UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2006

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 CORPORATION
(Exact Name of Registrant as Specified in Its Charter)

Indiana		35-1740409
(State or Other Jurisdiction of Incorporation or Organization)		(IRS Employer Identification Number)
600 East 96th Street, Suite 100
Indianapolis, Indiana		46240
(Address of Principal Executive Offices)		(Zip Code)

Registrant’s telephone number, including area code: (317) 808-6000

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class:		Name of Each Exchange on Which Registered:
Common Stock ($.01 par value)		New York Stock Exchange
Depositary Shares, each representing a 1/10 interest in 6.625%
Series J Cumulative Redeemable Preferred Shares ($.01 par value)		New York Stock Exchange
Depositary Shares, each representing a 1/10 interest in 6.5%
Series K Cumulative Redeemable Preferred Shares ($.01 par value)		New York Stock Exchange
Depositary Shares, each representing a 1/10 interest in 6.6%
Series L Cumulative Redeemable Preferred Shares ($.01 par value)		New York Stock Exchange
Depositary Shares, each representing 1/10 interest in 6.95%
Series M Cumulative Redeemable Preferred Shares ($.01 par value)		New York Stock Exchange
Depositary Shares, each representing 1/10 interest in 7.25%
Series N Cumulative Redeemable Preferred Shares ($.01 par value)		New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:

Depositary Shares, each representing a 1/10 interest in 7.99% Series B Cumulative Redeemable Preferred Shares ($.01 par value)

Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes x No o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes o No x

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 x No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No x

The aggregate market value of the voting shares of the registrant’s outstanding common shares held by non-affiliates of the registrant is $4.7 billion based on the last reported sale price on June 30, 2006.

The number of common shares, $.01 par value outstanding as of February 20, 2007 was 136,852,615.

DOCUMENTS INCORPORATED BY REFERENCE

Certain portions of Duke Realty Corporation’s Definitive Proxy Statement for its 2007 Annual Meeting of Shareholders (the “Proxy Statement”) to be filed pursuant to Rule 14a-6 of the Securities Exchange Act of 1934, as amended, are incorporated by reference into this Form 10-K. Other than those portions of the Proxy Statement specifically incorporated by reference pursuant to Items 10 through 14 of Part III hereof, no other portions of the Proxy Statement shall be deemed so incorporated.

TABLE OF CONTENTS

Form 10-K

Item No.		Page(s)

PART I

1.	Business	2 - 5
1A.	Risk Factors	5 - 11
1B.	Unresolved Staff Comments	11
2.	Properties	11 - 13
3.	Legal Proceedings	14
4.	Submission of Matters to a Vote of Security Holders	14

PART II

5.	Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	14 - 15
6.	Selected Financial Data	15 - 16
7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16 - 37
7A.	Quantitative and Qualitative Disclosures About Market Risk.	37
8.	Financial Statements and Supplementary Data	38
9.	Changes In and Disagreements With Accountants on Accounting and Financial Disclosure	38
9A.	Controls and Procedures.	38
9B.	Other Information	38

PART III

10.	Directors and Executive Officers of the Registrant	39
11.	Executive Compensation	39
12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	39
13.	Certain Relationships and Related Transactions	39
14.	Principal Accountant Fees and Services	40

PART IV

15.	Exhibits and Financial Statement Schedules.	40 - 87

Signatures		88 - 89

Cautionary Statement Regarding Forward-Looking Statements

Certain statements contained in or incorporated by reference into this Report, including, without limitation, those related to our future operations, constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act, and Section 21E of the Exchange Act. The words “believe,” “estimate,” “expect,” “anticipate,” “intend,” “plan,” “seek”, “may” and similar expressions or statements regarding future periods are intended to identify forward-looking statements.

These forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause our actual results, performance or achievements, or industry results, to differ materially from any predictions of future results, performance or achievements that we express or imply in this Report or in the information incorporated by reference into this Report. Some of the risks, uncertainties and other important factors that may affect future results include, among others:

· Changes in general economic and business conditions, including performance of financial markets;

· Our continued qualification as a REIT;

· Heightened competition for tenants and potential decreases in property occupancy;

· Potential increases in real estate construction costs;

· Potential changes in the financial markets and interest rates;

· Our continuing ability to favorably raise funds through the issuance of debt and equity in the capital markets;

· Our ability to successfully identify, acquire, develop and/or manage properties on terms that are favorable to us;

· Our ability to successfully dispose of properties on terms that are favorable to us;

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

· Other risks and uncertainties described or incorporated by reference herein, including, without limitation, those risks and uncertainties discussed from time to time in our other reports and other public filings with the SEC.

This list of risks and uncertainties, however, is only a summary of some of the most important factors and is not intended to be exhaustive. Additional information regarding risk factors that may affect us is included under the caption “Risk Factors” in this Report, and is updated by us from time to time in Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and other filings that we make with the SEC.

Although we presently believe that the plans, expectations and results expressed in or suggested by the forward-looking statements are reasonable, all forward-looking statements are inherently uncertain, and subject to change, as they involve substantial risks and uncertainties beyond our control. New factors emerge from time to time, and it is not possible for us to predict the nature, or assess the potential impact, of each new factor on our business. Given these uncertainties, we caution you not to place undue reliance on these forward-looking statements. We undertake no obligation to update or revise any of our forward-looking statements for events or circumstances that arise after the statement is made, except as required by law.

PART I

Item 1. Business

Background

We are a self-administered and self-managed real estate investment trust (“REIT”), which began operations upon completion of our initial public offering in February 1986. In October 1993, we completed an additional common shares offering and acquired the rental real estate and service businesses of Duke Associates, whose operations began in 1972. As of December 31, 2006, our diversified portfolio of 721 rental properties (including 28 properties totaling approximately 4.5 million square feet under development) encompass approximately 113.8 million rentable square feet and are leased by a diverse and stable base of more than 3,500 tenants whose businesses include manufacturing, retailing, wholesale trade, distribution and professional services. We also own or control more than 6,400 acres of unencumbered land ready for development.

Through our Service Operations, we provide, on a fee basis, leasing, property and asset management, development, construction, build-to-suit and other tenant-related services. See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Item 8, “Financial Statements and Supplementary Data” for financial information. Our rental operations are conducted through Duke Realty Limited Partnership (“DRLP”). In addition, we conduct our Service Operations through Duke Realty Services LLC, Duke Realty Services Limited Partnership and Duke Construction Limited Partnership. In this Form 10-K Report, the terms “we,” “us” and “our” refer to Duke Realty Corporation and subsidiaries (the “Company”) and those entities owned or controlled by the Company.

Our headquarters and executive offices are located in Indianapolis, Indiana. In addition, we have 16 regional offices located in Alexandria, Virginia; Atlanta, Georgia; Cincinnati, Ohio; Columbus, Ohio; Cleveland, Ohio; Chicago, Illinois; Dallas, Texas; Houston, Texas; Minneapolis, Minnesota; Nashville, Tennessee; Orlando, Florida; Phoenix, Arizona; Raleigh, North Carolina; St. Louis, Missouri; Tampa, Florida; and Weston, Florida. We had approximately 1,250 employees as of December 31, 2006.

Business Strategy

Our business objective is to increase Funds From Operations (“FFO”) by (i) maintaining and increasing property occupancy and rental rates through the management of our portfolio of existing properties; (ii) developing and acquiring new properties for rental operations in our existing markets; (iii) expanding geographically by acquiring and developing properties in new markets; (iv) using our construction expertise to act as a general contractor in our existing markets and other domestic markets on a fee basis; (v) developing properties in our existing markets and other markets which we will sell through our merchant building development program and (vi) providing a full line of real estate services to our tenants and to third parties. FFO is used by industry analysts and investors as a supplemental operating performance measure of an equity REIT like Duke. FFO is calculated in accordance with the definition that was adopted by the Board of Governors of the National Association of Real Estate Investment Trusts (“NAREIT”). NAREIT created FFO as a supplemental measure of REIT operating performance that excludes historical cost depreciation, among other items, from net income determined in accordance with United States generally accepted accounting principles (“GAAP”). FFO is a non-GAAP financial measure developed by NAREIT to compare the operating performance of REITs. The most comparable GAAP measure is net income (loss). FFO should not be considered as a substitute for net income or any other measures derived in accordance with GAAP and may not be comparable to other similarly titled measures of other companies.

assets, plus certain non-cash items such as real estate asset depreciation and amortization, and after similar adjustments for unconsolidated partnerships and joint ventures.

Management believes that the use of FFO, combined with the required primary GAAP presentations, has improved the understanding of operating results of REITs among the investing public and has made comparisons of REIT operating results more meaningful. Management considers FFO to be a useful measure for reviewing comparative operating and financial performance (although FFO should be reviewed in conjunction with net income which remains the primary measure of performance) because, by excluding gains or losses related to sales of previously depreciated operating real estate assets and excluding real estate asset depreciation and amortization, FFO assists in comparing the operating performance of our real estate between periods or as compared to different companies.

As a fully integrated commercial real estate firm, we provide in-house leasing, management, development and construction services which, coupled with our significant base of commercially zoned and unencumbered land in existing business parks, should give us a competitive advantage both as a real estate operator and in future development activities.

We believe that the management of real estate opportunities and risks can be done most effectively at regional or local levels. As a result, we intend to continue our emphasis on increasing our market share and effective rents in the primary markets where we own properties. We also expect to utilize approximately 6,400 acres of unencumbered land and our many business relationships with our 3,500 commercial tenants to expand our build-to-suit business (development projects substantially pre-leased to a single tenant) and to pursue other development and acquisition opportunities in our primary markets. We believe that this regional focus will allow us to assess market supply and demand for real estate more effectively as well as to capitalize on the strong relationships with our tenant base. In addition, we seek to further capitalize on strong customer relationships to provide third-party construction and build-for-sale services outside our primary markets and to expand into high growth and seaport markets across the United States.

Our strategy is to seek to develop and acquire primarily Class A commercial properties located in markets with high growth potential for large national and international companies and other quality regional and local firms. Our industrial and suburban office development focuses on business parks and mixed-use developments suitable for multiple projects on a single site where we can create and control the business environment. These business parks and mixed-use developments often include restaurants and other amenities, which we believe will create an atmosphere that is particularly efficient and desirable. Our retail development focuses on lifestyle, community and neighborhood centers in our existing markets and is developed primarily for held-for-sale opportunities. As a fully integrated real estate company, we are able to arrange for or provide to our industrial, office, medical and retail customers not only well located and well maintained facilities, but also additional services such as build-to-suit construction, tenant finish construction, and expansion flexibility.

All of our properties are located in areas that include competitive properties. Institutional investors, other REITs or local real estate operators generally own such properties; however, no single competitor or small group of competitors is dominant in our current markets. The supply and demand of similar available rental properties may affect the rental rates we will receive on our properties.

Financing Strategy

We seek to maintain a well-balanced, conservative and flexible capital structure by: (i) extending and sequencing the maturity dates of debt; (ii) borrowing primarily at fixed rates by targeting a variable rate component of total debt less than 20%; (iii) pursuing current and future long-term debt financings and refinancing on an unsecured basis; (iv) maintaining conservative debt service and fixed charge coverage ratios; and (v) issuing attractively priced perpetual preferred shares for 5-10% of our total capital structure.

Management believes that these strategies have enabled and should continue to enable us to favorably access capital markets for our long-term requirements such as debt refinancing and financing development and acquisitions of additional rental properties. In addition, as discussed under Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” we have a $1.0 billion unsecured line of credit available for short-term fundings of development and acquisition of additional rental properties. Further, we pursue favorable opportunities to dispose of assets that no longer meet our long-term investment criteria and recycle the proceeds into new investments that we believe have excellent long-term growth prospects. Our debt to total market capitalization ratio (total market capitalization is defined as the total market value of all outstanding common and preferred shares and units of limited partnership interest (“Units”) in DRLP plus outstanding indebtedness) at December 31, 2006 was 37.4%. Our ratio of earnings to debt service and ratio of earnings to fixed charges for the year ended December 31, 2006 were 1.5x and 1.59x, respectively. In computing the ratio of earnings to debt service, earnings have been calculated by adding interest expense (excluding amortization of debt issuance costs) to income from continuing operations, less preferred dividends, and minority interest in earnings of DRLP. Debt service consists of interest expense and recurring principal amortization (excluding maturities) and excludes amortization of debt issuance costs. In computing the ratio of earnings to fixed charges, earnings have been calculated by adding interest expense to income from continuing operations and minority interest in earnings of DRLP. Fixed charges consist of interest costs, whether expensed or capitalized, the interest component of rental expense and amortization of debt issuance costs.

