**Securities and Exchange Commission**

 

**Washington, D.C. 20549**

 

**FORM 10-K**

 
| **ý** | **ANNUAL  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF  1934.** |
|------------|-------------------------------------------------------------------------------------------------|

 

**For the fiscal year ended December 31, 2001**

 

**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 000-30571**

 

**ARDEN REALTY LIMITED PARTNERSHIP**

(Exact name of registrantas specified in its charter)

 

| **Maryland**                                                    |   | **95-4599813**              |
|-----------------------------------------------------------------|--------|-----------------------------|
| (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:None**

 

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

 

Indicate by checkmark whether the Registrant (1) has filed all reportsrequired to be filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theRegistrant was required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days. Yes  ý    No o

 

Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-Kis not contained herein, and will not be contained to the best of theRegistrant’s knowledge, in definitive proxy or information statements incorporatedby reference in Part III of this Form 10-K, or any amendment to this Form10-K.  o

 

State theaggregate market value of the voting and non-voting common equity held bynon-affiliates of the Registrant:  Notapplicable.  No market for theRegistrant’s common equity exists and, therefore, a market value for such unitscannot be determined.

 

DOCUMENTS INCORPORATED BYREFERENCE

 

Part IIIincorporates by reference Arden Realty, Inc.’s Proxy Statement for its AnnualMeeting of Stockholders which the Registrant anticipates will be filed no laterthan 120 days after the end of Arden Realty, Inc.’s fiscal year pursuant toRegulation 14A.

 

 

**ARDEN REALTY LIMITED PARTNERSHIP**

 

**TABLE OF CONTENTS**

 
| **ITEM NO.** |                                                                                        | **Page   No.** |
|--------------|---------------------------------------------------------------------------------------------|----------------|
|         | **PART I**                                                                                  |           |
| 1.           | Business                                                                                    | 3              |
| 2.           | Properties                                                                                  | 9              |
| 3.           | Legal Proceedings                                                                           | 19             |
| 4.           | Submission  of Matters to a Vote of Security Holders                                        | 20             |
|         |                                                                                        |           |
|         | **PART II**                                                                                 |           |
| 5.           | Market  for Registrant’s Common Equity and Related Stockholder Matters                 | 21             |
| 6.           | Selected Financial  Data                                                                    | 22             |
| 7.           | Management’s  Discussion and Analysis of Financial Condition and Results of Operations | 24             |
| 7A.          | Quantitative  and Qualitative Disclosure about Market Risk                                  | 35             |
| 8.           | Financial  Statements and Supplementary Data                                                | 43             |
| 9.           | Changes  in and Disagreements with Accountants on Accounting and Financial Disclosure       | 43             |
|         |                                                                                        |           |
|         | **PART III**                                                                                |           |
| 10.          | Directors  and Executive Officers of the Registrant                                         | 44             |
| 11.          | Executive Compensation                                                                      | 44             |
| 12.          | Security  Ownership of Certain Beneficial Owners and Management                             | 44             |
| 13.          | Certain  Relationships and Related Transactions                                             | 44             |
|         |                                                                                        |           |
|         | **PART IV**                                                                                 |           |
| 14.          | Exhibits,  Financial Statements and Reports on Form 8-K                                     | 45             |

 

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## **PART I**

 

**ITEM1.  *Business***

 

**(a) GENERAL**

 

The terms “us”, “we” and “our” as used in this reportrefer to Arden Realty Limited Partnership. The term “Arden Realty” refers toArden Realty, Inc. We are an operating partnership that owns, manages, leases,develops, renovates and acquires commercial properties located in SouthernCalifornia. Arden Realty, a real estate investment trust, or REIT, is our solegeneral partner and, as of December 31, 2001, we owned 97.2% of our commonpartnership units, or common OP Units.

 

**(b) INDUSTRY SEGMENTS**

 

We are currently involved in only one industrysegment, namely the operation of commercial real estate located in SouthernCalifornia. All of the financial information contained in this report relatesto this industry segment.

 

**(c) DESCRIPTION OF BUSINESS**

 

We are a full-service real estate organization managedby 10 senior executive officers who have experience in the real estate industryranging from 10 to 33 years and who collectively have an average of 19 years ofexperience. We perform all property management, construction management,accounting, finance and acquisition activities and a majority of our leasingtransactions for our portfolio with our staff of approximately 300 employees.

 

As of December 31, 2001, Arden Realty was SouthernCalifornia’s largest publicly traded office landlord as measured by total netrentable square feet owned.  As ofDecember 31, 2001, our portfolio of primarily suburban office propertiesconsisted of 133 properties containing approximately 18.2 million net rentablesquare feet and two properties with approximately 566,000 net rentable squarefeet under development. As of December 31, 2001, our properties were 92.2%occupied.

 

**Portfolio Management**

 

We perform all portfoliomanagement activities, including management of all lease negotiations,construction management of tenant improvements, or tenant build-outs, propertyrenovations, capital expenditures and on-site property management for ourportfolio. We directly manage these activities from approximately 42 managementoffices located throughout our portfolio. The activities of these managementoffices are supervised by four regional offices with oversight by our corporateoffice to ensure consistency of the application of our operating policies andprocedures. Each regional office is strategically located within the SouthernCalifornia submarkets where our properties are located and is managed by aregional First Vice President who is responsible for supervising the day-to-dayactivities of our management offices. Each regional office is staffed withleasing, property management, building engineering, construction andinformation systems specialists, our Regional Service Teams. By maintaining aregionally focused organizational structure led by seasoned managers, we areable to quickly respond to our tenants’ needs and market opportunities.

 

All of ourmanagement and regional offices are networked with our corporate office andhave access to the Internet and our e-mail, accounting and lease managementsystems. Our accounting and lease management systems employ the latesttechnology and allow both corporate and field personnel access to tenant andprospective tenant-related information to enhance responsiveness andcommunication of marketing and leasing activity for each property.

 

We currently lease approximately 70% of our propertiesusing our in-house staff. We employ outside brokers who are monitored by ourregional teams for the remainder of our properties. Our in-house leasingprogram allows us to closely monitor rental rates and lease terms for new andrenewal leases and reduce third-party leasing commissions.

 

3

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**Business Strategies**

 

Our primary business strategy is to actively manageour portfolio to achieve gains in rental rates and occupancy, to controloperating expenses and to maximize income from ancillary operations andservices. When market conditions permit, we may also selectively develop oracquire new properties in submarkets that add value and fit strategically intoour portfolio. We may also sell existing mature or slower growth properties anddeploy the proceeds into investments that we believe will generate higherlong-term value.

 

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

 

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

 

•      emphasizing quality service, tenantsatisfaction and retention;

 

•      employing intensive property marketing andleasing programs; and

 

•                  implementingcost control management techniques and systems that capitalize on economies ofscale and concentration arising from the size and geographic focus of ourportfolio.

 

We believe theimplementation of these operating practices has been instrumental in maximizingthe operating results of our portfolio.

 

***Integrated Decision Making***

 

We use a multidisciplinary approach to our decisionmaking by having our regional management, leasing, construction management,acquisition, disposition and finance teams coordinate their activities toenhance responsiveness to market opportunities and to provide proactivesolutions to the space needs of users in the submarkets where we have extensivereal estate and technical expertise. This integrated approach permits us toanalyze the specific requirements of existing and prospective tenants and theeconomic terms and costs for each transaction on a timely and efficient basis.We are therefore able to commit to leasing, development, acquisition ordisposition terms quickly, which facilitates an efficient completion of leasenegotiation and tenant build-out, shorter vacancy periods after leaseexpirations and the timely completion of development, acquisition ordisposition transactions.

 

***Quality Service and Tenant Satisfaction***

 

We strive to provide quality service through ourmultidisciplinary operating approach resulting in timely responses to ourtenants’ needs. Our seasoned on-site teams interact and resolve issues relatingto tenant satisfaction and day-to-day operations. For portfolio-wideoperational and administrative functions, our corporate office provides supportto all regional offices and provides immediate response for criticaloperational issues. This customer service approach has contributed to anaverage tenant retention rate of approximately 75% since our formation.

 

***Proactive Leasing***

 

The concentration of many of our properties withinparticular office submarkets and our relationships with a broad array ofbusinesses and outside brokers enables us to pursue proactive leasingstrategies, to effectively monitor the office space requirements of existingand prospective tenants and to offer tenants a variety of space alternativesacross our portfolio.

 

4

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***Cost Control and Operating Efficiencies***

 

The size and geographic focus of our portfolio permitsus to enhance portfolio value by controlling operating costs. We seek tocapitalize on the economies of scale and concentration which result from thegeographic focus of our portfolio, the ownership and management of multipleproperties within particular submarkets and the maintenance of a centralizedpurchasing and accounting system for cost control at each of ourproperties.  These cost controls andoperating efficiencies allowed us to achieve a 70.7% ratio of propertyoperating income to total property revenues in 2001.

 

**Growth Strategies**

 

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

 

•                  the broaddiversification and balance of the Southern California economy and our tenantbase minimizes our dependence on any one industry segment;

 

•                  the soundfundamentals of the Southern California real estate market, as measured byminimal decreases in rental rates in our key sub-markets during the recentnational economic downturn; and

 

•                  the limitedconstruction of new office properties in the Southern California region due tosubstantial building construction limitations and a minimum of developable landin many key submarkets.

 

 

***Internal Growth***

 

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

 

•                  leasing spaceand renewing leases as they expire at rental rates higher than expiring rentalrates;

 

•                  stabilizingoccupancy throughout our portfolio;

 

•      controlling operating expenses throughactive cost control management and systems;

 

•                  capitalizingon economies of scale and concentration due to the size and geographic focus ofourportfolio; and

 

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

 

*LeasingSpace and Renewing Leases as They Expire at Higher Rates*

 

Due to a steady growth inmarket rental rates in most Southern California markets and to the long-termnature of our leases, in-place rental rates for the majority of our leases arelower than current market rental rates. During 2001, for all leases expiringthat we renewed or re-leased, rates increased approximately 22% over theexpiring rates on a cash basis and 30% on a GAAP basis. Although it isdifficult to predict future trends for rental rates, we believe we will haveopportunities to increase cash flow by renewing or re-leasing space as leasesexpire at higher rental rates.

 

*StabilizingPortfolio Occupancy*

 

We believe that we have been successful in attracting,expanding and retaining a diverse tenant base by actively managing ourproperties with an emphasis on tenant satisfaction and retention. Our in-houseleasing teams, working with outside leasing brokers, continuously monitor eachmarket to identify strong prospective tenants who are in need of new oradditional space. We also strive to be responsive to the needs of existingtenants through our on-site professional management staff and by providing themwith alternative space

 

5

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within our portfolio toaccommodate their changing space requirements. Our success in proactivelyproviding services and space solutions to our tenants is demonstrated, in part,by the number of existing tenants that have renewed or re-leased theirspace.  Our retention rate during 2001was 73%, which is in line with our historic average.

 

*CostControl Management and Systems*

 

We plan to continue controlling our operating expensesthrough active management at all of our properties. We focus on cost control invarious areas of our operations. We continuously monitor the operatingperformance of our properties and employ energy-enhancing and expense recoverytechnologies when appropriate. These system enhancements include:

 

•      lighting retrofits;

 

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

 

•                  computer-drivenenergy management systems that monitor and react to the climatic requirementsof individual properties;

 

•                  automatedsecurity systems that allow us to provide security services to our tenants at alower cost;

 

•                  enhancement ofbilling systems, which enable us to more efficiently recover operating expensesfrom our tenants; and

 

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

 

*Capitalizingon Economies of Scale and Concentration*

 

In order to capitalize on economies of scale andconcentration arising from the size and geographic focus of our portfolio, ourRegional Service Teams are often responsible for several properties, whichspreads administrative and maintenance costs over those properties and reducesper square foot expenses. In addition, contracting in bulk for parkingoperations, building services and supplies on a portfolio-wide basis alsoreduces our overall operating expenses.

 

*SourcingAdditional Revenue While Providing High Quality Services to Tenants*

 

By implementing the nextgeneration of technology in our properties, we believe we will be able tofurther increase occupancy, tenant retention and rental rates in the future. In1998, we entered into an agreement with a national technology/access managementfirm that has successfully marketed our rooftop space to telecommunicationsproviders as antennae sites resulting in additional revenue and providingadditional voice and data technology options to our tenants. In 1999, weentered into an agreement with a premium broadband Internet access andapplications services provider to deploy its building-centric, fiber opticnetwork in a majority of our portfolio, at their cost.  In addition to high-speed Internet services,this network provides our tenants with a wide range of next generation businessapplications and e-commerce tools, including video and audio conferencing,e-mail and unified messaging.

 

We have invested in energy enhancement programs withinour portfolio with the aim of reducing energy consumption, enhancing efficiencyand lowering operating costs. In 2000 and 2001, we were recognized by theEnvironmental Protection Agency with the national *Commercial Real Estate Partner of theYear* award for our performance in the Energy Star Program. Thecompetition involves top commercial real estate landlords throughout the UnitedStates and rigorous bench-marking procedures that track individual buildingenergy efficiency. Of the 215 total Energy Star designated office buildingsawarded nationally, 93 were awarded in California; of those, we had 80award-winning buildings and were cited for having the most energy efficientbuildings 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 facilitiesmanagement.  Next>edge has begun toassist companies to increase their energy efficiency and reduce costs byemploying the latest technologies and the most energy-efficient operationalstrategies

 

6

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developed to date.  These technologies include lighting andheating, ventilation and air conditiong retrofits, energy management systeminstallations, on-site distributed generation and cogeneration projects andsolar energy systems.

 

***External Growth***

 

We believe in the sound fundamentals, diversity andpotential of the Southern California commercial real estate market, and weintend to continue to focus our resources primarily in this region. We haveassembled a management team that has extensive experience and knowledge in thismarket that we believe provides us with a competitive advantage in identifyingand capitalizing on selective development, renovation and acquisitionopportunities.

 

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

 

•      low vacancy rates;

 

•      opportunities for rising rents due toemployment growth and population movements;

 

•      a minimal amount of developable land; and

 

•                  significantbarriers to entry due to constraints on new development, including strictentitlement processes, height and density restrictions or other governmentalrequirements.

 

**Competition**

 

We compete with other owners and developers of officeproperties to attract tenants to our properties and obtain suitable land fordevelopment. Ownership of competing properties is currently diversified amongmany different types, from publicly traded companies and institutionalinvestors, including other REITs, to small enterprises and individual owners.No one owner or group of owners currently dominate or significantly influencethe markets in which we operate. See “Risk Factors - Competition affectsoccupancy levels, rents and the cost of land which could adversely affect ourrevenues.’’

 

**California Electric Utility Deregulation**

 

Problems associated with deregulation of the electricindustry in California have resulted in intermittent service interruptions andsignificantly higher costs in some areas. Approximately 41% of our buildingsand 40% of the total net rentable square footage of our portfolio are locatedwithin municipalities that either do not produce their own power or have notentered into long term fixed price contracts. These properties may be subjectto intermittent service interruptions or rate increases from their utilityproviders. The remaining portion of our portfolio is located in areas that arenot expected to be subject to intermittent electric service interruptions andsignificant electric rate increases.

 

Approximately 29% of our buildings and 21% of thetotal rentable square footage of our portfolio are subject to leases thatrequire our tenants to pay all utility costs and the remainder provide that ourtenants will reimburse us for utility costs in excess of a base year amount.See “Risk Factors - Rising energy costs and power outages in California mayhave an adverse effect on our operations and revenue.’’

 

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

 

**Employees**

 

As of December 31, 2001, we had approximately 300full-time employees that perform all of our property management, constructionmanagement, accounting, finance and acquisition activities and a majority ofour leasing transactions.

 

7

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**(d)****          FOREIGNOPERATIONS**

 

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

 

8

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**ITEM2.  *Properties***

 

*Existing Portfolio*

 

Our portfolio consists of 133 primarily officeproperties, containing approximately 18.2 million net rentable square feet,that individually range from approximately 12,000 to 600,000 net rentablesquare feet. Of the 133 properties in our portfolio, 131 or 98% are officeproperties. All our properties are located in Southern California and most arein suburban areas in close proximity to main thoroughfares. We believe that ourproperties are located within desirable and established business communitiesand are well maintained. Our properties offer an array of amenities includinghigh-speed Internet access, security, parking, conference facilities, on-sitemanagement, food services and health clubs.

