Edgar Filing: ARDEN REALTY INC

Arden Realty, Inc. Form 10-K 12/31/2002

Securities and Exchange Commission

Washington, D.C. 20549

FORM 10-K


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

For the fiscal year ended December 31, 2002

OR

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934

For the transition period from to .

Commission File Number 1-12193

ARDEN REALTY, INC.

(Exact name of registrant as specified in its charter)


Maryland		95-4578533
(State or other jurisdiction of incorporation or organization)		(IRS Employer I.D. Number)

11601 Wilshire Boulevard Fourth Floor

Los Angeles, California 90025-1740

(address of principal executive office)

Registrant’s telephone number, including area code: (310) 966-2600

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


Title of each class		Name of each exchange on which registered

Common Stock, $0.01 par value		New York Stock Exchange
Preferred Stock Purchase Rights		New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

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 of Regulation S-K is not contained herein, and will not be contained to the best of the 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 an accelerated filer (as defined in Rule 12b-2 of the Act). Yes x No o

The aggregate market value of the shares of common stock held by non-affiliates was approximately $1.8 billion based on the closing price on the New York Stock Exchange for such shares on June 28, 2002.

The number of the Registrant’s shares of common stock outstanding was 63,066,851 as of March 21, 2003.

DOCUMENTS INCORPORATED BY REFERENCE

Part III of this report incorporates information by reference from the definitive Proxy Statement for the 2003 Annual Meeting of Stockholders.

TABLE OF CONTENTS


PART I
	ITEM 2.Properties
	ITEM 8.Financial Statements and Supplementary Data
	ITEM 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
PART III
	ITEM 10.Directors and Executive Officers of the Registrant
	ITEM 11.Executive Compensation
	ITEM 12.Security Ownership of Certain Beneficial Owners and Management
	ITEM 13.Certain Relationships and Related Transactions
	ITEM 14.Controls and Procedures
PART IV
	ITEM 15.Exhibits, Financial Statements, and Reports on Form 8-K
ARDEN REALTY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ARDEN REALTY, INC.
EXHIBIT 12.1
EXHIBIT 23.1
EXHIBIT 99.1

ARDEN REALTY, INC.

TABLE OF CONTENTS


Item			Page
No.			No.

PART I
	1.	Business		1
	2.	Properties		6
	3.	Legal Proceedings		17
	4.	Submission of Matters to a Vote of Security Holders		18
PART II
	5.	Market for Registrant’s Common Equity and Related Stockholder Matters		18
	6.	Selected Financial Data		18
	7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		21
	7A.	Quantitative and Qualitative Disclosure about Market Risk		39
	8.	Financial Statements and Supplementary Data		48
	9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		49
PART III
	10.	Directors and Executive Officers of the Registrant		49
	11.	Executive Compensation		49
	12.	Security Ownership of Certain Beneficial Owners and Management		49
	13.	Certain Relationships and Related Transactions		49
	14.	Controls and Procedures		49
PART IV
	15.	Exhibits, Financial Statements and Reports on Form 8-K		50
		Signatures		56
		Certifications		57

PART I

ITEM 1. Business

(a) GENERAL

The terms “Arden Realty”, “us”, “we” and “our” as used in this report refer to Arden Realty, Inc. We were incorporated in Maryland in May 1996 and completed our initial public offering in October 1996. Commencing with our taxable year ended December 31, 1996, we have operated and qualified as a real estate investment trust, or REIT, for federal income tax purposes. We are a self-administered and self-managed REIT that owns, manages, leases, develops, renovates and acquires commercial properties located in Southern California. We are the sole general partner of Arden Realty Limited Partnership, or the operating partnership, and as of December 31, 2002, we owned approximately 97.3% of the operating partnership’s common partnership units. We conduct substantially all of our operations through the operating partnership and its consolidated subsidiaries.

(b) INDUSTRY SEGMENTS

We are currently involved in only one industry segment, namely the operation of commercial real estate located in Southern California. All of the financial information contained in this report relates to this industry segment.

(c) DESCRIPTION OF BUSINESS

We are a full-service real estate organization managed by 8 senior executive officers who have experience in the real estate industry ranging from 11 to 33 years and who collectively have an average of 19 years of experience. We perform all property management, construction management, accounting, finance and acquisition activities and a majority of our leasing transactions for our portfolio with our staff of approximately 300 employees.

As of December 31, 2002, we were Southern California’s largest publicly traded office landlord as measured by total net rentable square feet owned. As of December 31, 2002, our portfolio of primarily suburban office properties consisted of 137 properties and 223 buildings containing approximately 19.4 million net rentable square feet including one development property with approximately 283,000 net rentable square feet under lease-up. As of December 31, 2002, our properties were 90.1% occupied.

Portfolio Management

We perform all portfolio management activities, including management of all lease negotiations, construction management of tenant improvements or tenant build-outs, property renovations, capital expenditures and on-site property management for our portfolio. We directly manage these activities from approximately 44 management offices located throughout our portfolio. The activities of these management offices are supervised by four regional offices with oversight by our corporate office to ensure consistency of the application of our operating policies and procedures. Each regional office is strategically located within the Southern California submarkets where our properties are located and is managed by a regional First Vice President who is responsible for supervising the day-to-day activities of our management offices. Each regional office is staffed with leasing, property management, building engineering, construction and information systems specialists, our Regional Service Teams. By maintaining a regionally focused organizational structure led by seasoned managers, we are able to quickly respond to our tenants’ needs and market opportunities.

All of our management and regional offices are networked with our corporate office and have access to the Internet and our e-mail, accounting and lease management systems. Our accounting and lease management systems employ the latest technology and allow both corporate and field personnel access to tenant and prospective tenant-related information to enhance responsiveness and communication of marketing and leasing activity for each property.

We currently lease approximately 70% of our portfolio’s net rentable space using our in-house staff. We employ outside brokers who are monitored by our Regional Service Teams for the remainder of our net rentable space. Our in-house leasing program allows us to closely monitor rental rates and lease terms for new and renewal leases and reduce third-party leasing commissions.

Business Strategies

Our primary business strategy is to actively manage our portfolio to seek to achieve gains in rental rates and occupancy, control operating expenses and to maximize income from ancillary operations and services. When market conditions permit, we may also selectively develop or acquire new properties in submarkets that add value and fit strategically into our portfolio. We may also sell existing properties and deploy the proceeds into investments that we believe will generate higher long-term value.

Through our corporate office and regional offices, we implement our business strategies by:


	•	using integrated decision making to provide proactive solutions to the space needs of users in the markets where we have extensive real estate and technical expertise;

	•	emphasizing quality service, tenant satisfaction and retention;

	•	employing intensive property marketing and leasing programs; and

	•	implementing cost control management techniques and systems that capitalize on economies of scale and concentration arising from the size and geographic focus of our portfolio.

We believe the implementation of these operating practices has been instrumental in maximizing the operating results of our portfolio.

Integrated Decision Making

We use a multidisciplinary approach to our decision making by having our regional management, leasing, construction management, acquisition, disposition and finance teams coordinate their activities to enhance responsiveness to market opportunities and to provide proactive solutions to the space needs of users in the submarkets where we have extensive real estate and technical expertise. This integrated approach permits us to analyze the specific requirements of existing and prospective tenants and the economic terms and costs for each transaction on a timely and efficient basis. We are therefore able to commit to leasing, development, acquisition or disposition terms quickly, which facilitates an efficient completion of lease negotiation and tenant build-out, shorter vacancy periods after lease expirations and the timely completion of development, acquisition or disposition transactions.

Quality Service and Tenant Satisfaction

We strive to provide quality service through our multidisciplinary operating approach resulting in timely responses to our tenants’ needs. Our seasoned Regional Service Teams interact and resolve issues relating to tenant satisfaction and day-to-day operations. For portfolio-wide operational and administrative functions, our corporate office provides support to all regional offices and provides immediate response for critical operational issues.

Proactive Leasing

The concentration of many of our properties within particular office submarkets and our relationships with a broad array of businesses and outside brokers enables us to pursue proactive leasing strategies, to effectively monitor the demand of office space in our existing submarkets, to efficiently examine the office space requirements of existing and prospective tenants and to offer tenants a variety of space alternatives across our portfolio.

Cost Control and Operating Efficiencies

The size and geographic focus of our portfolio permits us to enhance portfolio value by controlling operating costs. We seek to capitalize on the economies of scale and concentration which result from the

geographic focus of our portfolio through the ownership and management of multiple properties within particular submarkets and the maintenance of standardized processes and systems for cost control at each of our properties. These cost controls and operating efficiencies allowed us to achieve a 68.5% ratio of property operating results to total property revenues in 2002.

Operating Strategies

Based on our geographic focus in Southern California, experience in the local real estate markets and our evaluation of current market conditions, we believe the following key factors provide us with opportunities to maximize returns:


	•	the broad diversification and balance of the Southern California economy and our tenant base minimizes our dependence on any one industry segment or small group of tenants;

	•	the relative resiliency of the Southern California real estate market, as measured by lower vacancy rates compared to the national average and a lower decline in rental rates in our key submarkets than the average decreases in rates reported for the nation since the beginning of the current national economic downturn; and

	•	the limited construction of new office properties in the Southern California region due to substantial building construction limitations and a minimal amount of developable land in most key submarkets.

Internal Operating Strategy

We believe that opportunities exist to increase cash flow from our existing portfolio. We intend to pursue internal growth by:


	•	stabilizing occupancy throughout our portfolio;

	•	capitalizing on economies of scale and concentration due to the size and geographic focus of our portfolio;

	•	controlling operating expenses through active cost control management and systems; and

	•	sourcing new and innovative revenue streams while providing high quality services to our tenants.

Stabilizing Portfolio Occupancy

Although our overall occupancy declined during 2002 by approximately 2.1% as a result of a continued downturn in the national and Southern California economic activity, we believe that we have been successful in attracting and retaining a diverse tenant base by actively managing our properties with an emphasis on tenant satisfaction and retention. Our in-house leasing teams, working with outside leasing brokers, continuously monitor each market to identify strong prospective tenants who are in need of new or additional space. We also strive to be responsive to the needs of existing tenants through our on-site professional management staff and by providing them with alternative space within our portfolio to accommodate their changing space requirements.

Cost Control Management and Systems

We plan to continue controlling our operating expenses through active management at all of our properties. We focus on cost control in various areas of our operations. We continuously monitor the operating performance of our properties and employ energy-enhancing and expense recovery technologies when appropriate. These system enhancements include:


	•	lighting retrofits;

	•	replacement of inefficient heating, ventilation and air conditioning systems;

	•	computer-driven energy management systems that monitor and react to the climatic requirements of individual properties;

	•	automated security systems that allow us to provide security services to our tenants at a lower cost;


	•	enhancement of billing systems, which enable us to more efficiently recover operating expenses from our tenants; and

	•	on-going preventive maintenance programs to operate our building systems efficiently, thereby reducing operating costs.

Capitalizing on Economies of Scale and Concentration

In order to capitalize on economies of scale and concentration arising from the size and geographic focus of our portfolio, each of our Regional Service Teams is responsible for several properties, which spreads administrative and maintenance costs over those properties and reduces per square foot expenses. In addition, contracting in bulk for parking operations, building services and supplies on a portfolio-wide basis also reduces our overall operating expenses.

Sourcing Additional Revenue While Providing High Quality Services to Tenants

We have invested in energy enhancement programs within our portfolio with the aim of reducing energy consumption, enhancing efficiency and lowering operating costs. Over the past three years, we have been recognized by the Environmental Protection Agency with the national Commercial Real Estate Partner of the Year award for our performance in the Energy Star Program. The competition involves top commercial real estate landlords throughout the United States and rigorous bench-marking procedures that track individual building energy efficiency. Of the 673 total Energy Star designated office buildings awarded nationally, 309 were awarded in California; of those, we had 83 award-winning buildings and were cited for having the most energy efficient buildings within a single portfolio in the nation.

In 2001, we formed our taxable REIT subsidiary, Next>edge, to market our expertise in energy solutions and facilities management. In 2002, Next>edge began to assist companies to increase their energy efficiency and reduce costs by employing the latest technologies and the most energy-efficient operational strategies developed to date. These technologies include lighting, heating, ventilation and air conditioning retrofits, energy management system installations, on-site distributed generation and cogeneration projects and solar energy systems.

External Operating Strategy

We believe in the diversity and balance of the Southern California commercial real estate market, and we intend to continue to focus our resources primarily in this region. We have assembled a management team that has extensive experience and knowledge in this market that we believe provides us with a competitive advantage in identifying and capitalizing on selective development, renovation and acquisition opportunities.

Subject to capital availability and market conditions, our approach is to seek development, renovation and acquisition opportunities in markets where we have an existing presence and where the following conditions exist:


	•	low vacancy rates;

	•	opportunities for rising rents due to employment growth and population movements;

	•	a minimal amount of developable land; and

	•	significant barriers to entry due to constraints on new development, including strict entitlement processes, height and density restrictions or other governmental requirements.

Competition

We compete with other owners and developers of office properties to attract tenants to our properties and to obtain suitable land for development. Ownership of competing properties is currently diversified among many different types, from publicly traded companies and institutional investors, including other REITs, to small enterprises and individual owners. No one owner or group of owners currently dominate or significantly

influence the markets in which we operate. See “Risk Factors — Competition affects occupancy levels, rents and the cost of land which could adversely affect our revenues.”

California Electric Utility Deregulation

Problems associated with deregulation of the electric industry in California have resulted in significantly higher costs in some areas. All of our properties are currently located in areas served by utilities that either produce their own electricity, or that have procured long-term, fixed-rate contracts with commercial electrical providers. While we have no information suggesting that any future service interruptions are expected we believe that higher utility costs may continue as price increases are allowed by the California Public Utility Commission or other regulatory agencies.

Approximately 28% of our properties and 21% of the total rentable square footage of our portfolio are subject to leases that require our tenants to pay all utility costs and the remainder provide that our tenants will reimburse us for utility costs in excess of a base year amount. See “Risk Factors — Rising energy costs and power outages in California may have an adverse effect on our operations and revenue.”

We are also working with other companies to provide our properties with new applications of distributed generation, or on-site energy systems, such as solar microturbines, natural gas reciprocating engines, fuel cells and other “green” power alternatives. Lastly, we maintain ongoing communication with our tenants to assist them in ways to lower consumption in their workplace.

Employees

As of December 31, 2002, we had approximately 300 full-time employees that perform all of our property management, construction management, accounting, finance and acquisition activities and a majority of our leasing transactions.

Available Information

This annual report on Form 10-K and other periodic and current reports filed with the Securities and Exchange Commission, or SEC, are available, free of charge, by viewing the SEC Filings available in the Investor Information section of our website at www.ardenrealty.com as soon as reasonably practicable after we file them with the SEC.

(d) FOREIGN OPERATIONS

We do not engage in any foreign operations or derive any revenue from foreign sources.

ITEM 2. Properties

Existing Portfolio

Our portfolio consists of 136 primarily office properties, containing approximately 19.1 million net rentable square feet, excluding a newly developed property with approximately 283,000 net rentable square feet currently under lease-up, that individually range from approximately 12,000 to 600,000 net rentable square feet. Of the 136 properties currently in service in our portfolio, 134 or 99% are office properties. All of our properties are located in Southern California and most are in suburban areas in close proximity to main thoroughfares. We believe that our properties are located within desirable and established business communities and are well maintained. Our properties offer an array of amenities including high-speed internet access, security, parking, conference facilities, on-site management, food services and health clubs.

Following is a summary of our property portfolio as of December 31, 2002:



																						Property Operating
																						Results(2),(3)

																Approximate Net
				Number of						Number of						Rentable Square						For the Year Ended
				Properties(1)						Buildings(1)						Feet(1)						December 31, 2002

							% of						% of						% of					% of
Location				Total			Total			Total			Total			Total			Total			Total		Total


																						($000’s and
																						unaudited)

Los Angeles County
	West(4)				31			23	%		33			15	%		5,021,715			26	%	$	108,411		38	%
	North				29			21	%		46			21	%		3,231,591			17	%		45,407		16	%
	South				16			12	%		21			9	%		3,057,925			16	%		33,181		12	%

		Subtotal			76			56	%		100			45	%		11,311,231			59	%		186,999		66	%
Orange County					24			18	%		57			25	%		3,708,926			19	%		47,722		17	%
San Diego County					25			18	%		40			18	%		2,857,195			15	%		33,384		12	%
Ventura/ Kern Counties					6			4	%		17			8	%		778,363			4	%		9,240		3	%
Riverside/ San Bernardino Counties(5)					5			4	%		8			4	%		476,461			3	%		4,986		2	%

			Total		136	(6)		100	%		222	(6)		100	%		19,132,176	(6)		100	%	$	282,331		100	%


(1)	Includes one property with approximately 140,000 net rentable square feet held for disposition.

(2)

We define Property Operating Results as revenue (including rent, tenant reimbursements, parking income and all other property specific revenues) less property operating expenses (including property taxes, insurance, utilities, repairs and maintenance and all other property specific operating expenses but excluding depreciation and financing costs). This measure is commonly used by investors to evaluate the performance of REITs, to determine trends in earnings and to compute the fair value of properties as it is not affected by (1) the cost of funds of the property owner or (2) the impact of depreciation and amortization expenses as well as gains or losses from the sale of operating real estate assets that are included in net income computed in accordance with GAAP. The first factor is commonly eliminated from net income because it is specific to the particular financing capabilities and constraints of the owner. The second factor is commonly eliminated because it may not accurately represent the actual change in value in real estate properties that results from use or changes in market conditions. We believe that eliminating these costs from net income gives investors an additional measure of operating performance that, when used as an adjunct to net income computed in accordance with GAAP, can be a useful measure of our operating results.


	Property Operating Results captures trends in occupancy rates, rental rates and operating costs. However, Property Operating Results excludes general and administrative costs, interest expense, interest income, depreciation and amortization expense and gains or losses from the sale of properties, changes in value in our real estate properties that result from use or permanent impairment to carrying costs as stipulated by GAAP or the level of capital expenditures and leasing costs necessary to maintain the operating performance of our properties, all of which are significant economic costs. Therefore, Property Operating Results may fail to capture significant trends which limits its usefulness.

	Property Operating Results is a non-GAAP measure of performance. Property Operating Results is not a substitute for net income as computed in accordance with GAAP. It excludes significant expense components such as depreciation and amortization expense and financing costs. This measure should be analyzed in conjunction with net income and cash flow from operating activities as computed in accordance with GAAP. Other companies may use different methods for calculating Property Operating Results or similarly entitled measures and accordingly, our Property Operating Results may not be comparable to similarly entitled measures reported by other companies that do not define the measure exactly as we do.


	The following is a reconciliation of income from continuing operations before gain on sale of properties and minority interest to Property Operating Results (in thousands):



		Year Ended December 31,

		2002			2001			2000

Income from continuing operations before gain on sale of properties and minority interest		$	72,989		$	99,227		$	100,948
Add:
	General and administrative expense		13,166			12,143			9,336
	Interest expense		88,516			84,195			78,406
	Depreciation and amortization		110,202			100,775			85,947
Less:
	Interest and other income		(2,542	)		(2,941	)		(3,527	)

Property Operating Results		$	282,331		$	293,399		$	271,110


(3)	Excludes the operating results of one property classified as held for disposition. The operating results for this property are reported as part of discontinued operations in our consolidated statements of income.

(4)	Includes a retail property with approximately 37,000 net rentable square feet.

(5)	Includes a retail property with approximately 133,000 net rentable square feet.

(6)	Including one development property currently under lease-up, our total portfolio consists of 137 properties with 223 buildings and approximately 19.4 million rentable square feet.

The following is a summary of our occupancy and in-place rents as of December 31, 2002:



									Annualized Base Rent
									Per Leased Square Foot(1)

											Full Service
Location			Percent Occupied			Percent Leased			Portfolio Total		Gross Leases(2)

Los Angeles County
	West			90.2	%		91.4	%	$	28.46	$	28.60
	North			86.1	%		89.1	%		21.48		22.32
	South			87.7	%		89.3	%		19.34		20.43
Orange County				94.8	%		95.4	%		18.28		21.46
San Diego County				88.9	%		88.9	%		18.54		22.91
Ventura/ Kern Counties				96.2	%		96.7	%		18.46		18.70
Riverside/ San Bernardino Counties				93.9	%		94.6	%		17.29		19.85

		Total/ Weighted Average		90.1	%		91.4	%	$	21.67	$	23.68


(1)	Based on monthly contractual base rent under existing leases as of December 31, 2002, multiplied by 12 and divided by leased net rentable square feet; for those leases where rent has not yet commenced or which are in a free rent period, the first month in which rent is to be received is used to determine annualized base rent.


(2)	Excludes 38 properties and approximately 3.9 million square feet under triple net and modified gross leases.

Development Properties

In addition to the properties listed above, we currently have one development property containing approximately 283,000 net rentable square feet under lease-up. This property is located in the Howard Hughes Center, a 70-acre commercial development located two miles north of Los Angeles International Airport and immediately adjacent to the San Diego Freeway (I-405), with on- and off-ramps that directly serve the site.

The following table summarizes information about this property as of December 31, 2002:

Estimated

Year 1

Estimated

Percent

Stabilized

Year 1

Costs

Estimated

Leased

Shell

Estimated

Cash Property

Annual

Incurred

Total

Completion

Stabilization

Operating

Cash

GAAP

Property

To Date

Cost(1)

3/24/03

Date

Date(2)

Results(3)

Yield

Yield(4)

($000’s)

Howard Hughes Center:

6100 Center Drive

65,296

81,500

—

2nd Qtr 2002

4th Qtr 2003

6,450

7.9

8.9


(1)	Estimated total cost includes purchase and closing costs, capital expenditures, tenant improvements, leasing commissions and carrying costs during development, as well as an allocation of land and master plan costs.

(2)	We consider a property to be stabilized in the quarter when the property is at least 95% leased.

(3)	We consider stabilized Cash Property Operating Results to be the rental revenues from the property less the operating expenses of the property on a cash basis before deducting financing costs (interest and principle payments) after the property is at least 95% leased. Property Operating Results are discussed in greater detail in Note (2) to the Existing Portfolio summary table above.

(4)	Estimated Year 1 Annual GAAP Yield includes an adjustment for straight-line rents.

In addition to the property above, we have entitlements and preliminary architectural designs completed for additional build-to-suit buildings at the Howard Hughes Center totaling an additional 425,000 net rentable square feet. We also have construction entitlements at the Howard Hughes Center for up to 600 hotel rooms. Build-to-suit buildings consist of properties constructed to the tenant’s specifications in return for the tenant’s long-term commitment to the property. We do not intend to commence construction on any additional build-to-suit buildings or hotels at the Howard Hughes Center until development plans and budgets are finalized and build-to-suit tenant leases are signed with terms allowing us to achieve yields commensurate with each project’s development risk.

In addition to our development at the Howard Hughes Center, we have completed preliminary designs and are marketing an approximately 170,000 net rentable square foot build-to-suit office building at our Long Beach Airport Business Park. Also, as part of our Gateway Towers acquisition in August 2002, we acquired a 5-acre developable land parcel in Torrance, California that we are also marketing for a build-to-suit building. We do not intend to commence construction on these projects until build-to-suit tenant leases are signed with terms allowing us to achieve yields commensurate with each project’s development risk.

We expect to finance our development activities over the next 24 months through net cash provided by operating activities, proceeds from asset sales or proceeds from our lines of credit.

Acquisitions

The following table summarizes our acquisition activity during 2002:

Property

County

Submarket

Date of Purchase

Property Type

Square Feet

Purchase Price

($000’s)

Gateway Towers

Los Angeles

Torrance

Aug. 7, 2002

Office

432,894

62,500

Gateway Land Parcel

Los Angeles

Torrance

Aug. 7, 2002

Developable Land

N/ A

3,500

Crossroads

San Diego

Mission Valley

Aug. 16, 2002

Office

133,566

16,900

Governor Executive Center

San Diego

Governor Park

Aug. 16, 2002

Office

52,195

11,200

Carmel Valley Center I & II

San Diego

Del Mar Heights

Aug. 30, 2002

Office

107,197

28,400

Carmel View Office Plaza

San Diego

Rancho Bernardo

Aug. 30, 2002

Office

77,460

12,500

Total

803,312

135,000

Dispositions

The following table summarizes our disposition activity during 2002:

Property

County

Submarket

Date of Sale

Property Type

Square Feet

Sales Price

($000’s)

Harbor Corporate Center

Los Angeles

Torrance

Mar. 7, 2002

Office

63,925

6,900

Renaissance Court

Los Angeles

Simi/Conejo Valley

April 16, 2002

Office

61,245

8,300

6800 Owensmouth

Los Angeles

West San Fernando Valley

May 1, 2002

Office

80,014

8,400

2730 Wilshire Apartments

Los Angeles

Santa Monica

Nov. 1, 2002

Apartment

—

(1)

2,300

Total

205,184

25,900


(1)	Consists of 16 apartment units.

The following table presents specific information regarding our 136 stabilized properties as of December 31, 2002:


				Year(s)	Approximate
Property				Built/	Net Rentable
Name		Submarket	Location	Renovated	Square Feet

Los Angeles County
Los Angeles West
9665 Wilshire		Beverly Hills/ Century City	Beverly Hills	1972/92-93		158,684
Beverly Atrium		Beverly Hills/ Century City	Beverly Hills	1989		59,650
8383 Wilshire		Beverly Hills/ Century City	Beverly Hills	1971/93		417,463
120 S. Spalding		Beverly Hills/ Century City	Beverly Hills	1984		60,656
9100 Wilshire Blvd		Beverly Hills/ Century City	Beverly Hills	1971/90		326,227
Century Park Center		Beverly Hills/ Century City	Los Angeles	1972/94		243,404
10350 Santa Monica		Beverly Hills/ Century City	Los Angeles	1979		42,292
10351 Santa Monica		Beverly Hills/ Century City	Los Angeles	1984		96,251
Westwood Terrace		Westwood/ West Los Angeles	Los Angeles	1988		135,943
1950 Sawtelle		Westwood/ West Los Angeles	Los Angeles	1988/95		103,106
10780 Santa Monica		Westwood/ West Los Angeles	Los Angeles	1984		92,486
Wilshire Pacific Plaza		Westwood/ West Los Angeles	Los Angeles	1976/87		100,122
World Savings Center(2)		Westwood/ West Los Angeles	Los Angeles	1983		469,115
11075 Santa Monica		Westwood/ West Los Angeles	Los Angeles	1983		35,696
2730 Wilshire		Westwood/ West Los Angeles	Santa Monica	1985		55,080
2800 28th Street		Westwood/ West Los Angeles	Santa Monica	1979		103,506
1919 Santa Monica		Westwood/ West Los Angeles	Santa Monica	1991		43,796
2001 Wilshire Blvd		Westwood/ West Los Angeles	Santa Monica	1980		101,125
Westwood Center		Westwood/ West Los Angeles	Santa Monica	1965/2000		313,000
400 Corporate Pointe		Marina Area/ Culver City/ LAX	Culver City	1987		164,598
600 Corporate Pointe		Marina Area/ Culver City/ LAX	Culver City	1989		273,339
Bristol Plaza		Marina Area/ Culver City/ LAX	Culver City	1982		84,014
Northpoint		Marina Area/ Culver City/ LAX	Los Angeles	1991		104,235
Howard Hughes Spectrum Club		Marina Area/ Culver City/ LAX	Los Angeles	1993		36,959
Howard Hughes Tower		Marina Area/ Culver City/ LAX	Los Angeles	1987		313,833
6060 Center Drive		Marina Area/ Culver City/ LAX	Los Angeles	2000		241,928
6080 Center Drive		Marina Area/ Culver City/ LAX	Los Angeles	2002		287,148
Univision-5999 Center Drive		Marina Area/ Culver City/ LAX	Los Angeles	2001		161,650
6100 Wilshire		Park Mile/ West Hollywood	Los Angeles	1986		202,704
145 South Fairfax		Park Mile/ West Hollywood	Los Angeles	1984		53,994
Beverly Sunset Medical Plaza(3)		Park Mile/ West Hollywood	Los Angeles	1963/92-95		139,711

	Subtotal/ Weighted Average — Los Angeles West					5,021,715

[Additional columns below]

[Continued from above table, first column(s) repeated]


												Annualized
		Percentage of										Base Rent
		Total										per Leased
		Portfolio Net						Annualized				Net Rentable
Property		Rentable			Percent			Base Rent		Number of		Square
Name		Square Feet			Leased			($000s)		Leases		Feet(1)