Corporate Governance

Since our inception, we not only have strived to be a top-performer operationally, but also to lead in issues important to investors such as disclosure and corporate governance. Our system of governance reinforces this commitment. Summarized below are the highlights of our Corporate Governance initiatives.

Board Composition	·	Board is controlled by supermajority (91.7%) of Independent Directors as of January 25, 2006 and thereafter
Board Committees	·	Board Committee members are all Independent Directors
Lead Director	·	The Chairman of the Corporate Governance Committee serves as Lead Director of the Independent Directors
Board Policies	·	No Shareholder Rights Plan (Poison Pill)
	·	Code of Conduct applies to all Directors and employees, including the Chief Executive Officer and senior financial officers; waivers require the vote of Independent Directors
	·	Effective orientation program for new Directors
	·	Independence of Directors is reviewed annually
	·	Independent Directors meet at least quarterly in executive session
	·	Independent Directors receive no compensation from Duke other than as Directors
	·	Equity-based compensation plans require shareholder approval
	·	Board effectiveness and performance is reviewed annually by the Corporate Governance Committee
	·	Corporate Governance Committee conducts an annual review of the Chief Executive Officer succession plan
	·	Independent Directors and all Board Committees may retain outside advisors, as they deem appropriate
	·	Policy governing retirement age for Directors
	·	Outstanding stock options may not be repriced
	·	Directors required to offer resignation upon job change
	·	Majority voting for election of Directors

Ownership Minimum Stock Ownership Guidelines apply to all Directors and Executive Officers

Our Code of Conduct (which applies to all Directors and employees, including the Chief Executive Officer and senior financial officers) and the Corporate Governance Guidelines are available in the investor information/corporate governance section of our website at www.dukerealty.com. A copy of these documents may also be obtained without charge by writing to Duke Realty Corporation, 600 East 96th Street, Suite 100, Indianapolis, Indiana 46240, Attention: Investor Relations.

Other

For additional information regarding our investments and operations, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and Item 8, “Financial Statements and Supplementary Data.” For additional information about our business segments, see Item 8, “Financial Statements and Supplementary Data.”

Available Information and Exchange Certifications

In addition to this Annual Report, we file quarterly and special reports, proxy statements and other information with the Securities and Exchange Commission (the “SEC”). All documents that are filed with the SEC are available free of charge on our corporate website, which is www.dukerealty.com. You may also read and copy any document filed at the public reference facilities of the SEC at 450 Fifth Street, N.W., Washington, D.C. 25049. Please call the SEC at (800) SEC-0330 for further information about the public reference facilities. These documents also may be accessed through the SEC’s electronic data gathering, analysis and retrieval system (“EDGAR”) via electronic means, including the SEC’s home page on the Internet (http://www.sec.gov). In addition, since some of our securities are listed on the New York Stock Exchange, you may read SEC filings at the offices of the New York Stock Exchange, 20 Broad Street, New York, New York 10005.

The New York Stock Exchange (“NYSE”) requires that the Chief Executive Officer of each listed company certify annually to the NYSE that he or she is not aware of any violation by the company of NYSE corporate governance listing standards as of the date of such certification. We submitted the certification of our Chairman and Chief Executive Officer, Dennis D. Oklak, with our 2006 Annual Written Affirmation to the NYSE on May 8, 2006.

We included the certifications of the Chief Executive Officer and the Chief Financial Officer of the Company required by Section 302 of the Sarbanes-Oxley Act of 2002 and related rules, relating to the quality of the Company’s public disclosure, in this report as Exhibits 31.1 and 31.2.

Item 1A. Risk Factors

Our operations involve various risks that could adversely affect our financial condition, results of operations, cash flows, ability to pay distribution on our common stock and the market price of our common stock. In addition to the other information contained in this Annual Report, you should carefully consider the following risk factors in evaluating an investment in our securities.

If we were to cease to qualify as a real estate investment trust, we and our shareholders would lose significant tax benefits.

We intend to continue to operate so as to qualify as a real estate investment trust (a “REIT”) under the Internal Revenue Code of 1986, as amended (the “Code”). Qualification as a REIT provides significant tax advantages to us and our shareholders. However, in order for us to continue to qualify as a REIT, we must satisfy numerous requirements established under highly technical and complex Code provisions for which there are only limited judicial and administrative interpretations. Satisfaction of these requirements also depends on various factual circumstances not entirely within our control. The fact that we hold our assets

through an operating partnership and its subsidiaries further complicates the application of the REIT requirements. Even a technical or inadvertent mistake could jeopardize our REIT status. Although we believe that we can continue to operate so as to qualify as a REIT, we cannot offer any assurance that we can continue to do so or that legislation, new regulations, administrative interpretations or court decisions will not significantly change the qualification requirements or the federal income tax consequences of qualification. If we were to fail to qualify as a REIT in any taxable year, it would have the following effects:

· We would not be allowed a deduction for distributions to shareholders and would be subject to federal income tax (including any applicable alternative minimum tax) on our taxable income at regular corporate rates;

· Unless we were entitled to relief under certain statutory provisions, we would be disqualified from treatment as a REIT for the four taxable years following the year during which we ceased to qualify as a REIT;

· Our net earnings available for investment or distribution to our shareholders would decrease due to the additional tax liability for the year or years involved; and

· We would no longer be required to make any distributions to shareholders in order to qualify as a REIT.

As such, failure to qualify as a REIT would likely have a significant adverse effect on the value of our securities.

Real estate investment trust distribution requirements limit the amount of cash we will have available for other business purposes, including amounts that we need to fund our future growth.

To maintain our qualification as a REIT under the Code, we must annually distribute to our shareholders at least 90% of our ordinary taxable income, excluding net capital gains. We intend to continue to make distributions to our shareholders to comply with the 90% distribution requirement. However, this requirement limits our ability to accumulate capital for use for other business purposes. If we do not have sufficient cash or other liquid assets to meet the distribution requirements, we may have to borrow funds or sell properties on adverse terms in order to meet the distribution requirements. If we fail to make a required distribution, we would cease to qualify as a REIT.

U.S. federal income tax developments could affect the desirability of investing in us for individual taxpayers.

In May 2003, federal legislation was enacted that reduced the maximum tax rate for dividends payable to individual taxpayers generally from 38.6% to 15% (from January 1, 2003 through 2008). However, dividends payable by REITs are not eligible for this treatment, except in limited circumstances. Although this legislation did not have a direct adverse effect on the taxation of REITs or dividends paid by REITs, the more favorable treatment for non-REIT dividends could cause individual investors to consider investments in non-REIT corporations as more attractive relative to an investment in us as a REIT.

U.S. federal income tax treatment of REITs and investments in REITs may change, which may result in the loss of our tax benefits of operating as a REIT.

The present U.S. federal income tax treatment of a REIT and an investment in a REIT may be modified by legislative, judicial or administrative action at any time. Revisions in U.S. federal income tax laws and interpretations of these laws could adversely affect us and the tax consequences of an investment in our common shares.

Our net earnings available for investment or distribution to shareholders could decrease as a result of factors outside of our control.

Our business is subject to the risks incident to the ownership and operation of commercial real estate, many of which involve circumstances not within our control. Such risks include the following:

· Changes in the general economic climate;

· Increases in interest rates;

· Local conditions such as oversupply of property or a reduction in demand;

· Competition for tenants;

· Changes in market rental rates;

· Oversupply or reduced demand for space in the areas where our properties are located;

· Delay or inability to collect rent from tenants who are bankrupt, insolvent or otherwise unwilling or unable to pay;

· Difficulty in leasing or re-leasing space quickly or on favorable terms;

· Costs associated with periodically renovating, repairing and reletting rental space;

· Our ability to provide adequate maintenance and insurance on our properties;

· Our ability to control variable operating costs;

· Changes in government regulations;

· Changes in interest rate levels;

· The availability of financing on favorable terms; and

· Potential liability under, and changes in, environmental, zoning, tax and other laws.

Further, a significant portion of our costs, such as real estate taxes, insurance and maintenance costs and our debt service payments, are generally not reduced when circumstances cause a decrease in cash flow from our properties.

Many real estate costs are fixed, even if income from properties decreases.

Our financial results depend on leasing space in our real estate to tenants on terms favorable to us. Our income and funds available for distribution to our stockholders will decrease if a significant number of our tenants cannot pay their rent or we are unable to lease properties on favorable terms. In addition, if a tenant does not pay its rent, we may not be able to enforce our rights as landlord without delays and we may incur substantial legal costs. Costs associated with real estate investment, such as real estate taxes and maintenance costs, generally are not reduced when circumstances cause a reduction in income from the investment.

Our real estate development activities are subject to risks particular to development.

We intend to continue to pursue development activities as opportunities arise. These development activities generally require various government and other approvals. We may not receive the necessary approvals. We are subject to the risks associated with development activities. These risks include:

· Unsuccessful development opportunities could result in direct expenses to us;

· Construction costs of a project may exceed original estimates, possibly making the project less profitable than originally estimated, or possibly unprofitable;

· Time required to complete the construction of a project or to lease up the completed project may be greater than originally anticipated, thereby adversely affecting our cash flow and liquidity;

· Occupancy rates and rents of a completed project may not be sufficient to make the project profitable; and

· Favorable sources to fund our development activities may not be available.

We are exposed to risks associated with entering new markets.

We consider entering new markets from time to time. The construction and/or acquisition of properties in new markets involves risks, including the risk that the property will not perform as anticipated and the risk that any actual costs for rehabilitation, repositioning, renovation and improvements identified in the pre-construction or pre-acquisition due diligence process will exceed estimates. There is, and it is expected that there will continue to be, significant competition for investment opportunities that meet our investment criteria as well as risks associated with obtaining financing for acquisition activities, if necessary.

We may be unsuccessful in operating completed real estate projects.

We face the risk that the real estate projects we develop or acquire will not perform in accordance with our expectations. This risk exists because of factors such as the following:

· Prices paid for acquired facilities are based upon a series of market judgments; and

· Costs of any improvements required to bring an acquired facility up to standards to establish the market position intended for that facility might exceed budgeted costs.

Further, we can give no assurance that acquisition targets meeting our guidelines for quality and yield will be available when we seek them.

We are exposed to the risks of defaults by tenants.

Any of our tenants may experience a downturn in their businesses that may weaken their financial condition. In the event of default or the insolvency of a significant number of our tenants, we may experience a substantial loss of rental revenue and/or delays in collecting rent and incur substantial costs in enforcing our rights as landlord. If a tenant files for bankruptcy protection, a court could allow the tenant to reject and terminate its lease with us. Our income and distributable cash flow would be adversely affected if a significant number of our tenants became unable to meet their obligations to us, became insolvent or declared bankruptcy.

We may be unable to renew leases or relet space.

When our tenants decide not to renew their leases upon their expiration, we may not be able to relet the space. Even if our tenants do renew or we are able to relet the space, the terms of renewal or reletting (including the cost of renovations, if necessary) may be less favorable than current lease terms. If we are unable to promptly renew the leases or relet the space, or if the rental rates upon such renewal or reletting are significantly lower than current rates, then our income and distributable cash flow would be adversely affected, especially if we were unable to lease a significant amount of the space vacated by tenants in our properties.

Our insurance coverage on our properties may be inadequate.