 

Following is a summary of our property portfolio as ofDecember 31, 2001:

 
|                              |   | **Number of  Properties** |   | **Approximate  Net Rentable Square Feet** |   | **Net  Operating Income  For the Year Ended  December 31, 2001** |   |
|-----------------------------------|--------|---------------------------|--------|-------------------------------------------|--------|------------------------------------------------------------------|--------|
| **Location**                      |   | **Office**                |   | **Industrial  and  Retail**               |   | **Total**                                                        |   | **% of Total** |   | **Office** |   | **Industrial  and  Retail** |   | **Total** |   | **% of  Total** |   | **Total** |   | **% of  Total** |   |
|                              |   |                      |   |                                      |   |                                                             |   |   |   |   |   |   |   |   |   |   |   | **(in  thousands and unaudited)** |   |
| Los Angeles County:               |   |                      |   |                                      |   |                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| West                              |   | 29                        |   | 1                                         |   | 30                                                               |   | 23 | % | 4,697,608 |   | 36,959 |   | 4,734,567 |   | 26 | % | $ | 109,332 |   | 37 | % |
| North                             |   | 31                        |   | —                                    |   | 31                                                               |   | 23 | % | 3,372,850 |   | — |   | 3,372,850 |   | 18 | % | 48,135 |   | 16 | % |
| South                             |   | 16                        |   | —                                    |   | 16                                                               |   | 12 | % | 2,688,956 |   | — |   | 2,688,956 |   | 15 | % | 34,924 |   | 12 | % |
| **Subtotal**                      |   | 76                        |   | 1                                         |   | 77                                                               |   | 58 | % | 10,759,414 |   | 36,959 |   | 10,796,373 |   | 59 | % | 192,391 |   | 65 | % |
|                              |   |                      |   |                                      |   |                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Orange County                     |   | 24                        |   | —                                    |   | 24                                                               |   | 18 | % | 3,708,926 |   | — |   | 3,708,926 |   | 20 | % | 51,589 |   | 18 | % |
| San Diego County                  |   | 21                        |   | —                                    |   | 21                                                               |   | 16 | % | 2,486,777 |   | — |   | 2,486,777 |   | 14 | % | 36,574 |   | 12 | % |
| Ventura/Kern Counties             |   | 6                         |   | —                                    |   | 6                                                                |   | 4 | % | 778,363 |   | — |   | 778,363 |   | 4 | % | 8,772 |   | 3 | % |
| Riverside/San Bernardino Counties |   | 4                         |   | 1                                         |   | 5                                                                |   | 4 | % | 342,980 |   | 133,481 |   | 476,461 |   | 3 | % | 6,623 |   | 2 | % |
|                              |   |                      |   |                                      |   |                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Total**                         |   | 131                       |   | 2                                         |   | 133                                                              | (1)    | 100 | % | 18,076,460 |   | 170,440 |   | 18,246,900 | (1) | 100 | % | $ | 295,949 |   | 100 | % |

 

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(1)          Including two propertiescurrently under development, our total portfolio consists of 135 properties andapproximately 18.8 million rentable square feet.

 
|                              |   | **Percent  Occupied** |   | **Percent  Leased**              |   | **Annualized  Base Rent Per Leased Square Foot (1)** |   |
|-----------------------------------|--------|-----------------------|--------|----------------------------------|--------|------------------------------------------------------|--------|
| **Location**                      |   | ***Office***          |   | ***Industrial******and Retail*** |   | ***Total***                                          |   | ***Office*** |   | ***Industrial******and Retail*** |   | ***Total*** |   | ***Office*** |   | ***Industrial******and Retail*** |   | ***Total*** |   | ***Full Service******Gross**Leases (2)*** |   |
| Los Angeles County:               |   |                  |   |                             |   |                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| West                              |   | 93.3                  | %      | 100.0                            | %      | 93.3                                                 | %      | 93.4 | % | 100.0 | % | 93.5 | % | $ | 27.29 |   | $ | 24.60 |   | $ | 27.27 |   | $ | 27.36 |   |
| North                             |   | 89.3                  | %      | —                           |   | 89.3                                                 | %      | 89.4 | % | — |   | 89.4 | % | 20.75 |   | — |   | 20.75 |   | 21.60 |   |
| South                             |   | 91.3                  | %      | —                           |   | 91.3                                                 | %      | 91.4 | % | — |   | 91.4 | % | 18.06 |   | — |   | 18.06 |   | 19.23 |   |
| Orange County                     |   | 94.1                  | %      | —                           |   | 94.1                                                 | %      | 94.2 | % | — |   | 94.2 | % | 17.67 |   | — |   | 17.67 |   | 20.80 |   |
| San Diego County                  |   | 91.5                  | %      | —                           |   | 91.5                                                 | %      | 91.6 | % | — |   | 91.6 | % | 17.48 |   | — |   | 17.48 |   | 20.50 |   |
| Ventura/Kern Counties             |   | 95.4                  | %      | —                           |   | 95.4                                                 | %      | 96.1 | % | — |   | 96.1 | % | 17.96 |   | — |   | 17.96 |   | 18.11 |   |
| Riverside/San Bernardino Counties |   | 90.4                  | %      | 88.0                             | %      | 89.7                                                 | %      | 92.8 | % | 88.8 | % | 91.7 | % | 18.11 |   | 11.86 |   | 16.42 |   | 18.69 |   |
|                              |   |                  |   |                             |   |                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Total/  Weighted Average**      |   | 92.2                  | %      | 90.6                             | %      | 92.2                                                 | %      | 92.4 | % | 91.2 | % | 92.4 | % | $ | 20.81 |   | $ | 14.89 |   | $ | 20.75 |   | $ | 22.62 |   |

 

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(1)          Basedon monthly contractual base rent under existing leases as of December 31, 2001, multiplied by 12and divided by leased net rentable square feet; for those leases where rent hasnot yet commenced or which are in a free rent period, the first month in whichrent is to be received is used to determine annualized base rent.

 

(2)          Excludes39 properties with approximately 3.9 million square feet under triple net andmodified gross leases.

 

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*Development Properties*

 

In addition to the properties listed above, wecurrently have two properties under development containing approximately566,000 net rentable square feet. These properties are located in the HowardHughes Center, a 70-acre commercial development located two miles north of LosAngeles 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 ourproperties under development as of December 31, 2001.

 
| **Property**                                      |   | **Square  Feet** |   | **Costs  Incurred  To Date(000’s)** |    | **Estimated  Total Cost(1)(000’s)** |   | **%****Leased  at  3/15/02** |   | **Estimated  Shell  Completion  Date** |   | **Estimated  Stabilization  Date(2)** |   | **Estimated  Year 1  Stabilized  Cash NOI(3)(000’s)** |   | **Estimated  Year 1  Annual  Cash Yield** |   | **Estimated  Year 1  Annual  GAAP  Yield(4)** |   |
|---------------------------------------------------|--------|------------------|--------|------------------------------------------|---------|------------------------------------------|--------|------------------------------|--------|----------------------------------------|--------|---------------------------------------|--------|------------------------------------------------------------|--------|-------------------------------------------|--------|-----------------------------------------------|--------|
| **Howard Hughes Center:**                         |   |             |   |                                     |    |                                     |   |                         |   |                                   |   |                                  |   |                                                       |   |                                      |   |                                          |   |
| 6080 Center Drive                                 |   | 283,000          |   | $                                        | 72,263  |                                     | $      | 75,100                       |   | 85                                     | %      | Complete                              |   | 2nd Qtr 2002                                               |   | $                                         | 8,400  |                                          | 11.2   | % | 12.2 | % |
| 6100 Center Drive                                 |   | 283,000          |   | 44,559                                   |    | 79,000                                   |   | —                       |   | 2nd Qtr 2002                           |   | 2ndQtr 2003                           |   | $                                                          | 8,850  |                                      | 11.2   | %                                             | 12.2   | % |
| Unallocated Acquisition and Master Plan Costs (1) |   | —           |   | 16,190                                   |    | 19,800                                   |   |                         |   |                                   |   |                                  |   |                                                       |   |                                      |   |                                          |   |
| **Total Development Properties**                  |   | 566,000          |   | $                                        | 133,012 |                                     | $      | 173,900                      |   |                                   |   |                                  |   |                                                       |   |                                      |   |                                          |   |   |   |

 

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(1)          Estimated total costincludes purchase and closing costs, capital expenditures, tenant improvements,leasing commissions and carrying costs during development, as well as anallocation of land and master plan costs. Unallocated acquisition and masterplan costs consists of unallocated land costs, the costs of road and bridgeconstruction and other Howard Hughes Center infrastructure and master planningcosts. We have entitlements to construct an additional approximately 425,000net rentable square feet of office space and have two parcels entitled forhotel development at the Howard Hughes Center.

 

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

 

(3)          We consider StabilizedCash NOI to be the rental revenues from the property less the operatingexpenses of the property on a cash basis before deducting financing costs(interest and principal payments) after the property is at least 95% leased.

 

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

 

In addition to theproperties above, we have preliminary architectural designs completed foradditional build-to-suit buildings at the Howard Hughes Center, totaling anadditional approximately 425,000 net rentable square feet. Build-to-suitbuildings consist of properties constructed to the tenant’s specifications inreturn for the tenant’s long term commitment to the property. We do not intendto commence construction on any additional build-to-suit buildings at theHoward Hughes Center until development plans and budgets are finalized andbuild-to-suit tenant leases are signed with terms allowing us to achieve yieldscommensurate with the project’s development risk.

 

In addition to ourdevelopment at the Howard Hughes Center, we have completed preliminary designsand are marketing an approximately 170,000 net rentable square footbuild-to-suit office building at our Long Beach Airport Business Park. We donot intend to commence construction on this project until a build-to-suittenant lease is signed with terms allowing us to achieve yields commensuratewith the project’s development risk.

 

We expect tofinance our development activities over the next 24 months through net cashprovided by operating activities, proceeds from asset sales or proceeds fromour lines of credit.

 

*Acquisitions*

 

We did not acquire anyproperties in 2001.

 

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*Dispositions*

 

The following tablesummarizes our disposition activity during 2001.

 
| **Property**                         |   | **County**     |   | **Submarket**      |   | **Date of  Sale** |   | **Property  Type** |   | **Square  Feet** |   | **Sales  Price (000’s)** |   |
|--------------------------------------|--------|----------------|--------|--------------------|--------|-------------------|--------|--------------------|--------|------------------|--------|-------------------------------|--------|
| **One Venture**                      |   | Orange County  |   | South County       |   | May 1, 2001       |   | Office             |   | 43,324           |   | $                             | 8,200  |   |
| **Ontario Airport  Commerce Center** |   | San Bernardino |   | Ontario            |   | May 1, 2001       |   | Industrial         |   | 213,127          |   | 11,000                        |   |
| **Rancho Plaza**                     |   | Los Angeles    |   | Simi/Conejo Valley |   | Sept. 28, 2001    |   | Office             |   | 24,057           |   | 3,100                         |   |
| **Hunter Business Center**           |   | Riverside      |   | Inland Empire East |   | Sept. 28, 2001    |   | Office             |   | 106,782          |   | 4,900                         |   |
| **Thousand Oaks Plaza**              |   | Los Angeles    |   | Simi/Conejo Valley |   | Nov. 21, 2001     |   | Office             |   | 13,434           |   | 2,100                         |   |
| **Temecula Portfolio (1)**           |   | San Bernadino  |   | Temecula           |   | Dec. 20, 2001     |   | Office/Industrial  |   | 172,200          |   | 18,500                        |   |
| **Total**                            |   |           |   |               |   |              |   |               |   | 572,924          |   | $                             | 47,800 |   |

 

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(1)          Portfolio sold consistsof three office properties (Tower Plaza I, Tower Plaza II and Tower Plaza III)and two industrial properties (Highlands I and Highlands II).

 

11

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*The following table presents specific information regardingour 133 properties as of December 31, 2001:*

 
| **Property  Name**                      |   | **Submarket**               |   | **Location**  |   | **Year(s)  Built/  Renovated** |   | **Approximate  Net Rentable  Square Feet** |   | **Percentage of  Total  Portfolio Net  Rentable  Square Feet** |    | **Percent  Leased** |     | **Annualized  Base Rent  ($000s)** |          | **Number  of  Leases** |      | **Annualized  Base Rent  per Leased  Net Rentable  Square  Foot(1)** |    |
|-----------------------------------------|--------|-----------------------------|--------|---------------|--------|--------------------------------|--------|--------------------------------------------|--------|----------------------------------------------------------------|---------|---------------------|----------|------------------------------------|---------------|------------------------|-----------|----------------------------------------------------------------------|---------|
| **Los Angeles County**                  |   |                        |   |          |   |                           |   |                                       |   |                                                           |    |                |     |                               |          |                   |      |                                                                 |    |
| ***Los Angeles West***                  |   |                        |   |          |   |                           |   |                                       |   |                                                           |    |                |     |                               |          |                   |      |                                                                 |    |
| 9665 Wilshire                           |   | Beverly Hills/Century City  |   | Beverly Hills |   | 1972/92-93                     |   | 158,684                                    |   | 0.9                                                            | %       | 100.0               | %        | $                                  | 5,650         |                   | 21        |                                                                 | $       | 35.35 |   |
| Beverly Atrium                          |   | Beverly Hills/Century City  |   | Beverly Hills |   | 1989                           |   | 59,650                                     |   | 0.3                                                            |    | 97.6                |     | 1,534                              |          | 13                     |      | 26.35                                                                |    |
| 8383 Wilshire                           |   | Beverly Hills/Century City  |   | Beverly Hills |   | 1971/93                        |   | 417,463                                    |   | 2.3                                                            |    | 90.4                |     | 9,417                              |          | 126                    |      | 24.96                                                                |    |
| 120 South  Spalding                     |   | Beverly Hills/Century City  |   | Beverly Hills |   | 1984                           |   | 60,656                                     |   | 0.3                                                            |    | 100.0               |     | 2,313                              |          | 14                     |      | 36.95                                                                |    |
| 9100 Wilshire  Blvd                     |   | Beverly Hills/Century City  |   | Beverly Hills |   | 1971/90                        |   | 326,227                                    |   | 1.8                                                            |    | 95.9                |     | 8,424                              |          | 78                     |      | 26.92                                                                |    |
| Century Park  Center                    |   | Beverly Hills/Century City  |   | Los Angeles   |   | 1972/94                        |   | 243,404                                    |   | 1.3                                                            |    | 89.3                |     | 4,996                              |          | 106                    |      | 22.97                                                                |    |
| 10350 Santa  Monica                     |   | Beverly Hills/Century City  |   | Los Angeles   |   | 1979                           |   | 42,292                                     |   | 0.2                                                            |    | 100.0               |     | 1,014                              |          | 19                     |      | 23.89                                                                |    |
| 10351 Santa  Monica                     |   | Beverly Hills/Century City  |   | Los Angeles   |   | 1984                           |   | 96,251                                     |   | 0.5                                                            |    | 100.0               |     | 2,206                              |          | 17                     |      | 22.90                                                                |    |
| Westwood Terrace                        |   | Westwood/West Los Angeles   |   | Los Angeles   |   | 1988                           |   | 135,943                                    |   | 0.7                                                            |    | 93.5                |     | 3,455                              |          | 25                     |      | 27.20                                                                |    |
| 1950 Sawtelle                           |   | Westwood/West Los Angeles   |   | Los Angeles   |   | 1988/95                        |   | 103,106                                    |   | 0.6                                                            |    | 96.6                |     | 2,308                              |          | 33                     |      | 23.19                                                                |    |
| 10780 Santa  Monica                     |   | Westwood/West Los Angeles   |   | Los Angeles   |   | 1984                           |   | 92,486                                     |   | 0.5                                                            |    | 90.7                |     | 1,967                              |          | 33                     |      | 23.47                                                                |    |
| Wilshire Pacific  Plaza                 |   | Westwood/West Los Angeles   |   | Los Angeles   |   | 1976/87                        |   | 100,122                                    |   | 0.6                                                            |    | 92.3                |     | 2,303                              |          | 41                     |      | 24.93                                                                |    |
| World Savings  Center(2)                |   | Westwood/West Los Angeles   |   | Los Angeles   |   | 1983                           |   | 469,115                                    |   | 2.6                                                            |    | 94.7                |     | 13,353                             |          | 54                     |      | 30.04                                                                |    |
| 11075 Santa  Monica                     |   | Westwood/West Los Angeles   |   | Los Angeles   |   | 1983                           |   | 35,696                                     |   | 0.2                                                            |    | 99.7                |     | 859                                |          | 8                      |      | 24.12                                                                |    |
| 2730 Wilshire(3)                        |   | Westwood/West Los Angeles   |   | Santa Monica  |   | 1985                           |   | 55,080                                     |   | 0.3                                                            |    | 100.0               |     | 1,447                              |          | 32                     |      | 25.78                                                                |    |
| 2800 28th Street                        |   | Westwood/West Los Angeles   |   | Santa Monica  |   | 1979                           |   | 103,506                                    |   | 0.6                                                            |    | 92.5                |     | 2,589                              |          | 39                     |      | 27.05                                                                |    |
| 1919 Santa  Monica                      |   | Westwood/West Los Angeles   |   | Santa Monica  |   | 1991                           |   | 43,796                                     |   | 0.2                                                            |    | 96.3                |     | 1,149                              |          | 5                      |      | 27.23                                                                |    |
| 2001 Wilshire  Blvd.                    |   | Westwood/West Los Angeles   |   | Santa Monica  |   | 1980                           |   | 101,125                                    |   | 0.6                                                            |    | 100.0               |     | 2,786                              |          | 21                     |      | 27.55                                                                |    |
| Westwood Center                         |   | Westwood/West Los Angeles   |   | Santa Monica  |   | 1965/2000                      |   | 313,000                                    |   | 1.7                                                            |    | 78.1                |     | 9,401                              |          | 35                     |      | 38.45                                                                |    |
| 400 Corporate  Pointe                   |   | Marina Area/Culver City/LAX |   | Culver City   |   | 1987                           |   | 164,598                                    |   | 0.9                                                            |    | 100.0               |     | 3,022                              |          | 21                     |      | 18.37                                                                |    |
| 600 Corporate  Pointe                   |   | Marina Area/Culver City/LAX |   | Culver City   |   | 1989                           |   | 273,339                                    |   | 1.5                                                            |    | 94.2                |     | 5,949                              |          | 23                     |      | 23.09                                                                |    |
| Bristol Plaza                           |   | Marina Area/Culver City/LAX |   | Culver City   |   | 1982                           |   | 84,014                                     |   | 0.5                                                            |    | 98.3                |     | 1,658                              |          | 28                     |      | 20.07                                                                |    |
| Northpoint                              |   | Marina Area/Culver City/LAX |   | Los Angeles   |   | 1991                           |   | 104,235                                    |   | 0.6                                                            |    | 96.9                |     | 3,076                              |          | 9                      |      | 30.44                                                                |    |
| Howard Hughes  Spectrum Club            |   | Marina Area/Culver City/LAX |   | Los Angeles   |   | 1993                           |   | 36,959                                     |   | 0.2                                                            |    | 100.0               |     | 909                                |          | 1                      |      | 24.60                                                                |    |
| Howard Hughes  Tower                    |   | Marina Area/Culver City/LAX |   | Los Angeles   |   | 1987                           |   | 313,833                                    |   | 1.7                                                            |    | 79.4                |     | 6,621                              |          | 28                     |      | 26.57                                                                |    |
| 6060 Center  Drive                      |   | Marina Area/Culver City/LAX |   | Los Angeles   |   | 2000                           |   | 241,928                                    |   | 1.3                                                            |    | 100.0               |     | 8,298                              |          | 8                      |      | 33.43                                                                |    |
| Univision                               |   | Marina Area/Culver City/LAX |   | Los Angeles   |   | 2001                           |   | 161,650                                    |   | 0.9                                                            |    | 100.0               |     | 4,247                              |          | 2                      |      | 25.53                                                                |    |
| 6100 Wilshire                           |   | Park Mile/West Hollywood    |   | Los Angeles   |   | 1986                           |   | 202,704                                    |   | 1.1                                                            |    | 100.0               |     | 5,140                              |          | 58                     |      | 24.53                                                                |    |
| 145 South  Fairfax                      |   | Park Mile/West Hollywood    |   | Los Angeles   |   | 1984                           |   | 53,994                                     |   | 0.3                                                            |    | 95.5                |     | 1,164                              |          | 14                     |      | 22.57                                                                |    |
| Beverly Sunset Medical  Plaza           |   | Park Mile/West Hollywood    |   | Los Angeles   |   | 1963/92-95                     |   | 139,711                                    |   | 0.8                                                            |    | 78.3                |     | 3,448                              |          | 55                     |      | 31.53                                                                |    |
|                                    |   |                        |   |          |   |                           |   |                                       |   |                                                           |    |                |     |                               |          |                   |      |                                                                 |    |
| Subtotal/Weighted  Average –  |   |                        |   |          |   |                           |   |                                       |   |                                                           |    |                |     |                               |          |                   |      |                                                                 |    |   |   |
| Los Angeles  West                  |   |                        |   |          |   |                           |   | 4,734,567                             |   | 26.0                                                      | %  | 93.5           | %   | $                             | 120,703  |                   | 967  |                                                                 | $  | 27.27  |   |