Los Angeles County
Los Angeles West
9665 Wilshire			0.8	%		99.3	%	$	5,900		21	$	37.44
Beverly Atrium			0.3			94.1			1,578		14		28.10
8383 Wilshire			2.2			90.2			9,700		124		25.75
120 S. Spalding			0.3			100.0			2,408		14		38.27
9100 Wilshire Blvd			1.7			91.7			8,160		71		27.26
Century Park Center			1.3			91.3			5,131		92		23.08
10350 Santa Monica			0.2			83.9			828		15		23.32
10351 Santa Monica			0.5			87.7			1,929		15		22.86
Westwood Terrace			0.7			98.5			3,726		26		27.82
1950 Sawtelle			0.5			88.1			2,266		35		24.96
10780 Santa Monica			0.5			95.4			2,135		34		24.21
Wilshire Pacific Plaza			0.5			92.2			2,434		39		26.37
World Savings Center(2)			2.5			94.2			13,468		55		30.49
11075 Santa Monica			0.2			91.3			799		6		24.53
2730 Wilshire			0.3			100.0			1,496		32		26.57
2800 28th Street			0.5			82.3			2,328		37		27.32
1919 Santa Monica			0.2			70.9			910		3		29.32
2001 Wilshire Blvd			0.5			93.2			2,626		19		27.87
Westwood Center			1.7			83.1			9,818		36		37.75
400 Corporate Pointe			0.9			100.0			3,179		21		19.32
600 Corporate Pointe			1.4			91.1			5,736		21		23.05
Bristol Plaza			0.4			97.7			1,687		28		20.55
Northpoint			0.5			78.4			2,569		7		31.43
Howard Hughes Spectrum Club			0.2			100.0			909		1		24.60
Howard Hughes Tower			1.6			74.3			6,922		30		29.70
6060 Center Drive			1.3			100.0			8,473		8		34.14
6080 Center Drive			1.5			96.0			9,684		14		36.26
Univision-5999 Center Drive			0.9			100.0			4,247		2		25.53
6100 Wilshire			1.1			100.0			5,397		55		26.03
145 South Fairfax			0.3			90.0			1,066		13		21.92
Beverly Sunset Medical Plaza(3)			0.7			74.7			3,137		55		30.06

	Subtotal/ Weighted Average — Los Angeles West		26.2	%		91.4	%	$	130,646		943	$	28.46


				Year(s)	Approximate
Property				Built/	Net Rentable
Name		Submarket	Location	Renovated	Square Feet

Los Angeles North
Calabasas Commerce Center		Simi/ Conejo Valley	Calabasas	1990		126,771
Calabasas Tech		Simi/ Conejo Valley	Calabasas	1990/2001		273,526
Pennsfield Plaza		Simi/ Conejo Valley	Thousand Oaks	1989		21,202
Conejo Business Center		Simi/ Conejo Valley	Thousand Oaks	1991		69,017
Marin Corporate Center		Simi/ Conejo Valley	Thousand Oaks	1986		51,360
Hillside Corporate Center		Simi/ Conejo Valley	Westlake	1998		59,876
Westlake — 5601 Lindero		Simi/ Conejo Valley	Westlake	1989		105,830
Westlake Gardens		Simi/ Conejo Valley	Westlake	1998		49,639
Westlake Gardens II		Simi/ Conejo Valley	Westlake	1999		48,874
Woodland Hills		West San Fernando Valley	Woodland Hills	1972/95		224,955
Los Angeles Corporate Center		San Gabriel Valley	Monterey Park	1984/86		389,293
Clarendon Crest		West San Fernando Valley	Woodland Hills	1990		43,063
Lyons Plaza		Santa Clarita Valley	Santa Clarita	1990		61,203
Tourney Pointe		Santa Clarita Valley	Santa Clarita	1985/98-2000		219,991
16000 Ventura		Central San Fernando Valley	Encino	1980/96		174,841
15250 Ventura		Central San Fernando Valley	Sherman Oaks	1970/90-91		110,641
Noble Professional Center		Central San Fernando Valley	Sherman Oaks	1985/93		51,828
Sunset Point Plaza		Valencia	Newhall	1988		58,105
303 Glenoaks		East San Fernando Valley/ Tri-Cities	Burbank	1983/96		175,289
601 S. Glenoaks		East San Fernando Valley/ Tri-Cities	Burbank	1990		72,524
Burbank Executive Plaza		East San Fernando Valley/ Tri-Cities	Burbank	1983		60,395
California Federal Building		East San Fernando Valley/ Tri-Cities	Burbank	1978		81,243
425 West Broadway		East San Fernando Valley/ Tri-Cities	Glendale	1984		71,589
Glendale Corporate Center		East San Fernando Valley/ Tri-Cities	Glendale	1985		108,209
70 South Lake		East San Fernando Valley/ Tri-Cities	Pasadena	1982/94		100,133
150 East Colorado Boulevard		East San Fernando Valley/ Tri-Cities	Pasadena	1979/97		61,168
299 N. Euclid		East San Fernando Valley/ Tri-Cities	Pasadena	1983		73,522
5161 Lankershim		East San Fernando Valley/ Tri-Cities	North Hollywood	1985/97		178,317
535 N. Brand Blvd		East San Fernando Valley/ Tri-Cities	North Hollywood	1973/92/99		109,187

	Subtotal/ Weighted Average — Los Angeles North					3,231,591
Los Angeles South
Long Beach Airport Bldg D(2)		Long Beach	Long Beach	1987/95		121,610
Long Beach Airport Bldg F & G(2)		Long Beach	Long Beach	1987/95		150,403
5000 East Spring(2)		Long Beach	Long Beach	1989/95		163,358
100 Broadway		Long Beach	Long Beach	1987/96		191,727

[Additional columns below]

[Continued from above table, first column(s) repeated]


												Annualized
		Percentage of										Base Rent
		Total										per Leased
		Portfolio Net						Annualized				Net Rentable
Property		Rentable			Percent			Base Rent		Number of		Square
Name		Square Feet			Leased			($000s)		Leases		Feet(1)

Los Angeles North
Calabasas Commerce Center			0.7	%		89.9	%	$	2,089		11	$	18.33
Calabasas Tech			1.3			100.0			4,846		16		17.31
Pennsfield Plaza			0.1			95.2			382		12		18.94
Conejo Business Center			0.4			80.5			1,131		25		20.34
Marin Corporate Center			0.3			97.7			1,101		31		21.96
Hillside Corporate Center			0.3			87.7			1,342		9		25.55
Westlake — 5601 Lindero			0.6			78.1			1,468		2		17.75
Westlake Gardens			0.3			87.6			1,204		16		27.69
Westlake Gardens II			0.3			100.0			1,243		4		25.44
Woodland Hills			1.2			87.5			4,616		68		23.45
Los Angeles Corporate Center			2.0			97.9			7,889		45		20.70
Clarendon Crest			0.2			89.5			801		16		20.76
Lyons Plaza			0.3			68.3			1,001		23		23.95
Tourney Pointe			1.1			84.8			3,638		32		19.51
16000 Ventura			0.9			95.7			3,746		46		22.39
15250 Ventura			0.6			89.9			2,271		39		22.83
Noble Professional Center			0.3			96.9			1,126		19		22.41
Sunset Point Plaza			0.3			97.6			1,436		27		25.31
303 Glenoaks			0.9			59.0			2,450		23		23.68

601 S. Glenoaks			0.4			83.6			1,307		14		21.56

Burbank Executive Plaza			0.3			74.3			1,112		13		24.80
California Federal Building			0.4			84.2			1,297		12		18.96
425 West Broadway			0.4			96.0			1,472		13		21.41

Glendale Corporate Center			0.6			85.6			1,926		19		20.79
70 South Lake			0.5			97.3			2,480		17		25.47

150 East Colorado Boulevard			0.3			94.0			1,306		19		22.71
299 N. Euclid			0.4			100.0			1,688		5		22.92

5161 Lankershim			0.9			83.6			3,358		7		22.53

535 N. Brand Blvd			0.6			88.1			2,113		40		21.96

	Subtotal/ Weighted Average — Los Angeles North		16.9	%		89.1	%	$	61,839		623	$	21.48
Los Angeles South
Long Beach Airport Bldg D(2)			0.6	%		100.0	%	$	1,211		1	$	9.96
Long Beach Airport Bldg F & G(2)			0.8			100.0			1,354		1		9.00
5000 East Spring(2)			0.9			85.4			3,407		33		24.43
100 Broadway			1.0			91.5			4,009		35		22.87


				Year(s)	Approximate
Property				Built/	Net Rentable
Name		Submarket	Location	Renovated	Square Feet

1501 Hughes Way		Long Beach	Long Beach	1983/97		77,060
3901 Via Oro		Long Beach	Long Beach	1986/97		53,195
Oceangate Tower		Long Beach	Long Beach	1971/93-94		210,907
Continental Grand Plaza		El Segundo	El Segundo	1986		235,926
Grand Avenue Plaza (1970)		El Segundo	El Segundo	1980		81,448
5200 West Century		Marina Area/ Culver City/ LAX	Culver City	1982/98-99		310,910
Skyview Center		Marina Area/ Culver City/ LAX	Los Angeles	1981/87/95		391,675
South Bay Centre		Torrance	Gardena	1984		202,830
Pacific Gateway		Torrance	Torrance	1982/90		223,731
Mariner Court		Torrance	Torrance	1989		105,436
South Bay Tech		Torrance	Torrance	1984		104,815
Gateway Towers		Torrance	Torrance	1984/86		432,894

	Subtotal/ Weighted Average — Los Angeles South					3,057,925
Orange County
Whittier		San Gabriel Valley	Whittier	1982		135,415
1370 Valley Vista		San Gabriel Valley	Diamond Bar	1988		84,081
5832 Bolsa		West County	Huntington Beach	1985		49,355
Huntington Beach Plaza		West County	Huntington Beach	1984/96		52,186
5702 Bolsa		West County	Huntington Beach	1987/97		27,731
5672 Bolsa		West County	Huntington Beach	1987		11,968
5632 Bolsa		West County	Huntington Beach	1987		21,568
Huntington Commerce Center		West County	Huntington Beach	1987		67,551
City Centre		West County	Fountain Valley	1982		302,519
Fountain Valley Plaza		West County	Fountain Valley	1982		107,252
3300 Irvine Avenue		Greater Airport Area	Newport Beach	1981/97		74,224
1821 Dyer		Greater Airport Area	Irvine	1980/88		115,061
Von Karman Corporate Center		Greater Airport Area	Irvine	1981/84		451,477
Norwalk		Long Beach	Norwalk	1978/94		122,175
91 Freeway Center		Mid-Cities	Artesia	1986/97		93,277
1503 South Coast		Greater Airport Area	Costa Mesa	1979/97		60,605
222 South Harbor(2)		Tri-Freeway Area	Anaheim	1986/91		175,391
Crown Cabot Financial		South County	Laguna Niguel	1989		172,900
625 The City		Tri-Freeway Area	Orange	1985/97		139,806
Orange Financial Center		Central County	Orange	1985/95		305,439
Centerpointe La Palma		North County	La Palma	1986/88/90		597,550
Lambert Office Plaza		North County	Brea	1986/97		32,807

[Additional columns below]

[Continued from above table, first column(s) repeated]


												Annualized
		Percentage of										Base Rent
		Total										per Leased
		Portfolio Net						Annualized				Net Rentable
Property		Rentable			Percent			Base Rent		Number of		Square
Name		Square Feet			Leased			($000s)		Leases		Feet(1)

1501 Hughes Way			0.4			79.0			1,123		4		18.45
3901 Via Oro			0.3			90.1			868		4		18.12
Oceangate Tower			1.1			91.1			3,457		40		17.99
Continental Grand Plaza			1.2			73.4			4,679		29		27.01
Grand Avenue Plaza (1970)			0.4			82.6			1,225		4		18.20
5200 West Century			1.6			100.0			5,698		40		17.85
Skyview Center			2.0			77.3			5,182		53		17.12
South Bay Centre			1.1			94.9			3,594		35		18.67
Pacific Gateway			1.2			98.7			4,608		41		20.87
Mariner Court			0.6			96.7			2,017		37		19.78
South Bay Tech			0.5			68.0			1,228		8		17.22
Gateway Towers			2.3			91.1			9,144		66		23.19

	Subtotal/ Weighted Average — Los Angeles South		16.0	%		89.3	%	$	52,804		431	$	19.34
Orange County
Whittier			0.7	%		97.4	%	$	3,014		45	$	22.85
1370 Valley Vista			0.4			100.0			1,735		15		20.44
5832 Bolsa			0.3			100.0			740		1		15.00
Huntington Beach Plaza			0.3			73.5			644		15		16.79
5702 Bolsa			0.1			100.0			220		2		7.92
5672 Bolsa			0.1			100.0			98		1		8.16
5632 Bolsa			0.1			100.0			181		1		8.40
Huntington Commerce Center			0.4			81.2			500		20		9.11
City Centre			1.6			97.1			5,772		20		19.65
Fountain Valley Plaza			0.6			100.0			2,254		9		20.91
3300 Irvine Avenue			0.4			91.2			1,680		27		24.83
1821 Dyer			0.6			94.3			1,246		3		11.49
Von Karman Corporate Center			2.4			97.7			9,240		32		20.95
Norwalk			0.6			97.8			2,142		9		17.92
91 Freeway Center			0.5			93.3			1,763		29		20.25
1503 South Coast			0.3			79.2			899		21		18.74
222 South Harbor(2)			0.9			84.9			3,034		20		20.38
Crown Cabot Financial			0.9			94.9			4,699		39		28.65
625 The City			0.7			87.6			2,540		31		20.75
Orange Financial Center			1.6			98.1			6,506		37		21.72
Centerpointe La Palma			3.1			95.6			10,533		89		18.44
Lambert Office Plaza			0.2			95.3			677		11		21.64


				Year(s)	Approximate
Property				Built/	Net Rentable
Name		Submarket	Location	Renovated	Square Feet

Savi Tech Center		North County	Yorba Linda	1989		341,446
Yorba Linda Business Park		North County	Yorba Linda	1988		167,142

	Subtotal/ Weighted Average — Orange County					3,708,926
San Diego County
701 B Street(2)		Downtown	San Diego	1982/96		540,413
Foremost Professional Plaza		I-15 Corridor	San Diego	1992		60,534
Activity Business Center		I-15 Corridor	San Diego	1987		167,045
Bernardo Regency		I-15 Corridor	San Diego	1986		47,916
Carlsbad Corporate Center		North Coast	Carlsbad	1996		125,000
10180 Scripps Ranch		I-15 Corridor	San Diego	1978/96		43,560
Cymer Technology Center		I-15 Corridor	Rancho Bernardino	1986		155,612
Via Frontera		I-15 Corridor	Rancho Bernardino	1982/97		77,920
Poway Industrial		I-15 Corridor	Poway	1991/96		112,000
Balboa Corporate Center		Mission Valley/ Kearny Mesa	San Diego	1990		69,890
Panorama Corporate Center		Mission Valley/ Kearny Mesa	San Diego	1991		133,149
Ruffin Corporate Center		Mission Valley/ Kearny Mesa	San Diego	1990		45,059
Skypark Office Plaza		Mission Valley/ Kearny Mesa	San Diego	1986		202,164
Governor Park Plaza		North City	San Diego	1986		104,065
Westridge		North City	San Diego	1984/96		48,955
5120 Shoreham		North City	San Diego	1984		37,759
Morehouse Tech Center		North City	San Diego	1984		181,207
Torreyana Science Park		North City	La Jolla	1980/97		81,204
Waples Tech Center		North City	San Diego	1990		28,119
Genesee Executive Plaza		North City	San Diego	1984		155,820
10251 Vista Sorrento		North City	San Diego	1981/95		69,386
Carmel Valley Centre		Del Mar Heights	San Diego	1987/89		107,197
Governor Executive Center		Governor Park	San Diego	1988		52,195
Crossroads		Mission Valley	San Diego	1979		133,566
Carmel View Office Plaza		Rancho Bernardo/ Poway	San Diego	1985		77,460

	Subtotal/ Weighted Average — San Diego County					2,857,195

[Additional columns below]

[Continued from above table, first column(s) repeated]


												Annualized
		Percentage of										Base Rent
		Total										per Leased
		Portfolio Net						Annualized				Net Rentable
Property		Rentable			Percent			Base Rent		Number of		Square
Name		Square Feet			Leased			($000s)		Leases		Feet(1)

Savi Tech Center			1.8			100.0			3,130		4		9.17
Yorba Linda Business Park			0.8			98.6			1,435		61		8.70

	Subtotal/ Weighted Average — Orange County		19.4	%		95.4	%	$	64,682		542	$	18.28
San Diego County
701 B Street(2)			2.8	%		86.8	%	$	10,110		78	$	21.56
Foremost Professional Plaza			0.3			88.5			1,373		30		25.62
Activity Business Center			0.8			92.8			2,217		40		14.30
Bernardo Regency			0.3			64.4			780		14		25.30
Carlsbad Corporate Center			0.7			100.0			1,207		1		9.36
10180 Scripps Ranch			0.2			100.0			445		1		10.22
Cymer Technology Center			0.8			100.0			1,813		2		11.65
Via Frontera			0.4			100.0			834		6		10.58
Poway Industrial			0.6			100.0			672		1		6.00
Balboa Corporate Center			0.4			100.0			843		1		12.06
Panorama Corporate Center			0.7			—			—		—		—
Ruffin Corporate Center			0.2			100.0			495		1		10.98
Skypark Office Plaza			1.1			99.6			4,023		19		19.98
Governor Park Plaza			0.5			93.1			2,334		20		24.10
Westridge			0.3			100.0			752		4		15.37
5120 Shoreham			0.2			94.9			750		6		20.94
Morehouse Tech Center			0.9			89.3			2,908		7		17.97
Torreyana Science Park			0.4			100.0			1,894		1		23.32
Waples Tech Center			0.1			91.9			364		3		14.07
Genesee Executive Plaza			0.8			75.1			3,178		18		27.17
10251 Vista Sorrento			0.4			100.0			1,193		1		17.20
Carmel Valley Centre			0.6			94.1			3,153		15		31.25
Governor Executive Center			0.3			97.0			1,291		11		25.50
Crossroads			0.7			100.0			2,680		12		20.07
Carmel View Office Plaza			0.4			95.5			1,785		14		24.11

	Subtotal/ Weighted Average — San Diego County		14.9	%		88.9	%	$	47,094		306	$	18.54


				Year(s)	Approximate
Property				Built/	Net Rentable
Name		Submarket	Location	Renovated	Square Feet

Ventura & Kern Counties
Parkway Center I		Bakersfield	Bakersfield	1992/95		61,333
4900 California		Bakersfield	Bakersfield	1983		155,189
Center Promenade		West County	Ventura	1982		174,837
1000 Town Center		West County	Oxnard	1989		107,656
Solar Drive Business Center		West County	Oxnard	1982		125,132
Camarillo Business Park		West County	Camarillo	1984/97		154,216

	Subtotal/ Weighted Average — Ventura & Kern Counties					778,363
Riverside and San Bernardino Counties
Centrelake Plaza		Inland Empire West	Ontario	1989		110,763
Tower Plaza Retail		Temecula	Temecula	1970/97		133,481
Chicago Avenue Business Park		Inland Empire East	Riverside	1986		47,482
Havengate Center		Inland Empire East	Rancho Cucamonga	1985		80,557
HDS Plaza		Inland Empire East	San Bernardino	1987		104,178

	Subtotal/ Weighted Average — Riverside and San Bernardino Counties					476,461

	Portfolio Total/ Weighted Average					19,132,176

[Additional columns below]

[Continued from above table, first column(s) repeated]


												Annualized
		Percentage of										Base Rent
		Total										per Leased
		Portfolio Net						Annualized				Net Rentable
Property		Rentable			Percent			Base Rent		Number of		Square
Name		Square Feet			Leased			($000s)		Leases		Feet(1)

Ventura & Kern Counties
Parkway Center I			0.3	%		95.6	%	$	1,099		13	$	18.74
4900 California			0.8			95.5			2,583		18		17.43
Center Promenade			0.9			98.3			2,988		64		17.38
1000 Town Center			0.6			94.8			2,119		9		20.76
Solar Drive Business Center			0.7			100.0			2,300		37		17.64
Camarillo Business Park			0.8			91.9			2,809		24		19.82

	Subtotal/ Weighted Average — Ventura & Kern Counties		4.1	%		96.7	%	$	13,898		165	$	18.46
Riverside and San Bernardino Counties
Centrelake Plaza			0.6	%		98.5	%	$	2,530		22	$	23.21
Tower Plaza Retail			0.7			91.2			1,475		24		12.12
Chicago Avenue Business Park			0.3			92.7			660		8		14.99
Havengate Center			0.4			94.5			1,303		18		17.11
HDS Plaza			0.5			95.8			1,824		13		18.28

	Subtotal/ Weighted Average — Riverside and San Bernardino Counties		2.5	%		94.6	%	$	7,792		85	$	17.29

	Portfolio Total/ Weighted Average		100	%		91.4	%	$	378,755		3,095	$	21.67


(1)	Calculated as monthly contractual base rent under existing leases as of December 31, 2002, multiplied by 12 and divided by leased net rentable square feet, for those leases where rent has not yet commenced or which are in a free rent period, the first month in which rent is to be received is used to determine annualized base rent.

(2)	We lease the land underlying these properties or their parking structures pursuant to long term ground leases.

(3)	This property was sold on March 11, 2003 for approximately $32.5 million.

Tenant Information

As of December 31, 2002, we had over 3,000 tenants, with no one tenant representing more than 2.2% of the aggregate annualized base rent of our properties, and only 4 tenants individually representing more than 1.0% of our aggregate annualized base rent. Our properties are leased to local, national and foreign companies engaged in a variety of businesses including financial services, entertainment, health care services, accounting, law, education, publishing and local, state and federal government entities.

Our leases are typically structured for terms of three to ten years. Leases typically contain provisions permitting tenants to renew expiring leases at prevailing market rates. Approximately 79% of our total rentable square footage is under full service gross leases under which tenants typically pay for all real estate taxes and operating expenses above those for an established base year or expense stop. Our remaining square footage is under triple net and modified gross leases. Triple net and modified gross leases are those where tenants pay not only base rent, but also some or all real estate taxes and operating expenses of the leased property. Tenants generally reimburse us the full direct cost, without regard to a base year or expense stop, for use of lighting, heating and air conditioning during non-business hours, and for on-site monthly employee and visitor parking. We are generally responsible for structural repairs.

The following table presents information as of December 31, 2002 derived from our ten largest tenants based on the percentage of aggregate portfolio annualized base rent:


				Weighted		Percentage of			Percentage of
				Average		Aggregate			Aggregate
				Remaining		Portfolio			Portfolio					Annualized
		Number of		Lease Term		Leased			Annualized			Net Rentable		Base Rent
Tenant		Leases		in Months		Square Feet			Base Rent(1)			Square Feet		($000’s)

Vivendi Universal			4		88		1.32	%		2.14	%		231,681	$	8,111
State of California			41		46		1.99			1.93			347,626		7,322
University of Phoenix			20		22		1.44			1.32			251,293		4,982
Univision Television Group, Inc.			2		226		0.95			1.12			166,363		4,247
Ceridian Corporation			5		80		0.92			0.95			160,805		3,589
U.S. Government			24		43		0.78			0.84			136,158		3,192
SBC Communications, Inc.			8		28		0.83			0.83			144,927		3,140
Verizon Communications, Inc.			8		20		0.90			0.70			156,612		2,659
Atlantic Richfield			13		44		0.72			0.70			126,830		2,659
Boeing			2		34		1.56			0.68			272,013		2,565

	Total/ Weighted Average(2)		127		60		11.41	%		11.21	%		1,994,308	$	42,466


(1)	Annualized base rent is calculated as monthly contractual base rent under existing leases as of December 31, 2002, multiplied by 12; for those leases where rent has not yet commenced or which are in a free rent period, the first month in which rent is to be received is used to determine annualized base rent.

(2)	The weighted average calculation is based on net rentable square footage leased by each tenant.

The following table presents the diversification of the tenants occupying space in our portfolio by industry as of December 31, 2002:


							Percentage of
					Occupied		Total
			NAICS		Square		Occupied
North American Industrial Classification System Description			Code		Feet		Portfolio

Professional, Scientific, and Technical Services:
	Legal Services			5411		1,232,234		7.15	%
	Accounting & Tax Preparation, Bookkeeping and Payroll Services			5412		665,891		3.86
	Management, Scientific and Technical Consulting Services			5416		716,168		4.15
	Other Services					1,792,026		10.40

		Subtotal		541		4,406,319		25.56
Finance and Insurance				521-525		2,740,244		15.90
Information				511-519		2,156,850		12.51
Manufacturing				311-339		1,446,481		8.39
Health Care and Social Assistance				621-624		1,296,418		7.52
Administrative and Support and Waste Management and Remediation Services				561-562		799,288		4.64
Public Administration				921-928		747,784		4.34
Educational Services				611		700,114		4.06
Real Estate, Rental and Leasing				531-533		715,417		4.15
Wholesale Trade				423-425		531,102		3.08
Transportation and Warehousing				481-493		388,299		2.25
Arts, Entertainment, and Recreation				711-713		327,520		1.90
Construction				236-238		236,908		1.37
Accommodation and Food Services				721-722		195,362		1.13
Other Services (except Public Administration)				811-814		171,012		0.99
Retail Trade				441-454		131,117		0.76
Mining				211-213		85,272		0.49
Management of Companies and Enterprises				551		21,970		0.13
Utilities				221		8,795		0.05
Agriculture, Forestry, Fishing and Hunting				111-115		6,065		0.04
Non-classified				Other		125,754		0.74

		Total Square Feet Occupied				17,238,091		100.00	%

Lease Distribution

The following table presents information relating to the distribution of the leases for our 136 stabilized properties, based on leased net rentable square feet, as of December 31, 2002:


										Percent							Percentage
										of			Annualized		Average		of
								Total		Aggregate			Base Rent		Annualized		Aggregate
			Number		Percent			Leased		Portfolio			of		Base Rent		Portfolio
			of		of All			Square		Leased			Leases(1)		per Leased		Annualized
Square Feet Under Lease			Leases		Leases			Feet		Square Feet			($000s)		Square Foot		Base Rent

	2,500 and under			1,558		50.34	%		2,154,167		12.32	%	$	51,758	$	24.03		12.68	%
	2,501 – 5,000			716		23.13			2,508,078		14.35			61,364		24.47		15.03
	5,001 – 7,500			274		8.85			1,668,800		9.55			41,384		24.80		10.14
	7,501 – 10,000			176		5.69			1,535,484		8.78			36,982		24.08		9.06
10,001 – 20,000				234		7.56			3,289,906		18.82			79,717		24.23		19.52
20,001 – 40,000				76		2.46			2,103,724		12.03			47,149		22.41		11.55
40,001 and over				61		1.97			4,220,717		24.15			89,948		21.31		22.02

		Total/ Weighted Average		3,095		100.00	%		17,480,876		100.00	%	$	408,302	$	23.36		100.00	%


(1)	Base rent is determined as of the date of lease expiration, including all fixed contractual base rent increases; increases tied to indices such as the Consumer Price Index are not included.

Lease Expirations

The following table presents a summary schedule of the total lease expirations for our 136 stabilized properties for leases in place at December 31, 2002. This table assumes that none of the tenants exercise renewal options or termination rights, if any, at or prior to the scheduled expirations:


												Average
												Annualized
							Percentage of			Annualized		Base Rent		Percentage
					Square		Aggregate			Base Rent of		Per Square		of Aggregate
			Number of		Footage of		Portfolio			Expiring		Foot of		Portfolio
			Leases		Expiring		Leased			Leases(1)		Expiring		Annualized
Year of Lease Expiration			Expiring		Leases		Square Feet			($000s)		Leases		Base Rent

Month-to-Month				123		285,197		1.63	%		5,069	$	17.77		1.24	%
Q1 2003				147		545,036		3.12			11,182		20.52		2.74
Q2 2003				150		557,627		3.19			11,075		19.86		2.71
Q3 2003				175		782,242		4.47			16,032		20.50		3.93
Q4 2003				168		792,008		4.53			17,269		21.80		4.23

	2003 Sub-Total(2)			640		2,676,913		15.31			55,558		20.75		13.61
2004				665		3,487,812		19.96			73,346		21.03		17.96
2005				618		3,251,717		18.60			70,907		21.81		17.37
2006				368		2,203,854		12.61			51,955		23.57		12.72
2007				328		1,792,555		10.26			44,098		24.60		10.80
2008				114		1,149,101		6.57			29,789		25.92		7.30
2009				52		517,603		2.96			13,211		25.52		3.24
2010				58		741,905		4.24			20,010		26.97		4.90
2011				28		458,249		2.62			18,148		39.60		4.44
2012				33		457,171		2.62			12,958		28.34		3.17
2013+				68		458,799		2.62			13,253		28.89		3.25

		Total/ Weighted Average		3,095		17,480,876		100.00	%		408,302	$	23.36		100.00	%


(1)	Base rent is determined as of the date of lease expiration, including all fixed contractual base rent increases; increases tied to indices such as the Consumer Price Index are not included.

(2)	Excludes month-to-month leases.

ITEM 3. Legal Proceedings

We are presently subject to various lawsuits, claims and proceedings arising in the ordinary course of business none of which if determined unfavorably to us is expected to have a material adverse effect on our cash flows, financial condition or results of operations except as described below.

In December 2001, the owner of the entertainment center at our Howard Hughes Center project asserted a claim against us for indemnification arising out of a Los Angeles Superior Court judgment against them which invalidated a transfer of in-lieu credits that Arden Realty made in August of 1999 as part of our sale of the land for the entertainment center. The value of these in-lieu credits was approximately $6.0 million and were transferred to satisfy certain Transportation Impact Assessment fees related to the entertainment center. On January 17, 2003, the California Court of Appeal reversed the Superior Court’s judgment, rendering the indemnification claim moot. On January 23, 2003, the plaintiff in the original lawsuit filed a petition for rehearing with the California Court of Appeal. On February 8, 2003, the California Court of Appeal denied the petition for rehearing.

Based on our review of the current facts and circumstances and advice of our outside counsel, we are not able to express an opinion as to the ultimate outcome of this matter. However, we do not believe that the resolution of this matter or any of our ongoing legal proceedings will have a material adverse effect on our consolidated results of operations, cash flows or financial position.