We maintain comprehensive insurance on each of our facilities, including property, liability, fire, flood and extended coverage. We believe this coverage is of the type and amount customarily obtained for real property. However, there are certain types of losses, generally of a catastrophic nature, such as earthquakes, hurricanes and floods or acts of war or terrorism that may be uninsurable or not economically insurable. We use our discretion when determining amounts, coverage limits and deductibles for insurance. These terms are determined based on retaining an acceptable level of risk at a reasonable cost. This may result in insurance coverage that in the event of a substantial loss would not be sufficient to pay the full current market value or current replacement cost of our lost investment. Inflation, changes in building codes and ordinances, environmental considerations and other factors also may make it unfeasible to use insurance proceeds to replace a facility after it has been damaged or destroyed. Under such circumstances, the insurance proceeds we receive may not be adequate to restore our economic position in a property. If an insured loss occurred, we could lose both our investment in and anticipated profits and cash flow from a property, and we would continue to be obligated on any mortgage indebtedness or other obligations related

to the property. Although we believe our insurance is with highly rated providers, we are also subject to the risk that such providers may be unwilling or unable to pay our claims when made.

Acquired properties may expose us to unknown liability.

From time to time, we may acquire properties subject to liabilities and without any recourse, or with only limited recourse, with respect to unknown liabilities. As a result, if a liability were asserted against us based upon ownership of those properties, we might have to pay substantial sums to settle or contest it, which could adversely affect our results of operations and cash flow. Unknown liabilities with respect to acquired properties might include:

· liabilities for clean-up of undisclosed environmental contamination;

· claims by tenants, vendors or other persons against the former owners of the properties;

· liabilities incurred in the ordinary course of business; and

· claims for indemnification by general partners, directors, officers and others indemnified by the former owners of the properties.

We could be exposed to significant environmental liabilities as a result of conditions of which we currently are not aware.

As an owner and operator of real property, we may be liable under various federal, state and local laws for the costs of removal or remediation of certain hazardous substances released on or in our property. Such laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the release of the hazardous substances. In addition, we could have greater difficulty in selling real estate on which hazardous substances were present or in obtaining borrowings using such real estate as collateral. It is our general policy to have Phase I environmental audits performed for all of our properties and land by qualified environmental consultants. These Phase I environmental audits have not revealed any environmental liability that would have a material adverse effect on our business. However, a Phase I environmental audit does not involve invasive procedures such as soil sampling or ground water analysis, and we cannot be sure that the Phase I environmental audits did not fail to reveal a significant environmental liability or that a prior owner did not create a material environmental condition on our properties or land which has not yet been discovered. We could also incur environmental liability as a result of future uses or conditions of such real estate or changes in applicable environmental laws.

Certain of our officers hold units in our operating partnership and may not have the same interests as our shareholders with regard to certain tax matters.

Certain of our officers own limited partnership units in our operating partnership, Duke Realty Limited Partnership. Owners of limited partnership units may suffer adverse tax consequences upon the sale of certain of our properties, the refinancing of debt related to those properties or in the event we are the subject of a tender offer or merger. As such, owners of limited partnership units, including certain of our officers, may have different objectives regarding the appropriateness of the pricing and timing of these transactions. Though we are the sole general partner of the operating partnership and have the exclusive authority to sell all of our wholly-owned properties or to refinance such properties, officers who hold limited partnership units may influence us not to sell or refinance certain properties even if such sale may be financially advantageous to our shareholders. Adverse tax consequences may also influence the decisions of these officers in the event we are the subject of a tender offer or merger.

We do not have exclusive control over our joint venture investments.

We have interests in joint ventures and partnerships and may in the future conduct business through joint ventures and partnerships. These investments involve risks that are not present in our wholly-owned projects. For example, co-investors or partners may become bankrupt or have business interests or goals inconsistent with ours. Further, our co-investors or partners may be in a position to take action contrary to our instructions and our interests, including action that may jeopardize our qualification as a REIT.

Our use of debt financing could have a material adverse effect on our financial condition.

We are subject to the risks normally associated with debt financing, including the risk that our cash flow will be insufficient to meet required principal and interest payments and the risk that we will be unable to refinance our existing indebtedness, or that the terms of such refinancing will not be as favorable as the terms of our existing indebtedness. If our debt cannot be paid, refinanced or extended, we may not be able to make distributions to shareholders at expected levels or at all. Further, if prevailing interest rates or other factors at the time of a refinancing result in higher interest rates or other restrictive financial covenants upon the refinancing, then such refinancing would adversely affect our cash flow and funds available for operation, development and distribution. We are also subject to financial covenants under our existing debt instruments. Should we fail to comply with the covenants in our existing debt instruments, then we would not only be in breach under the applicable debt instruments but we would also likely be unable to borrow any further amounts under these instruments, which could adversely affect our ability to fund operations. We also have incurred and may incur in the future indebtedness that bears interest at variable rates. Thus, as market interest rates increase, so will our debt expense, affecting our cash flow and our ability to make distributions to shareholders.

We are subject to various financial covenants under existing credit agreements.

The terms of our various credit agreements and other indebtedness require that we comply with a number of customary financial and other covenants, such as maintaining debt service coverage and leverage ratios and maintaining insurance coverage. These covenants may limit our flexibility in our operations, and breaches of these covenants could result in defaults under the instruments governing the applicable indebtedness even if we have satisfied our payment obligations. If we are unable to refinance our indebtedness at maturity or meet our payment obligations, the amount of our distributable cash flow would be adversely affected.

We are subject to certain provisions that could discourage change-of-control transactions, which may reduce the likelihood of our shareholders receiving a control premium for their shares.

Indiana anti-takeover legislation and certain provisions in our governing documents, as we discuss below, may discourage potential acquirers from pursuing a change-of-control transaction with us. As a result, our shareholders may be less likely to receive a control premium for their shares.

Unissued Preferred Stock. Our charter permits our board of directors to classify unissued preferred stock by setting the rights and preferences of the shares at the time of issuance. This power enables our board to adopt a shareholder rights plan, also known as a poison pill. Although we have repealed our previously existing poison pill and our current board of directors has adopted a policy not to issue preferred stock as an anti-takeover measure, our board can change this policy at any time. The adoption of a poison pill would discourage a potential bidder from acquiring a significant position in the company without the approval of our board.

Business-Combination Provisions of Indiana Law. We have not opted out of the business-combination provisions of the Indiana Business Corporation Law. As a result, potential bidders may have to negotiate with our board of directors before acquiring 10% of our stock. Without securing board approval of the proposed business combination before crossing the 10% ownership threshold, a bidder would not be permitted to complete a business combination for five years after becoming a 10% shareholder. Even after the five-year period, a business combination with the significant shareholder would require a “fair price” as defined in the Indiana Business Corporation Law or the approval of a majority of the disinterested shareholders.

Control-Share-Acquisition Provisions of Indiana Law. We have not opted out of the provisions of the Indiana Business Corporation Law regarding acquisitions of control shares. Therefore, those who acquire a significant block (at least 20%) of our shares may only vote a portion of their shares unless our other shareholders vote to accord full voting rights to the acquiring person. Moreover, if the other shareholders vote to give full voting rights with respect to the control shares and the acquiring person has acquired a majority of our outstanding shares, the other shareholders would be entitled to special dissenters’ rights.

Supermajority Voting Provisions. Our charter prohibits business combinations or significant disposition transactions with a holder of 10% of our shares unless:

· The holders of 80% of our outstanding shares of capital stock approve the transaction;

· The transaction has been approved by three-fourths of those directors who served on the board before the shareholder became a 10% owner; or

· The significant shareholder complies with the “fair price” provisions of our charter.

Among the transactions with large shareholders requiring the supermajority shareholder approval are dispositions of assets with a value of $1,000,000 and business combinations.

Operating Partnership Provisions. The limited partnership agreement of the Operating Partnership contains provisions that could discourage change-of-control transactions, including a requirement that holders of at least 90% of the outstanding partnership units held by us and other unit holders approve:

· Any voluntary sale, exchange, merger, consolidation or other disposition of all or substantially all of the assets of the Operating Partnership in one or more transactions other than a disposition occurring upon a financing or refinancing of the Operating Partnership;

· Our merger, consolidation or other business combination with another entity unless after the transaction substantially all of the assets of the surviving entity are contributed to the Operating Partnership in exchange for units;

· Our transfer of our interests in the Operating Partnership other than to one of our wholly owned subsidiaries; and

· Any reclassification or recapitalization or change of outstanding shares of our common stock other than certain changes in par value, stock splits, stock dividends or combinations.

We are dependent on key personnel.

Our executive officers and other senior officers have a significant role in the success of our Company. Our ability to retain our management group or to attract suitable replacements should any members of the management group leave our Company is dependent on the competitive nature of the employment market. The loss of services from key members of the management group or a limitation in their availability could adversely impact our financial condition and cash flow. Further, such a loss could be negatively perceived in the capital markets.

Item 1B. Unresolved Staff Comments

We have no unresolved comments with the SEC staff regarding our periodic or current reports under the Exchange Act.

Item 2. Properties

Product Review

As of December 31, 2006, we own an interest in a diversified portfolio of 721 commercial properties encompassing approximately 113.8 million net rentable square feet (including 28 properties comprising 4.5 million square feet under development) and more than 6,400 acres of land for future development.

Industrial Properties: We own interests in 421 industrial properties encompassing approximately 79.2 million square feet (70% of total square feet) more specifically described as follows:

· Bulk Warehouses — Industrial warehouse/distribution buildings with clear ceiling heights of 20 feet or more. We own 344 buildings totaling more than 74.0 million square feet of such properties.

· Service Center/Other Properties — Also known as flex buildings or light industrial, this product type has 12-18 foot clear ceiling heights and a combination of drive-up and dock-height loading access. We own 77 buildings totaling approximately 5.2 million square feet of such properties.

Office Properties: We own interests in 300 office buildings totaling approximately 34.6 million square feet (30% of total square feet). These properties include primarily suburban office properties.

Land: We own or control approximately 6,400 acres of land located primarily in existing business parks. The land is ready for immediate use and is unencumbered. More than 93 million square feet of additional space can be developed on these sites and substantially all of the land is zoned for either office, industrial or retail development.

Service Operations: We provide property and asset management, development, leasing and construction services to third party owners in addition to our own properties.

Property Descriptions

The following schedule represents the geographic highlights of properties in our primary markets.

Duke Realty Corporation

Geographic Highlights

In Service Properties as of December 31, 2006

	Square Feet (1)														Percent
													Annual		of Annual
	Industrial										Percent		Net		Net
	Service Center		Bulk Distribution		Suburban Office		Other		Overall		of Overall		Effective Rent (2)		Effective Rent
Primary Market
Indianapolis	1,400,105		16,976,763		3,178,369		—		21,555,237		19.73	%	$	81,476,319	13.11	%
Cincinnati	239,200		9,600,072		4,701,576		566,316		15,107,164		13.82	%	77,335,808		12.45	%
Atlanta	—		8,314,475		4,000,580		25,881		12,340,936		11.29	%	64,206,858		10.33	%
St. Louis	1,223,194		2,907,640		3,467,455		—		7,598,289		6.95	%	61,552,354		9.91	%
Chicago	164,685		5,386,585		2,856,179		18,370		8,425,819		7.71	%	58,969,251		9.49	%
Columbus	—		3,561,480		3,390,451		—		6,951,931		6.36	%	49,488,027		7.96	%
Raleigh	575,008		1,531,214		2,293,857		—		4,400,079		4.03	%	39,214,220		6.31	%
Washington DC	—		654,918		2,265,040		—		2,919,958		2.67	%	30,789,972		4.95	%
Minneapolis	259,185		3,518,328		805,889		—		4,583,402		4.19	%	27,678,796		4.45	%
Central Florida	—		2,626,631		1,268,476		—		3,895,107		3.56	%	26,827,186		4.32	%
Cleveland	—		—		2,218,660		—		2,218,660		2.03	%	25,907,783		4.17	%
Nashville	230,523		2,959,887		1,004,263		—		4,194,673		3.84	%	25,620,898		4.12	%
Dallas	470,754		8,128,884		152,000		—		8,751,638		8.01	%	22,450,067		3.61	%
Savannah	—		5,140,388		—		—		5,140,388		4.70	%	16,998,379		2.74	%
South Florida	—		—		773,923		—		773,923		0.71	%	12,336,028		1.99	%
Other (3)	—		436,139		—		—		436,139		0.40	%	557,916		0.09	%

Total	4,562,654		71,743,404		32,376,718		610,567		109,293,343		100.00	%	$	621,409,862	100.00	%

	4.17	%	65.64	%	29.62	%	0.56	%	100.00	%

	Occupancy %

	Industrial
	Service Center		Bulk Distribution		Suburban Office		Other		Overall
Primary Market
Indianapolis	89.72	%	94.48	%	92.79	%	—		93.92	%
Cincinnati	89.02	%	93.07	%	91.49	%	99.29	%	92.75	%
Atlanta	—		82.55	%	86.56	%	100.00	%	83.88	%
St. Louis	94.30	%	91.45	%	93.15	%	—		92.69	%
Chicago	100.00	%	96.36	%	95.43	%	91.04	%	96.10	%
Columbus	—		100.00	%	94.96	%	—		97.54	%
Raleigh	85.93	%	100.00	%	96.60	%	—		96.39	%
Washington DC	—		100.00	%	95.53	%	—		96.53	%
Minneapolis	82.63	%	96.26	%	89.30	%	—		94.27	%
Central Florida	—		96.22	%	94.54	%	—		95.67	%
Cleveland	—		—		85.11	%	—		85.11	%
Nashville	96.48	%	67.60	%	85.93	%	—		73.57	%
Dallas	98.34	%	97.73	%	100.00	%	—		97.80	%
Savannah	—		100.00	%	—		—		100.00	%
South Florida	—		—		96.41	%	—		96.41	%
Other (3)	—		100.00	%	—		—		100.00	%

Total	91.63	%	93.21	%	92.15	%	99.08	%	92.86	%

(1) Includes all wholly owned and joint venture projects shown at 100% as of report date .