 

12

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| **Property Name**                |   | **Submarket**                        |   | **Location**    |   | **Year(s)  Built/  Renovated** |   | **Approximate  Net Rentable  Square Feet** |   | **Percentage  of  Total  Portfolio Net  Rentable  Square Feet** |   | **Percent  Leased** |   | **Annualized  Base Rent  ($000s)** |   | **Number of  Leases** |   | **Annualized  Base Rent  per Leased  Net Rentable  Square  Feet(1)** |   |
|----------------------------------|--------|--------------------------------------|--------|-----------------|--------|--------------------------------|--------|--------------------------------------------|--------|-----------------------------------------------------------------|--------|---------------------|--------|------------------------------------|--------|-----------------------|--------|----------------------------------------------------------------------|--------|
| ***Los Angeles North***          |   |                                 |   |            |   |                           |   |                                       |   |                                                            |   |                |   |                               |   |                  |   |                                                                 |   |
| Calabasas Commerce Center        |   | Simi/Conejo Valley                   |   | Calabasas       |   | 1990                           |   | 126,771                                    |   | 0.7                                                             | %      | 100.0               | %      | $                                  | 2,269  |                  | 13     |                                                                 | $      | 17.89 |   |
| Calabasas Tech                   |   | Simi/Conejo Valley                   |   | Calabasas       |   | 1990                           |   | 273,526                                    |   | 1.5                                                             |   | 94.1                |   | 4,376                              |   | 14                    |   | 16.99                                                                |   |
| Pennsfield Plaza                 |   | Simi/Conejo Valley                   |   | Thousand Oaks   |   | 1989                           |   | 21,202                                     |   | 0.1                                                             |   | 95.0                |   | 369                                |   | 12                    |   | 18.33                                                                |   |
| Conejo Business Center           |   | Simi/Conejo Valley                   |   | Thousand Oaks   |   | 1991                           |   | 69,017                                     |   | 0.4                                                             |   | 93.1                |   | 1,230                              |   | 27                    |   | 19.14                                                                |   |
| Marin Corporate Center           |   | Simi/Conejo Valley                   |   | Thousand Oaks   |   | 1986                           |   | 51,360                                     |   | 0.3                                                             |   | 99.5                |   | 1,083                              |   | 33                    |   | 21.19                                                                |   |
| Hillside Corporate Center        |   | Simi/Conejo Valley                   |   | Westlake        |   | 1998                           |   | 59,876                                     |   | 0.3                                                             |   | 87.0                |   | 1,285                              |   | 8                     |   | 24.67                                                                |   |
| Westlake — 5601 Lindero     |   | Simi/Conejo Valley                   |   | Westlake        |   | 1989                           |   | 105,830                                    |   | 0.6                                                             |   | 100.0               |   | 1,489                              |   | 2                     |   | 14.07                                                                |   |
| Renaissance Court                |   | Simi/Conejo Valley                   |   | Westlake        |   | 1981/92                        |   | 61,245                                     |   | 0.3                                                             |   | 97.9                |   | 1,268                              |   | 16                    |   | 21.15                                                                |   |
| Westlake Gardens I               |   | Simi/Conejo Valley                   |   | Westlake        |   | 1998                           |   | 49,639                                     |   | 0.3                                                             |   | 93.6                |   | 1,243                              |   | 17                    |   | 26.73                                                                |   |
| Westlake Gardens II              |   | Simi/Conejo Valley                   |   | Westlake        |   | 1999                           |   | 48,874                                     |   | 0.3                                                             |   | 100.0               |   | 1,243                              |   | 4                     |   | 25.44                                                                |   |
| 6800 Owensmouth(2)               |   | West San Fernando Valley             |   | Canoga Park     |   | 1986                           |   | 80,014                                     |   | 0.4                                                             |   | 88.5                |   | 1,325                              |   | 17                    |   | 18.71                                                                |   |
| Woodland Hills                   |   | West San Fernando Valley             |   | Woodland Hills  |   | 1972/95                        |   | 224,955                                    |   | 1.2                                                             |   | 92.2                |   | 4,732                              |   | 70                    |   | 22.82                                                                |   |
| Los Angeles Corporate Center     |   | San Gabriel Valley                   |   | Monterey Park   |   | 1984/86                        |   | 389,293                                    |   | 2.1                                                             |   | 96.8                |   | 7,473                              |   | 45                    |   | 19.84                                                                |   |
| Clarendon Crest                  |   | West San Fernando Valley             |   | Woodland Hills  |   | 1990                           |   | 43,063                                     |   | 0.2                                                             |   | 65.7                |   | 585                                |   | 12                    |   | 20.68                                                                |   |
| Lyons Plaza                      |   | Santa Clarita Valley                 |   | Santa Clarita   |   | 1990                           |   | 61,203                                     |   | 0.3                                                             |   | 88.0                |   | 1,219                              |   | 24                    |   | 22.64                                                                |   |
| Tourney Pointe                   |   | Santa Clarita Valley                 |   | Santa Clarita   |   | 1985/98-2000                   |   | 219,991                                    |   | 1.2                                                             |   | 74.7                |   | 2,651                              |   | 25                    |   | 16.14                                                                |   |
| 16000 Ventura                    |   | Central San Fernando Valley          |   | Encino          |   | 1980/96                        |   | 174,841                                    |   | 1.0                                                             |   | 96.4                |   | 3,649                              |   | 48                    |   | 21.65                                                                |   |
| 15250 Ventura                    |   | Central San Fernando Valley          |   | Sherman Oaks    |   | 1970/90-91                     |   | 110,641                                    |   | 0.6                                                             |   | 89.2                |   | 2,230                              |   | 40                    |   | 22.60                                                                |   |
| Noble Professional Center        |   | Central San Fernando Valley          |   | Sherman Oaks    |   | 1985/93                        |   | 51,828                                     |   | 0.3                                                             |   | 99.9                |   | 1,131                              |   | 20                    |   | 21.83                                                                |   |
| Sunset Point Plaza               |   | Valencia                             |   | Newhall         |   | 1988                           |   | 58,105                                     |   | 0.3                                                             |   | 88.6                |   | 1,268                              |   | 25                    |   | 24.65                                                                |   |
| 303 North Glenoaks               |   | East San Fernando  Valley/Tri-Cities |   | Burbank         |   | 1983/96                        |   | 175,289                                    |   | 1.0                                                             |   | 59.4                |   | 2,528                              |   | 21                    |   | 24.27                                                                |   |
| 601 S. Glenoaks                  |   | East San Fernando  Valley/Tri-Cities |   | Burbank         |   | 1990                           |   | 72,524                                     |   | 0.4                                                             |   | 95.0                |   | 1,425                              |   | 17                    |   | 20.67                                                                |   |
| Burbank Executive Plaza          |   | East San Fernando  Valley/Tri-Cities |   | Burbank         |   | 1983                           |   | 60,395                                     |   | 0.3                                                             |   | 88.9                |   | 1,264                              |   | 13                    |   | 23.54                                                                |   |
| California Federal Building      |   | East San Fernando  Valley/Tri-Cities |   | Burbank         |   | 1978                           |   | 81,243                                     |   | 0.5                                                             |   | 62.2                |   | 1,225                              |   | 9                     |   | 24.23                                                                |   |
| 425 West Broadway                |   | East San Fernando  Valley/Tri-Cities |   | Glendale        |   | 1984                           |   | 71,589                                     |   | 0.4                                                             |   | 95.1                |   | 1,433                              |   | 13                    |   | 21.04                                                                |   |
| Glendale Corporate Center        |   | East San Fernando  Valley/Tri-Cities |   | Glendale        |   | 1985                           |   | 108,209                                    |   | 0.6                                                             |   | 88.8                |   | 1,985                              |   | 23                    |   | 20.64                                                                |   |
| 70 South Lake                    |   | East San Fernando  Valley/Tri-Cities |   | Pasadena        |   | 1982/94                        |   | 100,133                                    |   | 0.6                                                             |   | 97.1                |   | 2,457                              |   | 17                    |   | 25.27                                                                |   |
| 150 East Colorado                |   | East San Fernando  Valley/Tri-Cities |   | Pasadena        |   | 1979/97                        |   | 61,168                                     |   | 0.3                                                             |   | 72.0                |   | 992                                |   | 16                    |   | 22.51                                                                |   |
| 299 N. Euclid                    |   | East San Fernando  Valley/Tri-Cities |   | Pasadena        |   | 1983                           |   | 73,522                                     |   | 0.4                                                             |   | 100.0               |   | 1,475                              |   | 3                     |   | 20.03                                                                |   |
| 5161 Lankershim                  |   | East San Fernando  Valley/Tri-Cities |   | North Hollywood |   | 1985/97                        |   | 178,317                                    |   | 1.0                                                             |   | 85.1                |   | 3,422                              |   | 8                     |   | 22.54                                                                |   |
| 535 N. Brand Blvd.               |   | East San Fernando  Valley/Tri-Cities |   | North Hollywood |   | 1973/92/2000                   |   | 109,187                                    |   | 0.6                                                             |   | 94.4                |   | 2,274                              |   | 37                    |   | 22.07                                                                |   |
|                             |   |                                 |   |            |   |                           |   |                                       |   |                                                            |   |                |   |                               |   |                  |   |                                                                 |   |
| Subtotal/Weighted Average – |   |                                 |   |            |   |                           |   |                                       |   |                                                            |   |                |   |                               |   |                  |   |                                                                 |   |   |   |
| Los Angeles North                |   |                                 |   |            |   |                           |   | 3,372,850                                  |   | 18.5                                                            | %      | 89.4                | %      | $                                  | 62,598 |                  | 649    |                                                                 | $      | 20.75 |   |

 

13

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| **Property Name**                    |   | **Submarket**               |   | **Location** |   | **Year(s)  Built/  Renovated** |   | **Approximate  Net Rentable  Square Feet** |   | **Percentage  of  Total  Portfolio Net  Rentable  Square Feet** |   | **Percent  Leased** |   | **Annualized  Base Rent  ($000s)** |   | **Number of  Leases** |   | **Annualized  Base Rent  per Leased  Net Rentable  Square  Feet(1)** |   |
|--------------------------------------|--------|-----------------------------|--------|--------------|--------|--------------------------------|--------|--------------------------------------------|--------|-----------------------------------------------------------------|--------|---------------------|--------|------------------------------------|--------|-----------------------|--------|----------------------------------------------------------------------|--------|
| ***Los Angeles South***              |   |                        |   |         |   |                           |   |                                       |   |                                                            |   |                |   |                               |   |                  |   |                                                                 |   |
| Long Beach Airport Bldg D(2)         |   | Long Beach                  |   | Long Beach   |   | 1987/95                        |   | 121,610                                    |   | 0.7                                                             | %      | 100.0               | %      | $                                  | 1,211  |                  | 1      |                                                                 | $      | 9.96 |   |
| Long Beach Airport Bldg F & G(2) |   | Long Beach                  |   | Long Beach   |   | 1987/95                        |   | 150,403                                    |   | 0.8                                                             |   | 100.0               |   | 1,353                              |   | 1                     |   | 9.00                                                                 |   |
| 5000 East Spring(2)                  |   | Long Beach                  |   | Long Beach   |   | 1989/95                        |   | 163,358                                    |   | 0.9                                                             |   | 80.9                |   | 3,157                              |   | 27                    |   | 23.89                                                                |   |
| 100 Broadway                         |   | Long Beach                  |   | Long Beach   |   | 1987/96                        |   | 191,727                                    |   | 1.0                                                             |   | 97.6                |   | 4,093                              |   | 31                    |   | 21.87                                                                |   |
| 1501 Hughes Way                      |   | Long Beach                  |   | Long Beach   |   | 1983/97                        |   | 77,060                                     |   | 0.4                                                             |   | 100.0               |   | 1,378                              |   | 7                     |   | 17.81                                                                |   |
| 3901 Via Oro                         |   | Long Beach                  |   | Long Beach   |   | 1986/97                        |   | 53,195                                     |   | 0.3                                                             |   | 96.8                |   | 893                                |   | 4                     |   | 17.35                                                                |   |
| Oceangate Tower                      |   | Long Beach                  |   | Long Beach   |   | 1971/93-94                     |   | 210,907                                    |   | 1.2                                                             |   | 84.5                |   | 3,084                              |   | 36                    |   | 17.31                                                                |   |
| Continental Grand Plaza              |   | El Segundo                  |   | El Segundo   |   | 1986                           |   | 235,926                                    |   | 1.3                                                             |   | 80.5                |   | 4,730                              |   | 33                    |   | 24.90                                                                |   |
| Grand Avenue Plaza                   |   | El Segundo                  |   | El Segundo   |   | 1979/80                        |   | 81,448                                     |   | 0.4                                                             |   | 94.4                |   | 1,284                              |   | 5                     |   | 16.70                                                                |   |
| 5200 West Century                    |   | Marina Area/Culver City/LAX |   | Culver City  |   | 1982/98-99                     |   | 310,910                                    |   | 1.7                                                             |   | 99.5                |   | 5,280                              |   | 39                    |   | 17.07                                                                |   |
| Skyview Center                       |   | Marina Area/Culver City/LAX |   | Los Angeles  |   | 1981/87/95                     |   | 391,675                                    |   | 2.1                                                             |   | 82.5                |   | 5,559                              |   | 54                    |   | 17.20                                                                |   |
| South Bay Centre                     |   | Torrance                    |   | Gardena      |   | 1984                           |   | 202,830                                    |   | 1.1                                                             |   | 95.0                |   | 3,539                              |   | 36                    |   | 18.37                                                                |   |
| Harbor Corporate Center              |   | Torrance                    |   | Gardena      |   | 1985                           |   | 63,925                                     |   | 0.4                                                             |   | 87.9                |   | 949                                |   | 19                    |   | 16.90                                                                |   |
| Pacific Gateway                      |   | Torrance                    |   | Torrance     |   | 1982/90                        |   | 223,731                                    |   | 1.2                                                             |   | 96.4                |   | 4,410                              |   | 39                    |   | 20.45                                                                |   |
| Mariner Court                        |   | Torrance                    |   | Torrance     |   | 1989                           |   | 105,436                                    |   | 0.6                                                             |   | 96.1                |   | 1,923                              |   | 37                    |   | 18.97                                                                |   |
| South Bay Tech                       |   | Torrance                    |   | Torrance     |   | 1984                           |   | 104,815                                    |   | 0.6                                                             |   | 89.6                |   | 1,542                              |   | 10                    |   | 16.42                                                                |   |
|                                 |   |                        |   |         |   |                           |   |                                       |   |                                                            |   |                |   |                               |   |                  |   |                                                                 |   |
| Subtotal/Weighted Average –     |   |                        |   |         |   |                           |   |                                       |   |                                                            |   |                |   |                               |   |                  |   |                                                                 |   |   |   |
| Los Angeles South                    |   |                        |   |         |   |                           |   | 2,688,956                                  |   | 14.7                                                            | %      | 91.4                | %      | $                                  | 44,385 |                  | 379    |                                                                 | $      | 18.06 |   |

 