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

No matters were submitted to a vote of our stockholders during the fourth quarter of the year ended December 31, 2002.

PART II

ITEM 5. Market for Registrant’s Common Equity and Related Stockholder Matters

Our common stock is traded on the New York Stock Exchange, or NYSE, under the symbol “ARI.” On March 21, 2003, the last reported sales price per share of common stock on the NYSE was $24.20 and there were approximately 193 registered holders of record of our common stock. The table below sets forth the quarterly high and low closing sales price per share of our common stock as reported on the NYSE and the cash dividends per share we declared with respect to each period.


					Dividends
	High		Low		Declared

2001
First Quarter	$	23.38	$	21.39	$	0.49
Second Quarter	$	25.87	$	21.68	$	0.49
Third Quarter	$	26.83	$	23.73	$	0.49
Fourth Quarter	$	26.50	$	23.55	$	0.49
2002
First Quarter	$	28.75	$	25.47	$	0.505
Second Quarter	$	29.56	$	26.04	$	0.505
Third Quarter	$	27.23	$	22.22	$	0.505
Fourth Quarter	$	22.99	$	20.52	$	0.505

We pay quarterly cash dividends to common stockholders at the discretion of our Board of Directors. The amount of each quarterly cash dividend depends on our funds from operations, financial condition and capital requirements, annual distribution requirements under the REIT provisions of the Internal Revenue Code and such other factors our Board of Directors deems relevant.

ITEM 6. Selected Financial Data

You should read the following consolidated financial and operating data for Arden Realty together with our “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements included elsewhere in this Form 10-K.



		Year Ended December 31,

		2002			2001			2000			1999			1998


		(in thousands, except ratio and per share amounts)
Operating Data:
Revenues		$	414,596		$	417,426		$	384,149		$	336,514		$	280,497
Property operating expenses			129,723			121,086			109,512			100,303			85,622
General and administrative expense			13,166			12,143			9,336			7,393			6,665
Depreciation and amortization			110,202			100,775			85,947			69,215			51,420

			161,505			183,422			179,354			159,603			136,790
Interest expense			(88,516	)		(84,195	)		(78,406	)		(60,239	)		(43,403	)

Income from continuing operations before gain on sale of properties and minority interest			72,989			99,227			100,948			99,364			93,387
Gain on sale of properties			1,967			4,591			2,132			—			—

Income from continuing operations before minority interest			74,956			103,818			103,080			99,364			93,387
Minority interest			(6,198	)		(7,517	)		(7,572	)		(5,179	)		(5,256	)

Income from continuing operations			68,758			96,301			95,508			94,185			88,131
Discontinued operations, net of minority interest			1,417			1,458			1,202			2,441			2,544

Net income		$	70,175		$	97,759		$	96,710		$	96,626		$	90,675

Basic net income per common share:
	Income from continuing operations	$	1.07		$	1.51		$	1.51		$	1.49		$	1.50
	Income from discontinued operations		0.02			0.02			0.02		$	0.04		$	0.05

Net income per common share-basic		$	1.09		$	1.53		$	1.53		$	1.53		$	1.55

Weighed average number of common shares- basic			64,151			63,754			63,408			63,016			58,660

Diluted net income per common share:
	Income from continuing operations	$	1.07		$	1.51		$	1.50		$	1.49		$	1.50
	Income from discontinue operations		0.02			0.02			0.02		$	0.04		$	0.04

Net income per common share-diluted		$	1.09		$	1.53		$	1.52		$	1.53		$	1.54

Weighed average number of common shares- diluted		$	64,351		$	64,014		$	63,598		$	63,072		$	58,814

Cash dividends declared per common share		$	2.02		$	1.96		$	1.86		$	1.78		$	1.68

Other Data:
Cash provided by operating activities		$	214,167		$	204,667		$	192,152		$	170,354		$	152,273
Cash used in investing activities			(227,247	)		(115,854	)		(216,024	)		(283,574	)		(1,099,833	)
Cash (used in) provided by financing activities			(19,898	)		(57,204	)		22,248			115,698			946,838
Funds from Operations(1)			181,549			198,240			185,146			170,405			147,369
EBITDA(2)			274,377			286,747			267,864			231,998			191,347
Ratio of earnings to fixed charges(3)(4)			1.61			1.86			1.84			2.20			2.56
Ratio of EBITDA to interest expense(2)			3.10			3.41			3.42			3.85			4.41
Ratio of EBITDA to fixed charges(2)(3)			2.79			2.94			2.81			3.26			3.66


	Selected financial data continues on next page



	December 31,

	2002		2001		2000		1999		1998

Balance Sheet Data:
Net investment in real estate	$	2,741,624	$	2,622,980	$	2,603,566	$	2,479,111	$	2,260,433
Total assets		2,832,409		2,761,443		2,705,597		2,570,458		2,331,919
Total indebtedness		1,402,304		1,251,483		1,177,769		1,029,656		840,377
Other liabilities (5)		76,350		62,685		56,885		50,555		35,720
Minority interests		74,791		78,661		86,176		86,294		56,222
Total Stockholders’ Equity		1,247,377		1,337,206		1,355,171		1,375,758		1,373,390


(1)	We believe that funds from operations, or FFO, is a useful supplemental measure of our operating performance. We compute FFO in accordance with standards established by the White Paper on FFO approved by the Board of Governors of the National Association of Real Estate Investment Trusts, or NARIET, in April 2002. The white paper defines FFO as net income or loss computed in accordance with generally accepted accounting principles, or GAAP, excluding extraordinary items, as defined by GAAP, and gains and losses from sales of depreciable operating property plus real estate-related depreciation and amortization and after adjustments for unconsolidated partnerships and joint ventures.

	We believe that FFO, by excluding depreciation costs, the gains or losses from the sale of operating real estate properties and extraordinary items as defined by GAAP, provides an additional perspective on our operating results. However, because these items have real economic effect, FFO is a limited measure of performance.

	FFO captures trends in occupancy rates, rental rates and operating costs. FFO excludes depreciation and amortization costs and it does not capture the changes in value in our properties that result from use or changes in market conditions or the level of capital expenditures and leasing costs necessary to maintain the operating performance of our properties, all of which are significant economic costs. Therefore, its ability to measure performance is limited.

	Because FFO excludes significant economic components of net income determined in accordance with GAAP, FFO should be used as an adjunct to net income and not as an alternative to net income. FFO should also not be used as an indicator of our financial performance, or as a substitute for cash flow from operating activities determined in accordance with GAAP or as a measure of our liquidity. FFO is not by itself indicative of funds available to fund our cash needs, including our ability to pay dividends or service or debt. Therefore, FFO only provides investors with additional performance measure that when combined with measures computed in accordance with GAAP such as net income, cash flow from operating activities, investing activities and financing activities provides investors with an indication of our ability to service debt and to fund acquisitions and other expenditures.

	FFO is used by investors to compare our performance with other REITs. Other REITs may use different methodologies for calculating FFO and, accordingly, our FFO may not be comparable to other REITs. See reconciliation of FFO to Net income in Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations of this report.

(2)	Earnings before interest, taxes, depreciation and amortization, or EBITDA, is a non-GAAP measurement. EBITDA is presented because we believe this data is used by investors as an indication of our ability to meet our debt service requirements. We consider that EBITDA, when combined with other measures, can be a useful measure to determine our ability to service debt and fund future capital expenditure requirements. However, due to the significance of the net income components excluded from EBITDA, it should not be considered an alternative to net income, cash flow from operations, or any other operating or liquidity performance measure prescribed by GAAP.

	Because interest expense, taxes, gains or losses on sales of property, losses on valuations of derivatives, asset impairment losses, cumulative effect of a change in accounting principle, extraordinary items as defined by GAAP and depreciation and amortization costs, which are not reflected in EBITDA, have been, will be or may be incurred by us, investors are cautioned to reflect our ability to finance our investments at competitive borrowing costs, successfully maintain our REIT status, acquire and dispose of real estate properties at favorable prices to us and also reflect changes in value in our properties that result from use or changes in market conditions and the level of capital expenditures and leasing costs necessary to maintain the operating performance of our properties.

	We present the ratio of EBITDA to interest expense and the ratio of EBITDA to fixed charges because these ratios are used in several financial covenants contained in our principal loan agreements. We are required to satisfy these financial covenants each fiscal quarter. We believe this information is useful to investors because investors can use this data to (1) confirm that we are in compliance with the ratio covenants of our principal loan agreements, (2) evaluate our ability to service our debt, (3) evaluate our ability to fund future capital expenditures, and (4) compare our ratios to other real estate companies that present similar ratios, including other REITs. These ratios should not be considered as alternatives to the ratio of earnings to fixed charges.

	The reader is cautioned that EBITDA, as calculated by us, may not be comparable to EBITDA as reported by other companies that do not define EBITDA exactly the same as we do.


	We calculate EBITDA as follows:



		Year Ended December 31,

		2002		2001		2000		1999		1998

Income from continuing operations before gain on sale of properties and minority interest		$	72,989	$	99,227	$	100,948	$	99,364	$	93,387
Add:
	Interest expense		88,516		84,195		78,406		60,239		43,403
	Depreciation and amortization		110,202		100,775		85,947		69,215		51,420
	Discontinued operations		1,417		1,458		1,202		2,441		2,544
	Minority interest from discontinued operations		38		48		41		117		191
	Depreciation from discontinued operations		1,215		1,044		1,320		622		402

EBITDA		$	274,377	$	286,747	$	267,864	$	231,998	$	191,347


(3)	Fixed charges consist of interest costs, whether expensed or capitalized, amortization of deferred financing costs, amortization of discounts or premiums related to indebtedness and preferred unit distributions.

(4)	The ratios of earnings to fixed charges were computed by dividing earnings by fixed charges. For this purpose, earnings have been calculated by adding fixed charges, excluding capitalization interest and preferred unit distributions, to income or loss before extraordinary items.

(5)	Excludes dividends payable.


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

Overview

The following discussion should be read in conjunction with Item 6, Selected Financial Data, and our historical consolidated financial statements and related notes thereto included elsewhere in this Form 10-K.

We are a self-administered and self-managed real estate investment trust that owns, manages, leases, develops, renovates and acquires commercial properties located in Southern California. We are a full-service real estate organization managed by 8 senior executive officers who have experience in the real estate industry ranging from 11 to 33 years and who collectively have an average of 19 years of experience. We perform all property management, construction management, accounting, finance and acquisition activities and a majority of our leasing transactions with our staff of approximately 300 employees.

As of December 31, 2002, we were Southern California’s largest publicly traded office landlord as measured by total net rentable square feet owned. As of that date, our portfolio consisted of 137 primarily suburban office properties and 223 buildings containing approximately 19.4 million net rentable square feet including one development property with approximately 283,000 net rentable square feet under lease-up. As of December 31, 2002, our properties were 90.1% occupied.

Our primary business strategy is to actively manage our portfolio to seek to achieve gains in rental rates and occupancy, control operating expenses and to maximize income from ancillary operations and services. When market conditions permit, we may also selectively develop or acquire new properties that add value and fit strategically into our portfolio. We may also sell existing properties and redeploy the proceeds into investments that we believe will generate higher long-term value.

Critical Accounting Policies

Revenue Recognition

Minimum rent, including rental abatements and contractual fixed increases attributable to operating leases, is recognized on a straight-line basis over the term of the related lease.

Allowance for Rents and Other Receivables

lease agreements. We also maintain an allowance for deferred rent receivable that arises from the straight-lining of rents. We exercise judgment in establishing these allowances and consider payment history and current credit status in developing these estimates. If estimates differ from actual results this could impact our operating results.

Commercial Properties

Our properties are stated at depreciated cost. Write-downs to estimated fair value are recognized whenever a property’s estimated undiscounted future cash flows are less than its book value. We carry properties held for disposition at the lower of their depreciated cost or fair value less cost to sell. Based on our assessment, no write-downs to estimated fair value were necessary as of December 31, 2002 and 2001, respectively.

Upon acquisition of real estate, we assess the fair value of the acquired assets (including land, buildings, tenant improvements and operating leases adjusted for origination costs) and allocate purchase price based on these assessments.

Costs related to the acquisition, development, construction and improvement of properties are capitalized. Interest, real estate taxes, insurance and other development related costs incurred during construction periods are capitalized and depreciated on the same basis as the related asset.

Repair and maintenance costs are charged to expenses as incurred and significant replacements and betterments are capitalized. Repairs and maintenance costs include all costs that do not extend the useful life of an asset or increase its operating efficiency. Significant replacements and betterments represent costs that extend an asset’s useful life or increase its operating efficiency.

Depreciation

Depreciation is calculated under the straight-line method using depreciable lives of ten to forty seven years for building and building improvements and five-year lives for furniture, fixtures and equipment. Amortization of tenant improvements is calculated using the straight-line method over the term of the related lease.

Qualification as a REIT

Since our taxable year ended December 31, 1996, we have been organized and operated, and intend to continue to operate, so as to qualify for taxation as a REIT under the Internal Revenue Code. Our qualification and taxation as a REIT depends on our ability to meet, through actual annual operating results, asset diversification, distribution levels and diversity of stock ownership, numerous requirements established under highly technical and complex Internal Revenue Code provisions subject to interpretation.

If we failed to qualify as a REIT in any taxable year, we would be subject to federal income tax, including any applicable alternative minimum tax, on our taxable income at regular corporate rates. Moreover, unless entitled to relief under specific statutory provisions, we also would be disqualified as a REIT for the four taxable years following the year during which qualification was lost. For additional information see “Risk Factors — We may suffer adverse tax consequences and be unable to attract capital if we fail to qualify as a REIT,” and “Our operating partnership intends to qualify as a partnership, but we cannot guarantee that it will qualify,” elsewhere in this Form 10-K.

Results Of Operations

Our financial position and operating results are primarily comprised of our portfolio of properties and income derived from those properties. Therefore, the comparability of financial data from period to period will be affected by the timing of significant property development, acquisitions and dispositions.

Comparison of the year ended December 31, 2002 to the year ended December 31, 2001

(in thousands, except number of properties and percentages)



				Year Ended December 31,
													Percent
				2002			2001			Change(1)			Change

Revenue from rental operations:
	Scheduled cash rents			$	352,682		$	343,224		$	9,458			3	%
	Straight-line rents				5,348			9,120			(3,772	)		(41	)
	Tenant reimbursements				24,968			22,683			2,285			10
	Parking, net of expense				20,814			21,256			(442	)		(2	)
	Other rental operations				8,242			18,202			(9,960	)		(55	)

			Total revenue from rental operations		412,054			414,485			(2,431	)		(1	)

Property expenses:
	Repairs and maintenance				39,422			36,151			3,271			9
	Utilities				35,726			33,579			2,147			6
	Real estate taxes				29,921			29,089			832			3
	Insurance				8,116			5,685			2,431			43
	Ground rent				895			1,885			(990	)		(53	)
	Administrative				15,643			14,697			946			6

			Total property expenses		129,723			121,086			8,637			7

			Property operating results(2)		282,331			293,399			(11,068	)		(4	)
	General and administrative				13,166			12,143			1,023			8
	Interest				88,516			84,195			4,321			5
	Depreciation and amortization				110,202			100,775			9,427			9
	Interest and other income				(2,542	)		(2,941	)		(399	)		(14	)

	Income from continuing operations before gain on sale of properties and minority interest			$	72,989		$	99,227		$	(26,238	)		(26	)%

	Discontinued operations, net of minority interest(3)			$	1,417		$	1,458		$	(41	)		(3	)%

Other Data:
	Number of properties:
		Acquired during period			5			—
		Completed and placed in service during period			1			1
		Disposed of during period			(3	)		(10	)
		Owned at end of period			136	(4)		133
	Net rentable square feet:
		Acquired during period			803			—
		Completed and placed in service during period			287			162
		Disposed of during period			(205	)		(573	)
		Owned at end of period			19,132	(4)		18,247


(1)	Variances for Revenue from Rental Operations and Property Operating Expenses are discussed as part of Properties Owned for all of 2001 and 2002 below.

(2)	Property Operating Results are discussed as part of Variances for Revenue from Rental Operations and Property Operating Expenses below.

(3)	Discontinued operations for 2001 and 2002 are discussed below.

(4)	Excludes one development property containing approximately 283,000 net rentable square feet currently under lease-up.

Interest and other income decreased by approximately $399,000 or 14%, in 2002 as compared to 2001, primarily due to lower interest income earned in 2002 from our restricted cash balances required by mortgage loans on lower effective interest rates in 2002. The decrease in interest income was partially offset by the early repayment of our mortgage notes receivable in October 2002 which resulted in approximately $375,000 higher net interest income from these notes.

General and administrative expenses increased approximately $1.0 million or 8%, in 2002 as compared to 2001. This increase was primarily due to non-recurring costs resulting from employee separation costs and higher external legal and accounting costs.

Interest expense increased approximately $4.3 million or 5%, in 2002 as compared to 2001. This increase was primarily due to an increase in borrowings in 2002 for property acquisitions and lower interest capitalized in 2002. Capitalized interest in 2002 was lower as we ceased capitalizing interest on our 6080 Center Drive property in May 2002. The increase in interest expense was partially offset by lower effective interest rates in 2002.

Depreciation and amortization expense increased by approximately $9.4 million or 9%, in 2002 as compared to 2001. The increase was primarily due to depreciation related to two newly developed properties placed in service since the fourth quarter of 2001, five properties acquired during 2002 and depreciation expense recorded in 2002 related to properties previously held for sale in 2001 for which no depreciation expense was recorded in 2001 while classified as held for sale.

Variances for Revenue from Rental Operations and Property Operating Expenses

The decrease in revenue from rental operations and increase in property operating expenses in 2002 as compared to 2001 was primarily due to a 2.2% reduction in the average occupancy and the timing of lease termination settlements and other non-recurring items in our portfolio of 128 properties that we owned as part of continuing operations for all of 2001 and 2002.

Following is a summary of the increase in revenue from rental operations and property operating expenses that relates to the 20 properties that were either sold, acquired or placed in service after January 1, 2001, and for the 128 non-development properties we owned for all of 2001 and 2002 (in thousands, except number of properties).


					Properties Sold,
					Acquired,			Non-Development
					Placed in Service or			Properties Owned
					Under Development			for all of
		Total Variance(1)			after January 1, 2001			2001 and 2002(2)

Revenue from Rental Operations:
	Scheduled cash rents	$	9,458		$	7,729		$	1,729
	Straight-line rents		(3,772	)		919			(4,691	)
	Tenant reimbursements		2,285			1,829			456
	Parking, net of expense		(442	)		(76	)		(366	)
	Other rental operations		(9,960	)		(3,014	)		(6,946	)

		$	(2,431	)	$	7,387		$	(9,818	)

Property Expenses:
	Repairs and maintenance		3,271			1,551			1,720
	Utilities		2,147			581			1,566
	Real estate taxes		832			1,273			(441	)
	Insurance		2,431			168			2,263
	Ground rent		(990	)		—			(990	)
	Administrative		946			130			816

		$	8,637		$	3,703		$	4,934

Other Data:
	Number of properties					20			128
	Net rentable square feet					2,030			17,740

(1)

The components outlined above comprise our Property Operating Results. This measure is commonly used by investors to evaluate the performance of REITs, to determine trends in earnings and to compute the fair value of properties as it is not affected by (1) the cost of funds of the property owner or (2) the impact of depreciation and amortization expenses as well as gains or losses from the sale of operating real estate assets that are included in net income computed in accordance with GAAP. The first factor is commonly eliminated from net income because it is specific to the particular financing capabilities and constraints of the owner. The second factor is commonly eliminated because it may not accurately represent the actual change in value in real estate properties that result from use or changes in market conditions. We believe that eliminating these costs from net income gives investors an additional measure of operating performance that, when used as an adjunct to net income computed in accordance with GAAP, can be a useful measure of our operating results.


	Property Operating Results captures trends in occupancy rates, rental rates and operating costs. However, Property Operating Results excludes general and administrative costs, interest expense, interest income, depreciation and amortization expense and gains or losses from the sale of properties, changes in value in our real estate properties that result from use or permanent impairment to carrying costs as stipulated by GAAP, the level of capital expenditures and leasing costs necessary to maintain the operating performance of our properties, all of which are significant economic costs. Therefore, Property Operating Results may fail to capture significant trends which limits its usefulness.

	Property Operating Results is a non-GAAP measure of performance. Property Operating Results is not a substitute for net income as computed in accordance with GAAP. It excludes significant expense components such as depreciation and amortization expense and financing costs. This measure should be analyzed in conjunction with net income and cash flow from operating activities as computed in accordance with GAAP. Other companies may use different methods for calculating Property Operating Results or similarly


	entitled measures and accordingly, our Property Operating Results may not be comparable to similarly entitled measures reported by other companies that do not define the measure exactly as we do.

	The following is a reconciliation of income from continuing operations before gain on sale of properties and minority interest to Property Operating Results:



		Year Ended December 31,

		2002			2001			2000


		($000’s)
Income from continuing operations before gain on sale of properties and interest		$	72,989		$	99,227		$	100,948
Add:
	General and administrative expense		13,166			12,143			9,336
	Interest expense		88,516			84,195			78,406
	Depreciation and amortization		110,202			100,775			85,947
Less:
	Interest and other income		(2,542	)		(2,941	)		(3,527	)

Property Operating Results		$	282,331		$	293,399		$	271,110


(2)	The operating results for properties included in continuing and discontinued operations that were owned for all of 2001 and 2002 are discussed below.

Discontinued Operations

We adopted Statement of Financial Accounting Standards No. 144, (SFAS 144), effective January 1, 2002, which requires, among other things, that the operating results of real estate properties classified as held for disposition subsequent to January 1, 2002 be included in discontinued operations in the statements of income for all periods presented. The table below summarizes the operating results of our one property currently classified as discontinued operations.

The results of operations for one property held for disposition as of December 31, 2002 and classified as discontinued operations for the years ended December 31, 2002 and 2001 are as follows (in thousands, except number of properties):



		Year Ended
		December 31,
									Percent
		2002		2001		Change			Change

Discontinued Operations:
	Revenues	$	4,165	$	4,040	$	125			3	%
	Property operating expenses		1,495		1,490		5			—

			2,670		2,550		120			5
	Depreciation and amortization		1,215		1,044		171			16
	Minority interest		38		48		(10	)		(21	)

	Discontinued operations, net of minority interest	$	1,417	$	1,458	$	(41	)		(3	)%

Other Data:
	Number of properties		1		1
	Net rentable square feet		140		140

The operating results for discontinued operations are discussed as part of Properties Owned for all of 2001 and 2002 below.

Properties Owned for all of 2001 and 2002

Following is a comparison of property operating data for the 129 non-development properties we owned for all of 2001 and 2002 reported in continuing and discontinued operations (in thousands, except number of properties and percentages):



	Year Ended
	December 31,
							Dollar			Percent
	2002			2001			Change			Change

Revenue from rental operations	$	391,893		$	401,586		$	(9,693	)		(2	)%
Property expenses		123,700			118,761			4,939			4

	$	268,193		$	282,825		$	(14,632	)		(5	)%

Straight-line rents	$	3,412		$	8,074

Number of properties		129			129
Average occupancy		91.1	%		93.3	%
Net rentable square feet		17,880			17,880

Revenue from rental operations for these properties decreased by approximately $9.7 million, or 2%, in 2002 as compared to 2001. The decrease was due to a $6.8 million decrease in revenue from other rental operations, a $4.7 million decrease in straight-line rents and a $390,000 decrease in parking income that was partially offset by an approximate $1.7 million increase in scheduled cash rents and a $471,000 increase in tenant reimbursements. The decrease in revenue from other rental operations was primarily attributable to decreases in lease termination settlements in 2002, while straight-line rents decreased primarily due to the turning over of straight-line rents for older leases throughout our same store portfolio. Parking income decreased due to the 2.2% decline in average occupancy. Scheduled cash rents increased primarily due to scheduled rent increases and rental rate growth attained on new and renewed leases which were partially offset by the decline in average occupancy. Tenant reimbursements increased primarily due to recovery billings for higher operating expenses in 2002 as discussed below.

Property expenses for these properties increased by approximately $4.9 million, or 4%, in 2002 as compared to 2001. The increase was primarily due to a $2.3 million increase in insurance expense in 2002, a $1.7 million increase in repairs and maintenance and a $1.6 million increase in utility expenses which were partially offset by a $990,000 decrease in ground rent expense. The increase in insurance expense was due to increases in industry-wide rates in 2002 and premiums related to a $100 million terrorism insurance policy entered into in the second quarter of 2002. Repairs and maintenance expense increased in 2002 primarily due to higher janitorial costs while utility costs increased due to rate increases enacted in May 2001. Ground rent expense decreased in 2002 due to lower operating income from one of our properties with a participating ground lease.

Comparison of the year ended December 31, 2001 to the year ended December 31, 2000

(in thousands, except number of properties and percentages)



				Year Ended December 31,
													Percent
				2001			2000			Change(1)			Change

Revenue from rental operations:
	Scheduled cash rents			$	343,224		$	317,413		$	25,811			8	%
	Straight-line rents				9,120			7,920			1,200			15
	Tenant reimbursements				22,683			16,454			6,229			38
	Parking, net of expense				21,256			17,575			3,681			21
	Other rental operations				18,202			21,260			(3,058	)		(14	)

			Total revenue from rental operations		414,485			380,622			33,863			9

Property expenses:
	Repairs and maintenance				36,151			34,874			1,277			4
	Utilities				33,579			29,598			3,981			13
	Real estate taxes				29,089			26,362			2,727			10
	Insurance				5,685			4,171			1,514			36
	Ground rent				1,885			1,214			671			55
	Administrative				14,697			13,293			1,404			11

			Total property expenses		121,086			109,512			11,574			11

			Property operating results		293,399			271,110			22,289			8
	General and administrative				12,143			9,336			2,807			30
	Interest				84,195			78,406			5,789			7
	Depreciation and amortization				100,775			85,947			14,828			17
	Interest and other income				(2,941	)		(3,527	)		(586	)		(17	)

	Income from continuing operations before gain on sale of properties and minority interest			$	99,227		$	100,948		$	(1,721	)		(2	)%

	Discontinued operations, net of minority interest(2)			$	1,458		$	1,202		$	256			21	%

Other Data:
	Number of properties:
		Acquired during period			—			—
		Completed and placed in service during period			1			1
		Disposed of during period			(10	)		(1	)
		Owned at end of period			133	(3)		142
	Net rentable square feet:
		Acquired during period			—			—
		Completed and placed in service during period			162			242
		Disposed of during period			(573	)		(76	)
		Owned at end of period			18,247	(3)		18,658


(1)	Variances for Revenues from Rental Operations and Property Operating Expenses are discussed as part of Properties Owned for all of 2000 and 2001 below.

(2)	Discontinued operations for 2000 and 2001 are discussed below.

(3)	Excludes two development properties containing approximately 586,000 net rentable square feet.

Interest and other income decreased by approximately $586,000 or 17%, in 2001 as compared to 2000, primarily due to lower interest income earned in 2001 from our restricted cash balances required by mortgage loans on lower effective interest rates in 2001.

General and administrative expenses increased approximately $2.8 million or 30%, in 2001 as compared to 2000. This increase was primarily related to higher personnel costs in 2001, including approximately $1.3 million in non-cash compensation expense from restricted stock awards granted to key executives in July and December of 2000 and July of 2001 and approximately $850,000 in salaries for employees hired after January 1, 2001.

Interest expense increased approximately $5.8 million or 7%, in 2001 as compared to 2000. This increase was primarily due to higher outstanding balances in 2001, resulting from the funding of development, tenant improvements and leasing commission costs which was partially offset by lower effective interest rates in 2001.

Depreciation and amortization expense increased by approximately $14.8 million or 17%, in 2001 as compared to 2000, primarily due to depreciation related to newly developed and renovated properties, capital expenditures, tenant improvements and leasing commissions placed in service subsequent to January 1, 2000, net of a decrease of approximately $10.1 million in 2001 due to a change in the estimated useful lives of certain building and building improvements.

Variances for Revenue from Rental Operations and Property Operating Expenses

The increase in revenue from rental operations and property operating expenses in 2001 as compared to 2000 was partially due to a development project placed in service in 2000, a development project placed in service in 2001, a property sold in 2000, five properties sold in 2001 and three properties under renovation for all or a portion of the periods presented. Operating results for properties under renovation may significantly vary from period to period depending on the status of the renovation and occupancy levels maintained during the renovation.

Following is a summary of the increase in revenue from rental operations and property operating expenses that relates to the eleven properties that were either acquired, sold or placed in service after January 1, 2000 or were under renovation for all or a portion of the period beginning after January 1, 2000 and for the 132 non-

renovation/non-development properties we owned as part of continuing operations for all of 2000 and 2001 (in thousands, except number of properties).