(2) Represents the average annual rental property revenue due from tenants in occupancy as of the date of this report, excluding additional rent due as operating expense reimbursements, landlord allowances for operating expenses and percentage rents. Joint Venture properties are shown at the Company's ownership percentage.

(3) Represents properties not located in the Company's primary markets. These properties are located in similar midwest or southeast markets.

Note: Excludes buildings that are in the held for sale portfolio.

Item 3. Legal Proceedings

We are not subject to any material pending legal proceedings, other than ordinary routine litigation arising in the ordinary course of business. Our management expects that these ordinary routine legal proceedings will be covered by insurance and does not expect these legal proceedings to have a material adverse effect on our financial condition, results of operations, or liquidity.

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

No matters were submitted to a vote of security holders during the quarter ended December 31, 2006.

PART II

Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our common shares are listed for trading on the New York Stock Exchange under the symbol “DRE.” The following table sets forth the high and low sales prices of the common stock for the periods indicated and the dividend paid per share during each such period. Comparable cash dividends are expected in the future. As of February 20, 2007, there were 10,398 record holders of common shares.

	2006_						2005
Quarter Ended	High		Low		Dividend		High		Low		Dividend
December 31	$	44.05	$	36.98	$	.475	$	35.09	$	31.22	$	.470
September 30	38.50		34.60		.475		34.30		30.77		.470
June 30	37.90		32.88		.470		32.25		29.28		.465
March 31	38.55		33.32		.470		34.37		29.45		.465

On January 31, 2007, we declared a quarterly cash dividend of $0.475 per share, payable on February 28, 2007, to common shareholders of record on February 14, 2007.

A summary of the tax characterization of the dividends paid per common share for the years ended December 31, 2006, 2005 and 2004 follows:

	2006			2005			2004

Common shareholders dividend	$	1.89		$	1.87		$	1.85
Common shareholders dividend - special	—			1.05			—
Total dividends paid per share	$	1.89		$	2.92		$	1.85
Ordinary income	64.2		%	44.2		%	69.3		%
Return of capital	5.3		%	0		%	17.5		%
Capital gains	30.5		%	55.8		%	13.2		%
	100.0		%	100.0		%	100.0		%

Securities Authorized for Issuance Under Equity Compensation Plans

The information required by this Item concerning securities authorized for issuance under equity compensation plans is set forth in or incorporated herein by reference to Part III, Item 12 of this Annual Report.

Sales of Unregistered Securities

We did not sell any of our securities during the three months ended December 31, 2006 that were not registered under the Securities Act.

Issuer Purchases of Equity Securities

From time to time, we repurchase our common shares under a $750 million share repurchase program that initially was approved by the Board of Directors and publicly announced in October 2001 (the “Repurchase Program”). In July 2005, the Board of Directors authorized management to purchase up to $750 million of common shares pursuant to this plan. Under the Repurchase Program, we also execute share repurchases on an ongoing basis associated with certain employee elections under our compensation and benefit programs.

The following table shows the share repurchase activity for each of the three months in the quarter ended December 31, 2006:

					Maximum Number
					(or Approximate
				Total Number of	Dollar Value) of
				Shares Purchased as	Shares that May
	Total Number of			Part of Publicly	Yet be Purchased
	Shares	Average Price		Announced Plans or	Under the Plans or
Month	Purchased (1)	Paid per Share		Programs	Programs (2)
October	67,653	$	38.12	67,653
November	2,274,639	$	40.82	2,274,639
December	14,827	$	42.78	14,827

Total	2,357,119	$	40.75	2,357,119

(1) Includes 16,499 common shares repurchased under our Employee Stock Purchase Plan, 148,935 shares swapped to pay the exercise price of stock options and 2,191,684 common shares repurchased under our Repurchase Program.

(2) The number of common shares that may yet be repurchased in the open market to fund shares purchased under our Employee Stock Purchase Plan, as amended, was 142,706 on December 31, 2006. The approximate dollar value of common shares that may yet be purchased under the Repurchase Program was $361.0 million as of December 31, 2006.

Item 6. Selected Financial Data

The following sets forth selected financial and operating information on a historical basis for each of the years in the five-year period ended December 31, 2006. The following information should be read in conjunction with Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Item 8, “Financial Statements and Supplementary Data” included in this Form 10-K (in thousands, except per share amounts):

	2006		2005		2004		2003		2002
Results of Operations:
Revenues:
Rental Operations from Continuing Operations	$	818,675	$	668,607	$	603,821	$	552,761	$	523,200
Service Operations from Continuing Operations	90,125		81,941		70,803		59,456		68,580
Total Revenues from Continuing Operations	$	908,800	$	750,548	$	674,624	$	612,217	$	591,780

Income from Continuing Operations	$	153,585	$	135,455	$	136,240	$	144,386	$	168,921

Net Income Available for common shareholders	$	145,095	$	309,183	$	151,279	$	161,911	$	153,969

Per Share Data :
Basic income per common share:
Continuing operations	$	0.70	$	0.63	$	0.70	$	0.79	$	0.86
Discontinued operations	0.38		1.56		0.37		0.40		0.29
Diluted income per common share:
Continuing operations	0.70		0.62		0.69		0.79		0.86
Discontinued operations	0.37		1.55		0.37		0.40		0.28
Dividends paid per common share	1.89		1.87		1.85		1.83		1.81
Dividends paid per common share — special	—		1.05		—		—		—
Weighted average common shares outstanding	134,883		141,508		141,379		135,595		133,981
Weighted average common shares and potential dilutive common equivalents	149,393		155,877		157,062		151,141		150,839
Balance Sheet Data (at December 31):
Total Assets	$	7,238,595	$	5,647,560	$	5,896,643	$	5,561,249	$	5,348,823
Total Debt (1)	4,109,154		2,600,651		2,518,704		2,335,536		2,106,285
Total Preferred Equity	876,250		657,250		657,250		540,508		440,889
Total Shareholders’ Equity	2,503,583		2,452,798		2,825,869		2,666,749		2,617,336
Total Common Shares Outstanding	133,921		134,697		142,894		136,594		135,007
Other Data:
Funds From Operations (2)	$	338,008	$	341,189	$	352,469	$	335,989	$	321,886

(1) Includes $147,309 of secured debt classified as liabilities of properties held for sale at December 31, 2006.

(2) Funds From Operations (“FFO”) is used by industry analysts and investors as a supplemental operating performance measure of an equity real estate investment trust (“REIT”) like Duke. FFO is calculated in accordance with the definition that was adopted by the Board of Governors of the National Association of Real Estate Investment Trusts (“NAREIT”). NAREIT created FFO as a supplemental measure of REIT operating performance that excludes historical cost depreciation, among other items, from net income determined in accordance with United States generally accepted accounting principles (“GAAP”). FFO is a non-GAAP financial measure developed by NAREIT to compare the operating performance of REITs. The most comparable GAAP measure is net income (loss). FFO should not be considered as a substitute for net income or any other measures derived in accordance with GAAP and may not be comparable to other similarly titled measures of other companies.

See reconciliation of FFO to GAAP net income under Year in Review section of Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Business Overview

We are a self-administered and self-managed REIT that began operations through a related entity in 1972. As of December 31, 2006, we:

· Owned or jointly controlled 721 industrial, office and retail properties (including properties under development), consisting of approximately 113.8 million square feet; and

· Owned or jointly controlled more than 6,400 acres of unencumbered land with an estimated future development potential of more than 93 million square feet of industrial, office and retail properties.

We provide the following services for our properties and for certain properties owned by third parties and joint ventures:

· Property leasing;

· Property management;

· Construction;

· Development; and

· Other tenant-related services.

Management Philosophy and Priorities

Our key business and financial strategies for the future include the following:

· Our business objective is to increase Funds From Operations (“FFO”) by (i) maintaining and increasing property occupancy and rental rates through the management of our portfolio of existing properties; (ii) developing and acquiring new properties for rental operations in our existing markets; (iii) expanding geographically by acquiring and developing properties in new markets; (iv) using our construction expertise to act as a general contractor in our existing markets and other domestic markets on a fee basis; (v) developing and repositioning properties in our existing markets and other markets which we will sell through our Service Operations property sale program; and (vi) providing a full line of real estate services to our tenants and to third parties.

See the Year in Review section below for further explanation and definition of FFO.

· Our financing strategy is to actively manage the components of our capital structure including common and preferred equity and debt to maintain a conservatively leveraged balance sheet and investment grade ratings from our credit rating agencies. This strategy provides us with the financial flexibility to fund both development and acquisition opportunities. We seek to maintain a well-balanced, conservative and flexible capital structure by: (i) extending and sequencing the maturity dates of debt; (ii) borrowing primarily at fixed rates by targeting a variable rate component of total debt less than 20%; (iii) pursuing current and future long-term debt financings and refinancing generally on an unsecured basis; (iv) maintaining conservative debt service and fixed charge coverage ratios; and (v) issuing attractively priced perpetual preferred stock for 5-10% of our total capital structure.

Year in Review

During 2006, we successfully executed on our strategy that we began in earnest in 2005 to improve our portfolio of held for investment buildings through our capital recycling program, increasing our development pipeline to over $1.2 billion, and initiating geographic expansion that we anticipate will provide future earnings growth. As a result of these accomplishments, we achieved steady operating results while maintaining a strong balance sheet.

Net income available for common shareholders for the year ended December 31, 2006, was $145.1 million, or $1.07 per share (diluted), compared to net income of $309.2 million, or $2.17 per share (diluted) for the year ended 2005. The decrease is primarily attributable to the $201.5 million gain from the sale of a portfolio of 212 real estate properties (the “Industrial Portfolio Sale”) that occurred in 2005 which was partially offset by income generated by current year building sales, acquired properties and organic growth. Through increased leasing activity, we achieved a growth in rental revenues from continuing operations in 2006 over 2005 as our in-service portfolio occupancy increased from 92.7% at the end of 2005 to 92.9% at the end of 2006.

As an important performance metric for us as a real estate company, FFO available to common shareholders totaled $338.0 million for the year ended December 31, 2006, compared to $341.2 million for the same period in 2005 which is the result of the time necessary to redeploy the proceeds from the Industrial Portfolio Sale noted above into FFO generating assets. Industry analysts and investors use FFO as a supplemental operating performance measure of an equity real estate investment trust (“REIT”). FFO is calculated in accordance with the definition that was adopted by the Board of Governors of the National Association of Real Estate Investment Trusts (“NAREIT”). FFO, as defined by NAREIT, represents net income (loss) determined in accordance with accounting principles generally accepted in the United States of America (“GAAP”), excluding extraordinary items as defined under GAAP and gains or losses from sales of previously depreciated operating real estate assets, plus certain non-cash items such as real estate asset depreciation and amortization, and after similar adjustments for unconsolidated partnerships and joint ventures.