14

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| **Property  Name**                |   | **Submarket**        |   | **Location**     |   | **Year(s)  Built/  Renovated** |   | **Approximate  Net Rentable  Square Feet** |   | **Percentage  of  Total  Portfolio Net  Rentable  Square Feet** |   | **Percent  Leased** |   | **Annualized  Base Rent  ($000s)** |   | **Number of  Leases** |   | **Annualized  Base Rent  per Leased  Net Rentable  Square  Feet(1)** |   |
|-----------------------------------|--------|----------------------|--------|------------------|--------|--------------------------------|--------|--------------------------------------------|--------|-----------------------------------------------------------------|--------|---------------------|--------|------------------------------------|--------|-----------------------|--------|----------------------------------------------------------------------|--------|
| **Orange  County**                |   |                 |   |             |   |                           |   |                                       |   |                                                            |   |                |   |                               |   |                  |   |                                                                 |   |
| Whittier                          |   | San Gabriel Valley   |   | Whittier         |   | 1967/82                        |   | 135,415                                    |   | 0.7                                                             | %      | 95.3                | %      | $                                  | 2,930  |                  | 40     |                                                                 | $      | 22.71 |   |
| 1370 Valley Vista                 |   | San Gabriel Valley   |   | Diamond Bar      |   | 1988                           |   | 84,081                                     |   | 0.4                                                             |   | 99.3                |   | 1,711                              |   | 16                    |   | 20.48                                                                |   |
| 5832 Bolsa                        |   | West County          |   | Huntington Beach |   | 1985                           |   | 49,355                                     |   | 0.3                                                             |   | 100.0               |   | 681                                |   | 1                     |   | 13.80                                                                |   |
| Huntington Beach Plaza I & II |   | West County          |   | Huntington Beach |   | 1984/96                        |   | 52,186                                     |   | 0.3                                                             |   | 70.9                |   | 590                                |   | 16                    |   | 15.95                                                                |   |
| 5702 Bolsa                        |   | West County          |   | Huntington Beach |   | 1987/97                        |   | 27,731                                     |   | 0.1                                                             |   | 100.0               |   | 215                                |   | 2                     |   | 7.75                                                                 |   |
| 5672 Bolsa                        |   | West County          |   | Huntington Beach |   | 1987                           |   | 11,968                                     |   | 0.1                                                             |   | 100.0               |   | 95                                 |   | 1                     |   | 7.92                                                                 |   |
| 5632 Bolsa                        |   | West County          |   | Huntington Beach |   | 1987                           |   | 21,568                                     |   | 0.1                                                             |   | 100.0               |   | 181                                |   | 1                     |   | 8.40                                                                 |   |
| Huntington Commerce Center        |   | West County          |   | Huntington Beach |   | 1987                           |   | 67,551                                     |   | 0.4                                                             |   | 91.9                |   | 514                                |   | 19                    |   | 8.29                                                                 |   |
| City Centre                       |   | West County          |   | Fountain Valley  |   | 1982                           |   | 302,519                                    |   | 1.6                                                             |   | 94.6                |   | 4,988                              |   | 20                    |   | 17.42                                                                |   |
| Fountain Valley Plaza             |   | West County          |   | Fountain Valley  |   | 1982                           |   | 107,252                                    |   | 0.6                                                             |   | 100.0               |   | 2,165                              |   | 9                     |   | 20.09                                                                |   |
| 3300 Irvine Avenue                |   | Greater Airport Area |   | Newport Beach    |   | 1981/97                        |   | 74,224                                     |   | 0.4                                                             |   | 96.2                |   | 1,750                              |   | 29                    |   | 24.50                                                                |   |
| 1821 Dyer                         |   | Greater Airport Area |   | Irvine           |   | 1980/88                        |   | 115,061                                    |   | 0.6                                                             |   | 100.0               |   | 1,471                              |   | 4                     |   | 11.53                                                                |   |
| Von Karman Corporate Center       |   | Greater Airport Area |   | Irvine           |   | 1981/84                        |   | 451,477                                    |   | 2.5                                                             |   | 89.0                |   | 8,230                              |   | 26                    |   | 20.48                                                                |   |
| Norwalk                           |   | Long Beach           |   | Norwalk          |   | 1978/94                        |   | 122,175                                    |   | 0.7                                                             |   | 96.8                |   | 2,086                              |   | 9                     |   | 17.63                                                                |   |
| 91 Freeway Center                 |   | Mid-Cities           |   | Artesia          |   | 1986/97                        |   | 93,277                                     |   | 0.5                                                             |   | 94.2                |   | 1,698                              |   | 27                    |   | 19.32                                                                |   |
| 1503 South Coast                  |   | Greater Airport Area |   | Costa Mesa       |   | 1979/97                        |   | 60,605                                     |   | 0.3                                                             |   | 75.3                |   | 840                                |   | 20                    |   | 18.41                                                                |   |
| 222 South Harbor (2)              |   | Tri-Freeway Area     |   | Anaheim          |   | 1986/91                        |   | 175,391                                    |   | 1.0                                                             |   | 94.8                |   | 3,319                              |   | 17                    |   | 19.96                                                                |   |
| Crown Cabot Financial             |   | South County         |   | Laguna Niguel    |   | 1989                           |   | 172,900                                    |   | 0.9                                                             |   | 88.8                |   | 4,337                              |   | 36                    |   | 28.25                                                                |   |
| 625 The City                      |   | Tri-Freeway Area     |   | Orange           |   | 1985/97                        |   | 139,806                                    |   | 0.8                                                             |   | 94.8                |   | 2,669                              |   | 33                    |   | 20.14                                                                |   |
| Orange Financial Center           |   | Central County       |   | Orange           |   | 1985/95                        |   | 305,439                                    |   | 1.7                                                             |   | 93.2                |   | 5,963                              |   | 33                    |   | 20.95                                                                |   |
| Centerpointe La Palma             |   | North County         |   | La Palma         |   | 1986/88/90                     |   | 597,550                                    |   | 3.3                                                             |   | 93.2                |   | 10,147                             |   | 82                    |   | 18.21                                                                |   |
| Lambert Office Plaza              |   | North County         |   | Brea             |   | 1986/97                        |   | 32,807                                     |   | 0.2                                                             |   | 94.5                |   | 647                                |   | 9                     |   | 20.87                                                                |   |
| Savi Tech Center                  |   | North County         |   | Yorba Linda      |   | 1989                           |   | 341,446                                    |   | 1.9                                                             |   | 100.0               |   | 3,146                              |   | 4                     |   | 9.21                                                                 |   |
| Yorba Linda Business Park         |   | North County         |   | Yorba Linda      |   | 1988                           |   | 167,142                                    |   | 0.9                                                             |   | 93.9                |   | 1,335                              |   | 60                    |   | 8.51                                                                 |   |
|                              |   |                 |   |             |   |                           |   |                                       |   |                                                            |   |                |   |                               |   |                  |   |                                                                 |   |
| Subtotal/Weighted Average –  |   |                 |   |             |   |                           |   |                                       |   |                                                            |   |                |   |                               |   |                  |   |                                                                 |   |   |   |
| Orange County                     |   |                 |   |             |   |                           |   | 3,708,926                                  |   | 20.3                                                            | %      | 94.2                | %      | $                                  | 61,708 |                  | 514    |                                                                 | $      | 17.67 |   |

 

15

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| **Property  Name**               |   | **Submarket**              |   | **Location**      |   | **Year(s)  Built/  Renovated** |   | **Approximate  Net Rentable  Square Feet** |   | **Percentage  of  Total  Portfolio Net  Rentable  Square Feet** |   | **Percent  Leased** |   | **Annualized  Base Rent  ($000s)** |   | **Number of  Leases** |   | **Annualized  Base Rent  per Leased  Net Rentable  Square  Feet(1)** |   |
|----------------------------------|--------|----------------------------|--------|-------------------|--------|--------------------------------|--------|--------------------------------------------|--------|-----------------------------------------------------------------|--------|---------------------|--------|------------------------------------|--------|-----------------------|--------|----------------------------------------------------------------------|--------|
| **San Diego  County**            |   |                       |   |              |   |                           |   |                                       |   |                                                            |   |                |   |                               |   |                  |   |                                                                 |   |
| 701 B Street(2)                  |   | Downtown                   |   | San Diego         |   | 1982/96                        |   | 540,413                                    |   | 3.0                                                             | %      | 94.1                | %      | $                                  | 10,380 |                  | 94     |                                                                 | $      | 20.41 |   |
| Foremost Professional Plaza      |   | I-15 Corridor              |   | San Diego         |   | 1992                           |   | 60,534                                     |   | 0.3                                                             |   | 90.9                |   | 1,407                              |   | 31                    |   | 25.57                                                                |   |
| Activity Business Center         |   | I-15 Corridor              |   | San Diego         |   | 1987                           |   | 167,045                                    |   | 0.9                                                             |   | 86.9                |   | 1,992                              |   | 36                    |   | 13.73                                                                |   |
| Bernardo Regency                 |   | I-15 Corridor              |   | San Diego         |   | 1986                           |   | 47,916                                     |   | 0.3                                                             |   | 97.7                |   | 1,187                              |   | 16                    |   | 25.35                                                                |   |
| Carlsbad Corporate Center        |   | North Coast                |   | Carlsbad          |   | 1996                           |   | 125,000                                    |   | 0.7                                                             |   | —              |   | —                             |   | —                |   | —                                                               |   |
| 10180 Scripps                    |   | I-15 Corridor              |   | San Diego         |   | 1978/96                        |   | 43,560                                     |   | 0.2                                                             |   | 100.0               |   | 428                                |   | 1                     |   | 9.83                                                                 |   |
| Cymer Technology Center          |   | I-15 Corridor              |   | Rancho Bernardino |   | 1986                           |   | 155,612                                    |   | 0.8                                                             |   | 100.0               |   | 1,760                              |   | 2                     |   | 11.31                                                                |   |
| Via Frontera                     |   | I-15 Corridor              |   | Rancho Bernardino |   | 1982/97                        |   | 77,920                                     |   | 0.4                                                             |   | 100.0               |   | 873                                |   | 6                     |   | 11.08                                                                |   |
| Poway Industrial                 |   | I-15 Corridor              |   | Poway             |   | 1991/96                        |   | 112,000                                    |   | 0.6                                                             |   | 100.0               |   | 605                                |   | 1                     |   | 5.40                                                                 |   |
| Balboa Corporate Center          |   | Mission Valley/Kearny Mesa |   | San Diego         |   | 1990                           |   | 69,890                                     |   | 0.4                                                             |   | 100.0               |   | 843                                |   | 1                     |   | 12.06                                                                |   |
| Panorama Corporate Center        |   | Mission Valley/Kearny Mesa |   | San Diego         |   | 1991                           |   | 133,149                                    |   | 0.7                                                             |   | 100.0               |   | 2,317                              |   | 1                     |   | 17.40                                                                |   |
| Ruffin Corporate Center          |   | Mission Valley/Kearny Mesa |   | San Diego         |   | 1990                           |   | 45,059                                     |   | 0.2                                                             |   | 100.0               |   | 471                                |   | 1                     |   | 10.45                                                                |   |
| Skypark Office Plaza             |   | Mission Valley/Kearny Mesa |   | San Diego         |   | 1986                           |   | 202,164                                    |   | 1.1                                                             |   | 99.5                |   | 3,882                              |   | 18                    |   | 19.30                                                                |   |
| Governor Park Plaza              |   | North City                 |   | San Diego         |   | 1986                           |   | 104,065                                    |   | 0.6                                                             |   | 97.4                |   | 2,152                              |   | 22                    |   | 21.24                                                                |   |
| Westridge                        |   | North City                 |   | San Diego         |   | 1984/96                        |   | 48,955                                     |   | 0.3                                                             |   | 100.0               |   | 651                                |   | 4                     |   | 13.30                                                                |   |
| 5120 Shoreham                    |   | North City                 |   | San Diego         |   | 1984                           |   | 37,759                                     |   | 0.2                                                             |   | 100.0               |   | 698                                |   | 1                     |   | 18.49                                                                |   |
| Morehouse Tech Center            |   | North City                 |   | San Diego         |   | 1984                           |   | 181,207                                    |   | 1.0                                                             |   | 100.0               |   | 3,237                              |   | 9                     |   | 17.84                                                                |   |
| Torreyanna Science Park          |   | North City                 |   | La Jolla          |   | 1980/97                        |   | 81,204                                     |   | 0.4                                                             |   | 100.0               |   | 1,838                              |   | 1                     |   | 22.64                                                                |   |
| Waples Tech Center               |   | North City                 |   | San Diego         |   | 1990                           |   | 28,119                                     |   | 0.2                                                             |   | 100.0               |   | 403                                |   | 3                     |   | 14.34                                                                |   |
| Genesee Executive Plaza          |   | North City                 |   | San Diego         |   | 1984                           |   | 155,820                                    |   | 0.9                                                             |   | 85.9                |   | 3,514                              |   | 19                    |   | 26.26                                                                |   |
| 10251 Vista Sorrento             |   | North City                 |   | San Diego         |   | 1981/95                        |   | 69,386                                     |   | 0.4                                                             |   | 100.0               |   | 1,158                              |   | 1                     |   | 16.69                                                                |   |
|                             |   |                       |   |              |   |                           |   |                                       |   |                                                            |   |                |   |                               |   |                  |   |                                                                 |   |
| Subtotal/Weighted Average – |   |                       |   |              |   |                           |   |                                       |   |                                                            |   |                |   |                               |   |                  |   |                                                                 |   |   |   |
| San Diego County                 |   |                       |   |              |   |                           |   | 2,486,777                                  |   | 13.6                                                            | %      | 91.6                | %      | $                                  | 39,796 |                  | 268    |                                                                 | $      | 17.48 |   |

 

16

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| **Property Name**                                                      |   | **Submarket**      |       | **Location**     |   | **Year(s)  Built/  Renovated** |   | **Approximate  Net Rentable  Square Feet** |       | **Percentage  of  Total  Portfolio Net  Rentable  Square Feet** |   | **Percent  Leased** |   | **Annualized  Base Rent  ($000s)** |         | **Number  of  Lease** |      | **Annualized  Base Rent  per Leased  Net Rentable  Square  Feet(1)s** |   |
|------------------------------------------------------------------------|--------|--------------------|------------|------------------|--------|--------------------------------|--------|--------------------------------------------|------------|-----------------------------------------------------------------|--------|---------------------|--------|------------------------------------|--------------|-----------------------|-----------|-----------------------------------------------------------------------|--------|
| **Ventura  & Kern Counties**                                       |   |               |       |             |   |                           |   |                                       |       |                                                            |   |                |   |                               |         |                  |      |                                                                  |   |
| Parkway Center I                                                       |   | Bakersfield        |       | Bakersfield      |   | 1992/95                        |   | 61,333                                     |       | 0.3                                                             | %      | 89.3                | %      | $                                  | 1,035        |                  | 12        |                                                                  | $      | 18.92 |   |
| California Twin Center                                                 |   | Bakersfield        |       | Bakersfield      |   | 1983                           |   | 155,189                                    |       | 0.9                                                             |   | 90.6                |   | 2,393                              |         | 18                    |      | 17.01                                                                 |   |
| Center Promenade                                                       |   | West County        |       | Ventura          |   | 1982                           |   | 174,837                                    |       | 1.0                                                             |   | 94.3                |   | 2,785                              |         | 59                    |      | 16.89                                                                 |   |
| 1000 Town Center                                                       |   | West County        |       | Oxnard           |   | 1989                           |   | 107,656                                    |       | 0.6                                                             |   | 97.6                |   | 2,083                              |         | 10                    |      | 19.83                                                                 |   |
| Solar Drive Business Center                                            |   | West County        |       | Oxnard           |   | 1982                           |   | 125,132                                    |       | 0.7                                                             |   | 100.0               |   | 2,360                              |         | 39                    |      | 17.55                                                                 |   |
| Camarillo Business Park                                                |   | West County        |       | Camarillo        |   | 1984/97                        |   | 154,216                                    |       | 0.8                                                             |   | 96.3                |   | 2,785                              |         | 24                    |      | 18.75                                                                 |   |
| Subtotal/Weighted Average – Ventura & Kern Counties           |   |               |       |             |   |                           |   | 778,363                                    |       | 4.3                                                             | %      | 96.1                | %      | $                                  |  13,441 |                  | 162       |                                                                  | $      |  17.96 |   |
|                                                                   |   |               |       |             |   |                           |   |                                       |       |                                                            |   |                |   |                               |         |                  |      |                                                                  |   |
| **Riverside  and San Bernardino Counties**                             |   |               |       |             |   |                           |   |                                       |       |                                                            |   |                |   |                               |         |                  |      |                                                                  |   |
| Centrelake Plaza                                                       |   | Inland Empire West |       | Ontario          |   | 1989                           |   | 110,763                                    |       | 0.6                                                             | %      | 95.0                | %      | $                                  | 2,218        |                  | 23        |                                                                  | $      | 21.07 |   |
| Tower Plaza Retail                                                     |   | Temecula           |       | Temecula         |   | 1970/97                        |   | 133,481                                    |       | 0.7                                                             |   | 88.8                |   | 1,406                              |         | 21                    |      | 11.86                                                                 |   |
| Chicago Avenue Business Park                                           |   | Inland Empire East |       | Riverside        |   | 1986                           |   | 47,482                                     |       | 0.3                                                             |   | 89.6                |   | 612                                |         | 7                     |      | 14.38                                                                 |   |
| Havengate Center                                                       |   | Inland Empire East |       | Rancho Cucamonga |   | 1985                           |   | 80,557                                     |       | 0.4                                                             |   | 87.8                |   | 1,179                              |         | 18                    |      | 16.68                                                                 |   |
| HDS Plaza                                                              |   | Inland Empire East |       | San Bernardino   |   | 1987                           |   | 104,178                                    |       | 0.6                                                             |   | 95.8                |   | 1,756                              |         | 13                    |      | 17.60                                                                 |   |
| Subtotal/Weighted Average – Riverside and San Bernardino Counties |   |               |       |             |   |                           |   | 476,461                                    |       | 2.6                                                             | %      | 91.7                | %      | $                                  | 7,171        |                  | 82        |                                                                  | $      | 16.42 |   |
| **Portfolio  Total/****Weighted Average**                              |   |               | ** ** |             |   |                           |   | **18,246,900**                             | ** ** | **100.0**                                                       | **%**  | **92.4**            | **%**  | **$**                              | **349,802**  | ** **            | **3,021** | ** **                                                            | **$**  | **20.75** | ** ** |

 

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(1)          Calculated as monthlycontractual base rent under existing leases as of December 31, 2001, multipliedby 12 and divided by leased net rentable square feet, for those leases whererent has not yet commenced or which are in a free rent period, the first monthin which rent is to be received is used to determine annualized base rent.

 

(2)          We lease the landunderlying these properties or their parking structures pursuant to long termground leases.

 

(3)          Amounts for 2730Wilshire exclude the 100%-occupied 12,740 square foot, 16-unit apartmentcomplex we also own.

 

17

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*Tenant Information*

 

As of December 31, 2001, we had over 3,000 tenants,with no one tenant representing more than 2.2% of the aggregate annualized baserent of our properties, and only four tenants individually representing morethan 1.0% of our aggregate annualized base rent. Our properties are leased tolocal, national and foreign companies engaged in a variety of businessesincluding financial services, entertainment, health care services, accounting,law, education, publishing and local, state and federal government entities.

 

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

 

The following tablepresents information as of December 31, 2001 derived from our ten largesttenants, based on the percentage of aggregate portfolio annualized base rent:

 
| **Tenant**                            |   | **Number of  Leases** |   | **Weighted  Average  Remaining  Lease Term  in Months** |       | **Percentage  of  Aggregate  Portfolio  Leased  Square Feet** |   | **Percentage  of  Aggregate  Portfolio  Annualized  BaseRent(1)** |   | **Senior  Debt  Rating  (Moody’s/S&P)** |       |
|---------------------------------------|--------|-----------------------|--------|---------------------------------------------------------|------------|---------------------------------------------------------------|--------|-------------------------------------------------------------------|--------|--------------------------------------------------|------------|
| State of California                   |   | 47                    |   | 54                                                      |       | 2.18                                                          | %      | 2.17                                                              | %      | A1/A+                                            |       |
| University of  Phoenix                |   | 20                    |   | 34                                                      |       | 1.43                                                          |   | 1.24                                                              |   | Not Rated                                        |       |
| Univision                             |   | 2                     |   | 238                                                     |       | 0.99                                                          |   | 1.21                                                              |   | Baa3/BB+                                         |       |
| Vivendi  Universal                    |   | 1                     |   | 110                                                     |       | 0.59                                                          |   | 1.02                                                              |   | Baa2/BBB                                         |       |
| Pacific Bell  (Consolidated Entities) |   | 8                     |   | 37                                                      |       | 0.85                                                          |   | 0.83                                                              |   | Aa3/AA-                                          |       |
| Sony  (Consolidated Entities)         |   | 8                     |   | 25                                                      |       | 0.80                                                          |   | 0.82                                                              |   | Aa3/A+                                           |       |
| Boeing                                |   | 2                     |   | 46                                                      |       | 1.61                                                          |   | 0.73                                                              |   | A2/AA-                                           |       |
| Atlantic  Richfield                   |   | 13                    |   | 56                                                      |       | 0.75                                                          |   | 0.73                                                              |   | Aa1/AA+                                          |       |
| U.S. Government                       |   | 21                    |   | 43                                                      |       | 0.69                                                          |   | 0.73                                                              |   | Aaa/AAA                                          |       |
| GTE  (Consolidated Entities)          |   | 8                     |   | 32                                                      |       | 0.93                                                          |   | 0.73                                                              |   | A2/A+                                            |       |
| **Total/Weighted Average(2)**         |   | **130**               |   | **64**                                                  | ** ** | **10.82**                                                     | **%**  | **10.21**                                                         | **%**  |                                             | ** ** |

 

----

(1)          Annualized base rent iscalculated as monthly contractual base rent under existing leases as ofDecember 31, 2001, multiplied by 12; for those leases where rent has not yet commencedor which are in a free rent period, the first month in which rent is to bereceived is used to determine annualized base rent.