								Non-Renovation/
					Properties Sold, Acquired,			Non-Development
					Placed in Service or			Properties Owned
					Under			for all of
					Renovation/Development			1999 and
		Total Variance			after January 1, 2000			2000(1)

Revenue from Rental Operations:
	Scheduled cash rents	$	25,811		$	11,504		$	14,307
	Straight-line rents		1,200			2,067			(867	)
	Tenant reimbursements		6,229			480			5,749
	Parking, net of expense		3,681			1,017			2,664
	Other rental operations		(3,058	)		(991	)		(2,067	)

		$	33,863		$	14,077		$	19,786

Property Expenses:
	Repairs and maintenance		1,277			1,157			120
	Utilities		3,981			837			3,144
	Real estate taxes		2,727			1,253			1,474
	Insurance		1,514			156			1,358
	Ground rent		671			386			285
	Administrative		1,404			302			1,102

		$	11,574		$	4,091		$	7,483

Other Data:
	Number of properties					11			132
	Net rentable square feet					1,447			17,233


(1)	The operating results for the properties included in continuing and discontinued operations that were owned for all of 2000 and 2001 are discussed below. These results also include the Temecula portfolio of five properties sold at the end of 2001 since these properties were owned for all of 2000 and 2001.

Discontinued Operations

We adopted SFAS 144 effective January 1, 2002, which requires, among other things, that the operating results of real estate properties classified as held for disposition subsequent to January 1, 2002 be included in discontinued operations in the statements of income for all periods presented. The table below summarizes the operating results of our one property currently classified as discontinued operations.

The results of operations for the property held for disposition as of December 31, 2002 classified as discontinued operations for the years ended December 31, 2001 and 2000 are as follows (in thousands, except number of properties):



		Year Ended
		December 31,
									Percent
		2001		2000		Change			Change

Discontinued Operations:
	Revenues	$	4,040	$	3,968	$	72			2	%
	Property operating expenses		1,490		1,405		85			6

			2,550		2,563		(13	)		(1	)
	Depreciation and amortization		1,044		1,320		(276	)		(21	)
	Minority interest		48		41		7			17

	Discontinued operations, net of minority interest	$	1,458	$	1,202	$	256			21	%

Other Data:
	Number of properties		1		1
	Net rentable square feet		140		140

The operating results for discontinued operations are discussed as part of Properties Owned for all of 2000 and 2001 below.

Properties Owned for all of 2000 and 2001

Following is a comparison of property operating data for the 133 non-renovation/non-development properties we owned for all of 2000 and 2001 reported in continuing and discontinued operations (in thousands, except number of properties and percentages):



	Year Ended December 31,
							Dollar		Percent
	2001			2000			Change		Change

Revenue from rental operations	$	378,137		$	358,279		$	19,858		6	%
Property expenses		113,619			106,051			7,568		7

	$	264,518		$	252,228		$	12,290		5	%

Straight-line rents	$	6,107		$	7,044

Number of properties		133			133
Average occupancy		93.8	%		94.5	%
Net rentable square feet		17,373			17,373

Revenue from rental operations for these properties increased by approximately $19.9 million, or 6%, in 2001 as compared to 2000. Approximately $14.5 million of this difference was related to higher rental revenue in 2001. The increase in rental revenue was primarily attributable to increases in rental rates in 2001. Revenue from rental operations was also higher due to an approximate $5.9 million increase in tenant reimbursements and an approximate $2.7 million increase in parking income offset by an approximate $2.3 million decrease in revenue from other rental operations. Tenant reimbursements increased primarily due to higher operating expenses in 2001, as discussed below. Parking income increased in 2001 primarily due to increases in parking rates, while revenue from other rental operations decreased due to the timing of revenues from non-scheduled sources. Revenue from other rental operations includes after-hour utility billings, signage and lease termination settlements.

Property expenses for these properties increased by approximately $7.6 million, or 7%, in 2001 as compared to 2000, primarily due to $3.2 million increase in utility expenses, a $1.3 million increase in real estate taxes, a $1.4 million increase in insurance expense and a $1.2 million increase in administrative expenses in 2001. The increase in utility expenses was primarily due to rate increases in 2001. Real estate taxes

increased in 2001 due to normal annual increases and final assessments on certain properties. Insurance expense increased due to increase in industry-wide insurance rates in 2001, while administrative expenses increased primarily due to higher personnel costs in 2001. As noted above, the increase in operating expenses was the primary reason for the $5.9 million increase in tenant reimbursements.

Liquidity and Capital Resources

Cash Flows

Cash provided by operating activities increased by approximately $9.5 million to $214.2 million in 2002 as compared to $204.7 million in 2001. This increase was primarily due to the increased cash flows on five properties acquired in the third quarter of 2002, a reduction in tenant receivables in 2002 as a result of our collection efforts and cash flows for two development properties placed in service subsequent to January 1, 2001, all of which were partially offset by the loss of operating cash flows on ten properties sold in 2001 and three office properties sold in 2002.

Cash used in investing activities increased by approximately $111.3 million to $227.2 million in 2002 as compared to $115.9 million in 2001. The increase was primarily due to the acquisition of five properties for approximately $135 million in the third quarter of 2002 which was partially offset by the decrease in our development activity in 2002.

Cash used in financing activities decreased by approximately $37.3 million to an outflow of $19.9 million in 2002 as compared to an outflow of $57.2 million in 2001. This decrease in outflow was primarily due to added borrowings in 2002 under the Wells Fargo unsecured line of credit made for purposes of funding our 2002 property acquisitions, which were partially offset by the decline in funds used in 2002 in our development activity.

Capital Commitments

As of December 31, 2002, we had approximately $3.9 million outstanding in capital commitments related to tenant improvements, development and property-related capital expenditures. We expect to fund short term capital commitments through cash flow generated by operating activities, proceeds from asset sales or our unsecured lines of credit.

Available Borrowings, Cash Balances and Capital Resources

We have an unsecured line of credit with a total commitment of $10 million from City National Bank. This line of credit accrues interest at the City National Bank Prime Rate less 0.875% and is scheduled to mature on August 1, 2003. Proceeds from this line of credit are used, among other things, to provide funds for tenant improvements and capital expenditures and provide for working capital and other corporate purposes. As of December 31, 2002, there was no outstanding balance on this line of credit and $10 million was available for additional borrowings.

Financing Activities

On June 13, 2002, our operating partnership closed on a $75 million unsecured term loan with Wells Fargo. This loan matures in June 2004, has a two year extension option and bears interest at LIBOR + 1.25% during the initial term and LIBOR + 1.45% during the extension period. The proceeds from this loan were used to repay the outstanding balance on the Lehman Brothers unsecured line of credit that was scheduled to mature in July 2002. On September 25, 2002, our operating partnership increased its $75 million unsecured term loan with Wells Fargo by an additional $50 million and repaid $50 million on the Wells Fargo unsecured line of credit.

amount of the line of credit) depending on the operating partnership’s unsecured debt rating. This new line of credit amends the previous $275 million unsecured line of credit that was scheduled to mature in April 2003. This line of credit matures in April 2006. In addition, as long as the operating partnership maintains an unsecured debt rating of BBB-/ Baa3 or better, the agreement contains a competitive bid option, whereby the lenders may bid on the interest rate to be charged for up to $150 million of the unsecured line of credit. The operating partnership also has the option to convert the interest rate on this line of credit to the higher of Wells Fargo’s prime rate or the Federal Funds rate plus 0.5%.

During the fourth quarter of 2002, our operating partnership entered into interest rate swap agreements totaling $175 million that fixed the floating interest rates on $50 million of its unsecured line of credit and all of its $125 million unsecured term loan. As a result of these transactions, $50 million of our operating partnership’s line of credit will now bear fixed interest at 4.06% through the maturity of the line in April of 2006 and the $125 million term loan will now bear interest at 3.64% in 2003, 4.18% in 2004, 4.75% in 2005 and 4.9% from January through June of 2006. As of December 31, 2002, we have an accrued liability related to the mark-to-market adjustment for these swap agreements totaling approximately $2.8 million.

Capital Recycling Program

On March 7, 2002, we sold an approximate 64,000 square foot office property located in Torrance, California for $6.9 million. On April 16, 2002, we sold an approximate 61,000 square foot office building located in Westlake, California for $8.3 million. On May 1, 2002 we also completed the sale of an approximate 80,000 square foot office property located in Canoga Park, California for $8.4 million. The net proceeds from these dispositions were used to reduce the outstanding balance on our Wells Fargo unsecured line of credit.

On August 6, 2002, we acquired Gateway Towers, an office property located in Torrance, California containing approximately 433,000 net rentable square feet for approximately $66 million. Gateway Towers consists of two buildings that are approximately 93% leased and includes an additional 5-acre development parcel. The funds for this acquisition were attained from borrowing under the Wells Fargo unsecured line of credit.

On August 16, 2002, we acquired Governor Executive Center and Crossroads, two office properties located in San Diego County containing approximately 186,000 square feet for approximately $28 million. Governor Executive Center is a three story, 52,195 square foot, 97% leased office building located in the Governor Park submarket. Crossroads is a seven story, 133,566 square foot, 100% leased multi-tenant office building located in the Mission Valley submarket. On August 30, 2002, we acquired Carmel Valley Center I & II and Carmel View Office Plaza, two office properties located in San Diego County containing approximately 185,000 square feet for approximately $41 million. Carmel Valley Center is a three story, 77,460 square foot, 94% leased office building located in the master planned development of Camel Mountain Ranch within the Rancho Bernardo submarket. The funds for these acquisitions were attained from borrowings under the Wells Fargo unsecured line of credit.

On October 17, 2002, the borrower of our mortgage notes receivable repaid the outstanding balance on the notes totaling approximately $13.7 million. As a result of this redemption, we recognized as income the unamortized purchase discount on these notes at the time of repayment totaling approximately $750,000. The proceeds from this repayment were used to partially fund our stock repurchases described below.

Stock Repurchase Program

On July 24, 2002, our Board of Directors authorized a common stock repurchase program which authorized us to purchase up to $75 million of our common stock over the following 12 months. As part of this repurchase program, we have acquired a total of 1,796,000 shares as of the date of this report at an average price of approximately $22.66 per share. The funds for these repurchases were attained from the proceeds received from the repayment of the mortgage notes receivable described above and borrowings under the Wells Fargo unsecured line of credit.

Following is a summary of scheduled principal payments for our total outstanding indebtedness as of December 31, 2002 (in thousands):


Year	Amount

2003	$	5,461
2004		307,062	(1)
2005		207,678
2006		223,649	(2)
2007		158,681
2008		230,305
2009		111,980
2010		150,565
2011		710
2012		768
Thereafter		5,445

Total	$	1,402,304


(1)	Includes $125 million outstanding on the Wells Fargo term loan which has a two year extension option.

(2)	Consists primarily of $208.6 million outstanding on the Wells Fargo unsecured line of credit.

The following is other information related to our indebtedness as of December 31, 2002 (in thousands, except percentage and interest rate data):

Unsecured and Secured Debt:


						Weighted Average
	Balance		Percent			Interest Rate(1)

Unsecured Debt	$	831,650		59	%		6.56	%
Secured Debt		570,654		41	%		7.37	%

Total Debt	$	1,402,304		100	%		6.89	%

Floating and Fixed Rate Debt:


						Weighted Average
	Balance		Percent			Interest Rate(1)

Floating Rate Debt	$	158,587		11	%		3.42	%
Fixed Rate Debt(2)		1,243,717		89	%		7.33	%

Total Debt	$	1,402,304		100	%		6.89	%


(1)	Includes amortization of prepaid financing costs.

(2)	Includes $175 million of floating rate debt that has been fixed through interest rate swap agreements.

The following table summarizes our senior unsecured notes covenant compliance ratios as of December 31, 2002 (in thousands, except percentage and covenant ratio data):


Net investment in real estate		$	2,741,624
Cash and cash equivalents			4,063
Restricted Cash			20,498
Accumulated depreciation and amortization(1)			392,611

	Total Assets	$	3,158,796

	Total unencumbered assets	$	1,839,187

Mortgage loans payable		$	570,654
Unsecured lines of credit			208,587
Unsecured term loan			125,000
Unsecured senior notes, net of discount			498,063

	Total Outstanding Debt	$	1,402,304

Consolidated EBITDA(2)		$	274,377

Interest incurred(2)		$	94,162
Loan fee amortization(2)			3,807

Debt Service(2)		$	97,969


Covenant Ratios	Test	Actual

Total Outstanding Debt/ Total Assets	Less than 60%		44	%
Secured Debt/ Total Assets	Less than 40%		18	%
EBITDA to Debt Service	Greater than 1.5		2.8
Unencumbered Assets/ Unsecured Debt	Greater than 150%		221	%


(1)	Includes accumulated depreciation related to a property currently held for disposition.

(2)	Represent amounts for the most recent four consecutive quarters. See EBITDA discussion on our Selected Financial Data section included elsewhere in this report.

Total interest incurred and the amount capitalized was as follows (unaudited and in thousands):



	Year Ended December 31,

	2002			2001			2000

Total interest incurred	$	94,162		$	93,290		$	91,052
Amount capitalized		(5,646	)		(9,095	)		(12,646	)

Amount expensed	$	88,516		$	84,195		$	78,406

As of December 31, 2002, we had approximately $24.6 million in cash and cash equivalents, including $20.5 million in restricted cash. Restricted cash includes $13.7 million in interest-bearing cash deposits required by some of our mortgage loans payable and $6.8 million in cash impound accounts for real estate taxes and insurance as required by several of our mortgage loans payable.

We may sell assets over the next twelve to twenty-four months. Due to market conditions beyond our control, it is difficult to predict the actual period and amount of these asset sales. Also depending on market conditions, at the time any such sales proceeds are realized, we expect to redeploy such amounts into investments that we believe will generate higher long-term value, which may include development or redevelopment of office buildings, acquisitions of existing buildings or repurchase of our common stock. In

addition, we expect to use a portion of any proceeds to pay down portions of our debt in order to maintain our conservative leverage and coverage ratios.

We expect to continue meeting our short-term liquidity and capital requirements generally through net cash provided by operating activities, proceeds from our lines of credit or from asset sales. We believe that the net cash provided by operating activities will continue to be sufficient to pay any distributions necessary to enable us to continue qualifying as a REIT. We also believe the foregoing sources of liquidity will be sufficient to fund our short-terms liquidity needs over the next twelve months, including recurring non-revenue enhancing capital expenditures, tenant improvements and leasing commissions.

We expect to meet our long-term liquidity and capital requirements such as scheduled principal repayments, development costs, property acquisitions, if any, and other non-recurring capital expenditures through net cash provided by operations, refinancing of existing indebtedness, proceeds from asset sales and/or the issuance of long-term debt and equity securities.

Recurring non-revenue enhancing capital expenditures represent building improvements and leasing costs required to maintain current revenue. Recurring capital expenditures do not include immediate building improvements that were taken into consideration when underwriting the purchase of a building or which are being incurred to bring a building up to our operating standards or reach stabilization. We consider a property to be stabilized in the quarter when the property is at least 95% leased. Recurring capital expenditures consist primarily of replacement components such as new elevators, roof replacements and upgrade requirements required by new safety codes such as new fire-life-emergency systems.

Non-recurring capital expenditures represent improvement costs incurred to improve a property to our operating standards or reach stabilization. These costs are normally taken into consideration during the underwriting process for a given property’s acquisition. Non-recurring capital expenditures include improvements such as new building expansion and some renovation costs.

We capitalize both recurring capital expenditures and non-recurring capital expenditures due to the probable benefit derived in future years from both non-recurring as well as recurring capital expenditures.

Funds From Operations and Funds Available for Distribution

The following table reflects the calculation of our funds from operations and funds available for distribution for the years ended December 31, 2002, 2001, 2000, 1999 and 1998 (in thousands, except percentages):



				Year Ended December 31,

				2002			2001			2000			1999			1998

Funds from Operations(1):
		Income from continuing operations		$	68,758		$	96,301		$	95,508		$	93,738		$	87,510
		FFO from discontinued operations			2,670			2,550			2,563			3,627			3,758
		Depreciation and amortization			110,202			100,775			85,947			69,215			51,420
		Minority interest			6,198			7,517			7,572			5,179			4,681	(2)
		Gain on sale of properties			(1,967	)		(4,591	)		(2,132	)		—			—
		Distributions on Preferred Operating Partnership Units			(4,312	)		(4,312	)		(4,312	)		(1,354	)		—

Funds from Operations(3)					181,549			198,240			185,146			170,405			147,369
		Arden Realty’s percentage share(4)			97.3	%		96.8	%		96.7	%		96.2	%		95.3	%

	Arden Realty’s share of Funds from Operations			$	176,647		$	191,896		$	179,036		$	163,930		$	140,443

Funds Available for Distribution(5):
		Funds From Operations		$	181,549		$	198,240		$	185,146		$	170,405		$	147,369
		Non-cash compensation expense			1,199			1,938			—			—			—
		Amortization of prepaid financing costs			3,807			3,568			—			—			—
		Straight-line rent			(5,465	)		(9,208	)		(8,078	)		(7,680	)		(8,193	)
		Recurring capital expenditures			(3,747	)		(2,184	)		(7,437	)		(2,608	)		(1,481	)
		Second generation tenant improvements and leasing commissions			(24,711	)		(19,276	)		(23,057	)		(24,664	)		(20,006	)

Funds Available for Distribution				$	152,632		$	173,078		$	146,574		$	135.453		$	117,689

		Weighted average common shares and operating partnership units outstanding-
			Diluted		66,098			66,132			65,759			65,566			61,999


(1)	We believe that funds from operations, or FFO, is a useful supplemental measure of our operating performance. We compute FFO in accordance with standards established by the White Paper on FFO approved by the Board of Governors of the National Association of Real Estate Investment Trusts, or NARIET, in April 2002. The White Paper defines FFO as net income or loss computed in accordance with generally accepted accounting principles, or GAAP, excluding extraordinary items, as defined by GAAP, and gains and losses from sales of depreciable operating property plus real estate-related depreciation and amortization and after adjustments for unconsolidated partnerships and joint ventures.

	We believe that FFO, by excluding depreciation costs, the gains or losses from the sale of operating real estate properties and the extraordinary items as defined by GAAP, provides an additional perspective on our operating results. However, because these excluded items have a real economic effect, FFO is a limited measure of performance.

	FFO captures trends in occupancy rates, rental rates and operating costs. FFO excludes depreciation and amortization costs and it does not capture the changes in value in our properties that result from use or changes in market conditions or the level of capital expenditures and leasing costs necessary to maintain the operating performance of our properties, all of which are significant economic costs. Therefore, its ability to measure performance is limited.


	Because FFO excludes significant economic components of net income determined in accordance with GAAP, FFO should be used as an adjunct to net income and not as an alternative to net income. FFO should also not be used as an indicator of our financial performance, or as a substitute for cash flow from operating activities determined in accordance with GAAP or as a measure of our liquidity. FFO is not by itself indicative of funds available to fund our cash needs, including our ability to pay dividends or service our debt. Therefore, FFO only provides investors with an additional performance measure that when combined with measures computed in accordance with GAAP such as net income, cash flow from operating activities, investing activities and financing activities provides investors with an indication of our ability to service debt and to fund acquisitions and other expenditures.

	FFO is used by investors to compare our performance with other REITs. Other REITs may use different methods for calculating FFO and, accordingly, our FFO may not be comparable to other REITs.

(2)	Excludes $575,000 in distributions made to the former minority interest partners in the World Savings office property.

(3)	Includes approximately $1.2 million, $1.9 million and $586,000 in non-cash compensation expense for the years ended December 31, 2002, 2001 and 2000, respectively.

(4)	Represents Arden Realty’s weighted average ownership percentage during the respective twelve month period.

(5)	Consists of FFO excluding non-cash compensation expense, amortization of prepaid financing costs, straight-line rents and less costs incurred for recurring capital expenditures, second generation tenant improvements and leasing commissions. Beginning in 2001, we revised our funds available for distribution presentation to adjust the calculation for non-cash items in FFO, including non-cash compensation expense and the amortization of prepaid financing costs. In addition, we adjusted our deduction for capital expenditures and second generation tenant improvements and leasing commissions for amounts spent during the period. Prior to 2001, our adjustment for capital expenditures, tenant improvements and leasing commissions was a reserve for first and second generation space based on expected leasing volume, transaction costs and capital expenditures.

Current Economic Climate

Our short and long-term liquidity, ability to refinance existing indebtedness, ability to issue long-term debt and equity securities at favorable rates and our dividend policy are significantly impacted by the operating results of our properties, all of which are located in Southern California. Our ability to lease available space is largely dependent on the demand for office space in the markets where our properties are located. We believe current uncertainty over the national and Southern California economic environment is exerting downward pressures on the demand for Southern California commercial office space. We are expecting continued downward pressures for office demand due to several factors as follows:


	•	Job growth in Southern California was negative in 2002 and is largely dependent on improved economic activity;

	•	Occupancy and rental rates have decreased in recent months, are expected to decrease further due to the state of the national and local economy and competition from other office landlords;

	•	Larger tenants are taking more time to make their leasing decisions reflecting the uncertainty in the economy;

	•	Some tenants are under-utilizing their existing space and can therefore expand internally before they need new space;

	•	Sublease space, although stabilizing, stands at about 2.5% of total inventory throughout Southern California; and

	•	Over-building has increased vacancy rates in some submarkets.

These factors have contributed to a decrease in the occupancy of our portfolio from 92.2% as of December 31, 2001 to 90.1% as of December 31, 2002.

Overall market rental rates in Southern California declined 3 to 4% during 2002. Given the current trends, including the expected continued occupancy pressures and more aggressive pricing for sublease space, we expect market rates will decline by up to an additional 5% in 2003. Concessions also rose during 2002. As occupancy pressures continue, we expect concessions in either free rent or higher tenant improvement allowances to rise.

The timing and extent of future changes in the national and local economy and their effects on our properties and results of operations are difficult to accurately predict. It is possible, however, that these national and regional issues may more directly affect us and our operating results in the future, making it more

difficult for us to lease and renew available space, to increase or maintain rental rates as leases expire and to collect amounts due from our tenants. For additional information, see “Risk Factors — Further declines in the economic activity of Southern California will adversely affect our operating results,” “— The financial condition and solvency of our tenants may reduce our cash flow,” and “— Rising energy costs and power outages in California may have an adverse effect on our operations and revenue.”

Forward-Looking Statements

This Form 10-K, including the documents incorporated herein by reference, contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act pertaining to, among other things, our future results of operations, cash available for distribution, acquisitions, lease renewals, property development, property renovation, capital requirements and general business, industry and economic conditions applicable to us. Also, documents we subsequently file with the SEC and incorporated herein by reference will contain forward-looking statements. Actual results could differ materially from those projected in the forward-looking statements as a result of the risk factors set forth below and the matters set forth or incorporated in this Form 10-K generally. We caution you, however, that this list of factors may not be exhaustive, particularly with respect to future filings.

ITEM 7A. Quantitative and Qualitative Disclosure About Market Risk

Market risk is the exposure or loss resulting from changes in interest rates, foreign currency exchange rates, commodity prices and equity prices. The primary market risk to which we are exposed is interest rate risk, which is sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political considerations and other factors that are beyond our control.

Interest Rate Risk

In order to modify and manage the interest characteristics of our outstanding debt and limit the effects of interest rates on our operations, we may use a variety of financial instruments, including interest rate swaps, caps, floors and other interest rate exchange contracts. The use of these types of instruments to hedge our exposure to changes in interest rates carries additional risks such as counter-party credit risk and legal enforceability of hedging contracts. We do not enter into any transactions for speculative or trading purposes. During 2002, we entered into interest rate swap agreements, fixing the interest rates on variable rate debt with notional amounts totaling $175.0 million.

Some of our future earnings, cash flows and fair values relating to financial instruments are dependent upon prevailing market rates of interest, such as LIBOR. Based on interest rates and outstanding balances as of December 31, 2002, a 1% increase in interest rates on our $158.6 million of floating rate debt would decrease annual future earnings and cash flows by approximately $1.6 million and would not have an impact on the fair value of the floating rate debt. A 1% decrease in interest rates on our $158.6 million of floating rate debt would increase annual future earnings and cash flows by approximately $1.6 million and would not have an impact on the fair value of the floating rate debt. The weighted average interest rate on our floating debt as of December 31, 2002 was 3.42%.

Our fixed rate debt, including $175.0 million in floating rate debt swapped to fixed through interest rate swaps, totaled $1,243.7 million as of December 31, 2002 with a weighted average interest rate of 7.33% and a total fair value of approximately $1,320.2 million. A 1% decrease in interest rates on our $1,243.7 million of fixed rate debt would increase its fair value by approximately $38.1 million and would not have an impact on annual future earnings and cash flows. A 1% increase in interest rates on our $1,243.7 million of fixed rate debt would decrease its fair value by approximately $36.2 million and would not have an impact of annual future earnings and cash flows.

These amounts are determined by considering the impact of hypothetical interest rates on our borrowing cost. These analyses do not consider the effects of the reduced level of overall economic activity that could exist in that environment. Further, in the event of a change of this magnitude, we would consider taking actions to further mitigate our exposure to the change. Due to the uncertainty of the specific actions that

would be taken and their possible effects, however, this sensitivity analysis assumes no changes in our capital structure.

RISK FACTORS

In addition to the other information contained or incorporated by reference in this Form 10-K readers should carefully consider the following risk factors.

Real Estate Investment Risks


	An inability to retain tenants or rent space upon lease expirations may adversely affect our ability to service our debt.

Through 2007, 2,742 leases, including month-to-month leases, comprising approximately 78% of our leased net rentable square footage and approximately 74% of our annualized base rents at December 31, 2002 will expire as follows:


	Number		Percentage of			Percentage of
	of Leases		Aggregate Portfolio			Aggregate Portfolio
Year	Expiring		Leased Square Feet			Annualized Base Rent

2003		763		16.9	%		14.9	%
2004		665		20.0	%		18.0	%
2005		618		18.6	%		17.4	%
2006		368		12.6	%		12.7	%
2007		328		10.3	%		10.8	%

If we are unable to promptly relet or renew leases for all or a substantial portion of this space, or if the rent upon renewal or reletting are significantly lower than expected, our cash flow and business could be adversely affected.


	Further declines in the economic activity of Southern California will adversely affect our operating results.

All of our properties are located in Southern California. In 2002, many sectors of the California economy as well as the rest of the country experienced a slowdown or contraction in economic activity. As a result, in 2002, there was a decrease in occupancy in the majority of our sub-markets as well as a decrease in rental rates. At December 31, 2002 our portfolio was 90.1% occupied as compared to 92.2% occupied at December 31, 2001. During 2003, a total of approximately 3.0 million square feet of occupied space, representing approximately 16.9% of our total net rentable space, including month-to-month leases, will expire. Further deterioration of the local and national economy may result in further erosion of occupancy and rental rates and would most likely negatively affect our operating performance and property values.


	Competition affects occupancy levels, rents and cost of land which could adversely affect our revenues.

Many office properties compete with our properties in attracting tenants to lease space. Some of the competing properties may be newer, better located or owned by parties better capitalized than we are. Although ownership of these competing properties is currently diversified among many different types of owners, from publicly traded companies and institutional investors to small enterprises and individual owners, and no one or group of owners currently dominate or significantly influence the market, consolidation of owners could create efficiencies and marketing advantages for the consolidated group that could adversely affect us. These competitive advantages, the number of competitors and the number of competitive commercial properties in a particular area could have a material adverse effect on the rents we can charge, our ability to lease space in our existing properties or at newly acquired or developed properties and the prices we have to pay for developable land.

The financial condition and solvency of our tenants may reduce our cash flow.

Tenants may experience a downturn in their business which may cause them to miss rental payments when due or to seek the protection of bankruptcy laws, which could result in rejection and termination of their leases or a delay in recovering possession of their premises. Although we have not experienced material losses from tenant bankruptcies, we cannot assure you that tenants will not file for bankruptcy protection in the future or, if any tenants file, that they will affirm their leases and continue to make rental payments in a timely manner.


	Because real estate investments are illiquid, we may not be able to sell properties when appropriate.

Equity real estate investments are relatively illiquid. That illiquidity will tend to limit our ability to vary our portfolio promptly in response to changes in economic or other conditions. In addition, the Internal Revenue Code of 1986, as amended, may under specified circumstances impose a 100% prohibited transaction tax on the profits derived from our sale of properties held for fewer than four years, which could affect our ability to sell our properties.


	Rising energy costs and power outages in California may have an adverse effect on our operations and revenue.

Problems associated with deregulation of the electric industry in California have resulted in significantly higher costs in some areas. All of our properties are currently located in areas served by utilities that either produce their own electricity, or that have procured long-term, fixed rate contracts with commercial electrical providers. While we have no information suggesting that any future service interruptions are expected we believe that higher utility costs may continue as price increases are allowed by the California Public Utility Commission or other regulatory agencies.

Approximately 28% of our buildings and 21% of the total rentable square footage of our portfolio are subject to leases that require our tenants to pay all utility costs. The remainder of our leases provide that tenants will reimburse us for utility costs in excess of a base year amount.

Although we have not experienced any material losses resulting from electric deregulation, it is possible that some of our tenants will not fulfill their lease obligations and reimburse us for their share of any significant electric rate increases and that we will not be able to retain or replace our tenants if energy problems in California continue.


	Increases in taxes and regulatory compliance costs may reduce our revenue.

Except for our triple net leases, we may not be able to pass all real estate tax increases through to some of our tenants. Therefore, any tax increases may adversely affect our cash flow and our ability to pay or refinance our debt obligations. Our properties are also subject to various federal, California and local regulatory requirements, such as requirements of the Americans with Disabilities Act, and California and local fire and life safety requirements. Failure to comply with these requirements could result in the imposition of fines by governmental authorities or awards of damages to private litigants. We believe that our properties are currently in substantial compliance with these regulatory requirements. We cannot assure you, however, that these requirements will not be changed or that new requirements will not be imposed that would require significant unanticipated expenditures by us and could have an adverse effect on our cash flow and the amounts available for distributions and to our business.