Historical cost accounting for real estate assets in accordance with GAAP implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values instead have historically risen or fallen with market conditions, many industry investors and analysts have considered presentation of operating results for real estate companies that use historical cost accounting to be insufficient by themselves. Thus, NAREIT created FFO as a supplemental measure of REIT operating performance that excludes historical cost depreciation, among other items, from GAAP net income. Management believes that the use of FFO, combined with the required primary GAAP presentations, improves the understanding of operating results of REITs among the investing public and makes comparisons of REIT operating results more meaningful. Management considers FFO to be a useful measure for reviewing comparative operating and financial performance (although FFO should be reviewed in conjunction with net income which remains the primary measure of performance) because by excluding gains or losses related to sales of previously depreciated operating real estate assets and excluding real estate asset depreciation and amortization, FFO assists in comparing the operating performance of a company’s real estate between periods or as compared to different companies.

The following table summarizes the calculation of FFO for the years ended December 31 (in thousands):

	2006			2005			2004
Net income available for common shareholders	$	145,095		$	309,183		$	151,279
Adjustments:
Depreciation and amortization	254,268			254,170			228,582
Company share of joint venture depreciation and amortization	18,394			19,510			18,901
Earnings from depreciable property sales — wholly owned	(42,089		)	(227,513		)	(26,510		)
Earnings from depreciable property sales — share of joint venture	(18,802		)	(11,096		)	—
Minority interest share of adjustments	(18,858		)	(3,065		)	(19,783		)
Funds From Operations	$	338,008		$	341,189		$	352,469

Throughout 2006, we continued to maintain a conservative balance sheet and investment grade debt ratings from Moody’s (Baa1), Standard & Poors (BBB+) and Fitch (BBB+). Our debt to total market capitalization ratio (total market capitalization is defined as the total market value of all outstanding common and preferred shares and units of limited partner interest in our operating partnership plus outstanding indebtedness) of 37.4% at December 31, 2006 compared to 31.8% at December 31, 2005 continues to provide us financial flexibility to fund new investments.

Highlights of our debt financing activity in 2006 are as follows:

· In January 2006, we renewed our line of credit, including the extension of the maturity date to January 2010 and the increase of borrowing capacity by $500.0 million to $1.0 billion with interest rates ranging from LIBOR +.17% to LIBOR +.525% as of December 31, 2006.

· We had $317.0 million outstanding on our line of credit as of December 31, 2006.

· Through new issuances, as well as assumptions of debt in conjunction with our 2006 acquisitions, we added $540.6 million of new secured debt in 2006 at a weighted average interest rate of 6.09% and we retired $40.6 million of secured debt of which $25.0 million was variable rate.

· We issued $854.5 million of unsecured debt at a weighted average interest rate of 4.97% and retired $350.0 million of unsecured debt with a weighted average interest rate of 6.05%. We issued $575.0 million of 3.75% Exchangeable Senior Notes (“Exchangeable Notes”) in November 2006. The Exchangeable Notes can be exchanged for shares of our common stock upon certain events as well as at any time beginning on August 1, 2011 and ending on the second business day prior to the maturity date. The Exchangeable Notes will have an initial exchange rate of approximately 20.4298 common shares per $1,000 principal amount of the notes, representing an exchange price of approximately $48.95 per share of our common stock and an exchange premium of approximately 20.0% based on the last reported sale price of $40.79 per share of our common stock on the date of issuance. The initial exchange rate is subject to adjustment under certain circumstances, including increases in our rate of dividends. Upon exchange, the holders of the Exchangeable Notes would receive cash equal to the principal amount of the note and, at our option, either cash or shares of common stock for the remaining balance due.

In order to reduce potential dilution of our common stock, we purchased a capped call option with the proceeds of the Exchangeable Notes offering that allows us to buy our common shares, up to a maximum of approximately 11.7 million shares or our common stock, from the option counterparties at prescribed prices. The capped call option will terminate upon the earlier of the maturity date of the related Exchangeable Notes or the first day all of the related Exchangeable Notes are no longer outstanding due to exchange or otherwise. The capped call option, which cost $27.0 million, was recorded as a reduction of shareholders’ equity and effectively increased the exchange price to 40% above the stock price on the issuance date.

On the equity side of our balance sheet, we repurchased approximately 2.2 million common shares for approximately $89.4 million from the proceeds of our Exchangeable Notes issuance. Additionally, we issued two new series of preferred equity securities, 6.95% Series M Cumulative Redeemable Preferred Shares and 7.25% Series N Cumulative Redeemable Preferred Shares, for total gross proceeds of $294.0 million while we redeemed our 8.45% Series I Cumulative Redeemable Preferred Shares of $75.0 million.

We continued strategic initiatives to expand geographically and projects to leverage our development, construction and management capabilities as follows:

· We completed the acquisition of a Washington D.C. metropolitan area portfolio of 32 suburban in service office and light industrial properties, the assets of a related real estate management company, as well as significant undeveloped land positions (all referred to as the “Mark Winkler Portfolio”) for a purchase price of approximately $867.6 million. In December 2006, we contributed 23 of the in-service properties to joint ventures in which we hold a 30% continuing interest. We will contribute eight in-service properties to the joint ventures in the first quarter of 2007.

· We completed the purchase of a portfolio of industrial real estate properties in Savannah, Georgia consisting of 18 buildings for a purchase price of approximately $196.2 million.

· We increased our investment in undeveloped land to provide greater opportunities to use our development and construction expertise in the improving economic cycle. Throughout 2006, we completed land acquisitions totaling $436.7 million. The new land positions include industrial, office and retail positions in several markets, including the Washington D.C., Baltimore, Houston, and Phoenix markets, which we entered during 2006.

· We disposed of 19 non-strategic wholly owned held for rental properties, most notably our entire Cleveland industrial portfolio, for $139.9 million of gross proceeds. Additionally, unconsolidated subsidiaries disposed of 22 non-strategic held for rental properties of which our share of the gross proceeds totaled $91.9 million. These transactions were a continuation of our long-term strategy of recycling assets into higher yielding new developments.

· Finally, we will continue to develop long-term investment assets to be held in our portfolio and develop assets to be sold upon completion. With over $1.2 billion in our development pipeline at December 31, 2006, we are encouraged about the long-term growth opportunities in our business.

Key Performance Indicators

Our operating results depend primarily upon rental income from our office and industrial properties (“Rental Operations”). The following highlights the areas of Rental Operations that we consider critical for future revenue growth. (All square footage totals and occupancy percentages reflect both wholly-owned properties and properties in joint ventures.)

Occupancy Analysis: As discussed above, our ability to maintain occupancy rates is a principal driver of our results of operations. The following table sets forth occupancy information regarding our in-service portfolio of rental properties as of December 31 (in thousands, except percentage data):

	Total		Percent of
	Square Feet		Total Square Feet				Percent Occupied
Type	2006	2005	2006		2005		2006		2005
Industrial
Service Centers	4,562	4,724	4.2	%	4.8	%	91.6	%	91.7	%
Bulk	71,743	62,377	65.6	%	63.8	%	93.2	%	93.2	%
Office	32,377	30,123	29.6	%	30.8	%	92.2	%	89.3	%
Other	611	611	0.6	%	0.6	%	99.1	%	96.0	%
Total	109,293	97,835	100.0	%	100.0	%	92.9	%	92.7	%

We experienced continued strong occupancy in our in-service portfolio with the overall increase driven primarily by a 3.1% increase in the occupancy of our office portfolio.

Lease Expiration and Renewals: Our ability to maintain and grow occupancy rates primarily depends upon our continuing ability to re-lease expiring space. The following table reflects our in-service portfolio lease expiration schedule by property type as of December 31, 2006. The table indicates square footage and annualized net effective rents (based on December 2006 rental revenue) under expiring leases (in thousands, except percentage data):

	Total Portfolio						Industrial				Office				Other
	Square		Ann. Rent		% of		Square		Ann. Rent		Square		Ann. Rent		Square		Ann. Rent
Year of Expiration	Feet		Revenue		Revenue		Feet		Revenue		Feet		Revenue		Feet		Revenue
2007	10,107		$	59,430	8	%	7,819		$	29,949	2,279		$	29,358	9		$	123
2008	14,050		83,872		12	%	10,665		41,892		3,366		41,645		19		335
2009	12,649		80,767		12	%	9,190		36,105		3,455		44,584		4		78
2010	12,131		95,888		14	%	7,714		33,852		4,410		61,931		7		105
2011	13,516		86,772		12	%	9,911		38,246		3,565		47,803		40		723
2012	8,898		61,373		9	%	5,928		21,701		2,963		39,339		7		333
2013	6,809		62,422		9	%	3,568		15,043		3,207		46,800		34		579
2014	5,301		30,841		4	%	4,011		13,815		1,290		17,026		—		—
2015	6,890		53,697		8	%	4,736		18,778		2,154		34,919		—		—
2016	3,743		25,029		4	%	2,690		9,562		879		13,795		174		1,672
2017 and Thereafter	7,399		56,894		8	%	4,821		20,336		2,268		34,931		310		1,627
	101,493		$	696,985	100	%	71,053		$	279,279	29,836		$	412,131	604		$	5,575

Total Portfolio Square Feet	109,293						76,305				32,377				611

Percent Occupied	92.9	%					93.1	%			92.2	%			99.1	%

We renewed 79.9% and 74.3% of our leases up for renewal totaling approximately 7.5 million and 10.0 million square feet in 2006 and 2005, respectively. Our lease renewal percentages over the past three years have remained relatively consistent at a 70-80% success rate. We do not presently expect this renewal percentage in 2007 to differ from that experienced in 2006.

Future Development: Another source of growth in earnings is the development of additional properties. These properties should provide future earnings through income upon sale or from Rental Operations growth as they are placed in service. We had 10.6 million square feet of property under development with total estimated costs of $1.1 billion at December 31, 2006, compared to 9.0 million square feet and total costs of $658.7 million at December 31, 2005. We have increased our development pipeline significantly through 2006 and will continue to focus on the development side of our business in 2007.

The following table summarizes our properties under development as of December 31, 2006 (in thousands, except percentage data):

Anticipated In-Service Date	Square Feet	Percent Leased		Project Costs		Anticipated Stabilized Return
Held for Rental:
1st Quarter 2007	1,064	19	%	$	116,135	9.60	%
2nd Quarter 2007	559	12	%	60,286		9.13	%
3rd Quarter 2007	2,015	4	%	137,426		9.40	%
Thereafter	846	4	%	120,789		9.38	%
	4,484	9	%	434,636		9.41	%
Service Operations Buildings:
1st Quarter 2007	1,533	51	%	130,947		8.87	%
2nd Quarter 2007	2,684	37	%	122,038		8.72	%
3rd Quarter 2007	1,237	81	%	240,446		8.72	%
Thereafter	647	63	%	173,954		8.07	%
	6,101	52	%	667,385		8.57	%
Total	10,585	34	%	$	1,102,021	8.91	%

Acquisition and Disposition Activity: We continued to selectively dispose of non-strategic properties in 2006. Sales proceeds related to the dispositions of wholly owned held for rental properties were $139.9 million, which included the disposition of our entire portfolio of industrial properties in the Cleveland market. Our share of proceeds from sales of properties within unconsolidated joint ventures, of which we have a less than 100% interest, totaled $91.9 million. In 2005, proceeds from the disposition of non-strategic properties totaled $1.1 billion for wholly owned held for rental properties, as the result of the Industrial Portfolio Sale, and $31.8 million for our share of property sales from unconsolidated joint ventures. Dispositions of wholly owned properties developed for sale rather than rental resulted in $188.6 million in proceeds in 2006 compared to $121.4 million in 2005.

In 2006, we acquired $948.4 million of income producing properties and $436.7 million of undeveloped land compared to $295.6 million of income producing properties and $137.7 million of undeveloped land in 2005. We contributed 23 in service properties from the Mark Winkler portfolio, with a book value of $381.6 million, to two newly formed unconsolidated joint ventures in December 2006.