 

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

 

18

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*Lease Distribution*

 

The following table presents information relating tothe distribution of the leases for our 133 properties, based on leased netrentable square feet, as of December 31, 2001:

 
| **Square Feet Under Lease** |   | **Number  of  Leases** |   | **Percent  Of All  Leases** |   | **Total  Leased  Square Feet** |   | **Percent  of Aggregate  Portfolio  Leased  Square Feet** |   | **Annualized  Base Rent  Of Leases  (1) ($000s)** |    | **Percentage  of Aggregate  Portfolio  Annualized  Base Rent** |   | **Average  Base Rent  Per Leased  Square Foot** |   |
|-----------------------------|--------|------------------------|--------|-----------------------------|--------|--------------------------------|--------|-----------------------------------------------------------|--------|---------------------------------------------------|---------|----------------------------------------------------------------|--------|-------------------------------------------------|--------|
| 2,500 and under             |   | 1,531                  |   | 50.68                       | %      | 2,106,464                      |   | 12.50                                                     | %      | $                                                 | 50,443  |                                                           | 13.35  | %                                               | $      | 23.95 |   |
| 2,501 – 5,000          |   | 703                    |   | 23.27                       |   | 2,466,592                      |   | 14.63                                                     |   | 58,778                                            |    | 15.56                                                          |   | 23.83                                           |   |
| 5,001 – 7,500          |   | 254                    |   | 8.41                        |   | 1,556,671                      |   | 9.24                                                      |   | 36,497                                            |    | 9.66                                                           |   | 23.45                                           |   |
| 7,501 – 10,000         |   | 172                    |   | 5.69                        |   | 1,487,475                      |   | 8.83                                                      |   | 33,962                                            |    | 8.99                                                           |   | 22.83                                           |   |
| 10,001 – 20,000        |   | 234                    |   | 7.75                        |   | 3,310,420                      |   | 19.64                                                     |   | 77,502                                            |    | 20.51                                                          |   | 23.41                                           |   |
| 20,001 – 40,000        |   | 69                     |   | 2.28                        |   | 1,939,001                      |   | 11.50                                                     |   | 42,743                                            |    | 11.31                                                          |   | 22.04                                           |   |
| 40,001 and over             |   | 58                     |   | 1.92                        |   | 3,987,912                      |   | 23.66                                                     |   | 77,901                                            |    | 20.62                                                          |   | 19.53                                           |   |
| Total/Weighted  Average     |   | 3,021                  |   | 100.00                      | %      | 16,854,535                     |   | 100.00                                                    | %      | $                                                 | 377,826 |                                                           | 100.00 | %                                               | $      | 22.42 |   |

 

----

(1)          Base rent is determinedas of the date of lease expiration, including all fixed contractual base rentincreases; increases tied to indices such as the Consumer Price Index are notincluded.

 

*Lease Expirations*

 

The following table presents a summary schedule of thetotal lease expirations for our 133 properties for leases in place at December31, 2001. This table assumes that none of the tenants exercise renewal optionsor termination rights, if any, at or prior to the scheduled expirations:

 
| **Year of  Lease Expiration** |   | **Number of  Leases Expiring** |   | **Square  Footage of Expiring Leases** |   | **Percentage  of Aggregate Portfolio Leased Square Feet** |   | **Annualized  Base Rent of Expiring Leases(1) ($000s)** |    | **Percentage  of Aggregate Portfolio Annualized Base Rent** |   | **Average  Base Rent Per Net Rentable Square Foot of Expiring Leases** |   |
|-------------------------------|--------|--------------------------------|--------|----------------------------------------|--------|-----------------------------------------------------------|--------|---------------------------------------------------------|---------|-------------------------------------------------------------|--------|------------------------------------------------------------------------|--------|
| Month-to-Month                |   | 137                            |   | 241,880                                |   | 1.44                                                      | %      | $                                                       | 4,949   |                                                        | 1.31   | %                                                                      | $      | 20.46 |   |
| 2002                          |   | 606                            |   | 2,311,774                              |   | 13.72                                                     |   | 44,151                                                  |    | 11.69                                                       |   | 19.10                                                                  |   |
| 2003                          |   | 617                            |   | 3,008,249                              |   | 17.85                                                     |   | 62,182                                                  |    | 16.46                                                       |   | 20.67                                                                  |   |
| 2004                          |   | 588                            |   | 3,118,206                              |   | 18.50                                                     |   | 66,885                                                  |    | 17.70                                                       |   | 21.45                                                                  |   |
| 2005                          |   | 415                            |   | 2,769,985                              |   | 16.43                                                     |   | 59,765                                                  |    | 15.82                                                       |   | 21.58                                                                  |   |
| 2006                          |   | 327                            |   | 2,174,329                              |   | 12.90                                                     |   | 50,778                                                  |    | 13.44                                                       |   | 23.35                                                                  |   |
| 2007                          |   | 109                            |   | 729,393                                |   | 4.33                                                      |   | 17,922                                                  |    | 4.74                                                        |   | 24.57                                                                  |   |
| 2008                          |   | 50                             |   | 613,736                                |   | 3.64                                                      |   | 16,773                                                  |    | 4.44                                                        |   | 27.33                                                                  |   |
| 2009                          |   | 36                             |   | 454,043                                |   | 2.69                                                      |   | 10,714                                                  |    | 2.84                                                        |   | 23.60                                                                  |   |
| 2010                          |   | 51                             |   | 708,023                                |   | 4.20                                                      |   | 19,508                                                  |    | 5.16                                                        |   | 27.55                                                                  |   |
| 2011                          |   | 24                             |   | 283,031                                |   | 1.68                                                      |   | 10,548                                                  |    | 2.79                                                        |   | 37.27                                                                  |   |
| 2012                          |   | 13                             |   | 89,767                                 |   | 0.53                                                      |   | 3,203                                                   |    | 0.85                                                        |   | 35.68                                                                  |   |
| 2013+                         |   | 48                             |   | 352,119                                |   | 2.09                                                      |   | 10,448                                                  |    | 2.76                                                        |   | 29.67                                                                  |   |
| Total/Weighted  Average       |   | 3,021                          |   | 16,854,535                             |   | 100.00                                                    | %      | $                                                       | 377,826 |                                                        | 100.00 | %                                                                      | $      | 22.42 |   |

 

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(1)          Base rent is determinedas of the date of lease expiration, including all fixed contractual base rentincreases; increases tied to indices such as the Consumer Price Index are notincluded.

 

**ITEM3.  *LegalProceedings***

 

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

 

In December 2001, the owner of the entertainmentcenter at our Howard Hughes Center project asserted a claim against us forindemnification arising out of a Los Angeles Superior Court judgment againstthem, which invalidated a transfer of in-lieu credits that Arden Realty made inAugust of 1999 as part of our sale of the land for the entertainmentcenter.  The value of these in-lieucredits was approximately $6.0 million and were transferred to satisfy certainTransportation Impact Assessment fees related to the entertainment center.  The owner of the entertainment center iscurrently appealing the judgment..

 

19

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

 

**ITEM4.  *Submissionof Matters to a Vote of Security Holders***

 

No matters were submitted to a vote of ourstockholders during the fourth quarter of the year ended December 31, 2001.

 

20

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**PARTII**

 

**ITEM5.  *Marketfor Registrant’s Common Equity and Related Stockholder Matters***

 

There is no established trading market for our commonequity. As of December 31, 2001, there were 65,936,810 common OP Unitsoutstanding, of which Arden Realty owned 64,098,110 common OP Units, all ofwhich correspond to the issued and outstanding common stock of Arden Realty. Apartner’s percentage is determined by dividing the number of common OP Unitsheld by the partner by the total number of common OP Units outstanding. As ofDecember 31, 2001, there were approximately 33 holders of our common OP Units,including Arden Realty.

 

Set forth below are the distributions per common OPUnit paid during our two most recent fiscal years.

 
|           |   | **Distributions  Paid** |   |
|----------------|--------|-------------------------|--------|
| **2000**       |   |                    |   |
| First Quarter  |   | $                       |   | 0.445 |   |
| Second Quarter |   | $                       |   | 0.465 |   |
| Third Quarter  |   | $                       |   | 0.465 |   |
| Fourth Quarter |   | $                       |   | 0.465 |   |
|           |   |                    |   |
| **2001**       |   |                    |   |
| First Quarter  |   | $                       |   | 0.465 |   |
| Second Quarter |   | $                       |   | 0.49 |   |
| Third Quarter  |   | $                       |   | 0.49 |   |
| Fourth Quarter |   | $                       |   | 0.49 |   |

 

We make quarterly distributions to our common OP Unitholders at the discretion of Arden Realty, our sole general partner. The amountof each quarterly distribution depends on our funds from operations, financialcondition and capital requirements, annual distribution requirements under theREIT provisions of the Internal Revenue Code and such other factors as ArdenRealty deems relevant.

 

21

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**ITEM 6.  *Selected Financial Data***

 

You should readthe following consolidated financial and operating data together with our“Management’s Discussion and Analysis of Financial Condition and Results ofOperations” and our consolidated financial statements included elsewhere inthis Form 10-K.

 
|                                                   |   | **For the  Years Ended December 31,**                   |          |
|--------------------------------------------------------|--------|---------------------------------------------------------|---------------|
|                                                   |   | **2001**                                                |          | **2000** |   | **1999** |   | **1998** |   | **1997** |   |
|                                                   |   | **(in  thousands, except ratio and per share amounts)** |          |
| **Operating  Data:**                                   |   |                                                    |          |   |   |   |   |   |   |   |   |
| Revenues                                               |   | $                                                       |  421,466 |   | $ |  388,117 |   | $ |  340,675 |   | $ |  284,582 |   | $ |  135,447 |   |
| Property operating expenses                            |   | 122,576                                                 |          | 110,917 |   | 101,284 |   | 86,570 |   | 44,332 |   |
| General and administrative expense                     |   | 11,083                                                  |          | 8,306 |   | 6,753 |   | 6,264 |   | 3,888 |   |
| Depreciation and amortization                          |   | 101,819                                                 |          | 87,267 |   | 69,837 |   | 51,822 |   | 20,260 |   |
|                                                   |   | 185,988                                                 |          | 181,627 |   | 162,801 |   | 139,926 |   | 66,967 |   |
|                                                   |   |                                                    |          |   |   |   |   |   |   |   |   |
| Interest expense                                       |   | (84,195                                                 | )             | (78,406 | ) | (60,239 | ) | (43,403 | ) | (19,511 | ) |
| Gain on sale of property                               |   | 4,591                                                   |          | 2,132 |   | — |   | — |   | — |   |
| Loss on valuation of derivative                        |   | —                                                  |          | — |   | — |   | — |   | (3,111 | ) |
| Income before minority interest                        |   | 106,384                                                 |          | 105,353 |   | 102,562 |   | 96,523 |   | 44,345 |   |
| Minority interest                                      |   | (127                                                    | )             | (144 | ) | (169 | ) | (729 | ) | (59 | ) |
|                                                   |   |                                                    |          |   |   |   |   |   |   |   |   |
| Net income                                             |   | $                                                       |  106,257 |   | $ |  105,209 |   | $ |  102,393 |   | $ |  95,794 |   | $ |  44,286 |   |
|                                                   |   |                                                    |          |   |   |   |   |   |   |   |   |
| Net income allocated to:                               |   |                                                    |          |   |   |   |   |   |   |   |   |
| Preferred partner                                      |   | $                                                       |  4,312   |   | $ |  4,312 |   | $ |  1,354 |   | $ |  — |   | $ |  — |   |
|                                                   |   |                                                    |          |   |   |   |   |   |   |   |   |
| General and limited partners                           |   | $                                                       |  101,945 |   | $ |  100,897 |   | $ |  101,039 |   | $ |  95,794 |   | $ |  44,286 |   |
|                                                   |   |                                                    |          |   |   |   |   |   |   |   |   |
| Earnings per common partnership units outstanding:     |   |                                                    |          |   |   |   |   |   |   |   |   |
| Basic                                                  |   | $                                                       |  1.55    |   | $ |  1.54 |   | $ |  1.54 |   | $ |  1.55 |   | $ |  1.44 |   |
|                                                   |   |                                                    |          |   |   |   |   |   |   |   |   |
| Diluted                                                |   | $                                                       |  1.54    |   | $ |  1.53 |   | $ |  1.54 |   | $ |  1.55 |   | $ |  1.43 |   |
|                                                   |   |                                                    |          |   |   |   |   |   |   |   |   |
| Weighted average common partnership units outstanding: |   |                                                    |          |   |   |   |   |   |   |   |   |
| Basic                                                  |   | 65,872                                                  |          | 65,568 |   | 65,509 |   | 61,846 |   | 30,797 |   |
|                                                   |   |                                                    |          |   |   |   |   |   |   |   |   |
| Diluted                                                |   | 66,132                                                  |          | 65,759 |   | 65,566 |   | 61,999 |   | 31,042 |   |
|                                                   |   |                                                    |          |   |   |   |   |   |   |   |   |
| Distribution per common operating partnership unit     |   | $                                                       |  1.94    |   | $ |  1.84 |   | $ |  1.76 |   | $ |  1.66 |   | $ |  1.56 |   |
|                                                   |   |                                                    |          |   |   |   |   |   |   |   |   |
| **Other  Data:**                                       |   |                                                    |          |   |   |   |   |   |   |   |   |
| Cash provided by operating activities                  |   | $                                                       |  204,839 |   | $ |  194,258 |   | $ |  170,495 |   | $ |  150,410 |   | $ |  41,291 |   |
| Cash used in investing activities                      |   | (115,854                                                | )             | (216,024 | ) | (283,574 | ) | (1,099,833 | ) | (661,805 | ) |
| Cash (used in) provided by financing activities        |   | (57,376                                                 | )             | 20,142 |   | 115,557 |   | 946,838 |   | 618,182 |   |
| Funds from Operations (1)                              |   | 199,173                                                 |          | 186,032 |   | 170,876 |   | 147,616 |   | 64,546 |   |
| EBITDA (2)                                             |   | 287,807                                                 |          | 268,894 |   | 232,638 |   | 191,748 |   | 87,227 |   |
| Ratio of EBITDA to interest expense (2)                |   | 3.42                                                    |          | 3.43 |   | 3.86 |   | 4.42 |   | 4.47 |   |
| Ratio of EBITDA to fixed charges (2)(3)                |   | 2.95                                                    |          | 2.82 |   | 3.27 |   | 3.66 |   | 4.22 |   |
| Ratio of earnings to fixed charges (3)(4)              |   | 1.95                                                    |          | 1.93 |   | 2.28 |   | 2.66 |   | 3.08 |   |
|                                                   |   |                                                    |          |   |   |   |   |   |   |   |   |

*Selected Financial Data continued onnext page.*

 

22

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| **Balance  Sheet Data:**      |   |      |            |      |   |            |   |      |            |      |   |
|-------------------------------|--------|-----------|-----------------|-----------|--------|-----------------|--------|-----------|-----------------|-----------|--------|
| Net investment in real estate |   | $         |  2,622,980 |      | $      |  2,603,566 |   | $         |  2,479,111 |      | $      |  2,260,433 |   | $ |  1,247,701 |   |
| Total assets                  |   | 2,763,701 |            | 2,706,967 |   | 2,572,904       |   | 2,333,866 |            | 1,287,287 |   |
| Total indebtedness            |   | 1,251,483 |            | 1,177,769 |   | 1,029,656       |   | 840,377   |            | 477,566   |   |
| Other liabilities (5)         |   | 62,685    |            | 56,885    |   | 50,555          |   | 35,720    |            | 23,205    |   |
| Partners’ capital        |   | 1,446,667 |            | 1,469,402 |   | 1,489,740       |   | 1,454,844 |            | 756,008   |   |
|                               |        |           |                 |           |        |                 |        |           |                 |           |        |  |  |  |  |  |

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(1)          We consider funds fromoperations, as defined by the National Association of Real Estate InvestmentTrusts, or NAREIT, to be a useful financial measure of our operatingperformance. We believe that funds from operations provides investors with anadditional basis to evaluate our ability to service debt and to fundacquisitions and other capital expenditures. Funds from operations should notbe considered an alternative to net income determined in accordance withgenerally accepted accounting principles, or GAAP, as an indicator of ourfinancial performance or as a substitute for cash flow from operatingactivities determined in accordance with GAAP as a measure of our liquidity.Funds from operations also is not necessarily indicative of funds available tofund our cash needs, including our ability to make distributions or  to service our debt.

 

The White Paper on funds from operations approved bythe Board of Governors of NAREIT in October 1999 defines funds from operationsas net income or loss computed in accordance with GAAP, excluding extraordinaryitems, as defined by GAAP, and gains and losses from sales of depreciableoperating property plus real estate-related depreciation and amortization andafter adjustments for unconsolidated partnerships and joint ventures. Wecompute funds from operations in accordance with standards established by theWhite Paper which may differ from the standards used by other real estatecompanies and, accordingly, our funds from operations may not be comparable tothose companies’ funds from operations.

 

(2)          As used in this Form10-K, earnings before interest, taxes, depreciation and amortization, or EBITDA,means revenue less property operating expenses and general and administrativeexpenses. EBITDA does not represent cash generated from operating activities inaccordance with GAAP and should not be considered as an alternative tooperating income or net income as an indicator of performance or as asubstitute for cash flow from operating activities determined in accordancewith GAAP as a measure of our liquidity. We have included information withrespect to EBITDA because we understand that this information may be used asone measure of operating performance.

 

(3)          Fixed charges consist ofinterest costs, whether expensed or capitalized, amortization of deferredfinancing costs, amortization of discounts or premiums related to indebtednessand preferred unit distributions.

 

(4)          The ratios of earningsto fixed charges were computed by dividing earnings by fixed charges. For thispurpose, earnings have been calculated by adding fixed charges, excludingcapitalized interest and preferred unit distributions, to income or loss beforeextraordinary items.