	We may acquire properties through partnerships or joint ventures with third parties that could result in financial dependency and management conflicts.

We may participate with other entities in property ownership through joint ventures or partnerships in the future. Depending on the characteristics and business objectives of the joint venture or partnership, we may not have voting control over the joint venture or partnership. Partnership or joint venture investments may, under certain circumstances, involve risks not otherwise present, including:


	•	our partners or co-venturers might become bankrupt;

	•	our partners or co-venturers might at any time have economic or other business interests or goals which are inconsistent with our business interests or goals; and

	•	our partners or co-venturers may be in a position to take action contrary to our instructions or requests contrary to our policies or objectives.

Neither the partnership agreement of our operating partnership nor our governing documents prevent us from participating in joint ventures with our affiliates. Because a joint venture with an affiliate may not be negotiated in a traditional arm’s length transaction, terms of the joint venture may not be as favorable to us as we could obtain if we entered into a joint venture with an outside third party.


	We may not be able to integrate or finance our acquisitions.

As we acquire additional properties, we will be subject to risks associated with managing new properties, including building systems not operating as expected, delay in or failure to lease vacant space and tenants failing to renew leases as they expire. In addition, our ability to manage our growth effectively will require us to successfully integrate our new acquisitions into our existing accounting systems and property management structure. We cannot assure you that we will be able to succeed with that integration or effectively manage additional properties or that newly acquired properties will perform as expected. Changing market conditions, including competition from other purchasers of suburban office properties, may diminish our opportunities for attractive additional acquisitions. Moreover, acquisition costs of a property may exceed original estimates, possibly making the property uneconomical.


	Our acquisitions and renovations may not perform as expected.

Although we currently have no plans to significantly expand or renovate our properties, we may do so in the future. Expansion and renovation projects may inconvenience and displace existing tenants, require us to engage in time consuming up-front planning and engineering activities and expend capital, and require us to obtain various government and other approvals, the receipt of which cannot be assured. While our policies with respect to expansion and renovation activities are intended to limit some of the risks otherwise associated with these activities, we will nevertheless incur risks, including expenditures of funds on, and devotion of our time to, projects that may not be completed.


	Our development activities may be more expensive than anticipated and may not yield our anticipated results.

We currently have one development property under lease-up at the Howard Hughes Center in Los Angeles, California. The estimated total costs for this property is approximately $81.5 million. In addition, we have preliminary architectural designs completed for additional build-to-suit buildings at the Howard Hughes Center and have completed preliminary designs on a build-to-suit office building at our Long Beach Airport Business Park. We have entitlements for an additional 425,000 net rentable square feet of office space and up to 600 hotel rooms at the Howard Hughes Center. Also, as part of our Gateway Towers acquisition in August 2002, we acquired a 5-acre developable land parcel in Torrance, California that we are also marketing for a build-to-suit building. We do not intend to commence construction on any of these projects until development plans and budgets are finalized and build-to-suit tenant leases are signed with terms allowing us to achieve yields commensurate with each project’s development risk. We also intend to review, from time to time, other opportunities for developing and constructing office buildings and other commercial properties in accordance with our development and underwriting policies.

We expect to finance our development activities over the next 24 months through net cash provided by operating activities, proceeds from asset sales or proceeds from our lines of credit.

Risks associated with our development activities may include:


	•	abandonment of development opportunities due to a lack of financing or other reasons;


	•	construction costs of a property exceeding original estimates, possibly making the property uneconomical;

	•	occupancy rates and rents at a newly completed property may not be sufficient to make the property profitable;

	•	construction and lease-up may not be completed on schedule, resulting in increased debt service expense and construction costs; and

	•	development activities would also be subject to risks relating to the inability to obtain, or delays in obtaining, all necessary zoning, land-use, building, occupancy and other required governmental permits and authorizations.


	We are not subject to any limit on the amount or percentage of our assets that may be invested in any single property or any single geographic area.

Our governing documents do not restrict the amount or percentage of our assets that we may invest in a single property or geographic area. All of our properties are currently in Southern California and we have no immediate plans to invest outside of Southern California. This lack of diversification in our investments makes us more highly susceptible to changes affecting the Southern California economy and real estate markets or damages from regional events such as earthquakes.


	We may not be able to expand into new markets successfully.

While our business is currently limited to the Southern California market, it is possible that we will in the future expand our business to new geographic markets. We will not initially possess the same level of familiarity with new markets outside of Southern California, which could adversely affect our ability to manage, lease, develop or acquire properties in new localities.

Financing Risks


	Our significant amount of debt could limit our operational flexibility or otherwise adversely affect our financial condition.

As of December 31, 2002, we had total debt of approximately $1.4 billion, consisting of approximately $570.7 million in secured debt and approximately $831.7 million of unsecured debt. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources.”

Our substantial indebtedness could:


	•	require us to dedicate a substantial portion of our cash flow to pay our debt, thereby reducing the availability of our cash flow to fund distributions, working capital, capital expenditures, acquisition and development activity and other business purposes;

	•	make it more difficult for us to satisfy our debt obligations;

	•	limit our ability to refinance our debt and obtain additional debt financing; and

	•	increase our vulnerability to general adverse economic and real estate industry conditions and limit our flexibility in planning for, or reacting to, changes in our business and the real estate industry.


	We may be able to incur substantially more debt which would increase the risks associated with our substantial leverage.

Despite current indebtedness levels, we may still be able to incur substantially more debt in the future. Neither the partnership agreement of our operating partnership nor our governing documents limit the amount or the percentage of indebtedness that we may incur. We may borrow up to a maximum of $320 million under our two lines of credit. As of December 31, 2002, we had the ability to borrow an additional approximately

$111.4 million under these two lines of credit. If new debt is added to our current debt levels, the related risks that we now face could intensify and could increase the risk of default on our indebtedness.


	Scheduled debt payments could adversely affect our financial condition.

Our cash flow could be insufficient to meet required payments of principal and interest when due. In addition, we may not be able to refinance existing indebtedness, which in virtually all cases requires substantial principal payments at maturity, and, if we can refinance, the terms of the refinancing might not be as favorable as the terms of our existing indebtedness. As of December 31, 2002, approximately $5.5 million of principal will be coming due over the next twelve months. If principal payments cannot be refinanced, extended or paid with proceeds of other capital transactions, such as new equity capital, our cash flow will not be sufficient in all years to repay all maturing debt and continue to service and repay our debt obligations.


	Rises in interest rates could adversely affect our financial condition.

An increase in prevailing interest rates would have an immediate effect on the interest rates charged on our variable rate debt which rise and fall upon changes in interest rates. At December 31, 2002, approximately 11% of our debt was variable rate debt. Increases in interest rates would also impact the refinancing of our fixed rate debt. If interest rates are higher when our fixed debt becomes due, we may be forced to borrow at the higher rates. If prevailing interest rates or other factors result in higher interest rates, the increased interest expense would adversely affect our cash flow and our ability to service our debt, including the exchange notes. As a protection against rising interest rates, we may enter into agreements such as interest rate swaps, caps, floors and other interest rate exchange contracts. These agreements, however, increase our risks as to the other parties to the agreements not performing or that the agreements could be unenforceable. During the fourth quarter of 2002 we entered into interest rate lock agreements totaling $175 million that fixed the floating interest rates on $50 million of our unsecured line of credit and all of our $125 million unsecured term loan.


	Many of our properties are subject to mortgage financing which could result in foreclosure if we are unable to pay or refinance the mortgages when due.

We currently have outstanding five mortgage financings totaling $552.3 million that are secured by 67 of our properties. The properties in each of these financings are fully cross-collateralized and cross-defaulted. To the extent two or more mortgages are cross-defaulted, a default in one mortgage will trigger a default in the other mortgages. The cross-defaults can give the lender a number of remedies depending on the circumstances such as the right to increase the interest rate, demand additional collateral, accelerate the maturity date of the mortgages or foreclose on and sell the properties. To the extent two or more mortgages are cross-collateralized, a default in one mortgage will allow the mortgage lender to foreclose upon and sell the properties that are not the primary collateral for the loan in default. Four additional properties are subject to single property mortgages totaling approximately $18.4 million at December 31, 2002. If we are unable to meet our obligations under these mortgages, we could be forced to pay higher interest rates or provide additional collateral or the properties subject to the mortgages could be foreclosed upon and sold, which could have a material adverse effect on us and our ability to pay or refinance our debt obligations.

Tax Risks


	Our desire to qualify as a REIT restricts our ability to accumulate cash that might be used in future periods to make debt payments or to fund future growth.

In order to qualify as a REIT and avoid federal income tax liability, we must distribute to our stockholders at least 90% of our net taxable income, excluding net capital gain, and to avoid income taxation, our distributions must not be less than 100% of our net taxable income, including capital gains. To avoid excise tax liability, our distributions to our stockholders for the year must exceed the sum of 85% of its ordinary income, 95% of its capital gain net income, and any undistributed taxable income from prior years. As a result of these distribution requirements, we do not expect to accumulate significant amounts of cash. Accordingly,

these distributions could significantly reduce the cash available to us in subsequent periods to make payments on our debt obligations and to fund future growth.


	Our operating partnership intends to qualify as a partnership, but we cannot guarantee that it will qualify.

Our operating partnership intends to qualify as a partnership for federal income tax purposes. However, if the operating partnership were a “publicly traded partnership,” it would be treated as a corporation instead of a partnership for federal income tax purposes unless at least 90% of its income is qualifying income as defined in the Internal Revenue Code. The income requirements applicable to REITs and the definition of “qualifying income” for purposes of this 90% test are similar in most respects. Qualifying income for the 90% test generally includes passive income, such as specified types of real property rents, dividends and interest. We believe that the operating partnership would meet this 90% test, but we cannot guarantee that it would. If the operating partnership were to be taxed as a corporation, it would incur substantial tax liabilities and we would fail to qualify as a REIT for federal income tax purposes.


	We may suffer adverse tax consequences and be unable to attract capital if we fail to qualify as a REIT.

We believe that since our taxable year ended December 31, 1996, we have been organized and operated, and intend to continue to operate, so as to qualify for taxation as a REIT under the Internal Revenue Code. Although we believe that we have been and will continue to be organized and have operated and will continue to operate so as to qualify for taxation as a REIT, we cannot assure you that we have been or will continue to be organized or operated in a manner so as to qualify or remain so qualified. For us to qualify as a REIT, we must satisfy numerous requirements established under highly technical and complex Internal Revenue Code provisions for which there are only limited judicial and administrative interpretations and tests regarding various factual matters and circumstances not entirely within our control. The complexity of these provisions and of the applicable Treasury Regulations that have been promulgated under the Internal Revenue Code is greater in the case of a REIT, like us, that holds its assets through an investment in a partnership. No assurance can be given that legislation, new regulations, administrative interpretations or court decisions will not significantly change the tax laws with respect to our qualification as a REIT or the federal income tax consequences of qualification. We are, however, not aware of any pending legislation that would adversely affect our ability to qualify as a REIT. Our qualification and taxation as a REIT depends on our ability to meet, through actual annual operating results, asset diversification, distribution levels and diversity of stock ownership, the various qualification tests imposed under the Internal Revenue Code, the results of which have not been and will not be reviewed by our tax counsel.

If we failed to qualify as a REIT in any taxable year, we would be subject to federal income tax, including any applicable alternative minimum tax, on our taxable income at regular corporate rates. Moreover, unless entitled to relief under specific statutory provisions, we also would be disqualified as a REIT for the four taxable years following the year during which qualification was lost. If we were disqualified as a REIT, our ability to raise additional capital could be significantly impaired. This could reduce the funds we would have available to pay distributions to our stockholders and to service our debt.

Even if we qualify for and maintain our REIT status, we will be subject to certain federal, state and local taxes on our income and property. For example, if we have net income from a prohibited transaction, specifically sales or other taxable dispositions of property held primarily for sale to customers in the ordinary course of business, that income will be subject to a 100% tax.

Other Risks


	We are subject to agreements and policies that may deter change in control offers that might be attractive to our stockholders.

Certain provisions of our charter and bylaws as well as our stockholder rights plan, which is described below, may delay, defer or prevent a third party from making offers to acquire us or control over us. For example, such provisions may:


	•	deter tender offers for our common stock, which offers may be attractive to the stockholders; and

	•	deter purchases of large blocks of common stock, thereby limiting the opportunity for stockholders to receive a premium for their common stock over then-prevailing market prices.

Our charter contains a provision designed to prevent a concentration of ownership among our stockholders that would cause us to fail to qualify as a REIT. Under the Internal Revenue Code, not more than 50% in value of our outstanding shares of common stock may be owned, actually or constructively, by five or fewer individuals, including specific kinds of entities, at any time during the last half of our taxable year. In addition, if we, or an owner of 10% or more of our common stock, actually or constructively owns 10% or more of a tenant of ours, or a tenant of any partnership in which we are a partner, the rent received by us from that tenant will not be qualifying income for purposes of the REIT gross income tests. In order to protect us against the risk of losing REIT status, the ownership limit included in our charter limits actual or constructive ownership of our outstanding shares of common stock by any single stockholder to 9.0%, by value or by number of shares, whichever is more restrictive, of the then outstanding shares of common stock. Actual or constructive ownership of shares of common stock in excess of the ownership limit will cause the violative transfer or ownership to be void with respect to the transferee or owner as to that number of shares in excess of the ownership limit and such shares will be automatically transferred to a trust for the exclusive benefit of one or more qualified charitable organizations. That transferee or owner will have no right to vote such shares or be entitled to dividends or other distributions with respect to such shares.

Although our Board of Directors presently has no intention of doing so, except as described below, our Board of Directors could waive this restriction with respect to a particular stockholder if it were satisfied, based upon the advice of counsel or a ruling from the Internal Revenue Service, that ownership by such stockholder in excess of the ownership limit would not jeopardize our status as a REIT and our Board of Directors otherwise decided such action would be in our best interests. Our Board of Directors has waived our ownership limit with respect to Mr. Ziman and certain family members and affiliates and has permitted these parties to actually and constructively own up to 13.0% of the outstanding shares of common stock.

Our charter authorizes our Board of Directors to cause us to issue authorized but unissued shares of common stock or preferred stock and to reclassify any unissued shares of common stock or classify any unissued and reclassify any previously classified but unissued shares of preferred stock and, with respect to the preferred stock, to set the preferences, rights and other terms of such classified or unclassified shares. Although our Board of Directors has no such intention at the present time, it could establish a series of preferred stock that could, depending on the terms of such series, delay, defer or prevent a transaction or a change in control that might involve a premium price for the common stock or otherwise be in the best interest of our stockholders.

Our Board of Directors is divided into three classes of directors. Directors of each class are chosen for three-year terms upon the expiration of their current terms and each year one class of directors will be elected by the stockholders. The staggered terms of directors may reduce the possibility of a tender offer or an attempt to change control even though a tender offer or change in control might be in the best interest of our stockholders.

In August 1998, we declared a dividend distribution of one preferred share purchase right on each outstanding share of our common stock pursuant to a stockholder plan. Subject to limited exceptions, these rights will be exercisable if a person or group acquires 15% or more of our common stock or announces a tender offer for 15% or more of our common stock. Under certain circumstances, each right will entitle stockholders to buy one one-hundredth of a share of our newly created Class A Junior Participating Preferred Stock at an exercise price of $75. Our Board of Directors will be entitled to redeem the rights at $.01 per right at any time before a person has acquired 15% or more of the outstanding common stock. The rights plan will expire in August 2008.

Each right entitles its holder to purchase, at the right’s then-current exercise price, a number of our common shares having a market value at that time of twice the right’s exercise price. Rights held by the person or group seeking to acquire 15% or more of our common stock will become void and will not be

exercisable to purchase shares at the bargain purchase price. If we are acquired in a merger or other business combination transaction which has not been approved by our Board of Directors, each right will entitle its holder to purchase, at the right’s then-current exercise price, a number of the acquiring company’s common shares having a market value at that time of twice the right’s exercise price.


	Losses in excess of our insurance coverage or uninsured losses could adversely affect our cash flow.

We carry comprehensive liability, fire, extended coverage, terrorism and rental loss insurance policies which currently cover all of our properties with specifications and insured limits that we believe are adequate and appropriate under the circumstances. Some losses, however, are generally not insured against because it is not economically feasible to do so. Should an uninsured loss or a loss in excess of insured limits occur, we could lose our capital invested in the property, as well as the anticipated future revenue from the property and, in the case of debt which is recourse to us, we would remain obligated for any mortgage debt or other financial obligations related to the property. Any loss would adversely affect our cash flow with respect to the property subject to the loss. Moreover, we would generally be liable for any unsatisfied obligations other than non-recourse obligations with respect to the property subject to the loss.


	Lack of availability of insurance coverage for biological, chemical or nuclear terrorist attacks could adversely affect our financial condition.

Our current terrorism insurance policy, that expires in April 2003, specifically excludes biological, chemical or nuclear terrorist acts. We have been notified by our insurance broker that in the aftermath of September 11th attacks, insurance carriers will continue to exclude these types of attacks from terrorism insurance policies or offer coverage for biological, chemical or nuclear attacks coverages at prohibitive costs. Although we did not derive more than 4.3% of our 2002 net operating income from any one of the properties in our portfolio, a biological, chemical or nuclear terrorist attack damaging several of our properties or negatively impacting the financial condition of our tenants could materially deteriorate our operating results and overall financial condition.

An earthquake could adversely affect our business.

All of our properties are located in Southern California which is a high risk geographical area for earthquakes. Depending upon its magnitude, an earthquake could severely damage our properties which would adversely affect our business. We maintain earthquake insurance for our properties and the resulting business interruption. We cannot assure you that our insurance will be sufficient if there is a major earthquake.

Our properties may be subject to environmental liabilities.

Under federal, state and local environmental laws, a current or previous owner or operator of real estate may be required to investigate and clean up hazardous or toxic substances or petroleum product releases at the property and may be held liable to a governmental entity or to third parties for property damage and for investigation and clean-up costs in connection with the contamination. These laws typically impose clean-up responsibility and liability without regard to whether the owner knew of or caused the presence of the contaminants, and the liability under these laws has been interpreted to be joint and several unless the harm is divisible and there is a reasonable basis for allocation of responsibility. These costs may be substantial, and the presence of these substances, or the failure to remediate the contamination on the property, may adversely affect the owner’s ability to sell or rent the property or to borrow against the property. Persons who arrange for the disposal or treatment of hazardous or toxic substances at a disposal or treatment facility also may be liable for the costs of removal or remediation of a release of hazardous or toxic substances at the disposal or treatment facility, whether or not the facility is owned or operated by that person. Some laws create a lien on the contaminated site in favor of the government for damages and costs incurred in connection with the contamination. Finally, third parties may have claims against the owner of the site based on damages and costs resulting from environmental contamination emanating from that site.

Specific federal, state and local laws, regulations and ordinances govern the removal, encapsulation or disturbance of asbestos-containing materials when those materials are in poor condition or in the event of construction, remodeling, renovation or demolition of a building. These laws may impose liability for release of asbestos-containing material and may provide for third parties to seek recovery from owners or operators of real properties for personal injury associated with asbestos-containing materials. In connection with the ownership and operation of our properties, we may be potentially liable for those costs.

In the past few years, independent environmental consultants have conducted or updated Phase I environmental assessments and other environmental investigations as appropriate at some of our properties. The environmental site assessments and investigations have identified a total of 32 properties in our portfolio, representing approximately 32.5% of the total rentable square feet in the portfolio, affected by environmental concerns. These environmental concerns include properties that may be impacted by known or suspected (a) contamination caused by third party sources or (b) soil and/or groundwater contamination which has been remediated, and (c) those containing underground storage tanks or asbestos.

Of these properties, two (2) are believed to be affected by contamination caused by third party sources and also houses an underground storage tank, four (4) contain friable asbestos, thirteen (13) contain non-friable asbestos, and thirteen (13) house underground storage tanks only. The properties affected by contamination are primarily affected by petroleum and solvent substances, and in each case a third party has indemnified us for any and all problems associated with this contamination. With regard to those properties affected by asbestos, asbestos does not pose a health hazard if it is not disturbed in such a way to cause an airborne release of asbestos. Asbestos is friable when it can be crumbled, pulverized or reduced to powder by hand pressure, and non-friable when hand pressure cannot release encapsulated asbestos fibers. Friable asbestos is more likely to be released into the air than no-friable asbestos. We manage all asbestos in ways that minimize its potential to become airborne or otherwise threaten human health. Regarding underground storage tanks, subsurface leakage of the materials contained within the tank constitutes the primary risk posed by these devices. We comply with all applicable laws, including double-wall construction, testing protocols, placement of tanks within bermed areas, and the installation of leak and spill detection equipment, to minimize the risks posed by underground storage tanks.

The environmental site assessments and investigations have not, however, revealed any environmental liability that we believe would have a material adverse effect on our business, assets or results of operations taken as a whole, nor are we aware of any material environmental liability. Nevertheless, it is possible that our environmental site assessments do not reveal all environmental liabilities or that there are material environmental liabilities of which we are unaware.

We believe that our properties are in compliance in all material respects with all federal, state and local laws regarding hazardous or toxic substances or petroleum products, except as noted above. We have not been notified by any governmental authority, and are not otherwise aware, of any material noncompliance, liability or claim relating to hazardous or toxic substances or petroleum products in connection with any of our present properties, other than as noted above. It is possible that future laws will impose material environmental liabilities on us and that the current environmental condition of our properties will be affected by tenants, by the condition of land or operations in the vicinity of our properties, such as the presence of underground storage tanks, or by third parties unrelated to us.

ITEM 8. Financial Statements and Supplementary Data

The financial statements and supplementary data required by Regulation S-X are included in this Report on Form 10-K commencing on page F-1.


ITEM 9.	*Changes in and Disagreements with Accountants on Accounting and Financial Disclosure*

None.

PART III

The information required by Part III is incorporated by reference from our definitive proxy statement for our 2003 Annual Meeting of Stockholders.

ITEM 10. Directors and Executive Officers of the Registrant

The information contained in the sections captioned “Proposal I; Election of Directors” and “Section 16(a) Beneficial ownership Reporting Compliance” of the definitive proxy statement is incorporated herein by reference.

ITEM 11. Executive Compensation

The information contained in the section captioned “Executive Compensation” of the definitive proxy statement is incorporated herein by reference.

ITEM 12. Security Ownership of Certain Beneficial Owners and Management

Equity Compensation Plan Information

The following table provides information as of December 31, 2002 with respect to shares of our common stock that may be issued under our existing equity compensation plans (in thousands, except per share amounts):

Number of shares of

Number of shares of common stock

common stock to be issued

Weighted-average exercise

remaining available for future

upon exercise of

price of outstanding

issuance under equity compensation

outstanding options,

options, warrants and

plans (excluding shares reflected in

Plan Category

warrants and rights

rights

column(a))(1)

(a)

(b)

(c)

Equity Compensation plans approved by shareholders

4,189

24.33

1,115

Equity Compensation plans not approved by shareholders

—

Total

4,189

24.33

1,115


(1)	Includes shares available for issuance under restricted stock grants.

The other information contained in the section captioned “Security Ownership of Principal Stockholders and Management” of the definitive proxy statement is incorporated herein by reference.

ITEM 13. Certain Relationships and Related Transactions

The information contained in the section captioned “Certain Relationships and Related Transactions” of the definitive proxy statement is incorporated herein by reference.

ITEM 14. Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Securities Exchange Act of 1934 reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure

controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Also, we have an investment in an unconsolidated entity. Because we do not control or manage this entity, our disclosure controls and procedures with respect to such an entity is necessarily substantially more limited than those we maintain with respect to our consolidated subsidiaries.

Within 90 days prior to the date of this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective.

There have been no significant changes in our internal controls or in other factors that could significantly affect the internal controls subsequent to the date we completed our evaluation.

PART IV

ITEM 15. Exhibits, Financial Statements, and Reports on Form 8-K

(a) Financial Statements

The following consolidated financial information is included as a separate section of this Annual Report on Form 10-K:


	Page

Report of Independent Auditors		F-1
Consolidated Balance Sheets as of December 31, 2002 and 2001		F-2
Consolidated Statements of Income for the years ended December 31, 2002, 2001 and 2000		F-3
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2002, 2001 and 2000		F-4
Consolidated Statements of Cash Flows for the years ended December 31, 2002, 2001 and 2000		F-5
Notes to Financial Statements		F-6

All other schedules are omitted since the required information is not present in amounts sufficient to require submission of the schedule or because the information required is included in the financial statements and notes thereto.

(b) Reports on Form 8-K

None.


Exhibit
Number			Description

	3.1	*	Amended and Restated Articles of Incorporation as filed as an exhibit to Arden Realty Registration Statement on Form S-11 (No. 333-8163).
	3.2	*	Articles Supplementary of Class A Junior Participating Preferred Stock as filed as an exhibit to the current report on Form 8-K, dated August 26, 1998.
	3.3	*	Articles Supplementary of the 8 5/8 Series B Cumulative Redeemable Preferred Stock dated September 7, 1999, filed as an exhibit to Arden Realty’s 10-K dated March 27, 2000.
	3.4	*	By-laws of Registrant as filed as an exhibit to Arden Realty’s on Form S-11 (No. 333-8163).
	3.5	*	Certificate of Amendment of the By-laws of Arden Realty dated July 14, 1998, filed as an exhibit to Arden Realty’s quarterly report on Form 10-Q dated August 14, 1998.
	3.6	*	Certificate of Amendment of the Bylaws of Arden Realty dated March 17, 2000, filed as an exhibit on Form 10-Q dated May 11, 2000.
	4.1	*	Rights Agreement, dated August 14, 1998, between Arden Realty and The Bank of New York, as filed as an exhibit to Arden Realty’s current report on Form 8-K dated August 26, 1998.
	4.2	*	Indenture between Arden Realty Limited Partnership and The Bank of New York, as trustee, dated March 14, 2000 as filed as an exhibit to Arden Realty Limited Partnership’s registration statement on Form S-4 (No. 333-35406).
	4.3	*	Form of Arden Realty Limited Partnership’s unsecured 8.875% senior note due 2005, dated March 17, 2000 filed as an exhibit to Arden Realty Limited Partnership’s registration statement on Form S-4 (No. 333-35406).
	4.4	*	Form of Arden Realty Limited Partnership’s unsecured 9.150% senior note due 2010, dated March 17, 2000 filed as an exhibit to Arden Realty Limited Partnership’s registration statement on Form S-4 (No. 333-35406).
	4.5	*	Form of Arden Realty Limited Partnership’s unsecured 8.50% senior note due 2010, dated November 20, 2000 as filed as an exhibit to Arden Realty Limited Partnership’s registration statement on Form S-4 (No. 333-53376).
	4.6	*	Form of Arden Realty Limited Partnership’s 7.00% Note due 2007, dated November 9, 2002 as filed as an exhibit to Arden Realty Limited Partnership’s current report on Form 8-K filed with the Commission on November 9, 2001.
	4.7	*	Officers’ certificate dated March 17, 2000 with respect to the terms of Arden Realty Limited Partnership’s 8.875% senior note due 2005 and 9.150% Senior Notes due 2010 as filed as an exhibit to Arden Realty, Inc. 10-K filed with the Commission on April 1, 2002.
	4.8	*	Officers’ certificate dated November 20, 2000 with respect to the terms of Arden Realty Limited Partnership’s 8.50% Senior Notes due 2010 as filed as an exhibit to Arden Realty, Inc. 10-K filed with the Commission on April 1, 2002.
	4.9	*	Officer’s certificate dated November 9, 2001 with respect to the terms of Arden Realty Limited Partnership’s 7.00% Note due 2007, filed as an exhibit to Arden Realty Limited Partnership’s current report on Form 8-K filed with the Commission on November 9, 2001.
	10.1	*†	1996 Stock Option and Incentive Plan of Arden Realty, Inc. and Arden Realty Limited Partnership as filed as an exhibit to Arden Realty’s registration statement on Form S-11 (No. 333-8163).