Results of Operations

A summary of our operating results and property statistics for each of the years in the three-year period ended December 31, 2006, is as follows (in thousands, except number of properties and per share data):

	2006		2005		2004
Rental Operations revenues from Continuing Operations	$	818,675	$	668,607	$	603,821
Service Operations revenues from Continuing Operations	90,125		81,941		70,803
Earnings from Continuing Rental Operations	127,989		113,746		135,248
Earnings from Continuing Service Operations	53,196		44,278		27,652
Operating income	145,351		127,021		133,419
Net income available for common shareholders	145,095		309,183		151,279
Weighted average common shares outstanding	134,883		141,508		141,379
Weighted average common and dilutive potential common shares	149,393		155,877		157,062
Basic income per common share:
Continuing operations	$	.70	$	.63	$	.70
Discontinued operations	$	.38	$	1.56	$	.37
Diluted income per common share:
Continuing operation	$	.70	$	.62	$	.69
Discontinued operations	$	.37	$	1.55	$	.37
Number of in-service properties at end of year	693		660		874
In-service square footage at end of year	109,293		97,835		109,635

Comparison of Year Ended December 31, 2006 to Year Ended December 31, 2005

Rental Income from Continuing Operations

Overall, rental income from continuing operations increased from $639.1 million in 2005 to $780.7 million in 2006. The following table reconciles rental income from continuing operations by reportable segment to total reported rental income from continuing operations for the years ended December 31 (in thousands):

	2006		2005
Office	$	562,903	$	462,939
Industrial	203,259		166,343
Non-segment	14,509		9,776
Total	$	780,671	$	639,058

Both of our reportable segments that comprise Rental Operations (office and industrial) are within the real estate industry; however, the same economic and industry conditions do not affect each segment in the same manner. The primary causes of the increase in rental income from continuing operations, with specific references to a particular segment when applicable, are summarized below:

· In 2006, we acquired 50 new properties and placed 27 development projects in-service. These 2006 acquisitions and developments are the primary factor in the overall increase in rental revenue for the year ended 2006 compared to 2005 as they provided incremental revenues of $73.8 million and $9.3 million respectively. These acquisitions totaled $948.4 million on 8.6 million square feet and were 99% leased at December 31, 2006.

· Acquisitions and developments that were placed in service in 2005 provided $15.8 million and $11.2 million, respectively, of incremental revenue in 2006.

· Our in-service occupancy increased from 92.7% at December 31, 2005, to 92.9% at December 31, 2006.

· Rental income includes lease termination fees. Lease termination fees relate to specific tenants who pay a fee to terminate their lease obligations before the end of the contractual lease term. Lease termination fees increased from $7.3 million in 2005 to $16.1 million in 2006.

Equity in Earnings of Unconsolidated Companies

Equity in earnings represents our ownership share of net income from investments in unconsolidated companies. These joint ventures generally own and operate rental properties and hold land for development. These earnings increased from $29.5 million in 2005 to $38.0 million in 2006. During 2006, our joint ventures sold 22 non-strategic buildings, with our share of the net gain recorded through equity in earnings totaling $18.8 million. During the second quarter of 2005, one of our ventures sold three buildings, with our share of the net gain recorded through equity in earnings totaling $11.1 million.

Rental Expenses and Real Estate Taxes

The following table reconciles rental expenses and real estate taxes by reportable segment to our total reported amounts in the statement of operations for the years ended December 31, 2006 and 2005, respectively (in thousands):

	2006		2005
Rental Expenses:
Office	$	151,368	$	125,093
Industrial	23,745		21,622
Non-segment	3,519		1,557
Total	$	178,632	$	148,272

Real Estate Taxes:
Office	$	59,717	$	53,039
Industrial	23,186		19,979
Non-segment	6,015		5,104
Total	$	88,918	$	78,122

Rental expenses and real estate taxes for 2006 have increased from 2005 by $30.4 million and $10.8 million, respectively, as the result of acquisition and development activity in 2005 and 2006 as well as from our increase in occupancy over the past two years.

Interest Expense

Interest expense increased from $113.1 million in 2005 to $179.0 million in 2006, as a result of the following:

· Interest expense on the unsecured line of credit increased by $29.2 million from 2005 as the result of increased borrowings throughout the year, as well as increased interest rates.

· Interest expense on unsecured notes increased by $10.2 million as the result of an overall increase in borrowings used mainly to fund acquisitions and development.

· Interest expense on secured debt increased by $27.8 million as the result of the increase in borrowings in 2006.

· Amortization of deferred financing fees increased by $2.4 million as the result of additional borrowings in 2006.

· Offsetting the above increases, capitalized interest increased by $26.8 million as the result of increased development activity.

Depreciation and Amortization Expense

Depreciation and amortization increased from $215.4 million in 2005 to $244.1 million in 2006 as the result of increases in our held-for-rental asset base from acquisitions and developments during 2005 and 2006.

Service Operations

Service Operations primarily consist of sales of properties developed or acquired with the intent to sell within a short period of time and the leasing, management, construction and development services for joint venture properties and properties owned by third parties. These operations are heavily influenced by the current state of the economy, as leasing and management fees are dependent upon occupancy while construction and development services rely on the expansion of business operations. Service Operations earnings increased from $44.3 million in 2005 to $53.2 million in 2006. The following are the factors related to the increase in Service Operations earnings in 2006.

· Our Service Operations building development and sales program, whereby a building is developed or repositioned by us and then sold, is a significant component of earnings from service operations. During 2006, we generated pre-tax gains of $44.6 million from the sale of nine properties compared to $29.9 million from the sale of ten properties in 2005. Profit margins on these types of building sales fluctuate by sale depending on the type of property being sold, the strength of the underlying tenant and nature of the sale, such as a pre-contracted purchase price for a primary tenant versus a sale on the open market.

· Partially offsetting the increased 2006 gains from our Service Operations building development and sales program was the effect of a decreased focus on third-party construction services as well as the fact that in the first quarter of 2005, we recognized $2.7 million of a non-recurring deferred gain associated with the sale of our landscaping operations in 2001.

General and Administrative Expense

General and administrative expense increased from $31.0 million in 2005 to $35.8 million in 2006. General and administrative expenses consist of two components. The first component is direct expenses that are not attributable to specific assets such as legal fees, external audit fees, marketing costs, investor relations expenses and other corporate overhead. The second component is the unallocated overhead costs associated with the operation of our owned properties and Service Operations, including construction, leasing and maintenance operations. Overhead costs not allocated to these operations are charged to general and administrative expenses. The increase in general and administrative expenses from 2005 was largely attributable to an increase in our overall pool of overhead costs to support our current and anticipated future growth.

Discontinued Operations

The results of operations for properties sold during the year or designated as held-for-sale at the end of the period are required to be classified as discontinued operations. The property specific components of net earnings that are classified as discontinued operations include rental revenues, rental expenses, real estate taxes, allocated interest expense, depreciation expense and minority interest, as well as the net gain or loss on the disposition of properties.

We classified the operations of 308 buildings as discontinued operations as of December 31, 2006. These 308 buildings consist of 273 industrial, 32 office and three retail properties. As a result, we classified net income from operations, net of minority interest, of $8.4 million, $15.9 million and $28.6 million as net income from discontinued operations for the years ended December 31, 2006, 2005 and 2004, respectively.

Of these properties, 21 were sold during 2006, 234 properties were sold during 2005, 41 properties were sold during 2004, and 12 operating properties are classified as held-for-sale at December 31, 2006. The gains on disposal of these properties, net of impairment adjustment and minority interest, of $42.1 million, $204.3 million and $23.9 million for the years ended December 31, 2006, 2005 and 2004, respectively, are also reported in discontinued operations.

Comparison of Year Ended December 31, 2005 to Year Ended December 31, 2004

Rental Income from Continuing Operations

Overall, rental income from continuing operations increased from $582.2 million in 2004 to $639.1 million in 2005. The following table reconciles rental income from continuing operations by reportable segment to total reported rental income from continuing operations for the years ended December 31, 2005 and 2004, respectively (in thousands):

	2005		2004
Office	$	462,939	$	419,068
Industrial	166,343		152,989
Non-segment	9,776		10,178
Total	$	639,058	$	582,235

· In 2005, we acquired nine new properties and placed 17 development projects in-service. These acquisitions and developments are the primary factor in the $56.8 million overall increase in rental revenue for the year ended 2005, compared to 2004.

· The nine property acquisitions provided revenues of $21.0 million. These acquisitions totaled $307.5 million on 2.2 million square feet and were 86.5% leased at December 31, 2005. Revenues from acquisitions that occurred in 2004 totaled $31.8 million in 2005 compared to $13.4 million in 2004.

· Developments placed in service in 2005 provided revenues of $5.8 million. Revenues from developments placed in service in 2004 increased $9.9 million to $17.4 million in 2005.

· Our in-service occupancy increased from 90.9% at December 31, 2004, to 92.7% at December 31, 2005.

· Rental income includes lease termination fees. Lease termination fees relate to specific tenants who pay a fee to terminate their lease obligations before the end of the contractual lease term. Lease termination fees in 2005 continued to steadily decrease as a result of improving market conditions. Lease termination fees decreased from $14.7 million in 2004 to $7.3 million in 2005.

Equity in Earnings of Unconsolidated Companies

Equity in earnings represents our ownership share of net income from investments in unconsolidated companies. These joint ventures generally own and operate rental properties and hold land for development. These earnings increased from $21.6 million in 2004 to $29.5 million in 2005. During the second quarter of 2005, one of our ventures sold three buildings with our share of the net gain recorded through equity in earnings totaling $11.1 million.

Rental Expenses and Real Estate Taxes

	2005		2004
Rental Expenses:
Office	$	125,093	$	106,303
Industrial	21,622		19,467
Non-segment	1,557		1,214
Total	$	148,272	$	126,984

Real Estate Taxes:
Office	$	53,039	$	44,245
Industrial	19,979		16,922
Non-segment	5,104		4,682
Total	$	78,122	$	65,849

Rental and real estate tax expenses for 2005, as compared to 2004, have increased as a result of our 2004 and 2005 acquisitions as well as our increase in occupancy. This increase in rental and real estate taxes was in line with our expectations.

Interest Expense

Interest expense increased from $104.0 million in 2004 to $113.1 million in 2005 largely as the result of increased interest expense from additional unsecured borrowings.

Depreciation and Amortization Expense

Depreciation and amortization expense increased from $171.8 million in 2004 to $215.4 million in 2005 as the result of increases in our held-for-rental base from acquisitions and developments during 2004 and 2005.

Service Operations

Service Operations primarily consist of building sales and the leasing, management, construction and development services for joint venture properties and properties owned by third parties. These operations are heavily influenced by the current state of the economy as leasing and management fees are dependent upon occupancy while construction and development services rely on the expansion of business operations. Service Operations earnings increased from $27.7 million in 2004 to $44.3 million in 2005. The increase reflects higher construction volumes partially offset by increased staffing costs in 2005. Other factors impacting service operations are discussed below.

· Our Service Operations development and sales program, whereby a building is developed or repositioned by us and then sold, is a significant component of construction and development income. During 2005, we generated pre-tax gains of $29.9 million from the sale of 10 properties compared to $24.2 million from the sale of six properties in 2004. Profit margins on these types of building sales fluctuate by sale depending on the type of property being sold, the strength of the underlying tenant and nature of the sale, such as a pre-contracted purchase price for a primary tenant versus a sale on the open market.

· In 2005, we experienced an increase in our third-party construction business as evidenced by the increase in general contractor revenues in 2005 over 2004. We achieved a slight increase in our profit margins during 2005, which reflected improved pricing in certain markets and our ability to select more profitable projects as resources are re-positioned to our increasing held-for-investment development pipeline.

· In the first quarter of 2005, we recognized $2.7 million of a non-recurring deferred gain associated with the sale of our landscaping operations in 2001. The gain was deferred as a result of future performance provisions contained in the original sales agreement. As a result of contract renegotiations effective in the first quarter of 2005, all future performance provisions were removed and the deferred gain was recognized.

