002, compared to approximately $900,000 for the three months ended March 31, 2001. The following is a summary of the Partnership’s in-service portfolio 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 $10.0 million for the three months ended March 31, 2002, compared to the same period in 2001. In the first quarter of 2001, the Partnership recognized a $2.9 million gain resulting from the sale of a property in a joint venture that the Partnership had a 50% ownership interest. In addition, two of the Partnership’s 50% joint ventures acquired additional debt during 2001, resulting in increased interest expense in the first quarter of 2002.

Rental and real estate tax expenses increased for the three months ended March 31, 2002, compared to the same period in 2001.  Generally, these increases resulted from increasing operating costs of the Partnership’s properties with no individually significant fluctuations or variances.  The majority of these operating expenses are recovered from the tenants through increased renewal billings.  Depreciation and amortization expense for the period ended March 31, 2002, increased over the prior year as a result of additional investments in tenant improvements and write-offs associated with early terminations of tenants.

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

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

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Service Operations

Service Operations revenues 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, the Service Operations has experienced decreased levels of construction volume during 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 for sale pipeline (see below) allowed for an increase in overall profits of the Service Operations.

The Partnership experienced a $5.6 million decrease in net general contractor revenues from third party jobs due to continued decreases in volume as the economy continues to be slower than in previous  years.

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

Property management, 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 same period in 2001.  The $3.4 million decrease is due mainly to a decrease in landscaping maintenance revenue associated with the sale of the landscape business in the third quarter of 2001.

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

General and Administrative Expense

General and Administrative Expense increased from $4.0 million for the three months ended March 31, 2001 to $7.2 million for the three months ended March 31, 2002. While the Partnership continues to implement several initiatives that are reducing total operating and administration costs reduced construction and development activity cause a greater amount of overhead to be temporarily absorbed in Corporate General and Administrative expense.

Other Income and Expenses

Gain on sale of land and depreciable property dispositions, net of impairment allowance, is comprised 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) on sales of depreciable properties represent sales of previously held for investment rental properties. The Partnership pursues favorable opportunities to dispose of real estate assets that no longer meet long-term investment objectives. In conjunction with this disposition strategy, the Partnership disposed of 11 properties for the three months ended March 31, 2001, compared to only two for the same period in 2002.

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Gain on land sales represents sales of undeveloped land owned by the Partnership.  The Partnership pursues opportunities to dispose of land in markets with a high concentration of undeveloped land and those markets where the land no longer meets strategic development plans of the Partnership.

Other revenue for the three months ended March 31, 2002, includes $391,000 of gain related to an interest rate swap that does not qualify for hedge accounting. During the three months ended March 31, 2001, the Partnership recognized a $659,000 loss on the same interest rate swap.

Discontinued Operations

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

Net Income Available for Common Units

Net income available for common units for the three months ended March 31, 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 in Rental and Service Operations and earnings from sales of real estate investments explained above.

Liquidity and Capital Resources

Operating Activities

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

Investing Activities

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

Financing Activities

Net cash used for financing activities was $159.0 million for the three months ended March 31, 2002 compared to $50.2 million for the same period in 2001. During the first three months of 2002, the Partnership utilized proceeds from property sales and cash flows from operations to reduce the amounts outstanding on its unsecured lines of credit. During the first three months of 2001, the Partnership issued $75.0 million of preferred equity and $175.0 million of unsecured debt that was used to pay off

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

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

The Partnership has 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 of additional rental properties and to provide working capital.

The $500 million line of credit allows the Partnership an option to obtain borrowings from the financial institutions that participate in the line of credit at rates lower than the stated interest rate, subject to certain restrictions. Amounts outstanding on the line of credit at March 31, 2002 are at 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 with a weighted average interest rate of 7.01% maturing at various dates through 2028. The Partnership has $1.4 billion of unsecured debt and $323.5 million of secured debt outstanding at March 31, 2002. Scheduled principal amortization of such debt totaled $2.5 million for the three months ended March 31, 2002.

Following is a summary of the scheduled future amortization and maturities 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 From Operations

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

The following table reflects the calculation of the Partnership’s FFO for 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 compared to the three months ended March 31, 2001 results primarily from increased Service Operation earnings through the completed disposition of five held for sale properties along with other operating result fluctuations discussed above.

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

Part II - Other Information

Item 1.  Legal Proceedings

None

Item 2.  Changes in Securities

None

Item 3.  Defaults upon Senior Securities

None

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

None

Item 5.  Other Information

None

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Item 6.  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 the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	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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