Exhibit
Number			Description

	10.2	*†	Amendment Number 1 to the 1996 Stock Option and Incentive Plan of Arden Realty, Inc. and Arden Realty Limited Partnership as filed as an exhibit to Arden Realty’s Schedule 14A filed with the Commission on June 23, 1998.
	10.3	*†	Form of Officers and Directors Indemnification Agreement as filed as an exhibit to Arden Realty’s registration statement on Form S-11 (No. 333-8163).
	10.4	*	Loan Agreement dated June 8, 1998 by and between Arden Realty Finance III, L.L.C., a Delaware limited liability company and Lehman Brothers Realty Corporation, a Delaware corporation filed as an exhibit to Arden Realty’s quarterly report of Form 10-Q filed with the Commission on August 14, 1998.
	10.5	*	Mortgage Note, dated June 8, 1998 for $136,100,000 by and between Arden Realty Finance III, L.L.C., a Delaware limited liability company, and Lehman Brothers Realty Corporation, a Delaware corporation. (Exhibit B. to Exhibit 10.4 above).
	10.6	*	Tenant Estoppel Certificate (Exhibit C. to Exhibit 10.4 above).
	10.7	*	Subordination, Non-Disturbance and Attornment Agreement (Exhibit D. to Exhibit 10.4 above).
	10.8	*	Deed of Trust, Assignment of Rents and Leases, Security Agreement, and Fixture Filing dated as of June 8, 1998 made by Arden Realty Finance III, L.L.C. as Grantor, to Commonwealth Land Title Company as Trustee for the benefit of Lehman Brothers Realty Corporation as Beneficiary, filed as an exhibit to Arden Realty’s quarterly report on Form 10-Q filed with the Commission on August 14, 1998.
	10.9	*	Assignment of Leases and Rents dated June 8, 1998, by and between Arden Realty Finance III, L.L.C., a Delaware limited liability company and Lehman Brothers Realty Corporation, a Delaware corporation, its successors and assigns filed as an exhibit to Arden Realty’s quarterly report on Form 10-Q filed with the Commission on August 14, 1998.
	10.10	*	Collateral Assignment of Management Agreement and Subordination Agreement dated as of June 8, 1998 among Arden Realty Finance III, L.L.C., a Delaware limited liability company (“Borrower”), Lehman Brothers Realty Corporation, a Delaware corporation, (“Lender”), and Arden Realty Limited Partnership, a Maryland limited partnership (“Manager”), filed as an exhibit to Arden Realty’s quarterly report on Form 10-Q filed with the Commission on August 14, 1998.
	10.11	*	Security Agreement is entered into as of June 8, 1998 by and between Arden Realty Finance III, L.L.C., a Delaware limited liability company and Lehman Brothers Realty Corporation, a Delaware corporation, filed as an exhibit to Arden Realty’s quarterly report on Form 10-Q filed with the Commission on August 14, 1998.
	10.12	*	Environmental Indemnity Agreement dated June 8, 1998 by Arden Realty Finance III, L.L.C., a Delaware limited liability company, in favor of Lehman Brothers Realty Corporation, a Delaware corporation, filed as an exhibit to Arden Realty’s quarterly report on Form 10-Q filed with the Commission on August 14, 1998.
	10.13	*	Letter agreement between Lehman Brothers Realty Corporation, Arden Realty Finance III, L.L.C., Arden Realty and Arden Realty Limited Partnership, filed as an exhibit to Arden Realty’s quarterly report on Form 10-Q filed with the Commission on August 14, 1998.
	10.14	*	Loan Agreement by and between Arden Realty Finance IV, LLC, a Delaware limited liability company and Lehman Brothers Realty Corporation, a Delaware corporation, filed as an exhibit to Arden Realty’s quarterly report on Form 10-Q filed with the Commission on August 14, 1998.


Exhibit
Number			Description

	10.15	*	Mortgage Note, dated June 8, 1998 for $100,600,000 by and between Arden Realty Finance IV, L.L.C., a Delaware limited liability company (“Maker”), and Lehman Brothers Realty Corporation, a Delaware corporation (Exhibit B to Exhibit 10.14 above).
	10.16	*	Tenant Estoppel Certificate (Exhibit C. to Exhibit 10.14 above).
	10.17	*	Subordination, Non-Disturbance and Attornment Agreement (Exhibit D. to Exhibit 10.14 above).
	10.18	*	Deed of Trust, Assignment of Rents and Leases, Security Agreement, and Fixture Filing dated as of June 8, 1998 made by Arden Realty Finance IV, L.L.C. as Grantor, to Commonwealth Land Title Company as Trustee for the benefit of Lehman Brothers Realty Corporation as Beneficiary, filed as an exhibit to Arden Realty’s quarterly report on Form 10-Q filed with the Commission on August 14, 1998.
	10.19	*	Assignment of Leases and Rents dated June 8, 1998, by and between Arden Realty Finance IV, L.L.C., a Delaware limited liability company (“Assignor”), and Lehman Brothers Realty Corporation, a Delaware corporation, its successors and assigns (“Assignee”), filed as an exhibit to Arden Realty’s quarterly report on Form 10-Q filed with the Commission on August 14, 1998.
	10.20	*	Collateral Assignment of Management Agreement and Subordination Agreement dated as of June 8, 1998 among Arden Realty Finance IV, L.L.C., a Delaware limited liability company (“Borrower”), Lehman Brothers Realty Corporation, a Delaware corporation, (“Lender”), and Arden Realty Limited Partnership, filed as an exhibit to Arden Realty’s quarterly report on Form 10-Q filed with the Commission on August 14, 1998.
	10.21	*	Security Agreement is entered into as of June 8, 1998 by and between Arden Realty Finance IV, L.L.C., a Delaware limited liability company (“Debtor”), and Lehman Brothers Realty Corporation, a Delaware corporation (“Secured Party”), filed as an exhibit to Arden Realty’s quarterly report on Form 10-Q filed with the Commission on August 14, 1998.
	10.22	*	Environmental Indemnity Agreement dated June 8, 1998 by Arden Realty Finance IV, L.L.C., a Delaware limited liability company (“Indemnitor”), in favor of Lehman Brothers Realty Corporation, a Delaware corporation (“Lender”), filed as an exhibit to Arden Realty’s quarterly report on Form 10-Q filed with the Commission on August 14, 1998.
	10.23	*	Letter agreement between Lehman Brothers Realty Corporation, Arden Realty Finance IV, L.L.C., Arden Realty and Arden Realty Limited Partnership, filed as an exhibit to Arden Realty’s quarterly report on Form 10-Q filed with the Commission on August 14, 1998.
	10.24	*†	Amended and Restated Employment Agreement dated January 1, 1999, between Arden Realty and Mr. Robert Peddicord, filed as a exhibit to Arden Realty’s quarterly report on Form 10-Q filed with the Commission on August 8, 2000.
	10.25	*	Miscellaneous Rights Agreement among Arden Realty, Arden Realty Limited Partnership, NAMIZ, Inc. and Mr. Ziman, filed as an exhibit to Arden Realty’s registration statement on Form S- II (No. 333-8163).
	10.26	*	Credit Facility documentation consisting of Second Amended and Restated Revolving Credit Agreement by and among Arden Realty Limited Partnership and a group of banks led by Wells Fargo Bank as filed as an exhibit to Arden Realty’s quarterly report on Form 10-Q filed with the Commission on May 12, 2000.


Exhibit
Number			Description

	10.27	*	Mortgage Financing documentation consisting of Loan Agreement by and between Arden Realty’s special purpose financing subsidiary and Lehman Brothers Realty Corporation (the Loan Agreement includes the Mortgage Note, Deed of Trust, and form of Tenant Estoppel Certificate and Agreement as exhibits) as filed as an exhibit to Arden Realty’s registration statement of Form S-11 (No. 333-30059).
	10.28	*	Promissory Note, dated as of March 30, 1999, between Massachusetts Mutual Life Insurance Company and Arden Realty Finance V, L.L.C. filed as an exhibit to Arden Realty’s current report Form 8-K filed with the Commission on April 20, 1999.
	10.29	*	Deed of Trust and Security Agreement, dated as of March 30, 1999, with Arden Realty Finance V, L.L.C. as the Trustor and Massachusetts Mutual Life Insurance Company as the Beneficiary filed as an exhibit to Arden Realty’s current report on Form 8-K filed with the Commission on April 20, 1999.
	10.30	*	Assignment of Leases and Rents, dated as of March 30, 1999, between Massachusetts Mutual Life Insurance Company and Arden Realty Finance V, L.L.C. filed as an exhibit to Arden Realty’s current report on Form 8-K filed with the Commission on April 20, 1999.
	10.31	*	Subordination of Management Agreement, dated as of March 30, 1999, between Massachusetts Mutual Life Insurance Company and Arden Realty Finance V. L.L.C. filed as an exhibit to Arden Realty’s current report on Form 8-K filed with the Commission on April 20, 1999.
	10.32	*	Environmental Indemnification and Hold Harmless Agreement, dated as of March 30, 1999, between Massachusetts Mutual Life Insurance Company and Arden Realty Finance V, L.L.C. filed as an exhibit to Arden Realty’s current report on Form 8-K filed with the Commission on April 20, 1999.
	10.33	*†	Amended and Restated Employment Agreement dated May 27, 1999, between Arden Realty and Mr. Randy J. Noblitt as filed as an exhibit to Arden Realty Limited Partnership’s registration statement on Form S-4 (No. 333-53376).
	10.34	*†	Amended and Restated Employment Agreement dated July 27, 2000, by and between Arden Realty and Mr. Richard S. Ziman as filed as an exhibit to Arden Realty Limited Partnership’s registration statement on Form S-4 (No. 333-53376).
	10.35	*†	Amended and Restated Employment Agreement dated July 27, 2000, by and between Arden Realty and Mr. Victor J. Coleman as filed as an exhibit to Arden Realty Limited Partnership’s registration statement on Form S-4 (No. 333-53376).
	1036	*†	Amendment to the 1996 Stock Option and Incentive Plan of Arden Realty, Inc. and Arden Realty Limited Partnership as filed as an exhibit to Arden Realty’s Schedule 14A filed with the Commission on April 25, 2000.
	10.37	*†	Second Amended and Restated 1996 Stock Option and Incentive Plan of Arden Realty, Inc. and Arden Realty Limited Partnership dated September 20, 2001 as filed as an exhibit to Arden Realty, Inc.’s quarterly report on Form 10-Q filed with the Commission on November 14, 2001.
	10.38	*†	Form of Promissory Note entered on July 19, 2001 and September 28, 2001 between Arden Realty Limited Partnership and Richard Ziman, Victor Coleman, Andrew Sobel and Robert Peddicord, respectively, as filed as an exhibit to Arden Realty Limited Partnership’s quarterly report on Form 10-Q filed with the Commission on November 14, 2001.
	10.39	*†	Amended and Restated Employment Agreement dated June 2, 1999, by and between Arden Realty and Mr. Richard S. Davis as filed as an exhibit to Arden Realty Limited Partnership’s annual report on Form 10-K filed with the Commission on April 1, 2002.


Exhibit
Number			Description

	10.40	*†	Amended and Restated Employment Agreement dated March 29, 2002, between Mr. Andrew Sobel and Arden Realty, Inc. as filed as an exhibit to Arden Realty, Inc.’s quarterly report on Form 10-Q filed with the Commission on August 14, 2002.
	10.41	*†	Form of Promissory Note entered into on February 18, 2002 between Arden Realty, Inc. and Mr. Andrew Sobel as filed as on exhibit to Arden Realty, Inc.’s quarterly report on Form 10-Q filed with the Commission on August 14, 2002.
	10.42	*	Term Loan Agreement between Arden Realty Limited Partnership and Wells Fargo Bank, National Association dated as of June 12, 2002 as filed as an exhibit to Arden Realty Limited Partnership’s quarterly report on Form 10-Q filed with the Commission on August 14, 2002.
	10.43	*	Third Amended and Restated Revolving Credit Agreement between Arden Realty Limited Partnership and a group of lenders led by Wells Fargo Bank dated as of August 9, 2002 as filed as an exhibit to Arden Realty Limited Partnership’s quarterly report on Form 10-Q filed with the Commission on November 12, 2002.
	10.44	*	Amendment to Term Loan Agreement between Arden Realty Limited Partnership and Wells Fargo Bank, National Association dated as of September 19, 2002 as filed as an exhibit to Arden Realty Limited Partnership’s quarterly report on Form 10-Q filed with the Commission on November 12, 2002.
	10.45	*†	Amended and Restated Employment Agreement dated May 27, 1999, by and between Arden Realty Limited Partnership and Mr. David Swartz as filed as an exhibit to Arden Realty Limited Partnership’s annual report on Form 10-K filed with the Commission on March 28, 2003.
	12.1		Statement regarding computation of ratios.
	21.1	*	Subsidiaries of Arden Realty Limited Partnership as filed as an exhibit to Arden Realty Limited Partnership’s annual report on Form 10-K filed with the Commission on March 28, 2003 are incorporated by reference and in addition, Arden Realty Limited Partnership is included herein as a subsidiary of Arden Realty, Inc.
	23.1		Consent of independent auditors.
	99.1		Officers’ certifications pursuant to Section 906 off the Sarbanes-Oxley Act of 2002.

(*) Incorporated by reference.


(†)	Management contract or compensatory plan or arrangement required to be identified by Item 15(a)3.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on March 25, 2003.


	ARDEN REALTY, INC.


	By:	/s/ RICHARD S. ZIMAN



	Richard S. Ziman
	Chairman of the Board
	and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.


Name	Title	Date

/s/ RICHARD S. ZIMAN Richard S. Ziman	Chairman of the Board, Chief Executive Officer and Director	March 25, 2003

/s/ VICTOR J. COLEMAN Victor J. Coleman	President, Chief Operating Officer and Director	March 25, 2003

/s/ ANDREW J. SOBEL Andrew J. Sobel	Executive Vice President Strategic Planning and Operations	March 25, 2003

/s/ RICHARD S. DAVIS Richard S. Davis	Senior Vice President, and Chief Financial Officer	March 25, 2003

/s/ LARRY S. FLAX Larry S. Flax	Director	March 20, 2003

/s/ CARL D. COVITZ Carl D. Covitz	Director	March 20, 2003

/s/ PETER S. GOLD Peter S. Gold	Director	March 19, 2003

/s/ STEVEN C. GOOD Steven C. Good	Director	March 20, 2003

OFFICERS’ CERTIFICATIONS

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, Richard S. Ziman, certify that:


1.	I have reviewed this annual report on Form 10-K of Arden Realty, Inc.;

2.	Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3.	Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4.	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:


	a)	designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

	b)	evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and

	c)	presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;


5.	The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):


	a)	all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

	b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and


6.	The registrant’s other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: March 25, 2003


	/s/ RICHARD S. ZIMAN

	Richard S. Ziman
	Chairman of the Board and Chief Executive Officer
	Arden Realty, Inc.

CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, Richard S. Davis, certify that:


1.	I have reviewed this annual report on Form 10-K of Arden Realty, Inc.;

2.	Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3.	Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4.	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:


	a)	designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;


	b)	evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and


	c)	presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;


5.	The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):


	a)	all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

	b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and


6.	The registrant’s other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: March 25, 2003


	/s/RICHARD S. DAVIS

	Richard S. Davis
	Senior Vice President and Chief Financial Officer
	Arden Realty, Inc.

CERTIFICATION OF CHIEF OPERATING OFFICER

I, Victor J. Coleman, certify that:


1.	I have reviewed this annual report on Form 10-K of Arden Realty, Inc.;

2.	Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3.	Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4.	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:


	a)	designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

	b)	evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and

	c)	presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;


5.	The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):


	a)	all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

	b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and


6.	The registrant’s other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: March 25, 2003


	/s/ VICTOR J. COLEMAN

	Victor J. Coleman
	President and Chief Operating Officer
	Arden Realty, Inc.

CERTIFICATION OF EXECUTIVE VICE PRESIDENT

I, Andrew J. Sobel, certify that:


1.	I have reviewed this annual report on Form 10-K of Arden Realty, Inc.;

2.	Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3.	Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4.	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:


	a)	designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

	b)	evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and

	c)	presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;


5.	The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):


	a)	all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

	b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and


6.	The registrant’s other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: March 25, 2003


	/s/ ANDREW J. SOBEL

	Andrew J. Sobel
	Executive Vice President — Strategic Planning
	and Operations
	Arden Realty, Inc.

CERTIFICATION OF SENIOR VICE PRESIDENT

I, Robert C. Peddicord, certify that:


1.	I have reviewed this annual report on Form 10-K of Arden Realty, Inc.;

2.	Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3.	Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4.	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:


	a)	designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

	b)	evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and

	c)	presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;


5.	The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):


	a)	all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

	b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and


6.	The registrant’s other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: March 25, 2003


	/s/ ROBERT C. PEDDICORD

	Robert C. Peddicord
	Senior Vice President — Leasing and Property Operations
	Arden Realty, Inc.

CERTIFICATION OF GENERAL COUNSEL

I, David A. Swartz, certify that:


1.	I have reviewed this annual report on Form 10-K of Arden Realty, Inc.;

2.	Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3.	Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4.	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:


	a)	designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

	b)	evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and

	c)	presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;


5.	The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):


	a)	all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

	b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and


6.	The registrant’s other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: March 25, 2003


	/s/ DAVID A. SWARTZ

	David A. Swartz
	General Counsel and Secretary
	Arden Realty, Inc.

REPORT OF INDEPENDENT AUDITORS

Board of Directors and Stockholders Arden Realty, Inc.

We have audited the accompanying consolidated balance sheets of Arden Realty, Inc. as of December 31, 2002 and 2001 and the related consolidated statements of income, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2002. These financial statements are the responsibility of the management of Arden Realty, Inc. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Arden Realty, Inc. at December 31, 2002 and 2001 and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States.

As discussed in Note 3 to the financial statements, on January 1, 2002, Arden Realty, Inc. adopted Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.”


	/s/ ERNST & YOUNG LLP

Los Angeles, California

January 28, 2003

F-1

ARDEN REALTY, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)



			December 31,

			2002			2001

Assets
Commercial properties:
	Land		$	484,439		$	460,322
	Buildings and improvements			2,197,896			2,016,199
	Tenant improvements and leasing costs			325,779			258,815

				3,008,114			2,735,336
	Less: accumulated depreciation			(388,057	)		(301,795	)

				2,620,057			2,433,541
	Properties under development			65,296			116,822
	Land available for development			23,731			19,255
	Properties held for disposition, net			32,540			53,362

	Net investment in real estate			2,741,624			2,622,980
Cash and cash equivalents				4,063			37,041
Restricted cash				20,498			18,768
Rent and other receivables, net of allowance of $4,001 and $3,770 at December 31, 2002 and 2001, respectively				2,917			9,685
Mortgage notes receivable, net of discount				—			13,495
Deferred rent				43,646			38,989
Prepaid financing costs, expenses and other assets, net of accumulated amortization of $10,181 and $8,774 at December 31, 2002 and 2001, respectively				19,661			20,485

		Total assets	$	2,832,409		$	2,761,443

Liabilities and Stockholders’ Equity
Mortgage loans payable			$	570,654		$	573,452
Unsecured lines of credit				208,587			180,350
Unsecured term loan				125,000			—
Unsecured senior notes, net of discount				498,063			497,681
Accounts payable and accrued expenses				55,705			43,002
Security deposits				20,645			19,683
Dividends payable				31,807			31,408

		Total liabilities		1,510,461			1,345,576
Minority interests				74,571			78,661
Stockholders’ Equity
Preferred stock, $.01 par value, 20,000,000 shares authorized, None issued				—			—
Common stock, $.01 par value, 100,000,000 shares authorized, 62,984,217 and 64,098,110 issued and outstanding, respectively				631			641
Additional paid-in capital				1,260,773			1,345,698
Deferred compensation				(11,259	)		(9,133	)
Accumulated other comprehensive loss				(2,768	)		—

		Total stockholders’ equity		1,247,377			1,337,206

		Total liabilities and stockholders’ equity	$	2,832,409		$	2,761,443

See accompanying notes to financial statements.

F-2

ARDEN REALTY, INC.

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share amounts)



		Year Ended December 31,

		2002			2001			2000

Revenues		$	412,054		$	414,485		$	380,622
Property operating expenses			129,723			121,086			109,512

			282,331			293,399			271,110
General and administrative			13,166			12,143			9,336
Interest			88,516			84,195			78,406
Depreciation and amortization			110,202			100,775			85,947
Interest and other income			(2,542	)		(2,941	)		(3,527	)

Income from continuing operations before gain on sale of properties and minority interest			72,989			99,227			100,948
Gain on sale of properties			1,967			4,591			2,132

Income from continuing operations before minority interest			74,956			103,818			103,080
Minority interest			(6,198	)		(7,517	)		(7,572	)

Income from continuing operations			68,758			96,301			95,508
Discontinued operations, net of minority interest			1,417			1,458			1,202

Net income		$	70,175		$	97,759		$	96,710

Basic net income per common share:
	Income from continuing operations	$	1.07		$	1.51		$	1.51
	Income from discontinued operations		0.02			0.02			0.02

Net income per common share — basic		$	1.09		$	1.53		$	1.53

Weighed average number of common shares-basic			64,151			63,754			63,408

Diluted net income per common share:
	Income from continuing operations	$	1.07		$	1.51		$	1.50
	Income from discontinued operations		0.02			0.02			0.02

Net income per common share — diluted		$	1.09		$	1.53		$	1.52

Weighed average number of common shares — diluted			64,351			64,014			63,598

See accompanying notes to financial statements.

F-3

ARDEN REALTY, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except share amounts)


																	Notes			Accumulated
		Common Stock						Additional									Receivable			Other			Total
								Paid in			Retained			Deferred			From			Comprehensive			Stockholders’
		Shares			Amount			Capital			Earnings			Compensation			Officers			Loss			Equity

Balance at January 1, 2000			63,358,977		$	633		$	1,377,292		$	—		$	—		$	(2,167	)		—		$	1,375,758
	Surrender of restricted stock by officers		(85,106	)		—			(1,920	)		—			—			—			—			(1,920	)
	Notes and interest receivable from officers		—			—			—			—			—			2,167			—			2,167
	Stock Compensation		373,000			4			9,455			—			(9,459	)		—			—			—
	Amortization of stock compensation		—			—			—			—			586			—			—			586
	Preferred partnership units issuance costs		—			—			(119	)		—			—			—			—			(119	)
	Net income		—			—			—			96,710			—			—			—			96,710
	Dividends declared and payable		—			—			(21,301	)		(96,710	)		—			—			—			(118,011	)

Balance at December 31, 2000.			63,646,871			637			1,363,407			—			(8,873	)		—			—			1,355,171

	OP units converted		335,573			3			6,583			—			—			—			—			6,586
	Stock options exercised		21,166			—			463			—			—			—			—			463
	Stock compensation		94,500			1			2,532			—			(2,533	)		—			—			—
	Amortization of stock compensation		—			—			—			—			2,273			—			—			2,273
	Net income		—			—			—			97,759			—			—			—			97,759
	Dividends declared and payable		—			—			(27,287	)		(97,759	)		—			—			—			(125,046	)

Balance at December 31, 2001.			64,098,110			641			1,345,698			—			(9,133	)		—			—			1,337,206

	OP units converted		121,875			2			2,488			—			—			—			—			2,490
	Stock options exercised		423,999			4			9,074			—			—			—			—			9,078
	Stock compensation		187,500			2			4,813			—			(4,815	)		—			—			—
	Amortization of stock compensation		—			—			—			—			1,444			—			—			1,444
	Forfeiture of stock compensation		(51,267	)		—			(1,245	)		—			1,245			—			—			—
	Stock repurchases		(1,796,000	)		(18	)		(40,675	)		—			—			—			—			(40,693	)
	Unrealized loss on interest rate swaps		—			—			—			—			—			—			(2,768	)		(2,768	)
	Net income		—			—			—			70,175			—			—			—			70,175

	Comprehensive income		—			—			—			—			—			—			—			67,407
	Dividends declared and payable		—			—			(59,380	)		(70,175	)		—			—			—			(129,555	)

	Balance at December 31, 2002.		62,984,217		$	631		$	1,260,773		$	—		$	(11,259	)	$	—		$	(2,768	)	$	1,247,377

See accompanying notes to financial statements.

F-4

ARDEN REALTY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)



			Year Ended December 31,

			2002			2001			2000

Operating Activities:
Net income			$	70,175		$	97,759		$	96,710
Adjustments to reconcile net income to net cash provided by operating activities:
	Minority interest, including discontinued operations			6,236			7,565			7,613
	Depreciation and amortization, including discontinued operations			111,418			101,819			87,267
	Amortization of loan costs and fees			3,807			3,568			3,568
	Gain on sale of property			(1,967	)		(4,591	)		(2,132	)
	Amortization of deferred compensation			1,199			1,938			586
	Changes in operating assets and liabilities:
		Rent and other receivables		20,263			3,775			(1,080	)
		Deferred rent		(4,657	)		(7,401	)		(7,656	)
		Prepaid financing costs, expenses and other assets		(2,997	)		(4,366	)		(7,480	)
		Accounts payable and accrued expenses		9,728			4,388			11,359
		Security deposits		962			213			3,397

Net cash provided by operating activities				214,167			204,667			192,152

Investing Activities:
Acquisitions and improvements to commercial properties				(251,534	)		(161,785	)		(227,707	)
Proceeds from sales of properties				24,287			45,931			11,683

Net cash used in investing activities				(227,247	)		(115,854	)		(216,024	)

Financing Activities:
Proceeds from term loan				125,000			—			—
Proceeds from mortgage loans				—			—			45,052
Repayment of mortgage loans				(2,798	)		(2,603	)		(209,804	)
Proceeds from unsecured lines of credit				255,937			140,500			238,000
Repayments of unsecured lines of credit				(227,700	)		(213,500	)		(273,500	)
Proceeds from issuances of unsecured senior notes, net of discount				—			149,064			348,364
(Increase) decrease in restricted cash				(1,730	)		599			(854	)
Proceeds from issuance of common stock, net of offering costs				9,078			463			—
Repurchase of common stock				(40,693	)		—			—
Distributions to minority interests				(3,527	)		(4,182	)		(3,968	)
Distributions to preferred operating partnership units holder				(4,312	)		(4,312	)		(4,312	)
Dividends paid				(129,153	)		(123,233	)		(116,611	)
Preferred operating partnership units issuance cost				—			—			(119	)

Net cash (used in) provided by financing activities				(19,898	)		(57,204	)		22,248

Net (decrease) increase in cash and cash equivalents				(32,978	)		31,609			(1,624	)
Cash and cash equivalents at beginning of period				37,041			5,432			7,056

Cash and cash equivalents at end of period			$	4,063		$	37,041		$	5,432

Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for interest, net of amount capitalized			$	94,007		$	83,809		$	70,139

See accompanying notes to financial statements.

F-5

ARDEN REALTY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Business

Description of Business

The terms “Arden Realty”, “us”, “we” and “our” as used in these financial statements refer to Arden Realty, Inc. We are a self-administered and self-managed real estate investment trust, or REIT, that owns, manages, leases, develops, renovates and acquires commercial properties located in Southern California.

Organization and Formation of the Company

We were incorporated in Maryland in May 1996 and are the sole general partner of Arden Realty Limited Partnership, or the operating partnership. We conduct substantially all of our business through the operating partnership and certain other majority owned subsidiaries, which hold our interests in our real estate assets. Commencing with our taxable year ended December 31, 1996, we have operated and qualified as a REIT for federal income tax purposes.

As of December 31, 2002, our portfolio consisted of 137 primarily suburban office properties and 223 buildings containing approximately 19.4 million net rentable square feet including one development property with approximately 283,000 net rentable square feet currently under lease-up. As of December 31, 2002, our properties were 90.1% occupied.

2. Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation

The accompanying consolidated financial statements include the accounts of Arden Realty, Inc., the operating partnership, and our subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

We consolidate all entities for which we have controlling financial interest as measured by a majority of the voting interest. For entities in which the controlling financial interest is not clearly indicated by ownership of a majority of the voting interest, we would consolidate those entities for which we own a majority of the financial interest in profits or losses or entities that we control by agreement.

We currently own 100% of all of our consolidated subsidiaries and do not have any unconsolidated investments other than an investment in the securities of a non-publicly traded company. This investment represents approximately 5.8% of the total equity outstanding for this particular company. Because we do not control this company contractually nor exert significant influence over its operating and financial policies, we account for this investment under the cost method of accounting.

The minority interests at December 31, 2002 and 2001 consisted of limited partnership interests in the operating partnership of approximately 2.7% and 2.8%, respectively, exclusive of ownership interests of our preferred units holders.

Risks and Uncertainties

The preparation of financial statements, in conformity with accounting principles generally accepted in the United States, 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 reporting period. Actual results could differ from those estimates.

Our properties are all located in Southern California. As a result of our geographic concentration, the operations of these properties could be affected by the economic conditions in this region.

F-6

Segment Information

We view our operations as principally one segment, namely the operation of commercial real estate located in Southern California, and the financial information disclosed herein represents all of the financial information related to this principal operating segment.

Commercial Properties

Our properties are stated at depreciated cost. Write-downs to estimated fair value are recognized whenever a property’s estimated undiscounted future cash flows are less than it’s book value. Prior to the year ended December 31, 2001, properties held for disposition were carried at the lower of their depreciated cost or fair value less cost to sell. Beginning January 1, 2002, we implemented Statement of Financial Accounting Standards No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets” (SFAS 144), which was required to be adopted in fiscal years beginning after December 15, 2001 and which supercedes Statement of Financial Accounting Standards No. 121 “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of” (SFAS 121). As a result, we will continue to carry properties held for disposition at the lower of their depreciated cost or fair value less cost to sell in accordance with SFAS 144. Based on our assessment, no write-downs to estimated fair value were necessary as of December 31, 2002 and 2001, respectively. The implementation of SFAS 144 did not significantly impact our results of operation or financial position, however, its adoption impacted the conformity of our current year operating results presentation to prior years as discussed in footnote 3 below.

Repair and maintenance costs are charged to expenses as incurred and significant replacements and betterments are capitalized. Repairs and maintenance costs include all costs that do not extend the useful life of a an asset or increase its operating efficiency. Significant replacements and betterments represent costs that extend an asset’s useful life or increase its operating efficiency.

The carrying amount of all commercial properties is evaluated periodically to determine if adjustment to the useful life is warranted. During 2001, the useful life of certain building and building improvements were adjusted to more accurately reflect their estimated usefulness. The effect of this change in estimate in 2001 was an increase to net income of approximately $10.1 million or $0.16 per common share. This change in estimate did not have an impact on our 2001 cash flows.

Costs associated with leasing properties are capitalized and amortized to expense on a straight-line basis over the related lease term.

Cash Equivalents

Cash equivalents consist of highly liquid investments with original maturities of three months or less when acquired.