General and Administrative Expense

General and administrative expense increased from $29.5 million in 2004 to $31.0 million in 2005. General and administrative expenses consist of two components. The first component is direct expenses not attributable to specific assets such as legal fees, external audit fees, marketing costs, investor relations expenses and other corporate overhead. The second component is the unallocated overhead costs associated with the operation of our owned properties and Service Operations, including construction, leasing and maintenance operations. Overhead costs not allocated to these operations are charged to general and administrative expenses. The increase in general and administrative expenses is primarily the result of an increase in payroll expenses associated with long-term compensation plans and an increase in the number of employees to support our overall growth.

Critical Accounting Policies

The preparation of our consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Our estimates, judgments and assumptions are inherently subjective and based on the existing business and market conditions, and are therefore continually evaluated based upon available information and experience. Note 2 to the Consolidated Financial Statements includes further discussion of our significant accounting policies. Our management has assessed the accounting policies used in the preparation of our financial statements and discussed them with our Audit Committee and independent auditors. The following accounting policies are considered critical based upon materiality to the financial statements, degree of judgment involved in estimating reported amounts and sensitivity to changes in industry and economic conditions:

Accounting for Joint Ventures: We analyze our investments in joint ventures under Financial Accounting Standards Board (“FASB”) Interpretation No. 46(R), Consolidation of Variable Interest Entities, to determine if the joint venture is considered a variable interest entity and would require consolidation. To the extent that our joint ventures do not qualify as variable interest entities, we further assess under the guidelines of Emerging Issues Task Force (“EITF”) Issue No. 04-5, Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited Partners Have Certain Rights (“EITF 04-5”), Statement of Position 78-9, Accounting for Investments in Real Estate Ventures; Accounting Research Bulletin No. 51, Consolidated Financial Statements and FASB No. 94, Consolidation of All Majority-Owned Subsidiaries, to determine if the venture should be consolidated. We have equity interests ranging from 10%-67% in joint ventures that own and operate rental properties and hold land for development. We consolidate those joint ventures that we control through majority ownership interests or substantial participating rights. Control is further demonstrated by the ability of the general partner to manage day-to-day operations, refinance debt and sell the assets of the joint venture without the consent of the limited partner and inability of the limited partner to replace the general partner. We use the equity method of accounting for those joint ventures where we do not have control over operating and financial polices. Under the equity method of accounting, our investment in each joint venture is included on our balance sheet; however, the assets and liabilities of the joint ventures for which we use the equity method are not included on our balance sheet.

Cost Capitalization: Direct and certain indirect costs, including interest, clearly associated with and incremental to the development, construction, leasing or expansion of real estate investments are capitalized as a cost of the property.

We capitalize interest and direct and indirect project costs associated with the initial construction of a property up to the time the property is substantially complete and ready for its intended use. We believe the completion of the building shell is the proper basis for determining substantial completion and that this basis is the most widely accepted standard in the real estate industry. The interest rate used to capitalize interest is based upon our average borrowing rate on existing debt.

We also capitalize direct and indirect costs, including interest costs, on vacant space during extended lease-up periods after construction of the building shell has been completed if costs are being incurred to ready the vacant space for its intended use. If costs and activities incurred to ready the vacant space cease, then cost capitalization is also discontinued until such activities are resumed. Once necessary work has been completed on a vacant space, project costs are no longer capitalized. We cease capitalization of all project costs on extended lease-up periods after the shorter of a one-year period after the completion of the building shell or when the property attains 90% occupancy. In addition, all leasing commissions paid to third parties for new leases or lease renewals are capitalized.

In assessing the amount of indirect costs to be capitalized, we first allocate payroll costs, on a department-by-department basis, among activities for which capitalization is warranted (i.e., construction, development and leasing) and those for which capitalization is not warranted (i.e., property management, maintenance, acquisitions and dispositions and general corporate functions). To the extent the employees of a department split their time between capitalizable and non-capitalizable activities, the allocations are made based on estimates of the actual amount of time spent in each activity. Once the payroll costs are allocated, the non-payroll costs of each department are allocated among the capitalizable and non-capitalizable activities in the same proportion as payroll costs.

To ensure that an appropriate amount of costs are capitalized, the amount of capitalized costs that are allocated to a specific project are limited to amounts using standards we developed. These standards consist of a percentage of the total development costs of a project and a percentage of the total gross lease amount payable under a specific lease. These standards are derived after considering the amounts that would be allocated if the personnel in the departments were working at full capacity. The use of these standards ensures that overhead costs attributable to downtime or to unsuccessful projects or leasing activities are not capitalized.

Impairment of Real Estate Investments: We evaluate our real estate investments upon occurrence of significant changes in the operations, but not less than annually, to assess whether any impairment indications are present that affect the recovery of the recorded value. If any real estate investment is considered to be impaired, a loss is provided to reduce the carrying value of the asset to its estimated fair value. We utilize the guidelines established under SFAS No. 144, Accounting for the Impairment or Disposal of Long Lived Assets (“SFAS 144”), to determine if impairment conditions exist. Under SFAS 144, we review the expected undiscounted cash flows of each property in our held for rental portfolio to determine if there are any indications of impairment of a property. The review of anticipated cash flows involves subjective assumptions of estimated occupancy and rental rates and ultimate residual value. In addition to reviewing anticipated cash flows, we assess other factors such as changes in business climate and legal factors that may affect the ultimate value of the property. These assumptions are subjective and the anticipated cash flows may not ultimately be achieved.

Real estate assets to be disposed of are reported at the lower of their carrying value amount or the fair value less estimated cost to sell.

Acquisition of Real Estate Property: In accordance with SFAS 141, Business Combinations, we allocate the purchase price of acquired properties to net tangible and identified intangible assets based on their respective fair values.

The allocation to tangible assets (buildings, tenant improvements and land) is based upon management’s determination of the value of the property as if it were vacant using discounted cash flow models similar to those used by independent appraisers. Factors considered by management include an estimate of carrying costs during the expected lease-up periods considering current market conditions, and costs to execute similar leases. The remaining purchase price is allocated among three categories of intangible assets consisting of the above or below market component of in-place leases, the value of in-place leases and the value of customer relationships.

· The value allocable to the above or below market component of an acquired in-place lease is determined based upon the present value (using an interest rate which reflects the risks associated with the lease) of the difference between (i) the contractual amounts to be paid pursuant to the lease over its remaining term and (ii) management’s estimate of the amounts that would be paid using current fair market rates over the remaining term of the lease. The amounts allocated to above market leases are included in deferred leasing and other costs in the balance sheet and below market leases are included in other liabilities in the balance sheet; both are amortized to rental income over the remaining terms of the respective leases.

· The total amount of intangible assets is further allocated to in-place lease values and to customer relationship values, based upon management’s assessment of their respective values. These intangible assets are included in deferred leasing and other costs in the balance sheet and are depreciated over the remaining term of the existing lease, or the anticipated life of the customer relationship, as applicable.

Valuation of Receivables: We are subject to tenant defaults and bankruptcies that could affect the collection of outstanding receivables. In order to mitigate these risks, we perform in-house credit review and analysis on major existing tenants and all significant leases before they are executed. We have established the following procedures and policies to evaluate the collectibility of outstanding receivables and record allowances:

· We maintain a tenant “watch list” containing a list of significant tenants for which the payment of receivables and future rent may be at risk. Various factors such as late rent payments, lease or debt instrument defaults, and indications of a deteriorating financial position are considered when determining whether to include a tenant on the watch list.

· As a matter of policy, we reserve the entire receivable balance, including straight-line rent, of any tenant with an amount outstanding over 90 days.

· Straight-line rent receivables for any tenant on the watch list or any other tenant identified as a potential long-term risk, regardless of the status of rent receivables, are reviewed and reserved as necessary.

Revenue Recognition on Construction Contracts: We recognize income on construction contracts where we serve as a general contractor on the percentage of completion method. Using this method, profits are recorded on the basis of our estimates of the overall profit and percentage of completion of individual contracts. A portion of the estimated profits is accrued based upon our estimates of the percentage of completion of the construction contract. Cumulative revenues recognized may be less or greater than cumulative costs and profits billed at any point in time during a contract’s term. This revenue recognition method involves inherent risks relating to profit and cost estimates with those risks reduced through approval and monitoring processes.

With regard to critical accounting policies, management has discussed the following with the Audit Committee:

· Criteria for identifying and selecting;

· Methodology in applying; and

· Impact on the financial statements.

The Audit Committee has reviewed the critical accounting policies we identified.

Liquidity and Capital Resources

Sources of Liquidity

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

· working capital;

· net cash provided by operating activities; and

· proceeds received from real estate dispositions

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

We expect to meet long-term liquidity requirements, such as scheduled mortgage debt maturities, refinancing of long-term debt, preferred share redemptions, the retirement of unsecured notes and amounts outstanding under the unsecured credit facility, property acquisitions, financing of development activities and other non-recurring capital improvements, primarily from the following sources:

· issuance of additional equity, including common and preferred stock;

· issuance of additional debt securities;

· undistributed cash provided by operating activities, if any; and

· proceeds received from real estate dispositions.

Rental Operations

We believe our principal source of liquidity, cash flows from Rental Operations, provides a stable source of cash to fund operational expenses. We believe this cash-based revenue stream is substantially aligned with revenue recognition (except for periodic straight-line rental income accruals and amortization of above or below market rents) as cash receipts from the leasing of rental properties are generally received in advance of or in a short time following the actual revenue recognition.

We are subject to risks of decreased occupancy through market conditions, as well as tenant defaults and bankruptcies, and potential reduction in rental rates upon renewal or re-letting of properties, which would result in reduced cash flow from operations. However, we believe that these risks are mitigated by our relatively strong market presence in most of our locations and the fact that we perform in-house credit review and analysis on major tenants and all significant leases before they are executed.

Credit Facility

We had one unsecured line of credit available at December 31, 2006, summarized as follows (in thousands):

	Borrowing		Maturity	Interest	Outstanding
Description	Capacity		Date	Rate	at December 31, 2006
Unsecured Line of Credit	$	1,000,000	January 2010	LIBOR + .525%	$	317,000

We use this line of credit to fund development activities, acquire additional rental properties and provide working capital. The line of credit provides us with an option to obtain borrowings from financial institutions that participate in the line, at rates lower than the stated interest rate, subject to certain restrictions. Interest rates on the amounts outstanding on the unsecured line of credit as of December 31, 2006, ranged from LIBOR +.17% to LIBOR +.525% (equal to 5.52% and 5.875% as of December 31, 2006.) The line of credit also contains financial covenants that require us to meet financial ratios and defined levels of performance, including those related to variable interest indebtedness, consolidated net worth and debt-to-market capitalization. As of December 31, 2006, we were in compliance with all financial covenants under our line of credit.

Debt and Equity Securities

On July 31, 2006, we filed with the SEC an automatic shelf registration statement on Form S-3 relating to the offer and sale, from time to time, of an indeterminate amount of debt securities, common stock, preferred stock, depositary shares and warrants. From time to time, we expect to issue additional securities under this new automatic shelf registration statement to fund the development and acquisition of additional rental properties and to fund the repayment of the credit facility and other long-term debt upon maturity.

On February 18, 2007, we filed a resale shelf registration statement on Form S-3 with respect to 11,747,135 shares of our common stock issuable upon the exchange or redemption of the Exchangeable Notes. Recipients of such common stock, whom we refer to as the “selling shareholders,” may use the prospectus filed as part of the resale shelf registration statement to resell, from time to time, the shares of our common stock that we may issue to them upon the exchange or redemption of the Exchangeable Notes. Additional selling shareholders may be named by future prospectus supplements.

We registered the offering and resale of such shares to allow the selling shareholders to sell any or all of their shares of common stock on the New York Stock Exchange or in private transactions as described in the prospectus. The registration of the shares does not necessarily mean that the selling shareholders will exchange their Exchangeable Notes for our common stock, that upon any exchange or redemption of the Exchangeable Notes we will elect, in our sole and absolute discretion, to exchange or redeem some or all of the Exchangeable Notes for shares of our common stock rather than cash, or that any shares of our common stock received upon exchange or redemption of the Exchangeable Notes will be sold by the selling shareholders under the prospectus or otherwise.

The indenture governing our unsecured notes also requires us to comply with financial ratios and other covenants regarding our operations. We were in compliance with all such covenants as of December 31, 2006.