 

23

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**ITEM7.  *Management’sDiscussion and Analysis of Financial Condition and Results of Operations***

 

*Overview*

 

*The following discussion should beread in conjunction with Item 6, Selected Financial Data, and our historicalconsolidated financial statements and related notes thereto included elsewherein this Form 10-K.*

 

We are a self-administered and self-managed realestate organization that owns, manages, leases, develops, renovates andacquires commercial properties located in Southern California. We are managedby 10 senior executive officers who have experience in the real estate industryranging from 10 to 33 years and who collectively have an average of 19 yearsexperience. We perform all property management, construction management,accounting, finance and acquisition activities and a majority of our leasingtransactions with our staff of approximately 300 employees.

 

As of December 31, 2001, Arden Realty is SouthernCalifornia’s largest publicly traded office landlord as measured by total netrentable square feet owned. As of that date, our portfolio consisted of 133primarily suburban office properties containing approximately 18.2 million netrentable square feet and two properties with approximately 566,000 net rentablesquare feet under development. As of December 31, 2001, our properties were92.2% occupied.

 

Our primary business strategy is to actively manageour portfolio to achieve gains in rental rates and occupancy, control operatingexpenses and to maximize income from ancillary operations and services. Whenmarket conditions permit, we may also selectively develop or acquire newproperties that add value and fit strategically into our portfolio. We may alsosell existing properties and redeploy the proceeds into investments that webelieve will generate higher long-term value.

 

*Critical Accounting Policies*

 

## **RevenueRecognition**

 

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

 

**Qualificationof Arden Realty as a REIT**

 

Webelieve that since our taxable year ended December 31, 1996, Arden Realty hasbeen organized and operated, and intend to continue to operate, so as toqualify for taxation as a REIT under the Internal Revenue Code. Arden Realty’squalification and taxation as a REIT depends on its ability to meet, throughactual annual operating results, asset diversification, distribution levels anddiversity of stock ownership, numerous requirements established under highlytechnical and complex Internal Revenue Code provisions subject tointerpretation.

 

IfArden Realty failed to qualify as a REIT in any taxable year, it would besubject to federal income tax, including any applicable alternative minimumtax, on our taxable income at regular corporate rates. Moreover, unlessentitled to relief under specific statutory provisions, we also would bedisqualified as a REIT for the four taxable years following the year duringwhich qualification was lost. For additional information see “Risk Factors - Wemay suffer adverse tax consequences and be unable to attract capital if ArdenRealty fails to qualify as a REIT,” and “We intend to qualify as a partnership,but we cannot guarantee that we will qualify,” elsewhere in this Form 10-K.

 

**Depreciation**

 

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

 

The carrying amount of all properties is evaluatedperiodically to determine if adjustment to the useful life is warranted.  During 2001, the useful life of certainbuilding and building improvements were adjusted to more accurately reflecttheir estimated usefulness.  The effectof this change in estimate in 2001 was an increase to net income ofapproximately $10.1 million or $0.15 per common OP Unit.  This change in estimate did not have animpact on our 2001 cash flows or funds from operations.

24

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*Results Of Operations*

 

Our financial position and operating results areprimarily comprised of our portfolio of properties and income derived fromthose properties. Therefore, the comparability of financial data from period toperiod will be affected by the timing of significant property renovations,development, acquisitions and dispositions.

 

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

**(in thousands, except number of properties and percentages)**

 
|                                           |   | **Year Ended  December 31,** |       |
|------------------------------------------------|--------|------------------------------|------------|
|                                           |   | **2001**                     | ** ** | **2000** | ** ** | **Change** | ** ** | **Percent  Change** | ** ** |
| **Revenue**                                    |   |                         |       |   |   |   |   |   |   |
| Revenue from  rental operations:               |   |                         |       |   |   |   |   |   |   |
| Rental                                         |   | $                            | 355,622    |   | $ | 328,460 |   | $ | 27,162 |   | 8 | % |
| Tenant  reimbursements                         |   | 22,732                       |       | 16,371 |   | 6,361 |   | 39 |   |
| Parking, net of  expense                       |   | 22,025                       |       | 18,348 |   | 3,677 |   | 20 |   |
| Other rental  operations                       |   | 18,146                       |       | 21,411 |   | (3,265 | ) | (15 | ) |
| Total                                          |   | 418,525                      |       | 384,590 |   | 33,935 |   | 9 |   |
| Interest and  other income                     |   | 2,941                        |       | 3,527 |   | (586 | ) | (17 | ) |
| Total revenue                                  |   | $                            | 421,466    |   | $ | 388,117 |   | $ | 33,349 |   | 9 | % |
| **Expenses**                                   |   |                         |       |   |   |   |   |   |   |
| Property expenses:                             |   |                         |       |   |   |   |   |   |   |
| Repairs and  maintenance                       |   | $                            | 36,715     |   | $ | 35,390 |   | $ | 1,325 |   | 4 | % |
| Utilities                                      |   | 33,894                       |       | 29,872 |   | 4,022 |   | 13 |   |
| Real estate  taxes                             |   | 29,404                       |       | 26,808 |   | 2,596 |   | 10 |   |
| Insurance                                      |   | 5,727                        |       | 4,203 |   | 1,524 |   | 36 |   |
| Ground rent                                    |   | 1,885                        |       | 1,214 |   | 671 |   | 55 |   |
| Administrative                                 |   | 14,951                       |       | 13,430 |   | 1,521 |   | 11 |   |
| Total property  expenses                       |   | 122,576                      |       | 110,917 |   | 11,659 |   | 11 |   |
| General and  administrative                    |   | 11,083                       |       | 8,306 |   | 2,777 |   | 33 |   |
| Interest                                       |   | 84,195                       |       | 78,406 |   | 5,789 |   | 7 |   |
| Depreciation and  amortization                 |   | 101,819                      |       | 87,267 |   | 14,552 |   | 17 |   |
| Total expenses                                 |   | $                            | 319,673    |   | $ | 284,896 |   | $ | 34,777 |   | 12 | % |
| **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                          |       | 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                       |       | 18,658 |   |   |   |   |   |

 

Variances for revenuefrom rental operations and property expenses are discussed below.

 

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

 

25

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General and administrative expenses increasedapproximately $2.8 million in 2001 as compared to 2000. This increase wasprimarily related to higher personnel costs in 2001, including approximately$1.3 million in non-cash compensation expense from restricted stock awardsgranted to key executives in July and December of 2000 and July of 2001 andapproximately $850,000 in salaries for employees hired after January 1, 2000.

 

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

 

Depreciation and amortization expense increased byapproximately $14.6 million or 17% during 2001 compared to 2000, primarily dueto depreciation related to newly developed and renovated properties, capitalexpenditures, tenant improvements and leasing commissions placed in servicesubsequent to January 1, 2000, net of a decrease of approximately $10.1 millionin 2001 due to a change in the estimated useful lives of certain building andbuilding improvements.

 

**Variancesfor Revenue from Rental Operations and Property Operating Expenses**

 

The increase in revenue from rental operations andproperty operating expenses in 2001 as compared to 2000 was partially due to adevelopment property placed in service in 2000, one development project placedin service in 2001, a property sold in 2000, five properties sold in 2001 andthree properties under renovation for all or a portion of the periodspresented. Operating results for properties under renovation may significantlyvary from period to period depending on the status of the renovation andoccupancy levels maintained during the renovation.

 

Following is a summary of the increase in revenue fromrental operations and property operating expenses that relates to the elevenproperties that were either sold, placed in service after January 1, 2000 orwere under renovation for all or a portion of the period beginning afterJanuary 1, 2000 and for the 133 non-renovation/non-development properties weowned for all 2000 and 2001 (in thousands, except number of properties).

 

 
|                                |   | **Total  Variance** |   | **Properties  Sold,  Placed in Service or  Under Renovation  after January 1, 2000** |   | **Non-Renovation/Non-Development  Properties Owned  for all of  2000 and 2001(1)** |   |
|-------------------------------------|--------|---------------------|--------|--------------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------------|--------|
| **Revenue from Rental Operations:** |   |                |   |                                                                                 |   |                                                                               |   |
| Rental                              |   | $                   | 27,162 |                                                                                 | $      | 13,571                                                                             |   | $ | 13,591 |   |
| Tenant  reimbursements              |   | 6,361               |   | 480                                                                                  |   | 5,881                                                                              |   |
| Parking, net of  expense            |   | 3,677               |   | 1,017                                                                                |   | 2,660                                                                              |   |
| Other rental  operations            |   | (3,265              | )      | (991                                                                                 | )      | (2,274                                                                             | )      |
|                                |   | $                   | 33,935 |                                                                                 | $      | 14,077                                                                             |   | $ | 19,858 |   |
| **Property Expenses:**              |   |                |   |                                                                                 |   |                                                                               |   |
| Repairs and  maintenance            |   | 1,325               |   | 1,157                                                                                |   | 168                                                                                |   |
| Utilities                           |   | 4,022               |   | 837                                                                                  |   | 3,185                                                                              |   |
| Real estate  taxes                  |   | 2,596               |   | 1,253                                                                                |   | 1,343                                                                              |   |
| Insurance                           |   | 1,524               |   | 156                                                                                  |   | 1,368                                                                              |   |
| Ground rent                         |   | 671                 |   | 386                                                                                  |   | 285                                                                                |   |
| Administrative                      |   | 1,521               |   | 302                                                                                  |   | 1,219                                                                              |   |
|                                |   | $                   | 11,659 |                                                                                 | $      | 4,091                                                                              |   | $ | 7,568 |   |
| **Other Data:**                     |   |                |   |                                                                                 |   |                                                                               |   |
| Number of  properties               |   |                |   | 11                                                                                   |   | 133                                                                                |   |
| Net rentable  square feet           |   |                |   | 1,447                                                                                |   | 17,373                                                                             |   |

 

----

(1)          See analysis ofProperties Owned for all of 2000 and 2001 below.  Includes the Temecula portfolio of five properties sold at theend of 2001 since these properties were owned for all of 2000 and 2001.

 

26

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**Properties Owned for all of 2000 and2001**

 

Following is a comparison of property operating datacomputed under the GAAP basis and cash basis for the 133non-renovation/non-development properties we owned for all of 2000 and 2001 (inthousands, except number of properties and percentages).

 
|                            |   | **Year Ended  December 31,** |       |     |       |               |       |
|---------------------------------|--------|------------------------------|------------|----------|------------|--------------------|------------|
|                            |   | **2001**                     | ** ** | **2000** | ** ** | **Dollar  Change** | ** ** | **PercentChange** | ** ** |
| **GAAP  Basis:**                |   |                         |       |     |       |               |       |   |   |
| Revenue  from rental operations |   | $                            | 378,137    |     | $          | 358,279            |       | $ | 19,858 |   | 5.5 | % |
| Property  expenses              |   | 113,619                      |       | 106,051  |       | 7,568              |       | 7.1 |   |
|                            |   | $                            | 264,518    |     | $          | 252,228            |       | $ | 12,290 |   | 4.9 | % |
| **Cash  Basis(1):**             |   |                         |       |     |       |               |       |   |   |
| Revenue  from rental operations |   | $                            | 372,030    |     | $          | 351,235            |       | $ | 20,795 |   | 5.9 | % |
| Property  expenses              |   | 113,619                      |       | 106,051  |       | 7,568              |       | 7.1 |   |
|                            |   | $                            | 258,411    |     | $          | 245,184            |       | $ | 13,227 |   | 5.4 | % |
|                            |   |                         |       |     |       |               |       |   |   |
| Number of  properties           |   | 133                          |       | 133      |       |               |       |   |   |
| Average  occupancy              |   | 93.8                         | %          | 94.5     | %          |               |       |   |   |
| Net rentable  square feet       |   | 17,373                       |       | 17,373   |       |               |       |   |   |

 

----

(1)          Excludes straight-linerent adjustments.

 

Revenue from rental operations for these properties,computed on a GAAP basis, increased by approximately $19.9 million, or 5.5%,during 2001 as compared to 2000. Approximately $14.5 million of this differencewas related to higher rental revenue in 2001. The increase in rental revenuewas primarily attributable to increases in rental rates in 2001. Revenue fromrental operations was also higher due to an approximate $5.9 million increasein tenant reimbursements and an approximate $2.7 million increase in parkingincome offset by an approximate $2.3 million decrease in revenue from otherrental operations. Tenant reimbursements increased primarily due to higheroperating expenses in 2001, as discussed below. Parking income increased in2001 primarily due to increases in parking rates, while revenue from other rentaloperations 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.

 

Straight-line rents for these properties in 2001 wereapproximately $937,000 less than in 2000.

 

Property expenses for these properties increased byapproximately $7.6 million, or 7.1%, during 2001 as compared to 2000, primarilydue to a $3.2 million increase in utility expenses, a $1.3 million increase inreal estate taxes, a $1.4 million increase in insurance expense and a $1.2million increase in administrative expenses in 2001. The increase in utilityexpenses was primarily due to rate increases in 2001. Real estate taxesincreased in 2001 due to normal annual increases and final assessments oncertain properties. Insurance expense increased due to increases inindustry-wide insurance rates in 2001, while administrative expenses increasedprimarily due to higher personnel costs in 2001. As noted above, the increasein operating expenses was the primary reason for the $5.9 million increase intenant reimbursements.

 

27

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**Comparison of the year ended December 31, 2000 to the yearended December 31, 1999**

**(in thousands, except number of properties and percentages)**

 
|                                           |   | **Year Ended  December 31,** |       |     |       |       |       |
|------------------------------------------------|--------|------------------------------|------------|----------|------------|------------|------------|
|                                           |   | **2000**                     | ** ** | **1999** | ** ** | **Change** | ** ** | **Percent  Change** | ** ** |
| **Revenue**                                    |   |                         |       |     |       |       |       |   |   |
| Revenue from  rental operations:               |   |                         |       |     |       |       |       |   |   |
| Rental                                         |   | $                            | 328,460    |     | $          | 292,688    |       | $ | 35,772 |   | 12 | % |
| Tenant reimbursements                          |   | 16,371                       |       | 13,863   |       | 2,508      |       | 18 |   |
| Parking, net of  expense                       |   | 18,348                       |       | 14,384   |       | 3,964      |       | 28 |   |
| Other rental  operations                       |   | 21,411                       |       | 16,918   |       | 4,493      |       | 27 |   |
| Total                                          |   | 384,590                      |       | 337,853  |       | 46,737     |       | 14 |   |
| Interest and  other income                     |   | 3,527                        |       | 2,822    |       | 705        |       | 25 |   |
| Total revenue                                  |   | $                            | 388,117    |     | $          | 340,675    |       | $ | 47,442 |   | 14 | % |
| **Expenses**                                   |   |                         |       |     |       |       |       |   |   |
| Property  expenses:                            |   |                         |       |     |       |       |       |   |   |
| Repairs and  maintenance                       |   | $                            | 35,390     |     | $          | 32,902     |       | $ | 2,488 |   | 8 | % |
| Utilities                                      |   | 29,872                       |       | 28,305   |       | 1,567      |       | 6 |   |
| Real estate  taxes                             |   | 26,808                       |       | 23,167   |       | 3,641      |       | 16 |   |
| Insurance                                      |   | 4,203                        |       | 3,993    |       | 210        |       | 5 |   |
| Ground rent                                    |   | 1,214                        |       | 891      |       | 323        |       | 36 |   |
| Administrative                                 |   | 13,430                       |       | 12,026   |       | 1,404      |       | 12 |   |
| Total property  expenses                       |   | 110,917                      |       | 101,284  |       | 9,633      |       | 10 |   |
| General and  administrative                    |   | 8,306                        |       | 6,753    |       | 1,553      |       | 23 |   |
| Interest                                       |   | 78,406                       |       | 60,239   |       | 18,167     |       | 30 |   |
| Depreciation and  amortization                 |   | 87,267                       |       | 69,837   |       | 17,430     |       | 25 |   |
| Total expenses                                 |   | $                            | 284,896    |     | $          | 238,113    |       | $ | 46,783 |   | 20 | % |
| **Other  Data:**                               |   |                         |       |     |       |       |       |   |   |
| **Number  of properties:**                     |   |                         |       |     |       |       |       |   |   |
| Acquired  during period                        |   | —                       |       | 4        |       |       |       |   |   |
| Completed and  placed in service during period |   | 1                            |       | —   |       |       |       |   |   |
| Disposed of  during period                     |   | (1                           | )          | —   |       |       |       |   |   |
| Owned at end of  period                        |   | 142                          |       | 142      |       |       |       |   |   |
| **Net rentable square feet:**                  |   |                         |       |     |       |       |       |   |   |
| Acquired during  period                        |   | —                       |       | 524      |       |       |       |   |   |
| Completed and  placed in service during period |   | 242                          |       | —   |       |       |       |   |   |
| Disposed of  during period                     |   | (76                          | )          | —   |       |       |       |   |   |
| Owned at end of  period                        |   | 18,658                       |       | 18,492   |       |       |       |   |   |

 

Variances for revenue from rental operations andproperty expenses are discussed below.

 

Interest and other income increased by approximately$705,000 in 2000 as compared to 1999, primarily due to increases in managementfees for owner associations we manage and from higher interest income earned in2000 on higher restricted cash balances required by mortgage loans entered intoafter January 1, 1999.

 

28

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General and administrative expenses were approximately$8.3 million, or 2.1% of total revenue, in 2000 as compared to $6.8 million, or2.0% of total revenue, in 1999. This increase was primarily related to higherpersonnel costs in 2000, including $586,000 related to the non-cashcompensation expense from restricted stock awards granted to several keyexecutives.

 

Interest expense increased approximately $18.2 millionin 2000 as compared to 1999. This increase was primarily due to both higheroutstanding balances in 2000, resulting from the funding of acquisitions,tenant improvements, leasing commission costs and development and renovationprojects placed in service during the periods presented, and higher averageinterest rates in 2000.

 

Depreciation and amortization expense increased byapproximately $17.4 million in 2000, primarily due to depreciation related toproperties acquired in 1999, newly developed and renovated properties, andcapital expenditures, tenant improvements and leasing commissions placed inservice in 2000.

 

**Variances for Revenue from Rental Operations and PropertyOperating Expenses**

 

The increase in revenue from rental operations andproperty operating expenses in 2000 as compared to 1999 was partially due tothe four properties we acquired during 1999, a development property placed inservice in 2000, a property sold in 2000 and five properties under renovationfor all or a portion of the periods presented. Operating results for propertiesunder renovation may significantly vary from period to period depending on theextent and status of the renovation and occupancy levels maintained during therenovation.