Restricted Cash

Restricted cash at December 31, 2002 and 2001 consists of $13.7 million in cash deposits as required by certain of our mortgage loans payable and $6.8 million and $5.1 million, respectively, in impound accounts for real estate taxes and insurance, as required by certain of our mortgage loans payable.

F-7

Prepaid Financing Costs

Costs associated with obtaining long-term financing are capitalized and amortized to interest expense over the term of the related loan.

Revenue Recognition

Minimum rent, including rental abatements and contractual fixed increases attributable to operating leases, is recognized on a straight-line basis over the term of the related lease. Amounts expected to be received in later years are included in deferred rents. Property operating expense reimbursements due from tenants for common area maintenance, real estate taxes and other recoverable costs are recognized in the period the related expenses are incurred.

Allowance for Rents and Other Receivables

We periodically evaluate the collectibility of amounts due from tenants and maintain an allowance for doubtful accounts for estimated losses resulting from the inability of tenants to make required payments under lease agreements. We also maintain an allowance for deferred rent receivable that arises from the straight-lining of rents. We exercise judgment in establishing these allowances and consider payment history and current credit status in developing these estimates. If estimates differ from actual results this could impact our operating results.

Income Taxes

We generally will not be subject to federal income taxes as long as we continue to qualify as a REIT. A REIT will generally not be subject to federal income taxation on that portion of income that qualifies as REIT taxable income and to the extent that it distributes such taxable income to its stockholders and complies with certain requirements. As a REIT, we are allowed to reduce taxable income by all or a portion of distributions to stockholders and must distribute at least 90% of our taxable income to qualify as a REIT. As dividends have eliminated taxable income, and compliance with certain requirements have been met, no Federal income tax provision has been reflected in the accompanying consolidated financial statements. State income tax requirements are essentially the equivalent of the Federal rules.

During 2002, 2001 and 2000, we declared dividends of $2.02, $1.96 and $1.86 per share, respectively.

Fair Value of Financial Instruments

Our disclosures of estimated fair value of financial instruments at December 31, 2002 and 2001, respectively, were determined using available market information and appropriate valuation methods. Considerable judgment is necessary to interpret market data and develop estimated fair value. The use of different market assumptions or estimation methods may have a material effect on the estimated fair value amounts.

Our cash equivalents, mortgage notes receivable, unsecured lines of credit, interest rate swap agreements, accounts payable and other financial instruments are carried at amounts that reasonably approximate their fair value amounts.

The estimated fair value of our mortgage loans payable and unsecured senior notes is as follows (in thousands):



	December 31, 2002				December 31, 2001

	Carrying		Estimated		Carrying		Estimated
	Amount		Fair Value		Amount		Fair Value

Mortgage loans payable	$	570,654	$	600,663	$	573,452	$	580,799

Unsecured senior notes	$	498,063	$	541,762	$	497,681	$	516,273

F-8

The estimated fair value is based on interest rates available at each of the dates presented for issuance of debt with similar terms and remaining maturities. The estimated fair value amounts of our notes payable above are not necessarily indicative of the amounts that we could realize in a current market exchange.

Interest Rate Swap Agreements

We have periodically entered into interest rate swap agreements to effectively convert floating rate debt into fixed rate debt. Net amounts received or paid under these agreements are recognized as an adjustment to interest expense when such amounts are incurred or earned. Our objective in using interest rate swap agreements is to limit our exposure to interest rate movements. During 2002, such agreements were used to fix the floating interest rate associated with $50 million of the Wells Fargo unsecured line of credit and the entire $125 million balance of the unsecured term loan.

Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities” (SFAS 133), as amended and interpreted, establishes accounting and reporting standards for derivative instruments and for hedging activities. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative and the resulting destination. Derivatives used to hedge the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, are considered fair value hedges. Derivatives used to hedge the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges.

For derivatives designated as fair value hedges, changes in the fair value of the derivative and the hedged item related to the hedged risk are recognized in earnings. For derivatives designated as cash flow hedges, the effective portion of changes in the fair value of the derivative is initially reported in other comprehensive income (loss), outside of earnings and subsequently reclassified to earnings when the hedged transaction affects earnings.

Under SFAS 133 our interest rate swap agreements are classified as cash flow hedges with their fair value as of December 31, 2002 of approximately $2.8 million reported in accumulated other comprehensive loss in our balance sheet and statement of changes in stockholders’ equity. This loss will be subsequently reclassified to interest expense as interest payments are made on our floating rate debt. If the underlying floating rate loans were to be repaid prior to maturity, we will recognize into interest expense the unamortized portion of this loss at the time of such early repayment.

As of December 31, 2002, we did not have any derivatives that could be designated as fair value hedges.

New Accounting Standards

In June 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 141, “Business Combinations” (SFAS 141) and SFAS No. 142, “Goodwill and Other Intangible Assets” (SFAS 142). SFAS 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. Under SFAS 142, the amortization of goodwill, including goodwill recorded in past business combinations, was to be discontinued upon adoption and all goodwill and intangible assets were to be tested for impairment. These pronouncements affect the accounting of operating leases acquired as part of real estate acquisitions. Under these pronouncements, to the extent that the existing operating leases at the time of a property acquisition have rental rates, including lease origination costs, above or below current market rates, those leases are required to be marked-to-market with the resulting adjustment amortized into rents over each adjusted lease’s remaining term.

As discussed in footnote 3 below, we acquired five properties during 2002 for a total purchase price of approximately $135.0 million. We performed a lease-by-lease analysis for the properties acquired in 2002 and determined that the in-place rents for leases acquired approximate market rents. Consequently the adoption of SFAS 141 and 142 did not have a significant impact on our consolidated financial statements.

In April 2002, FASB issued SFAS No. 145, “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections” (SFAS 145). SFAS 145 rescinds

F-9

Statement No. 4 “Reporting Gains and Losses from Extinguishment of Debt.” In addition, under SFAS 145, any gain or loss on extinguishment of debt that was classified as an extraordinary item in prior periods presented that does not meet certain defined criteria must be reclassified. The provisions of SFAS 145 are effective for 2003. We do not expect that the adoption of this statement will have a significant impact on our consolidated financial statements.

In June 2002, FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities” (SFAS 146). SFAS 146 addresses financial accounting and reporting for costs associated with exit or disposal activities. SFAS 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred based on the present value of the expected contingent payment under the guarantee. The provisions of SFAS 146 are effective for 2003. We do not expect that the adoption of this statement will have a significant impact on our consolidated financial statements.

In November 2002, the FASB issued Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” (FIN 45). FIN 45 requires guarantees and indemnification agreements meeting the characteristics described in FIN 45 to be initially recorded as a liability at fair value. FIN 45 also requires a guarantor to make new disclosures for guarantees, even if the likelihood of the guarantor having to make payment under the guarantee is remote. The disclosure requirements within FIN 45 are effective for 2002 and its adoption is required for 2003 on a prospective basis to guarantees issued or modified after December 31, 2002. We adopted the disclosure provisions of FIN 45 in 2002. We do not expect that the adoption of this statement will have a significant impact on our consolidated financial statements.

In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation- Transition and Disclosure” (SFAS 148) which amends SFAS 123, “Accounting for Stock-Based Compensation.” SFAS 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based compensation and requires disclosure in both annual and interim financial statements about the method of accounting for stock-based compensation and the effect of the method used on reported results. We have adopted the disclosure provisions of SFAS 148 (see footnote 11). Beginning January 1, 2003, we will adopt the prospective transition method for all new stock compensation awards. We do not anticipate that adoption of SFAS 148 will have a significant impact on our consolidated financial statements.

In January 2003, the FASB issued FASB Interpretation No. 46, “Consolidation of Variable Interest Entities” (FIN 46). FIN 46 clarifies the application of Accounting Research Bulletin No. 51, “Consolidated Financial Statements” and provides guidance on the identification of entities for which control is achieved through means other than through voting rights and how to determine when and which business enterprise should consolidate such an entity. This new model for consolidation applies to an entity which either (1) the equity investors (if any) do not have a controlling financial interest or (2) the equity investment at risk is insufficient to finance that entity’s activities without receiving additional subordinated financial support from other parties. The provisions of this interpretation are effective for 2003. We do not expect that the adoption of this statement will have a significant impact on our consolidated financial statements.

Reclassifications

Certain prior year amounts have been reclassified to confirm with the current year presentation.

F-10

3. Commercial Properties

Property Acquisitions

Date of

Property

Square

Purchase Price

Property

County

Submarket

Purchase

Type

Feet

($000’s)

Gateway Towers

Los Angeles

Torrance

August 7, 2002

Office

432,894

62,500

Gateway Land Parcel

Los Angeles

Torrance

August 7, 2002

Developable Land

N/ A

3,500

Crossroads

San Diego

Mission Valley

August 16, 2002

Office

133,566

16,900

Governor Executive Center

San Diego

Governor Park

August 16, 2002

Office

52,195

11,200

Carmel Valley Center I & II

San Diego

Del Mar Heights

August 30, 2002

Office

107,197

28,400

Carmel View Office Plaza

San Diego

Rancho Bernardo

August 30, 2002

Office

77,460

12,500

Total

803,312

135,000

Property Dispositions

Date of

Property

Square

Sales Price

Property

County

Submarket

Sale

Type

Feet

($000’s)

Harbor Corporate Center

Los Angeles

Torrance

March 7, 2002

Office

63,925

6,900

Renaissance Court

Los Angeles

Simi / Conejo Valley

April 16, 2002

Office

61,245

8,300

6800 Owensmouth

Los Angeles

West San Fernando Valley

May 1, 2002

Office

80,014

8,400

2730 Wilshire Apartments

Los Angeles

Santa Monica

November 1, 2002

Apartment

—

(1)

2,300

Total

205,184

25,900


(1)	Consists of 16 apartment units.

Discontinued Operations and Properties held for Disposition

As discussed above, we adopted SFAS 144 effective January 1, 2002 which requires, among other things, that the operating results of real estate properties classified as held for disposition subsequent to January 1, 2002 be included in discontinued operations in the statements of income for all periods presented. SFAS 144 provides that long-lived assets classified as held for disposition as a result of disposal activities that were initiated prior to January 1, 2002, are to be accounted for in accordance with SFAS 121. Accordingly, the operating results for the properties held for disposition and sold prior to December 31, 2002 are included in income from continuing operations for the years ended December 31, 2002, 2001 and 2000. Consequently, in order to increase the comparability of our consolidated statements of income for the years ended December 31, 2002, 2001 and 2000, the tables below summarize the operating results of our one property currently classified as discontinued operations and the properties sold since January 1, 2000 that would have qualified as discontinued operations under SFAS 144.

As of December 31, 2002, properties held for disposition consists of one property representing approximately 140,000 rentable square feet.

The results of operations for the property held for disposition as of December 31, 2002 classified as discontinued operations for the years ended December 31 2002, 2001 and 2000 are as follows (in thousands):

F-11


	2002			2001			2000

Revenues	$	4,165		$	4,040		$	3,968
Property operating Expenses		(1,495	)		(1,490	)		(1,405	)
Depreciation and amortization		(1,215	)		(1,044	)		(1,320	)
Minority interest		(38	)		(48	)		(41	)

Discontinued operations	$	1,417		$	1,458		$	1,202

The results of operations for the properties sold since January 1, 2000 that would have qualified as discontinued operations under SFAS 144 for the years ended December 31, 2002, 2001 and 2000 were as follows (in thousands, except number of properties):


	2002			2001			2000

Revenues	$	1,111		$	7,744		$	10,748
Property operating Expenses		(498	)		(3,015	)		(3,537	)
Depreciation and amortization		(39	)		(1,115	)		(69	)
Gain on sale of properties		1,967			4,592			2,118
Minority interest		(67	)		(264	)		(306	)

Net Income	$	2,474		$	7,942		$	8,954

Number of properties		4	(1)		14			15
Net rentable square feet		205			778			854


(1)	Includes one apartment building sold in November 2002.

Capitalized Interest

We capitalize interest and taxes related to buildings under construction and renovation to the extent those assets qualify for capitalization.

Total interest incurred and the amount capitalized for the years ended December 31, 2002, 2001, and 2000 were as follows (in thousands):


	2002			2001			2000

Total interest incurred	$	94,162		$	93,290		$	91,052
Interest capitalized		(5,646	)		(9,095	)		(12,646	)

Interest expensed	$	88,516		$	84,195		$	78,406

Future Minimum Lease Payments

Future minimum lease payments to be received under noncancelable operating leases existing as of December 31, 2002, are as follows (in thousands):


2003	$	335,744
2004		277,602
2005		211,061
2006		154,519
2007		110,071
Thereafter		275,500

The above future minimum lease payments do not include payments received for tenant reimbursements of specified operating expenses.

F-12

We lease the land underlying the office buildings or parking structures at six of our buildings. Ground lease expense, including amounts netted against parking revenues, was approximately $1.9 million, $2.9 million and $2.3 million for the years ended December 31, 2002, 2001 and 2000, respectively. Future minimum ground lease payments due under existing ground leases are as follows (in thousands):


2003	$	1,754
2004		1,785
2005		1,815
2006		1,840
2007		1,865
Thereafter		112,801

4. Mortgage Notes Receivable

In September 1997, we purchased two mortgage notes receivable, secured by a single commercial office property, with an aggregate balance of approximately $17.6 million, for approximately $14.4 million. The notes bore interest at the Eleventh District Cost of Funds (as defined) plus 3.25% per annum, require monthly payments of principal, interest, and additional net cash flow from the office property and mature on May 31, 2004. These notes were repaid in full by the borrower in October 2002. As a result of this redemption, we recognized as income the unamortized purchase discount on these notes at the time of repurchase totaling approximately $750,000.

F-13

5. Mortgage Loans and Unsecured Indebtedness

A summary of mortgage loans payable, unsecured lines of credit and unsecured senior notes is as follows:


											Number
											of
						Stated Annual					Properties			Maturity
		December 31,		December 31,		Interest Rate at			Rate		Securing			Month/
Type of Debt		2002		2001		December 31, 2002			Fixed/Floating		Loan			Year


		($000’s)
Mortgage Loans Payable:
Fixed Rate
Mortgage Financing I(1)		$	175,000	$	175,000		7.52	%		Fixed		18			6/04
Mortgage Financing III(2)			136,100		136,100		6.74	%		Fixed		22			4/08
Mortgage Financing IV(2)			111,200		111,200		6.61	%		Fixed		12			4/08
Mortgage Financing V(3)			108,153		110,253		6.94	%		Fixed		12			4/09
Mortgage Financing VI(3)			21,816		22,036		7.54	%		Fixed		3			4/09
Activity Business Center(3)			7,580		7,737		8.85	%		Fixed		1			5/06
145 South Fairfax(3)			3,952		3,987		8.93	%		Fixed		1			1/27
Marin Corporate Center(3)			2,850		2,966		9.00	%		Fixed		1			7/15
Conejo Business Center(3)			2,795		2,911		8.75	%		Fixed		(Note 4	)		7/15
Conejo Business Center(3)			1,208		1,262		7.88	%		Fixed		(Note 4	)		7/15

			570,654		573,452
Unsecured Term Loan:
Fixed Rate
Wells Fargo — $125 mm(1), (5)			125,000		—		3.64	%		Fixed (Note 6)		—			6/04
Unsecured Lines of Credit:
Floating Rate
Wells Fargo — $310 mm(1)			208,587		105,350		2.83	%	LIBOR + 1.00% (Notes 7,8)			—			4/06
Lehman Brothers — $75 mm(9)			—		75,000		—			LIBOR + 1.30%		—			7/02
City National Bank — $10 mm(1)			—		—		—		Prime Rate — 0.875%			—			8/03

			208,587		180,350
Unsecured Senior Notes:
Fixed Rate
2005 Notes(10)			199,769		199,667		8.88	%		Fixed		—			3/05
2007 Notes(10)			149,245		49,663		7.00	%		Fixed		—			11/07
2010 Notes(10)			49,704		99,262		9.15	%		Fixed		—			3/10
2010 Notes(10)			99,345		149,089		8.50	%		Fixed		—			11/10

			498,063		497,681

	Total Debt	$	1,402,304	$	1,251,483


(1)	Requires monthly payments of interest only, with outstanding principal balance due upon maturity.

(2)	Requires monthly payments of interest only for five years and monthly payments of principal and interest thereafter.

(3)	Requires monthly payments of principal and interest.

(4)	Both mortgage loans are secured by the Conejo Business Center property.


(5)	This loan has a two-year extension option.

(6)	In 2002, we entered into interest rate swap agreements that fixed the interest rate on the entire balance of this loan at 3.64% in 2003, 4.18% in 2004, 4.75% in 2005 and 4.90% in 2006.

(7)	This line of credit also has annual 20 basis points facility fee on the $310 million commitment amount.

(8)	In 2002, we entered into interest rate swap agreements that fixed the interest rate on $50 million of the outstanding balance on this line of credit at 4.06% through April of 2006.

(9)	This line of credit was repaid in June 2002.


(10)	Requires semi-annual interest payments only, with principal balance due upon maturity.

On June 13, 2002, our operating partnership closed on a $75 million unsecured term loan with Wells Fargo. This loan matures in June 2004, has a two-year extension option and bears interest at LIBOR + 1.25%

F-14

during the initial term and LIBOR + 1.45% during the extension period. On September 25, 2002, our operating partnership increased this term loan by an additional $50 million. The initial $75 million in proceeds from this loan were used to repay the outstanding balance on our Lehman Brothers unsecured line of credit that was scheduled to mature in July 2002. The additional $50 million in borrowings were used to pay down our Wells Fargo unsecured line of credit.

On August 9, 2002, our operating partnership renewed and increased its unsecured line of credit with a group of banks led by Wells Fargo. The renewed line of credit provides for borrowings up to $310 million with an option to increase the amount to $350 million and bears interest at a rate ranging between LIBOR + 0.80% and LIBOR + 1.25% (including an annual facility fee ranging from 0.15% to 0.40% based on the aggregate amount of the line of credit) depending on the operating partnership’s unsecured debt rating. This new line of credit amends the previous $275 million unsecured line of credit that was scheduled to mature in April 2003. This new line of credit matures in April 2006. In addition, as long as the operating partnership maintains an unsecured debt rating of BBB-/ Baa3 or better, the agreement contains a competitive bid option, whereby the lenders may bid on the interest rate to be charged for up to $150 million of the unsecured line of credit. The operating partnership also has the option to convert the interest rate on this line of credit to the higher of Wells Fargo’s prime rate or the Federal Funds rate plus 0.5%. As of December 31, 2002, there was approximately $208.6 million outstanding on this line of credit and approximately $111.4 million was available for additional borrowings.

During the fourth quarter of 2002, our operating partnership entered into interest rate swap agreements totaling $175 million that fixed the floating interest rates on $50 million of its unsecured line of credit and all of its $125 million unsecured term loan. This has decreased our interest rate exposure by approximately 50%, from 22% of total indebtedness as of September 30, 2002 to approximately 11% at December 31, 2002. As a result of these transactions, $50 million of our operating partnership’s line of credit will now bear interest at 4.06% through the maturity of the line in April of 2006 and its $125 million term loan will now bear interest at 3.64% in 2003, 4.18% in 2004, 4.75% in 2005 and 4.9% from January through June of 2006.

Following is a summary of scheduled principal payments for our total debt outstanding as of December 31, 2002 ($000’s):


Year Ended
December 31,	Amount

2003	$	5,461
2004		307,062
2005		207,678
2006		223,649
2007		158,681
Thereafter		499,773

	$	1,402,304

6. Stockholders’ Equity

A common operating partnership unit, or common OP Unit, and a share of our common stock have essentially the same economic characteristics as they share equally in the total net income or loss and distributions of the operating partnership. A common OP Unit may be redeemed for cash or, at our election, for shares of common stock on a one-for-one basis.

During the year ended December 31, 2002, we redeemed an aggregate of 121,875 common OP units of the operating partnership for shares of our common stock.

Our minority interest balance includes $50 million of 85/8% Series B Cumulative Redeemable Preferred Operating Partnership Units, or Preferred OP Units. These Preferred OP Units were issued in September of 1999, are callable by us after five years and are exchangeable after ten years by the holder into our 85/8%

F-15

Series B Cumulative Redeemable Preferred Stock, on a one-for-one basis. The Preferred OP Units have no stated maturity or mandatory redemption and are subordinate to all debt.

On January 1, 2002, we extended the vesting period of a total of 477,600 unvested restricted stock awards granted to several key executive officers in 2000 and 2001, from their initial four-year and five-year vesting periods to a ten-year vesting period from their initial grant date.

On February 28, 2002 we issued a total of 182,500 restricted stock awards to several key executive officers. Holders of these shares have full voting rights and will receive any dividends paid but are prohibited from selling or transferring unvested shares. Of the 182,500 restricted shares awarded, 15,500 shares vest equally over three years and 167,000 shares vest equally over ten years. The fair market value on the date of the grant for these restricted shares was $25.70 per share. On July 15, 2002, each non-employee director was granted 1,000 shares of restricted stock under our Stock Option and Incentive Plan as part of their annual compensation. The fair market value on the date of the grant for these restricted shares was $25.09 per share. These restricted stock awards will vest equally on the anniversary date of the awards over five years.

We recorded deferred compensation charges totaling approximately $4.8 million during 2002 for the grants described above based on the market value of these shares on the date of award and will amortize the compensation charges to expense on a straight-line basis over the respective vesting periods.

On July 24, 2002 our Board of Directors authorized a common stock repurchase program pursuant to which we are authorized to purchase up to $75 million of our common stock over the following 12 months. As part of this repurchase program, we acquired 1,796,000 shares of our common stock at an average price of approximately $22.66 per share during the year ended December 31, 2002.

On December 11, 2002, we declared a quarterly dividend of $0.505 per share to stockholders of record on December 31, 2002. This dividend was paid on January 22, 2003. We declared dividends of $2.02 per common share for the year ended December 31, 2002.

7. Commitments and Contingencies

Capital Commitments

As of December 31, 2002, we had approximately $3.9 million outstanding in capital commitments related to tenant improvements, renovation costs and general property-related capital expenditures.

Litigation

We are presently subject to various lawsuits, claims and proceedings of a nature considered normal to our ordinary course of business. We expect most of these legal proceedings to be covered by our liability insurance. The most significant of these contingencies not covered by insurance is described below.

In December 2001, the owner of the entertainment center at our Howard Hughes Center project asserted a claim against us for indemnification arising out of a Los Angeles Superior Court judgment against them, which invalidated a transfer of in-lieu credits that Arden Realty made in August of 1999 as part of our sale of the land for the entertainment center. The value of these in-lieu credits was approximately $6.0 million and were transferred to satisfy certain Transportation Impact Assessment fees related to the entertainment center. On January 17, 2003 the California Court of Appeal reversed the Superior Court’s Judgment, rendering the indemnification claim moot. On January 23, 2003, the plaintiff in the original lawsuit filed a petition for rehearing with the California Court of Appeal. On February 8, 2003, the California Court of Appeal denied the petition for rehearing.

F-16

Concentration of Credit Risk

We maintain our cash and cash equivalents at financial institutions. The combined account balances at each institution periodically exceed FDIC insurance coverage, and as a result, there is a concentration of credit risk related to amounts on deposit in excess of FDIC insurance coverage. Management believes that the risk is not significant.

We generally do not require collateral or other security from our tenants, other than security deposits or letters of credit.

8. Related Party Transactions

Promissory Notes Receivable from Officers

In March 2002, Mr. Andrew Sobel, our Executive Vice President – Strategic Planning and Operations, replaced a note due to us in the amount of $194,936 bearing interest at 6.56% per annum that matured in February of 2002 with a new note for the same principal amount bearing interest at LIBOR + 1.10% per annum and maturing in March 2007.

On July 19, 2001 and September 28, 2001, four officers executed promissory notes totaling approximately $416,000 primarily for the purpose of meeting payroll taxes due upon the vesting of stock grants. These notes mature between July 19, 2006 and September 28, 2011 and bear interest at an annual rate of between 5.75% and 6.00%. In February 2002, two of these notes to us totaling approximately $125,000 were repaid in full, including accrued interest. The remaining loans are personally guaranteed by the respective officers and are included as part of other receivables in our balance sheet at December 31, 2002.

9. Revenue from Rental Operations and Property Operating Expenses

Revenue from rental operations and property operating expenses for the years ended December 31, 2002, 2001 and 2000 are summarized as follows ($000’s):


		2002		2001		2000

Revenue From Rental Operations:
	Scheduled Rents	$	352,682	$	343,224	$	317,413
	Straight-line Rents		5,348		9,120		7,920
	Tenant reimbursements		24,968		22,683		16,454
	Parking, net of expenses		20,814		21,256		17,575
	Other rental operations		8,242		18,202		21,260

			412,054		414,485		380,622

Property Operating Expenses:
	Repairs and maintenance		39,422		36,151		34,874
	Utilities		35,726		33,579		29,598
	Real estate taxes		29,921		29,089		26,362
	Insurance		8,116		5,685		4,171
	Ground rent		895		1,885		1,214
	Administrative		15,643		14,697		13,293

			129,723		121,086		109,512

		$	282,331	$	293,399	$	271,110

F-17

10. Earnings Per Share

The following table sets forth the computation of basic and diluted net income per share for the years ended December 31, 2002, 2001 and 2000 (in thousands, except per share amounts):


		2002		2001		2000

Income from continuing operations		$	68,758	$	96,301	$	95,508
Discontinued operations net of minority interest			1,417		1,458		1,202

Net income		$	70,175	$	97,759	$	96,710

Weighted average shares – basic			64,151		63,754		63,408
Weighted average diluted stock options			200		260		190

Weighted average shares – diluted			64,351		64,014		63,598

Basic net income per common share:
	Income from continuing operations	$	1.07	$	1.51	$	1.51
	Income from discontinued operations		0.02		0.02		0.02

Net income per common share-basic		$	1.09	$	1.53	$	1.53

Diluted net income per common share:
	Income from continuing operations	$	1.07	$	1.51	$	1.50
	Income from discontinued operations		0.02		0.02		0.02

Net income per common share-diluted		$	1.09	$	1.53	$	1.52

See discussion of discontinued operations in footnote 3 above.

11. Stock Option Plan

Prior to December 31, 2002 we elected to follow Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”) and related interpretations in accounting for our employee and directors stock options because, as discussed below, the alternative fair value accounting provided for under FASB Statement No. 123, “Accounting for Stock-Based Compensation” (“Statement 123”) requires use of option valuation models that were not developed for use in valuing employee stock options. Under APB 25, because the exercise price of employee and director stock options we granted equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. As discussed in footnote 2 above, beginning on January 1, 2003 we will account for our stock options issued to employees and directors after such date under the provisions of SFAS 148.

We established a stock option plan for the purpose of attracting and retaining executive officers, directors and other key employees. As of December 31, 2002, 6,500,000 of our authorized shares of common stock have been reserved for issuance under that plan.

All holders of the above options have a ten-year period to exercise such options and all options were granted at exercise prices equal to the market prices at the date of the grant.

Pro forma information regarding net income and earnings per share is required by Statement 123, and has been determined as if we had accounted for its employee stock options under the fair value method of that Statement. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions for 2002, 2001 and 2000, respectively: risk-free interest rate of 4.28%, 4.39% and 6.13%, dividend yield of 7.80%, 7.60% and 7.75% and a volatility factor of the expected market price of our common stock of .190, .191 and .198. The weighted average expected life of the options is approximately seven years.

The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restriction and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because our

F-18

employee and director stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of our employee and director stock options.

For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options’ vesting periods. Our pro forma information for the years ended December 31, 2002, 2001 and 2000 follows (in thousands, except earnings per share information):


	2002		2001		2000

Net income available to common stockholders	$	70,175	$	97,759	$	96,710
Stock based employee compensation costs assuming fair value method		1,477		2,099		4,444

Pro forma net income	$	68,698	$	95,660	$	92,266

Pro forma net income per share — diluted	$	1.07	$	1.49	$	1.45

A summary of Arden Realty’s stock option activity, and related information for the years ended December 31, 2002, 2001 and 2000 follows:



	2002					2001					2000

				Weighted-					Weighted-					Weighted-
				Average					Average					Average
	Options			Exercise		Options			Exercise		Options			Exercise
	(000s)			Price		(000s)			Price		(000s)			Price

Outstanding, beginning of period		4,724		$	24.43		4,396		$	24.29		3,599		$	23.96
Granted		164			25.60		381			26.80		1,367			25.05
Exercised		(424	)		21.40		(21	)		21.89		—			—
Forfeited		(275	)		25.68		(32	)		24.43		(570	)		24.72

Outstanding at end of year		4,189		$	24.33		4,724		$	24.43		4,396		$	24.29

Exercisable at end of the period		3,401		$	24.87		3,338		$	24.58		2,514		$	24.84

Weighted-average fair value of options granted	$	1.66				$	1.49				$	2.13

Exercise prices for options outstanding as of December 31, 2002 ranged from $19.13 to $32.25. The weighted average remaining contractual life of those options is 6 years.

12. Employee Retirement Savings Plan

Effective June 12, 1997, we adopted a retirement savings plan pursuant to Section 401(k) of the Internal Revenue Code whereby participants may contribute a portion of their compensation to their respective retirement accounts in an amount not to exceed the maximum allowed under the Internal Revenue Code. The plan provides for matching contributions by us, which amounted to approximately $844,000 in 2002, $803,000 in 2001 and $517,000 in 2000. Plan participants are immediately vested in their contributions and are vested equally over four years in matching contributions by us.