Sale of Real Estate Assets

We utilize sales of real estate assets as an additional source of liquidity. We pursue opportunities to sell real estate assets at favorable prices to capture value created by us as well as to improve the overall quality of our portfolio by recycling sale proceeds into new properties with greater value creation opportunities.

Uses of Liquidity

Our principal uses of liquidity include the following:

· Property investments;

· Recurring leasing/capital costs;

· Dividends and distributions to shareholders and unitholders;

· Long-term debt maturities; and

· Other contractual obligations

Property Investments

We evaluate development and acquisition opportunities based upon market outlook, supply and long-term growth potential.

Recurring Expenditures

One of our principal uses of our liquidity is to fund the development, acquisition and recurring leasing/capital expenditures of our real estate investments. The following is a summary of our recurring capital expenditures for the year ended December 31 (in thousands):

	2006		2005		2004
Tenant improvements	$	41,895	$	60,633	$	58,847
Leasing costs	17,106		33,175		27,777
Building improvements	8,122		15,232		21,029
Totals	$	67,123	$	109,040	$	107,653

Dividends and Distributions

In order to qualify as a REIT for federal income tax purposes, we must currently distribute at least 90% of our taxable income to shareholders. We paid dividends per share of $1.89, $1.87 and $1.85 for the years ended December 31, 2006, 2005 and 2004, respectively. We also paid a one-time special dividend of $1.05 per share in 2005 as a result of the significant gain realized from the Industrial Portfolio Sale. We expect to continue to distribute taxable earnings to meet the requirements to maintain our REIT status. However, distributions are declared at the discretion of our board of directors and are subject to actual cash available for distribution, our financial condition, capital requirements and such other factors, as our board of directors deems relevant.

Debt Maturities

Debt outstanding at December 31, 2006, totaled $4.1 billion with a weighted average interest rate of 5.77% maturing at various dates through 2028. We had $3.1 billion of unsecured debt, $317.0 million outstanding on our unsecured line of credit, and $662.5 million of secured debt outstanding at December 31, 2006. Scheduled principal amortization and maturities of such debt totaled $1.1 billion for the year ended December 31, 2006.

The following is a summary of the scheduled future amortization and maturities of our indebtedness at December 31, 2006 (in thousands, except percentage data):

	Future Repayments						Weighted Average
	Scheduled						Interest Rate of
Year	Amortization		Maturities		Total		Future Repayments
2007	13,045		214,615		227,660		5.75	%
2008	12,478		273,464		285,942		5.07	%
2009	12,185		275,000		287,185		7.36	%
2010	11,952		492,000		503,952		5.68	%
2011	11,985		1,012,139		1,024,124		5.10	%
2012	9,914		201,216		211,130		5.90	%
2013	9,905		150,000		159,905		4.74	%
2014	9,826		294,534		304,360		6.44	%
2015	7,593		5,807		13,400		7.13	%
2016	6,671		506,449		513,120		6.17	%
2017	4,976		450,000		454,976		5.95	%
Thereafter	31,676		91,724		123,400		6.49	%
	$	142,206	$	3,966,948	$	4,109,154	5.77	%

Historical Cash Flows

Cash and cash equivalents were $68.5 million and $26.7 million at December 31, 2006 and 2005, respectively. The following highlights significant changes in net cash associated with our operating, investing and financing activities (in millions):

	Years Ended December 31,
	2006			2005			2004
Net Cash Provided by Operating Activities	$	275.7		$	404.3		$	375.5
Net Cash Provided by (Used for) Investing Activities	(1,236.9		)	328.1			(427.2		)
Net Cash Provided by (Used for) Financing Activities	1,002.9			(711.2		)	44.7

Operating Activities

Cash flows from operating activities provide the cash necessary to meet normal operational requirements of our rental operations and Service Operations activities. The receipt of rental income from rental operations continues to provide the primary source of our revenues and operating cash flows. In addition, we develop buildings with the intent to sell them at or soon after completion, which provides another significant source of operating cash flow activity.

· During the year ended December 31, 2006, we incurred Service Operations building development costs of $273.5 million, compared to $83.4 million and $43.1 million for the years ended December 31, 2005 and 2004, respectively. The difference is reflective of the increased activity in our held-for-sale pipeline. The pipeline of held-for-sale projects under construction as of December 31, 2006, has anticipated costs of $667.4 million.

· We sold nine Service Operations buildings in 2006 compared to ten in 2005 and six in 2004, receiving net proceeds of $181.8 million, $113.0 million and $72.7 million, respectively and recognized pre-tax gains of $49.0 million, $29.9 million and $24.2 million, respectively.

Investing Activities

Investing activities are one of the primary uses of our liquidity. Development and acquisition activities typically generate additional rental revenues and provide cash flows for operational requirements. Highlights of significant cash uses are as follows:

· Sales of land and depreciated property provided $180.8 million in net proceeds in 2006, compared to $1.1 billion in 2005 and $178.3 million in 2004. In addition, during 2006 we received distributions of $21.2 million for our share of proceeds on the sales of land and depreciable property within three of our joint ventures. The Industrial Portfolio Sale provided $955 million of the $1.1 billion of proceeds received in 2005. We continue to dispose of non-strategic and older properties as part of our capital recycling program to fund acquisitions and new developments while improving the overall quality of our investment portfolio.

· Development costs for our held for rental portfolio increased to $385.5 million for the year ended December 31, 2006, from $210.0 million and $145.6 million for the years ended December 31, 2005 and 2004, respectively. Management anticipated this continued increase, as a commitment to development activity was part of our strategic plan for 2006 and continues to be for 2007.

· During 2006, we paid cash of $735.3 million for real estate acquisitions, compared to $285.3 million in 2005 and $204.4 million in 2004. The most significant activity in 2006 consisted of the purchase of the Mark Winkler Portfolio of suburban office and light industrial properties and undeveloped land in the Washington, D.C. area for $867.6 million ($713.5 million paid in cash) and a portfolio of industrial properties in Savannah, Georgia for $196.2 million ($125.9 million paid in cash at closing).

· In 2006, we paid cash of $435.9 million for undeveloped land, compared to $135.8 million in 2005 and $113.4 million in 2004. These acquisitions provide us greater opportunities to use our development and construction expertise in the improving economic cycle.

Financing Activities

The following significant items highlight fluctuations in net cash provided by financing activities:

· In January 2006, we received approximately $177.7 million in net proceeds from the issuance of our Series M Cumulative Redeemable Preferred Shares. These preferred shares bear a dividend yield of 6.95%. We applied a portion of the net proceeds from the Series M preferred shares issuance to redeem $75.0 million of Series I preferred shares in February, which had an 8.45% dividend rate.

· In February 2006, we obtained a $700.0 million secured term loan, which was priced at LIBOR +.525%. The proceeds were used to finance the acquisition of the Mark Winkler Portfolio in the Washington, D.C. metropolitan area, and the loan was secured by these properties. This term loan was paid in full in August 2006 with proceeds from the issuance of senior unsecured debt as described below.

· In February and March 2006, we issued $150.0 million of 5.50% senior unsecured notes due in 2016. A portion of the proceeds were used to retire our $100.0 million 6.72% puttable option reset securities. The remaining cash proceeds were used to fund costs associated with the issuance of debt and to repay amounts outstanding under our line of credit.

· In June 2006, we received approximately $106.3 million in net proceeds from the issuance of our Series N Cumulative Redeemable Preferred Shares. These preferred shares bear a dividend yield of 7.25%.

· In August 2006, we issued $450.0 million of 5.95% senior unsecured notes due in 2017 and $250.0 million of 5.625% senior unsecured notes due in 2011. The proceeds from these issuances were used to pay off the $700.0 million secured term loan as described above.

· In November 2006, we issued $319.0 million of 5.91% debt due in 2016 secured by certain of our in-service real estate properties.

· In November 2006, we issued $575.0 million of Exchangeable Notes, which will pay interest semiannually at a rate of 3.75% per annum and mature in December 2011.

· In December 2006, we repaid our $250 million LIBOR +.26% Senior Unsecured Notes.

Credit Ratings

We are currently assigned investment grade corporate credit ratings on our senior unsecured notes from Fitch Ratings, Moody’s Investor Service and Standard and Poor’s Ratings Group. Currently, Fitch and Standard and Poor’s have assigned a rating of BBB+ and Moody’s Investors has assigned a rating of Baa1 to our senior notes.

We also received investment grade credit ratings from the same rating agencies on our preferred stock. Fitch and Standard and Poor’s have assigned a preferred stock rating of BBB and Moody’s Investors has assigned a preferred stock rating of Baa2 to our preferred stock.

These senior notes and preferred stock ratings could change based upon, among other things, our results of operations and financial condition.

Financial Instruments

We are exposed to capital market risk, such as changes in interest rates. In order to manage the volatility relating to interest rate risk, we may enter into interest rate hedging arrangements from time to time. We do not utilize derivative financial instruments for trading or speculative purposes.

In August 2005, we entered into $300.0 million of cash flow hedges through forward-starting interest rate swaps to hedge interest rates on $300.0 million of anticipated debt offerings in 2007. The swaps qualify for hedge accounting, with any changes in fair value recorded in accumulated Other Comprehensive Income (“OCI”). At December 31, 2006, the fair value of these swaps was approximately $9.9 million in an asset position as the effective rates of the swaps were lower than current interest rates at December 31, 2006.

In March 2005, we entered into $300.0 million of cash flow hedges through forward-starting interest rate swaps to hedge interest rates on $300.0 million of anticipated debt offerings in 2006. The swaps qualified for hedge accounting, with any changes in fair value recorded in OCI. In March 2006, we issued $150.0 million of 5.50% senior unsecured notes due 2016 and terminated a corresponding amount of the cash flow hedges designated for this transaction. The settlement amount paid of approximately $800,000 will be recognized to earnings through interest expense ratably over the life of the senior unsecured notes and the ineffective portion of the hedge was insignificant. In August 2006, we issued $450.0 million of 5.95% senior unsecured notes due 2017 and $250.0 million of 5.63% senior unsecured notes due 2011 and terminated the remaining $150.0 million of cash flow hedges. The settlement amount received of approximately $1.6 million will be recognized to earnings through a reduction of interest expense ratably over the lives of the senior unsecured notes. The ineffective portion of the hedge was insignificant.

In June 2004, we simultaneously entered into three forward-starting interest rate swaps aggregating $144.3 million, which effectively fixed the rate on financing expected in 2004 at 5.346%, plus our credit spread over the swap rate. The swaps qualified for hedge accounting; therefore, changes in the fair value were recorded in OCI. In August 2004, we settled these three swaps when we issued $250.0 million of senior unsecured notes with an effective interest rate of 6.33%, due in 2014. We paid $6.9 million to unwind the swaps, which is amortized from OCI into interest expense over the life of the new 6.33% senior unsecured notes.

The effectiveness of our forward-starting hedge instruments will be evaluated throughout their lives using the hypothetical derivative method under which the change in fair value of the actual swap designated as the hedging instrument is compared to the change in fair value of a hypothetical swap.

Off Balance Sheet Arrangements

Investments in Unconsolidated Companies

We have equity interests ranging from 10% — 67% in unconsolidated companies that own and operate rental properties and hold land for development. The equity method of accounting (see Critical Accounting Policies) is used for these investments in which we have the ability to exercise significant influence, but not control, over operating and financial policies. As a result, the assets and liabilities of these joint ventures are not included on our balance sheet.

Our investments in and advances to unconsolidated companies represents approximately 9% of our total assets as of December 31, 2006. These investments provide several benefits to us, including increased market share, tenant and property diversification and an additional source of capital to fund real estate projects.

The following table presents summarized financial information for unconsolidated companies for the years ended December 31, 2006 and 2005, respectively (in thousands, except percentage data):

	Dugan				Dugan				Eaton Vance				Other
	Realty, LLC				Texas, LLC				Joint Ventures				Joint Ventures				Total
	2006		2005		2006		2005		2006		2005		2006		2005		2006		2005
Land, buildings and tenant improvements, net	$	641,562	$	677,377	$	217,694	$	211,818	$	382,232	$	—	$	269,482	$	232,059	$	1,510,970	$	1,121,254
Land held for development	9,669		11,628		5,312		9,222		—		—		76,299		27,086		91,280		47,936