 

Following is a summary of the increase in revenue fromrental operations and property operating expenses that relates to the elevenproperties that were either acquired, sold or placed in service after January1, 1999 or were under renovation for all or a portion of the period beginningafter January 1, 1999 and for the 132 non-renovation properties we owned forall 1999 and 2000 (in thousands, except number of properties).

 
|                                |   | **Total  Variance** |   | **Properties  Acquired, Sold,  Placed in Service or  Under Renovation  after January 1, 1999** |   | **Non-Renovation/Non-Development  Properties Owned  for all of  1999 and 2000(1)** |   |
|-------------------------------------|--------|---------------------|--------|------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------------|--------|
| **Revenue from Rental Operations:** |   |                |   |                                                                                           |   |                                                                               |   |
| Rental                              |   | $                   | 35,772 |                                                                                           | $      | 17,122                                                                             |   | $ | 18,650 |   |
| Tenant  reimbursements              |   | 2,508               |   | 185                                                                                            |   | 2,323                                                                              |   |
| Parking, net of  expense            |   | 3,964               |   | 1,442                                                                                          |   | 2,522                                                                              |   |
| Other rental  operations            |   | 4,493               |   | 6,882                                                                                          |   | (2,389                                                                             | )      |
|                                |   | $                   | 46,737 |                                                                                           | $      | 25,631                                                                             |   | $ | 21,106 |   |
| **Property Expenses:**              |   |                |   |                                                                                           |   |                                                                               |   |
| Repairs and  maintenance            |   | 2,488               |   | 1,955                                                                                          |   | 533                                                                                |   |
| Utilities                           |   | 1,567               |   | 1,432                                                                                          |   | 135                                                                                |   |
| Real estate  taxes                  |   | 3,641               |   | 1,401                                                                                          |   | 2,240                                                                              |   |
| Insurance                           |   | 210                 |   | 165                                                                                            |   | 45                                                                                 |   |
| Ground rent                         |   | 323                 |   | —                                                                                         |   | 323                                                                                |   |
| Administrative                      |   | 1,404               |   | 738                                                                                            |   | 666                                                                                |   |
|                                |   | $                   | 9,633  |                                                                                           | $      | 5,691                                                                              |   | $ | 3,942 |   |
| **Other Data:**                     |   |                |   |                                                                                           |   |                                                                               |   |
| Number of  properties               |   |                |   | 11                                                                                             |   | 132                                                                                |   |
| Net rentable  square feet           |   |                |   | 1,910                                                                                          |   | 16,824                                                                             |   |

 

----

(1)          See analysis ofProperties Owned for all of 1999 and 2000 below.

 

29

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**Properties Owned for all of 1999 and2000**

 

Following is a comparison of property operating datacomputed under the GAAP basis and cash basis for the 132non-renovation/non-development properties we owned for all of 1999 and 2000 (inthousands, except number of properties and percentages).

 
|                            |   | **Year Ended  December 31,** |       |     |       |               |       |
|---------------------------------|--------|------------------------------|------------|----------|------------|--------------------|------------|
|                            |   | **2000**                     | ** ** | **1999** | ** ** | **Dollar  Change** | ** ** | **Percent  Change** | ** ** |
| **GAAP  Basis:**                |   |                         |       |     |       |               |       |   |   |
| Revenue  from rental operations |   | $                            | 343,045    |     | $          | 321,939            |       | $ | 21,106 |   | 6.6 | % |
| Property  expenses              |   | 100,714                      |       | 96,772   |       | 3,942              |       | 4.1 |   |
|                            |   | $                            | 242,331    |     | $          | 225,167            |       | $ | 17,164 |   | 7.6 | % |
| **Cash  Basis(1):**             |   |                         |       |     |       |               |       |   |   |
| Revenue  from rental operations |   | $                            | 334,915    |     | $          | 315,498            |       | $ | 19,417 |   | 6.2 | % |
| Property  expenses              |   | 100,714                      |       | 96,772   |       | 3,942              |       | 4.1 |   |
|                            |   | $                            | 234,201    |     | $          | 218,726            |       | $ | 15,475 |   | 7.1 | % |
|                            |   |                         |       |     |       |               |       |   |   |
| Number of  properties           |   | 132                          |       | 132      |       |               |       |   |   |
| Average  occupancy              |   | 95.1                         | %          | 93.9     | %          |               |       |   |   |
| Net rentable  square feet       |   | 16,824                       |       | 16,824   |       |               |       |   |   |

 

----

(1)          Excludes straight-linerent adjustments.

 

Revenue from rentaloperations for these properties, computed on a GAAP basis, increased byapproximately $21.1 million, or 6.6%, during 2000, compared to 1999.Approximately $18.7 million of this increase was from rental revenue, of which$17.0 million was related to scheduled rents and $1.7 million was fromstraight-line rent. Approximately 55% of the increase in scheduled rents wasdue to increases in rental rates in 2000 and the remaining 45% was related tohigher average occupancy in 2000. The increase in straight-line rent wasprimarily due to new leases and extensions signed with higher rental rateescalations than in 1999. Revenue from rental operations was also higher due toan approximate $2.3 million increase in tenant reimbursements, a $2.5 millionincrease in parking income net of an approximate $2.4 million decrease in otherrevenue from rental operations. In addition to recoveries of approximately$688,000 from increases in utility rates for our San Diego properties, tenantreimbursements and parking income primarily increased due to the approximate1.2% increase in average occupancy in 2000, while other rental operationsdecreased primarily due to lower lease termination settlements fees in 2000.

 

Excluding only the straight-line rent adjustment forthese properties, revenue from rental operations computed on a cash basis,increased by approximately $19.4 million or 6.2%.

 

Property operating expenses for these propertiesincreased by approximately $3.9 million, or 4.1%, during 2000, compared to1999, primarily due to higher real estate taxes, repairs and maintenance,contingent ground rent and property administrative expenses in 2000. Realestate taxes increased by approximately $2.2 million in 2000 due to normalannual increases and final assessments on certain properties. Repairs andmaintenance increased by $533,000 primarily due to the 1.2% increase in averageoccupancy in 2000. Ground rent expense increased by $323,000 due to higheroperating income from one of our properties with a participating ground lease.Property administrative expenses, comprised primarily of personnel and relatedcosts, were also approximately $666,000 higher in 2000, primarily due to ourcontinued focus on raising portfolio-wide occupancy. Our utility costs increasedby approximately $135,000 in 2000 due to both higher average occupancy and rateincreases for our San Diego properties, partially offset by savings achievedfrom energy enhancing capital improvements completed during 1999.

 

**Liquidityand Capital Resources**

 

*Cash Flows*

 

Cash provided by operating activities increased byapproximately $10.5 million to $204.8 million in 2001, as compared to $194.3million in 2000, primarily due to improved operating results for the 133properties we

 

30

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owned for both yearspresented and from cash flows for four development/renovation properties placedin service subsequent to January 1, 2000. This increase was partially offset bythe loss of operating cash flows on a property we sold in the fourth quarter of2000 and ten properties sold in 2001.

 

Cash used in investing activities decreased byapproximately $100.1 million to $115.9 million in 2001, as compared to $216.0million in 2000.  The decrease wasprimarily due to the completion of several of our development and renovationprojects during 2000 which resulted in an approximate $65.9 million reductionin cash used in our development and renovation projects in 2001.  In addition, proceeds from property saleswere approximately $34.2 million higher in 2001.

 

Cash used in financing activities decreased by $77.5million to an outflow of $57.4 million in 2001, as compared to an inflow of$20.1 million in 2000.  Cash used infinancing activities for the year ended December 31, 2001 consisted primarilyof repayments of mortgage loans, net paydowns of our unsecured lines of creditand distributions to our common OP Unit holders, which were partially offset bythe net proceeds from an offering of unsecured senior notes.

 

*Capital Commitments*

 

As of December 31, 2001, we had approximately $9.2million outstanding in capital commitments related to tenant improvements,development and property-related capital expenditures. We expect to fund shortterm capital commitments through cash flow generated by operating activitiesand proceeds from asset sales or proceeds from our lines of credit.

 

*Available Borrowings, Cash Balances and Capital Resources*

 

We have an unsecured line of credit with a group ofbanks led by Wells Fargo. This line of credit provides for borrowings up to$275 million with an option to increase the amount to $325 million and bearsinterest at a rate ranging between LIBOR plus 1.15% and LIBOR plus 1.80%(including an annual facility fee ranging from .20% to .40% based on theaggregate amount of the facility), depending on our unsecured debt rating. Inaddition, as long as we maintain an unsecured debt rating of BBB-/Baa3 orbetter, the agreement contains a competitive bid option, whereby the lenders onthis line of credit may bid on the interest rate to be charged for up to $137.5million of the unsecured line of credit. Under certain circumstances, we alsohave the option to convert the interest rate on this line of credit to thegreater of the Federal Funds rate plus 0.5% or Wells Fargo’s prime rate. Thisline of credit matures in April 2003. As of December 31, 2001, there wasapproximately $105.4 million outstanding on this line of credit andapproximately $169.6 million was available for additional borrowing.

 

We also have a $75 million unsecured line of creditwith Lehman Brothers. Borrowings on this line of credit bear interest at a rateranging between LIBOR plus 1.05% and LIBOR plus 1.70%, depending on ourunsecured debt rating. We also have the option to convert the interest rate tothe prime rate plus 0.5%. This line of credit matures in July 2002 with anoption to extend the maturity date for one year. As of December 31, 2001, therewas $75 million outstanding on this line of credit.

 

We also have an unsecured line of credit with a totalcommitment of $10 million from City National Bank. This line of creditaccrues interest at the City National Bank Prime Rate less 0.875% and isscheduled to mature on August 1, 2002. Proceeds from this line of creditare used, among other things, to provide funds for tenant improvements andcapital expenditures and provide for working capital and other corporatepurposes. As of December 31, 2001, there was no outstanding balance on thisline of credit and $10 million was available for additional borrowings.

 

On May 2, 2001, we sold an approximate 43,000 squarefoot office property located in Irvine, California for approximately $8.2million. On that date, we also sold an approximate 213,000 square footindustrial property located in Ontario, California for approximately $11.0million. On September 28, 2001, we sold an approximate 24,000 square footoffice property located in Simi Valley, California for approximately $3.1million and an approximate 107,000 square foot office property located inRiverside, California for approximately $4.9 million. On November 21, 2001, wesold an approximate 13,000 square foot office property located Thousand Oaks,California for approximately $2.1 million and on December 20, 2001, we sold anapproximate 172,000 square foot portfolio of three of office properties and twoindividual properties located in Temecula, California for

 

31

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approximately $18.5 million. The net proceeds from these dispositions were used to reduce theoutstanding balance on our Wells Fargo unsecured line of credit.

 

On June 27, 2001, we and Arden Realty filed a Form S-3shelf registration statement with the Securities and Exchange Commission, orSEC, providing for the issuance of up to $400 million of debt securities by theOperating Partnership and up to $257.2 million of our $.01 par value commonstock or our $.01 par value preferred stock. The terms of these securities willbe determined at the time of any debt or equity offering. This registrationstatement was declared effective by the SEC on July 24, 2001.

 

On November 9, 2001, we completed a public offering of$150 million, 7.00% unsecured notes due 2007, from the shelf registrationstatement, with interest payable semi-annually on May 15 and November 15 ofeach year.  The net proceeds from thisoffering were used to reduce the outstanding balance on our Wells Fargounsecured line of credit.

 

The following is a summary of scheduled principalpayments for our total outstanding indebtedness as of December 31, 2001 (inthousands):

 
| **Year**   |   | **Amount** |      |
|------------|--------|------------|-----------|
| 2002       |   | 77,578     | (1)       |
| 2003       |   | 110,648    | (2)       |
| 2004       |   | 182,062    |      |
| 2005       |   | 207,678    |      |
| 2006       |   | 15,063     |      |
| Thereafter |   | 658,454    |      |
| Total      |   | $          | 1,251,483 |   |
|            |        |            |           |  |

 

----

(1)          Primarily consists of$75.0 million outstanding on our Lehman Brothers line of credit which has a oneyear extension.

 

(2)          Primarily consists of$105.4 million outstanding on our Wells Fargo line of credit.

 

 

The following is other information related to ourindebtedness as of December 31, 2001 (in thousands, except percentage andinterest rate data):

 

*Unsecured and Secured Debt:*

 
|                    |   | **Balance** |      | **Percent of  Total Debt** |   | **Weighted  Average  Interest Rate(1)** |   |
|-------------------------|--------|-------------|-----------|----------------------------|--------|-----------------------------------------|--------|
| Unsecured debt          |   | $           | 678,031   |                       | 54     | %                                       | 7.36   | % |
| Secured debt            |   | 573,452     |      | 46                         | %      | 7.36                                    | %      |
| Total/Weighted  average |   | $           | 1,251,483 |                       | 100    | %                                       | 7.36   | % |

 

*Floating and Fixed Rate Debt:*

 
|                    |   | **Balance** | ** ** | **Percent of  Total Debt** |   | **Weighted  Average  Interest Rate(1)** | ** ** |
|-------------------------|--------|-------------|------------|----------------------------|--------|-----------------------------------------|------------|
| Floating rate           |   | $           | 180,350    |                       | 14     | %                                       | 4.12       | % |
| Fixed rate              |   | 1,071,133   |       | 86                         | %      | 7.91                                    | %          |
| Total/Weighted  average |   | $           | 1,251,483  |                       | 100    | %                                       | 7.36       | % |

 

----

(1)          Includes amortization ofprepaid financing costs.

 

32

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

 
|                     |   | **For the  Years Ended December 31,** |   |
|--------------------------|--------|---------------------------------------|--------|
|                     |   | **2001**                              |   | **2000** |   | **1999** |   |
| Total interest  incurred |   | $                                     | 93,290 |   | $ | 91,052 |   | $ | 69,826 |   |
| Amount  capitalized      |   | (9,095                                | )      | (12,646 | ) | (9,587 | ) |
| Amount expensed          |   | $                                     | 84,195 |   | $ | 78,406 |   | $ | 60,239 |   |

 

As of December 31, 2001, we had approximately $­55.8million in cash and cash equivalents, including $18.8 million in restrictedcash. Restricted cash includes $13.7 million in interest-bearing cash depositsrequired by some of our mortgage loans payable.  Included in our cash and cash equivalents was $18.5 million inshort-term investments and $5.1 million in cash impound accounts for realestate taxes and insurance as required by several of our mortgage loanspayable.

 

We may sell assets over the next twelve to twenty-fourmonths. Due to market conditions beyond our control, it is difficult to predictthe actual period and amount of these asset sales. Also depending on marketconditions, at the time any such sales proceeds are realized, we expect toredeploy such amounts into investments that we believe will generate higherlong-term value, which may include development of office buildings,acquisitions or repurchase of our common stock. In addition, we expect to use aportion of any proceeds to pay down portions of our debt in order to maintainour conservative leverage and coverage ratios.

 

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

 

We expect to meet our long-term liquidity and capitalrequirements such as scheduled principal repayments, development costs, propertyacquisitions, if any, and other non-recurring capital expenditures through netcash provided by operations, refinancing of existing indebtedness, proceedsfrom asset sales and/or the issuance of long-term debt and equity securities.

 

33

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**Funds FromOperations and Funds Available for Distribution**

 

The following table reflects the calculation of ourfunds from operations and funds available for distribution for the years endedDecember 31, 2001, 2000 and 1999 (in thousands):

 
|                                                                       |   | **For the  Years Ended December 31,** |       |
|----------------------------------------------------------------------------|--------|---------------------------------------|------------|
|                                                                       |   | **2001**                              |       | **2000** |   | **1999** |   |
| **Funds from Operations (1):**                                             |   |                                  | ** ** |   | ** ** |   | ** ** |
| Net Income                                                                 |   | $                                     | 106,257    |   | $ | 105,209 |   | $ | 102,393 |   |
| Depreciation and amortization                                              |   | 101,819                               |       | 87,267 |   | 69,837 |   |
| Gain on disposition of property                                            |   | (4,591                                | )          | (2,132 | ) | -- |   |
| Distributions on Preferred Operating Partnership Units                     |   | (4,312                                | )          | (4,312 | ) | (1,354 | ) |
| **Funds from Operations (2)**                                              |   | 199,173                               |       | 186,032 |   | 170,876 |   |
| Arden Realty's percentage share (3)                                        |   | 96.8                                  | %          | 96.7 | % | 96.2 | % |
| Arden Realty's share of Funds from Operations                              |   | $                                     | 192,799    |   | $ | 179,893 |   | $ | 164,383 |   |
|                                                                       |   |                                  |       |   |   |   |   |
| **Funds Available for Distribution(4):**                                   |   |                                  |       |   |   |   |   |
| Funds From Operations                                                      |   | $                                     | 199,173    |   | $ | 186,032 |   | $ | 170,876 |   |
| Straight-line rent adjustment                                              |   | (9,208                                | )          | (8,078 | ) | (7,680 | ) |
| Capital expenditure, tenant improvementand leasing commission reserve      |   | (31,500                               | )          | (30,494 | ) | (27,272 | ) |
| **Funds  Available for Distribution**                                      |   | $                                     | 158,465    |   | $ | 147,460 |   | $ | 135,924 |   |
| Weighted average common operating partnership units outstanding -  Diluted |   | 66,132                                |       | 65,759 |   | 65,566 |   |

 

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(1)          We consider funds fromoperations, as defined by The National Association of Real Estate InvestmentTrusts, or NAREIT, to be a useful financial measure of our operatingperformance. We believe that funds from operations provides investors with anadditional basis to evaluate our ability to service debt and to fundacquisitions and other capital expenditures. Funds from operations should notbe considered an alternative to net income determined in accordance with GAAP,as an indicator of our financial performance, as a substitute for cash flowfrom operating activities determined in accordance with GAAP or as a measure ofour liquidity. Funds from operations also is not necessarily indicative offunds available to fund our cash needs, including our ability to service ourdebt.

 

The White Paper on funds from operations approved by the Board ofGovernors of NAREIT in October 1999 defines funds from operations as net incomeor loss computed in accordance with GAAP, excluding extraordinary items, asdefined by GAAP, and gains and losses from sales of depreciable operatingproperty plus real estate-related depreciation and amortization and afteradjustments for unconsolidated partnerships and joint ventures. We computefunds from operations in accordance with standards established by the WhitePaper which may differ from the standards used by other real estate companiesand, accordingly, our funds from operations may not be comparable to thosecompanies’ funds from operations.

 

(2)          Includes approximately$1.9 million and $586,000 in non-cash compensation expense for the years endedDecember 31, 2001 and 2000, respectively.

 

(3)          Represents ArdenRealty’s weighted average ownership percentage during the respective twelvemonth period.

 

(4)          Funds available for distributionconsists of funds from operations, excluding straight-line rent adjustments andless a reserve for capital expenditures, tenant improvements and leasingcommissions

 

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**Current Economic Climate**

 

Our short and long-term liquidity is significantlyimpacted by the operating results of our properties, all of which are locatedin Southern California.  Our ability tolease available space and increase rates when leases expire is largelydependent on the demand for office space in the markets where our propertiesare located.  National and localeconomic trends may affect demand for our properties and our ability to collectamounts due from our tenants.