13. Subsequent Event

On January 28, 2003, we issued a total of 81,500 restricted stock awards to several key officers. Of the 81,500 restricted shares awarded, 48,000 shares vest equally over five years and 33,500 vest after three years (cliff vesting). We recorded a deferred compensation charge of approximately $1.7 million based on the market value of these shares on the date of award and will amortize the compensation expense on a straight-line basis over the respective vesting periods.

On March 11, 2003, we declared a first quarter dividend of $0.505 per share to stockholders of record on March 31, 2003 (unaudited).

F-19

On March 11, 2003, we sold an approximate 140,000 square foot office property located in West Hollywood, California for approximately $32.5 million. This property was classified as held for disposition in our balance sheet at December 31, 2002. The net proceeds from this disposition were used to reduce the outstanding balance on the Wells Fargo unsecured line of credit (unaudited).

14. Quarterly Results

Following is a quarterly summary of our revenue and expenses for the years ended December 31, 2002, 2001 and 2000. Revenue and expenses may fluctuate significantly from quarter to quarter due to our development, renovation, acquisition and sales activity (unaudited).



		For the Quarter Ended (in thousands, except share amounts)

		March 31, 2002			June 30, 2002			September 30, 2002			December 31, 2002

Revenue		$	101,197		$	101,594		$	103,335		$	105,928
Property operating expenses			(29,877	)		(30,544	)		(34,559	)		(34,743	)
General and administrative			(2,960	)		(2,951	)		(3,323	)		(3,932	)
Interest expense			(21,397	)		(21,584	)		(22,403	)		(23,132	)
Depreciation and amortization			(26,061	)		(28,548	)		(27,339	)		(28,254	)
Interest and other income			540			512			524			966
Gain on sale of properties			1,192			81			—			694
Minority interests			(1,666	)		(1,536	)		(1,469	)		(1,527	)
Discontinued operations, net of minority interest			385			383			347			302

Net Income		$	21,353		$	17,407		$	15,113		$	16,302

Net income per share:
	Basic	$	0.33		$	0.27		$	0.23		$	0.26

	Diluted	$	0.33		$	0.27		$	0.23		$	0.26



		For the Quarter Ended (in thousands, except share amounts)

		March 31, 2001			June 30, 2001			September 30, 2001			December 31, 2001

Revenue		$	102,134		$	101,973		$	104,773		$	105,605
Property operating expenses			(29,496	)		(28,912	)		(31,628	)		(31,050	)
General and administrative			(2,866	)		(2,716	)		(2,505	)		(4,056	)
Interest expense			(21,158	)		(21,081	)		(20,819	)		(21,137	)
Depreciation and amortization			(23,871	)		(23,873	)		(25,692	)		(27,339	)
Interest and other income			861			764			706			610
Gain on sale of properties			—			3,551			24			1,016
Minority interests			(1,885	)		(2,020	)		(1,861	)		(1,751	)
Discontinued operations, net of minority interest			354			331			491			282

Net Income		$	24,073		$	28,017		$	23,489		$	22,180

Net income per share:
	Basic	$	0.38		$	0.44		$	0.37		$	0.35

	Diluted	$	0.38		$	0.44		$	0.37		$	0.35

F-20



		For the Quarter Ended (in thousands, except share amounts)

		March 31, 2000			June 30, 2000			September 30, 2000			December 31, 2000

Revenue		$	88,763		$	91,736		$	98,121		$	102,002
Property operating expenses			(25,045	)		(26,366	)		(29,152	)		(28,949	)
General and administrative			(1,821	)		(1,838	)		(2,297	)		(3,380	)
Interest expense			(17,852	)		(18,770	)		(20,345	)		(21,439	)
Depreciation and amortization			(19,944	)		(20,669	)		(22,298	)		(23,036	)
Interest and other income			855			770			948			954
Gain on sale of property			—			—			—			2,132
Minority interest			(1,862	)		(1,817	)		(1,910	)		(1,983	)
Discontinued operations, net of minority interest			397			152			305			348

Net income		$	23,491		$	23,198		$	23,372		$	26,649

Net income per share:
	Basic	$	0.37		$	0.37		$	0.37		$	0.42

	Diluted	$	0.37		$	0.37		$	0.37		$	0.42

F-21

15. Schedule of Commercial Properties and Accumulated Depreciation

December 31, 2002

(in thousands, except square foot data)



			Initial Costs				Basis Step Up

					Buildings				Buildings		Costs Capitalized
	Square				and				and		Subsequent to
	Footage		Land		Improvements		Land		Improvements		Acquisition(2)

Century Park Center		243,404	$	7,189	$	16,742	$	—	$	—	$	12,559
Beverly Atrium		59,650		4,127		11,513		110		328		2,859
Woodland Hills		224,955		6,566		14,754		365		880		7,624
222 South Harbor		175,391		515		11,199		94		2,075		4,356
425 West Broadway		71,589		1,500		4,436		305		918		2,975
1950 Sawtelle		103,106		1,988		7,263		—		—		3,031
Bristol Plaza		84,014		1,820		3,380		257		485		2,587
16000 Ventura		174,841		1,700		17,189		185		1,929		4,871
5000 East Spring		163,358		—		11,658		—		424		4,188
70 South Lake		100,133		1,360		9,097		—		—		3,091
Westwood Terrace		135,943		2,103		16,850		—		—		3,286
Westlake – 5601 Lindero		105,830		2,576		6,067		—		—		3,322
6100 Wilshire		202,704		1,200		19,902		—		—		5,851
Calabasas Commerce Center		126,771		1,262		9,725		—		—		1,748
Long Beach Airport—DF&G		272,013		—		14,452		—		—		560
Skyview Center		391,675		6,514		33,701		—		—		7,494
400 Corporate Pointe		164,598		3,382		17,527		75		390		4,237
5832 Bolsa		49,355		690		3,526		15		80		1,622
9665 Wilshire		158,684		6,697		22,230		139		473		9,939
701 B Street		540,413		3,722		35,184		64		625		13,765
100 Broadway		191,727		4,570		15,255		—		—		2,580
Norwalk		122,175		4,508		5,532		—		—		4,347
303 Glenoaks		175,289		6,500		18,132		—		—		3,780
10351 Santa Monica		96,251		3,080		7,906		—		—		1,963
2730 Wilshire		55,080		3,515		5,944		—		—		155

[Additional columns below]

[Continued from above table, first column(s) repeated]



	Total Costs

			Buildings
			and				Accumulated					Year Built/
	Land		Improvements		Total		Depreciation(1)		Encumbrances			Renovated

Century Park Center	$	7,189	$	29,301	$	36,490	$	7,399	$	—			1972/94
Beverly Atrium		4,237		14,700		18,937		3,484		5,268	(3)		1989
Woodland Hills		6,931		23,258		30,189		6,554		14,564	(3)		1972/95
222 South Harbor		609		17,630		18,239		4,815		8,914	(3)		1986/91
425 West Broadway		1,805		8,329		10,134		2,192		4,734	(3)		1984
1950 Sawtelle		1,988		10,294		12,282		2,635		6,855	(3)		1988/95
Bristol Plaza		2,077		6,452		8,529		1,866		4,082	(3)		1982
16000 Ventura		1,885		23,989		25,874		5,661		11,634	(3)		1980/96
5000 East Spring		—		16,270		16,270		3,836		—			1989/95
70 South Lake		1,360		12,188		13,548		2,756		6,677	(3)		1982/94
Westwood Terrace		2,103		20,136		22,239		4,285		—			1988
Westlake – 5601 Lindero		2,576		9,389		11,965		2,131		6,225	(3)		1989
6100 Wilshire		1,200		25,753		26,953		5,752		11,566	(3)		1986
Calabasas Commerce Center		1,262		11,473		12,735		2,315		8,103	(3)		1990
Long Beach Airport—DF&G		—		15,012		15,012		2,718		—			1987/95
Skyview Center		6,514		41,195		47,709		8,426		27,604	(3)		1981/87/95
400 Corporate Pointe		3,457		22,154		25,611		4,340		15,583	(3)		1987
5832 Bolsa		705		5,228		5,933		1,209		2,675	(3)		1985
9665 Wilshire		6,836		32,642		39,478		6,325		—			1972/92/93
701 B Street		3,786		49,574		53,360		11,962		—			1982/96
100 Broadway		4,570		17,835		22,405		3,056		15,120	(3)		1987/96
Norwalk		4,508		9,879		14,387		2,149		7,186	(3)		1978/94
303 Glenoaks		6,500		21,912		28,412		3,921		13,104	(3)		1983/96
10351 Santa Monica		3,080		9,869		12,949		1,797		5,541	(3)		1984
2730 Wilshire		3,515		6,099		9,614		1,359		4,679	(3)		1985

F-22



			Initial Costs				Basis Step Up

					Buildings				Buildings		Costs Capitalized
	Square				and				and		Subsequent to
	Footage		Land		Improvements		Land		Improvements		Acquisition(2)

Grand Avenue Plaza (1970)		81,448		620		2,832		—		—		3,804
Burbank Executive Plaza		60,395		1,100		4,384		—		—		10,532
California Federal Building		81,243		1,500		5,981		—		—		(5,985	)
Center Promenade		174,837		2,310		9,266		—		—		3,765
Los Angeles Corporate Center		389,293		26,781		15,139		—		—		12,356
5200 West Century		310,910		2,080		9,360		—		—		21,203
15250 Ventura		110,641		2,560		10,257		—		—		3,977
10350 Santa Monica		42,292		861		3,456		—		—		966
535 N. Brand Blvd		109,187		1,600		8,427		—		—		12,991
10780 Santa Monica		92,486		2,625		7,997		—		—		2,274
4900 California		155,189		4,680		14,877		—		—		3,232
Whittier		135,415		3,575		10,798		—		—		2,196
Clarendon Crest		43,063		1,300		3,951		—		—		1,127
Noble Professional Center		51,828		1,657		5,096		—		—		1,086
South Bay Centre		202,830		4,775		14,365		—		—		4,119
8383 Wilshire		417,463		13,570		45,505		—		—		12,315
Parkway Center I		61,333		1,480		5,941		—		—		1,094
Centerpointe La Palma		597,550		16,011		64,400		—		—		7,457
299 N. Euclid		73,522		1,050		6,110		—		—		5,576
2800 28th Street		103,506		2,937		9,063		—		—		3,295
1000 Town Center		107,656		2,800		11,260		—		—		1,295
Mariner Court		105,436		2,350		9,461		—		—		1,867
Pacific Gateway II		223,731		6,287		19,191		—		—		6,139
1821 Dyer		115,061		1,808		5,474		—		—		4,499
Crown Cabot Financial		172,900		7,056		21,360		—		—		8,458
120 S. Spalding		60,656		2,775		8,544		—		—		6,111
South Bay Tech		104,815		1,600		4,782		—		—		1,200
1370 Valley Vista		84,081		2,698		8,141		—		—		1,601

[Additional columns below]

[Continued from above table, first column(s) repeated]



	Total Costs

			Buildings
			and					Accumulated					Year Built/
	Land		Improvements			Total		Depreciation(1)		Encumbrances			Renovated

Grand Avenue Plaza (1970)		620		6,636			7,256		1,634		5,805	(3)		1980
Burbank Executive Plaza		1,100		14,916			16,016		3,149		4,188	(3)		1983
California Federal Building		1,500		(4	)		1,496		—		4,188	(3)		1978
Center Promenade		2,310		13,031			15,341		2,517		—			1982
Los Angeles Corporate Center		26,781		27,495			54,276		6,595		21,043	(3)		1984/86
5200 West Century		2,080		30,563			32,643		6,487		—			1982/98/99
15250 Ventura		2,560		14,234			16,794		2,663		—			1970/90-91
10350 Santa Monica		861		4,422			5,283		779		2,280	(3)		1979
535 N. Brand Blvd		1,600		21,418			23,018		3,356		—			1973/92/1999
10780 Santa Monica		2,625		10,271			12,896		1,932		—			1984
4900 California		4,680		18,109			22,789		3,510		—			1983
Whittier		3,575		12,994			16,569		2,286		—			1982
Clarendon Crest		1,300		5,078			6,378		731		3,178	(3)		1990
Noble Professional Center		1,657		6,182			7,839		1,120		3,580	(3)		1985/93
South Bay Centre		4,775		18,484			23,259		3,354		12,978	(3)		1984
8383 Wilshire		13,570		57,820			71,390		10,638		—			1971/93
Parkway Center I		1,480		7,035			8,515		1,328		5,029	(3)		1992/95
Centerpointe La Palma		16,011		71,857			87,868		12,328		33,832	(3)		1986/88/90
299 N. Euclid		1,050		11,686			12,736		2,418		—			1983
2800 28th Street		2,937		12,358			15,295		2,263		—			1979
1000 Town Center		2,800		12,555			15,355		1,977		—			1989
Mariner Court		2,350		11,328			13,678		2,162		6,959	(3)		1989
Pacific Gateway II		6,287		25,330			31,617		5,047		—			1982/90
1821 Dyer		1,808		9,973			11,781		1,701		—			1980/88
Crown Cabot Financial		7,056		29,818			36,874		5,169		—			1989
120 S. Spalding		2,775		14,655			17,430		3,306		8,299	(3)		1984
South Bay Tech		1,600		5,982			7,582		912		—			1984
1370 Valley Vista		2,698		9,742			12,440		1,678		5,532	(3)		1988

F-23



			Initial Costs				Basis Step Up

					Buildings				Buildings		Costs Capitalized
	Square				and				and		Subsequent to
	Footage		Land		Improvements		Land		Improvements		Acquisition(2)

Foremost Professional Plaza		60,534		2,049		6,196		—		—		1,035
Northpoint		104,235		1,800		20,272		—		—		1,794
Pennsfield Plaza		21,202		800		2,383		—		—		341
Conejo Business Center		69,017		2,489		7,359		—		—		1,164
Marin Corporate Center		51,360		1,956		5,915		—		—		885
145 South Fairfax		53,994		1,825		5,551		—		—		1,486
Bernardo Regency		47,916		1,625		4,937		—		—		1,239
City Centre		302,519		8,250		24,951		—		—		4,446
Wilshire Pacific Plaza		100,122		3,750		11,317		—		—		3,492
Glendale Corporate Center		108,209		2,750		12,734		—		—		2,078
World Savings Center		469,115		—		110,382		—		—		15,680
Beverly Sunset Medical Plaza		139,711		7,180		21,666		—		—		8,248
Sunset Point Plaza		58,105		2,075		6,362		—		—		1,136
Activity Business Center		167,045		3,650		11,303		—		—		1,727
Westlake Gardens		49,639		1,831		5,550		—		—		2,597
9100 Wilshire Boulevard		326,227		16,250		48,950		—		—		9,641
Westwood Center		313,000		3,159		24,920		—		—		83,251
1919 Santa Monica		43,796		2,580		7,772		—		—		809
600 Corporate Pointe		273,339		8,575		35,325		—		—		6,172
150 East Colorado Boulevard		61,168		1,988		5,841		—		—		2,046
5161 Lankershim		178,317		5,016		25,568		—		—		4,572
1501 Hughes Way		77,060		1,348		4,058		—		—		3,279
3901 Via Oro		53,195		692		2,081		—		—		1,765
Huntington Beach Plaza		52,186		1,109		3,317		—		—		968

[Additional columns below]

[Continued from above table, first column(s) repeated]



	Total Costs

			Buildings
			and				Accumulated					Year Built/
	Land		Improvements		Total		Depreciation(1)		Encumbrances			Renovated

Foremost Professional Plaza		2,049		7,231		9,280		1,210		—			1992
Northpoint		1,800		22,066		23,866		3,456		—			1991
Pennsfield Plaza		800		2,724		3,524		251		—			1989
Conejo Business Center		2,489		8,523		11,012		811		4,003			1991
Marin Corporate Center		1,956		6,800		8,756		623		2,850			1986
145 South Fairfax		1,825		7,037		8,862		1,019		3,952			1984
Bernardo Regency		1,625		6,176		7,801		967		—			1986
City Centre		8,250		29,397		37,647		4,297		—			1982
Wilshire Pacific Plaza		3,750		14,809		18,559		2,793		—			1976/87
Glendale Corporate Center		2,750		14,812		17,562		2,391		—			1985
World Savings Center		—		126,062		126,062		19,417		—			1983
Beverly Sunset Medical Plaza		7,180		29,914		37,094		4,554		—			1963/92-95
Sunset Point Plaza		2,075		7,498		9,573		1,170		3,452	(3)		1988
Activity Business Center		3,650		13,030		16,680		2,002		7,580			1987
Westlake Gardens		1,831		8,147		9,978		2,140		—			1998
9100 Wilshire Boulevard		16,250		58,591		74,841		10,182		—			1971/90
Westwood Center		3,159		108,171		111,330		6,146		—			1965/2000
1919 Santa Monica		2,580		8,581		11,161		1,227		3,724	(3)		1991
600 Corporate Pointe		8,575		41,497		50,072		6,527		17,692	(3)		1989
150 East Colorado Boulevard		1,988		7,887		9,875		1,232		4,843	(3)		1979/97
5161 Lankershim		5,016		30,140		35,156		4,817		13,573	(3)		1985/97
1501 Hughes Way		1,348		7,337		8,685		1,431		—			1983/97
3901 Via Oro		692		3,846		4,538		1,431		—			1986/97
Huntington Beach Plaza		1,109		4,285		5,394		635		1,509	(3)		1984/96

F-24



			Initial Costs				Basis Step Up

					Buildings				Buildings		Costs Capitalized
	Square				and				and		Subsequent to
	Footage		Land		Improvements		Land		Improvements		Acquisition(2)

Fountain Valley Plaza		107,252		2,949		9,377		—		—		2,033
3300 Irvine Avenue		74,224		2,215		6,697		—		—		1,570
Von Karman Corporate Center		451,477		11,513		34,783		—		—		10,553
1503 South Coast		60,605		1,570		4,731		—		—		1,171
625 The City		139,806		4,792		14,470		—		—		2,390
Orange Financial Center		305,439		10,379		34,415		—		—		8,192
Lambert Office Plaza		32,807		1,095		3,296		—		—		810
Carlsbad Corporate Center		125,000		3,722		15,061		—		—		4,937
Balboa Corporate Center		69,890		2,759		8,303		—		—		(117	)
Panorama Corporate Center		133,149		6,512		19,593		—		—		463
Ruffin Corporate Center		45,059		1,766		5,315		—		—		(29	)
Skypark Office Plaza		202,164		5,733		21,608		—		—		2,807
Governor Park Plaza		104,065		3,382		10,177		—		—		3,292
5120 Shoreham		37,759		1,224		4,073		—		—		1,120
Morehouse Tech Center		181,207		6,841		21,067		—		—		3,475
Torreyana Science Park		81,204		5,035		15,148		—		—		363
Waples Tech Center		28,119		1,010		3,027		—		—		703
10251 Vista Sorrento		69,386		1,839		7,202		—		—		225
Camarillo Business Park		154,216		3,522		10,602		—		—		4,273
Centrelake Plaza		110,763		1,570		9,473		—		—		3,291
Chicago Avenue Business Park		47,482		1,223		3,687		—		—		931
Havengate Center		80,557		1,913		5,759		—		—		2,646

[Additional columns below]

[Continued from above table, first column(s) repeated]



	Total Costs

			Buildings
			and				Accumulated					Year Built/
	Land		Improvements		Total		Depreciation(1)		Encumbrances			Renovated

Fountain Valley Plaza		2,949		11,410		14,359		2,065		4,833	(3)		1982
3300 Irvine Avenue		2,215		8,267		10,482		1,452		3,244	(3)		1981/97
Von Karman Corporate Center		11,513		45,336		56,849		8,226		19,108	(3)		1981/84
1503 South Coast		1,570		5,902		7,472		781		2,262	(3)		1979/97
625 The City		4,792		16,860		21,652		2,865		7,055	(3)		1985/97
Orange Financial Center		10,379		42,607		52,986		7,058		18,184	(3)		1985/95
Lambert Office Plaza		1,095		4,106		5,201		701		—			1986/97
Carlsbad Corporate Center		3,722		19,998		23,720		2,323		9,327	(3)		1996
Balboa Corporate Center		2,759		8,186		10,945		1,034		5,831	(3)		1990
Panorama Corporate Center		6,512		20,056		26,568		2,596		12,833	(3)		1991
Ruffin Corporate Center		1,766		5,286		7,052		675		3,480	(3)		1990
Skypark Office Plaza		5,733		24,415		30,148		3,621		—			1986
Governor Park Plaza		3,382		13,469		16,851		2,173		5,026	(3)		1986
5120 Shoreham		1,224		5,193		6,417		889		3,033	(3)		1984
Morehouse Tech Center		6,841		24,542		31,383		3,720		—			1984
Torreyana Science Park		5,035		15,511		20,546		2,022		9,500	(3)		1980/97
Waples Tech Center		1,010		3,730		4,740		664		—			1990
10251 Vista Sorrento		1,839		7,427		9,266		971		3,882	(3)		1981/95
Camarillo Business Park		3,522		14,875		18,397		3,026		8,464	(3)		1984/97
Centrelake Plaza		1,570		12,764		14,334		2,225		—			1989
Chicago Avenue Business Park		1,223		4,618		5,841		647		—			1986
Havengate Center		1,913		8,405		10,318		1,440		—			1985

F-25



			Initial Costs				Basis Step Up

					Buildings				Buildings		Costs Capitalized
	Square				and				and		Subsequent to
	Footage		Land		Improvements		Land		Improvements		Acquisition(2)

HDS Plaza		104,178		2,604		7,838		—		—		1,394
5702 Bolsa		27,731		589		1,775		—		—		99
5672 Bolsa		11,968		254		767		—		—		188
5632 Bolsa		21,568		458		1,381		—		—		55
Huntington Commerce Center		67,551		992		2,997		—		—		575
Savi Tech Center		341,446		8,280		24,911		—		—		3,210
Yorba Linda Business Park		167,142		2,629		7,913		—		—		999
Cymer Technology Center		155,612		5,446		16,387		—		—		2,519
Poway Industrial		112,000		1,876		5,646		—		—		194
10180 Scripps Ranch		43,560		1,165		3,507		—		—		216
Via Frontera		77,920		1,792		5,391		—		—		1,086
Westridge		48,955		1,807		5,591		—		—		728
Tower Plaza Retail		133,481		4,531		13,660		—		—		1,438
6060 Center Drive		241,928		1,990		—		2,310		—		60,250
Howard Hughes – Spectrum Club		36,959		2,500		7,500		—		—		36
6080 Center Drive		287,148		1,990		—		3,092		—		72,300
Univision – 5999 Center Drive		161,650		—		—		1,529		—		42,266
11075 Santa Monica		35,696		1,225		3,746		—		—		1,470
Continental Grand Plaza		235,926		7,125		40,451		—		—		6,445
Calabasas Tech		273,526		11,513		34,591		—		—		6,460
Oceangate Tower		210,907		3,080		20,386		—		—		3,864
Lyons Plaza		61,203		2,078		6,267		—		—		1,138
Genesee Executive Plaza		155,820		6,750		20,178		—		—		3,578
Solar Drive Business Center		125,132		4,250		12,770		—		—		1,278
91 Freeway Center		93,277		2,900		9,179		—		—		1,614
601 S. Glenoaks		72,524		2,450		7,519		—		—		914

[Additional columns below]

[Continued from above table, first column(s) repeated]



	Total Costs

			Buildings
			and				Accumulated					Year Built/
	Land		Improvements		Total		Depreciation(1)		Encumbrances			Renovated

HDS Plaza		2,604		9,232		11,836		1,486		—			1987
5702 Bolsa		589		1,874		2,463		256		941	(3)		1987/97
5672 Bolsa		254		955		1,209		223		330	(3)		1987
5632 Bolsa		458		1,436		1,894		188		845	(3)		1987
Huntington Commerce Center		992		3,572		4,564		558		1,555	(3)		1987
Savi Tech Center		8,280		28,121		36,401		4,001		14,728	(3)		1989
Yorba Linda Business Park		2,629		8,912		11,541		1,337		4,170	(3)		1988
Cymer Technology Center		5,446		18,906		24,352		2,319		10,918	(3)		1986
Poway Industrial		1,876		5,840		7,716		773		3,492	(3)		1991/96
10180 Scripps Ranch		1,165		3,723		4,888		485		1,997	(3)		1978/96
Via Frontera		1,792		6,477		8,269		1,010		2,875	(3)		1982/97
Westridge		1,807		6,319		8,126		1,028		2,972	(3)		1984/96
Tower Plaza Retail		4,531		15,098		19,629		2,126		—			1970/97
6060 Center Drive		4,300		60,250		64,550		3,669		—			2000
Howard Hughes – Spectrum Club		2,500		7,536		10,036		865		—			1993
6080 Center Drive		5,082		72,300		77,382		2,217		—			2002
Univision – 5999 Center Drive		1,529		42,266		43,795		1,156		—			2001
11075 Santa Monica		1,225		5,216		6,441		1,021		—			1983
Continental Grand Plaza		7,125		46,896		54,021		7,644		27,179	(3)		1986
Calabasas Tech		11,513		41,051		52,564		6,256		—			1990/2001
Oceangate Tower		3,080		24,250		27,330		3,721		—			1971/93/94
Lyons Plaza		2,078		7,405		9,483		1,020		—			1990
Genesee Executive Plaza		6,750		23,756		30,506		3,413		16,623	(3)		1984
Solar Drive Business Center		4,250		14,048		18,298		1,854		—			1982
91 Freeway Center		2,900		10,793		13,693		1,747		—			1986/97
601 S. Glenoaks		2,450		8,433		10,883		1,048		5,784	(3)		1990

F-26



			Initial Costs				Basis Step Up

					Buildings				Buildings		Costs Capitalized
	Square				and				and		Subsequent to
	Footage		Land		Improvements		Land		Improvements		Acquisition(2)

Tourney Pointe		219,991		6,047		21,334		—		—		11,650
Hillside Corporate Center		59,876		2,213		7,336		—		—		2,129
Westlake Gardens II		48,874		1,832		5,493		—		—		1,904
Howard Hughes Tower		313,833		5,830		47,170		—		—		10,083
2001 Wilshire Blvd		101,125		5,007		14,893		—		—		815
Carmel Valley Centre		107,197		4,900		23,416		—		—		29
Carmel View Office Plaza		77,460		3,100		9,377		—		—		220
Crossroads		133,566		3,950		12,860		—		—		37
Governor Executive Center		52,195		1,500		9,707		—		—		46
Gateway Towers		432,894		5,585		57,128		—		—		1,244

		19,132,176	$	483,079	$	1,836,221	$	8,540	$	8,607	$	708,761

[Additional columns below]

[Continued from above table, first column(s) repeated]



	Total Costs

			Buildings
			and				Accumulated				Year Built/
	Land		Improvements		Total		Depreciation(1)		Encumbrances		Renovated

Tourney Pointe		6,047		32,984		39,031		3,515		—		1985/98/2000
Hillside Corporate Center		2,213		9,465		11,678		1,225		—		1998
Westlake Gardens II		1,832		7,397		9,229		1,119		—		1999
Howard Hughes Tower		5,830		57,253		63,083		7,121		—		1987
2001 Wilshire Blvd		5,007		15,708		20,715		1,511		—		1980
Carmel Valley Centre		4,900		23,445		28,345		168		—		1987/89
Carmel View Office Plaza		3,100		9,597		12,697		70		—		1985
Crossroads		3,950		12,897		16,847		92		—		1979
Governor Executive Center		1,500		9,753		11,253		71		—		1988
Gateway Towers		5,585		58,372		63,957		412		—		1984/86

	$	491,619	$	2,553,589	$	3,045,208	$	392,611	$	570,654


(1)	The depreciable life for buildings and improvements ranges from ten to forty seven years. Tenant improvements and leasing costs are depreciated over the remaining term of the lease.

(2)	Amounts shown net of write-offs of fully depreciated assets and include total capitalized interest of $51.2 million.

(3)	All of these properties are collateral for our $552.3 million mortgage financings. The encumbrance allocated to an individual property is based on the related individual release price.

F-27

ARDEN REALTY, INC.

15. Schedule of Commercial Properties and Accumulated Depreciation

The changes in our investment in commercial properties and related accumulated depreciation for each of the periods in the three years ended December 31, are as follows ($000’s):



		Arden Realty, Inc.


		For the Years Ended December 31

		2002			2001			2000

Commercial Properties:
	Balance at beginning of period	$	2,797,052		$	2,741,681		$	2,453,370
	Improvements		95,073			78,580			159,163
	Disposition of property		(24,094	)		(44,773	)		(10,078	)
	Write offs of fully depreciated assets		(24,129	)		(21,412	)		(13,723	)
	Acquisition of properties		134,938			—			—
	Transfers from (to) properties under development and land available for development		66,368			42,976			152,949

	Balance at end of period	$	3,045,208		$	2,797,052		$	2,741,681

Accumulated Depreciation:
	Balance at beginning of period	$	(307,082	)	$	(231,499	)	$	(157,608	)
	Depreciation for period		(111,022	)		(100,789	)		(87,126	)
	Disposition of property		1,982			3,794			531
	Write offs of fully depreciated assets		24,129			21,412			13,723
	Transfers to (from) properties under development and land available for development		(618	)		—			(1,019	)

	Balance at end of period	$	(392,611	)	$	(307,082	)	$	(231,499	)

F-28