 

We believe uncertainty over the current national andSouthern California economic environment are causing tenants to take longer tocommit to leasing transactions, resulting in a decrease in the occupancy of ourportfolio from 94.4% as of December 31, 2000 to 92.2% as of December 31, 2001.  Problems associated with deregulation of theelectric industry in California have also resulted in significantly highercosts in some areas of the state.

 

The timing and extent of future changes in the national and localeconomy and their effects on our properties and results of operations aredifficult to accurately predict.  It ispossible, however, that these national and regional issues may more directlyaffect us and our operating results in the future, making it more difficult forus to lease and renew available space, to increase or maintain rental rates asleases expire and to collect amounts due from our tenants.  For additional information, see “RiskFactors — Further declines in the economic activity of Southern California willadversely affect our operating results,” “— The financial condition andsolvency of our tenants may reduce our cash flow,” and “- Rising energy costsand power outages in California may have an adverse effect on our operationsand revenue.”

 

**Forward-LookingStatements**

 

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

 

**ITEM7A.  *Quantitativeand Qualitative Disclosure About Market Risk***

 

Market risk is the exposure or loss resulting fromchanges in interest rates, foreign currency exchange rates, commodity pricesand equity prices. The primary market risk to which we are exposed is interestrate risk, which is sensitive to many factors, including governmental monetaryand tax policies, domestic and international economic and politicalconsiderations and other factors that are beyond our control.

 

*Interest Rate Risk*

 

Even though we currently have no such agreements, inorder to modify and manage the interest characteristics of our outstanding debtand limit the effects of interest rates on our operations, we may use a varietyof financial instruments, including interest rate swaps, caps, floors and otherinterest rate exchange contracts. The use of these types of instruments to hedgeour exposure to changes in interest rates carries additional risks such ascounter-party credit risk and legal enforceability of hedging contracts. We donot enter into any transactions for speculative or trading purposes.

 

Some of our future earnings, cash flows and fairvalues relating to financial instruments are dependent upon prevailing marketrates of interest, such as LIBOR. Based on interest rates and outstandingbalances as of December 31, 2001, a 1% increase in interest rates on our $180.4million of floating rate debt would decrease annual future earnings and cashflows by approximately $1.8 million and would not have an impact on the fairvalue of the floating rate debt. A 1% decrease in interest rates on our $180.4million of floating rate debt would increase annual future earnings and cashflows by approximately $1.8 million and would not have an impact on the fairvalue of the floating rate debt. A 1% increase or decrease in interest rates onour secured notes receivable would not have a material impact on annual futureearnings, cash flows and the fair value of the secured notes receivable. Theweighted average interest rate on our floating debt as of December 31, 2001 was4.12%.

 

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Our fixed rate debttotaled $1,071.1 million as of December 31, 2001 with a weighted averageinterest rate of 7.91%. and a total fair value of approximately $1,097.1million. A 1% decrease in interest rates on our $1,071.1 million of fixed ratedebt would increase its fair value by approximately $49.3 million and would nothave an impact on annual future earnings and cash flows. A 1% increase ininterest rates in our $1,071.1 million of fixed rate debt would decrease itsfair value by approximately $46.6 million and would not have an impact ofannual future earnings and cash flows.

 

These amounts are determined by considering the impactof hypothetical interest rates on our borrowing cost. These analyses do notconsider the effects of the reduced level of overall economic activity thatcould exist in that environment. Further, in the event of a change of thismagnitude, we would consider taking actions to further mitigate our exposure tothe change. Due to the uncertainty of the specific actions that would be takenand their possible effects, however, this sensitivity analysis assumes nochanges in our capital structure.

 

**RISKFACTORS**

 

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

 

**RealEstate Investment Risks**

 

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

 

Through 2006, 2,690leases, including month-to-month leases comprising approximately 81% of ourleased net rentable square footage and approximately 76% of our annualized baserents at December 31, 2001 will expire as follows:

 

| **Year** |   | **Number  of Leases  Expiring** |   | **Percentage  of  Aggregate Portfolio  Leased Square Feet** |   | **Percentage  of  Aggregate Portfolio  Annualized Base Rent** |   |
|----------|--------|---------------------------------|--------|-------------------------------------------------------------|--------|---------------------------------------------------------------|--------|
| 2002     |   | 743                             |   | 15.1                                                        | %      | 13.0                                                          | %      |
| 2003     |   | 617                             |   | 17.8                                                        | %      | 16.5                                                          | %      |
| 2004     |   | 588                             |   | 18.5                                                        | %      | 17.7                                                          | %      |
| 2005     |   | 415                             |   | 16.4                                                        | %      | 15.8                                                          | %      |
| 2006     |   | 327                             |   | 12.9                                                        | %      | 13.4                                                          | %      |

 

If we are unable topromptly 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 SouthernCalifornia will adversely affect our operating results.*

 

All of our properties arelocated in Southern California. In 2001, many sectors of the California economyas well as the rest of the country experienced a slowdown or contraction ineconomic activity. As a result, in 2001, there was a decrease in occupancy inthe majority of our sub-markets as well as a slight decrease in rental rates.At December 31, 2001 our portfolio was 92.2% occupied as compared to 94.4%occupied at December 31, 2000. During 2002, a total of approximately 2.6million square feet of occupied space, representing approximately 15.1% of ourtotal net rentable space, including month-to-month leases, will expire. Furtherdeterioration of the local and national economy may result in further erosionof occupancy and rental rates and would most likely negatively affect ouroperating performance and property values.

 

*Competition affects occupancy levels rents and cost of landwhich could adversely affect our revenues.*

 

Many office properties compete with our properties inattracting tenants to lease space. Some of the competing properties may benewer, better located or owned by parties better capitalized than we are.Although ownership of these competing properties is currently diversified amongmany different types, from publicly traded companies and institutionalinvestors to small enterprises and individual owners, and no one or group of

 

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owners currently dominate or significantly influence the market,consolidation of owners could create efficiencies and marketing advantages forthe consolidated group that could adversely affect us. These competitiveadvantages, the number of competitors and the number of competitive commercialproperties in a particular area could have a material adverse effect on therents we can charge, our ability to lease space in our existing properties orat newly acquired or developed properties and the prices we have to pay fordevelopable land.

 

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

 

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

 

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

 

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

 

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

 

Problems associated with deregulation of the electricindustry in California have resulted in intermittent service interruptions andsignificantly higher costs in some areas. Approximately 41% of our buildingsand approximately 40% of the total net rentable square footage of our portfolioare located within municipalities that either do not produce their own power orhave not entered into long term fixed price contracts. These properties may besubject to intermittent service interruptions or significant rate increasesfrom their utility providers. The remaining portion of our portfolio is locatedin areas that are not expected to be subject to intermittent electric serviceinterruptions and significant electric rate increases.

 

Approximately 29% of our buildings and 21% of thetotal rentable square footage of our portfolio are subject to leases thatrequire our tenants to pay all utility costs. The remainder of our leasesprovide that tenants will reimburse us for utility costs in excess of a baseyear amount. We estimate that we will be able to recover approximately 90% ofany utility cost increases from our tenants.

 

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

 

*Increases in taxes and regulatory compliance costs mayreduce our revenue.*

 

Except for our triple net leases, we may not be ableto pass all real estate tax increases through to some of our tenants.Therefore, any tax increases may adversely affect our cash flow and our abilityto pay or refinance our debt obligations. Our properties are also subject tovarious federal, California and local regulatory requirements, such asrequirements of the Americans with Disabilities Act, and California and localfire and life safety requirements. Failure to comply with these requirements couldresult in the imposition of fines by governmental authorities or awards ofdamages to private litigants. We believe that our properties are currently insubstantial compliance with these regulatory requirements. We cannot assureyou, however, that these requirements will not be changed or that newrequirements will not be imposed that would require significant unanticipatedexpenditures by us and could have an adverse effect on our cash flow and theamounts available for distributions and to our business.

 

*Lack of availability of insurance coverage for terroristacts could adversely affect our financial condition.*

 

Our annual insurance policy expired in February of2002. We have been notified by our insurance-broker

 

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that in the aftermath of the September 11th attack,insurance carriers are either specifically excluding terrorist acts fromproperty insurance coverage or offering this type of coverage at prohibitivecosts.  Although we did not derive morethan 4.6% of our 2001 net operating income from any one of the properties inour portfolio, a terrorist attack damaging several of our properties couldmaterially deteriorate our operating results and overall financial condition.

 

*We may acquire properties through partnerships or jointventures with third parties that could result in****financial dependency andmanagement conflicts.*

 

Although we currently do not have plans to do so, wemay participate with other entities in property ownership through joint venturesor partnerships in the future. Depending on the characteristics and businessobjectives of the joint venture or partnership, we may not have voting controlover the joint venture or partnership. Partnership or joint venture investmentsmay, under certain circumstances, involve risks not otherwise present,including:

 

•             our partners orco-venturers might become bankrupt;

 

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

 

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

 

Neither the limited partnership agreement of ouroperating partnership nor our governing documents prevent us from participatingin joint ventures with our affiliates. Because a joint venture with anaffiliate 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 ifwe 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 besubject to risks associated with managing new properties, including buildingsystems not operating as expected, delay in or failure to lease vacant spaceand tenants failing to renew leases as they expire. In addition, our ability tomanage our growth effectively will require us to successfully integrate our newacquisitions into our existing accounting systems and property managementstructure. We cannot assure you that we will be able to succeed with thatintegration or effectively manage additional properties or that newly acquiredproperties will perform as expected. Changing market conditions, includingcompetition from other purchasers of suburban office properties, may diminishour opportunities for attractive additional acquisitions. Moreover, acquisitioncosts of a property may exceed original estimates, possibly making the propertyuneconomical.

 

*Our acquisitions and renovations may not perform asexpected.*

 

Although we currently have no plans to significantlyexpand or renovate our properties, we may do so in the future. Expansion andrenovation projects may inconvenience and displace existing tenants, require usto engage in time consuming up-front planning and engineering activities andexpend capital, and require us to obtain various government and otherapprovals, the receipt of which cannot be assured. While our policies withrespect to expansion and renovation activities are intended to limit some ofthe risks otherwise associated with these activities, we will neverthelessincur risks, including expenditures of funds on, and devotion of our time to, projectsthat may not be completed.

 

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

 

We currently have two properties under development atthe Howard Hughes Center in Los Angeles, California. The estimated total costsfor these two properties is approximately $154.1 million. In addition, we havepreliminary architectural designs completed for additional build-to-suitbuildings at the Howard Hughes Center and have completed preliminary designs ona build-to-suit office building at our Long Beach Airport Business Park, but donot intend to commence construction on any of these projects until developmentplans and budgets are finalized and build-to-suit tenant leases are signed withterms allowing us to achieve yields commensurate with the project’s developmentrisk. We also intend to review, from time to time, other opportunities fordeveloping and constructing office buildings and other commercial properties inaccordance

 

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with our development and underwriting policies.

 

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

 

Risks associated with our development activities mayinclude:

 

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

 

•                  constructioncosts of a property exceeding original estimates, possibly making the propertyuneconomical;

 

•                  occupancy ratesand rents at a newly completed property may not be sufficient to make theproperty profitable;

 

•                  construction andlease-up may not be completed on schedule, resulting in increased debt serviceexpense and construction costs; and

 

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

 

*We are not subject to any limit on the amount or percentageof our assets that may be invested in any single property or any singlegeographic area.*

 

Our governing documents do not restrict the amount orpercentage of our assets that we may invest in a single property or geographicarea. All of our properties are currently in Southern California and we have noimmediate plans to invest outside of Southern California. This lack ofdiversification in our investments makes us more highly susceptible to changesaffecting the Southern California economy and real estate markets or damagesfrom regional events such as earthquakes.

 

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

 

While our business is currently limited to theSouthern California market, it is possible that we will in the future expandour business to new geographic markets. We will not initially possess the samelevel of familiarity with new markets outside of Southern California, whichcould adversely affect our ability to manage, lease, develop or acquireproperties in new localities.

 

**FinancingRisks**

 

*Our significant amount of debt could limit our operationalflexibility or otherwise adversely affect our financial condition.*

 

As of December 31, 2001, we had total debt ofapproximately $1.25 billion, consisting of approximately $573 million insecured debt and approximately $678 million of unsecured debt. See“Management’s Discussion and Analysis of Financial Condition and Results ofOperations — Liquidity and Capital Resources.”

 

Our substantial indebtedness could:

 

•                  requireus to dedicate a substantial portion of our cash flow to pay our debt, therebyreducing the availability of our cash flow to fund distributions, workingcapital, capital expenditures, acquisition and development activity and otherbusiness purposes;

 

•                  makeit more difficult for us to satisfy our debt obligations;

 

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

 

•                  increaseour vulnerability to general adverse economic and real estate industry conditionsand limit our

 

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flexibility in planningfor, or reacting to, changes in our business and the real estate industry.

 

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

 

Despite current indebtedness levels, we may still beable to incur substantially more debt in the future. Neither the limitedpartnership agreement of our operating partnership nor our governing documentslimit the amount or the percentage of indebtedness that we may incur. We mayborrow up to a maximum of $360 million under our three lines of credit. Inaddition, we have the option to increase our $275 million unsecured line ofcredit by $50 million. If we exercised the option, we would be able to borrowup to $410 million under our three lines of credit. As of December 31, 2001, wehad the ability to borrow an additional approximately $179.6 million underthese three 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 riskof default on our indebtedness.

 

*Scheduled debt payments could adversely affect our financialcondition.*

 

Our cash flow could be insufficient to meet requiredpayments of principal and interest when due. In addition, we may not be able torefinance existing indebtedness, which in virtually all cases requiressubstantial principal payments at maturity, and, if we can refinance, the termsof the refinancing might not be as favorable as the terms of our existingindebtedness. As of December 31, 2001, approximately $77.6 million of principalwill be coming due over the next twelve months. If principal payments cannot berefinanced, extended or paid with proceeds of other capital transactions, suchas new equity capital, our cash flow will not be sufficient in all years torepay all maturing debt and continue to service and repay our debt obligations.

 

*Rises in interest rates could adversely affect our financialcondition.*

 

An increase in prevailing interest rates would have animmediate effect on the interest rates charged on our variable rate debt whichrise and fall upon changes in interest rates. At December 31, 2001,approximately 14% of our debt was variable rate debt. Increases in interestrates would also impact the refinancing of our fixed rate debt. If interestrates are higher when our fixed debt becomes due, we may be forced to borrow atthe higher rates. If prevailing interest rates or other factors result in higherinterest rates, the increased interest expense would adversely affect our cashflow and our ability to service our debt, including the exchange notes. As aprotection against rising interest rates, we may enter into agreements such asinterest rate swaps, caps, floors and other interest rate exchange contracts.These agreements, however, increase our risks as to the other parties to theagreements not performing or that the agreements could be unenforceable. As ofDecember 31, 2001, we were not a party to any such agreements.

 

*Many of our properties are subject to mortgage financingwhich could result in foreclosure if we are unable to pay or refinance themortgages when due.*

 

We currently have outstanding five mortgage financingstotaling $554.6 million that are secured by 67 of our properties. Theproperties in each of these financings are fully cross-collateralized andcross-defaulted. To the extent two or more mortgages are cross-defaulted, adefault in one mortgage will trigger a default in the other mortgages. Thecross-defaults can give the lender a number of remedies depending on thecircumstances such as the right to increase the interest rate, demandadditional collateral, accelerate the maturity date of the mortgages orforeclose on and sell the properties. To the extent two or more mortgages arecross-collateralized, a default in one mortgage will allow the mortgage lenderto foreclose upon and sell the properties that are not the primary collateralfor the loan in default. Four additional properties are subject to singleproperty mortgages totaling approximately $18.9 million at December 31, 2001.If we are unable to meet our obligations under these mortgages, we could beforced to pay higher interest rates or provide additional collateral or theproperties subject to the mortgages could be foreclosed upon and sold, whichcould have a material adverse effect on us and our ability to pay or refinanceour debt obligations.

 

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**TAX RISKS**

 

*Our partnership agreement restricts our ability toaccumulate cash that might be used in future periods to make debt payments orto fund future growth.*

 

In order to qualify as a REIT, Arden Realty mustdistribute to its stockholders at least 95% of its REIT taxable income (90%beginning January 1, 2001), excluding net capital gain, and to avoid federalincome taxation, its distributions must not be less than 100% of its REITtaxable income, including capital gains. To avoid excise tax liability, ArdenRealty’s distributions to its shareholders for the year must exceed the sum of85% of its ordinary income, 95% of its capital gain net income, and anyundistributed taxable income from prior years. Our partnership agreementgenerally requires us to distribute substantially all of our available cashgenerated from operations each quarter and make reasonable efforts todistribute to Arden Realty enough cash for it to meet the 90% distributionrequirement and to avoid any federal income or excise tax liability. As aresult of these distribution requirements, we do not expect to accumulatesignificant amounts of cash. Accordingly, these distributions couldsignificantly reduce the cash available to us in subsequent periods to makepayments on our debt obligations and to fund future growth.

 

*We intend to qualify as a partnership, but we cannotguarantee that we will qualify.*

 

We intend to qualify as a partnership for federalincome tax purposes. However, if we are a “publicly traded partnership,” wewill be treated as a corporation instead of a partnership for federal incometax purposes unless at least 90% of its income is qualifying income as definedin the Internal Revenue Code. The income requirements applicable to REITs andthe definition of “qualifying income” for purposes of this 90% test are similarin most respects. Qualifying income for the 90% test generally includes passiveincome, such as specified types of real property rents, dividends and interest.We believe that we would meet this 90% test, but we cannot guarantee that itwould. If we were to be taxed as a corporation, we would incur substantial taxliabilities, Arden Realty would fail to qualify as a REIT for federal incometax purposes and our and Arden Realty’s ability to raise additional capitalcould be significantly impaired.

 

*We may suffer adverse tax consequences and be unable toattract capital if Arden Realty fails to qualify as a REIT.*

 

We believe that since its taxable year ended December31, 1996, Arden Realty has been organized and operated, and intends to continueto operate, so as to qualify for taxation as a REIT under the Internal RevenueCode. Although we believe that Arden Realty has been and will continue to beorganized and has operated and will continue to operate so as to qualify fortaxation as a REIT, we cannot assure you that it has been or will continue tobe organized or operated in a manner so as to qualify or remain so qualified.Qualification as a REIT involves the satisfaction of numerous requirementsestablished under highly technical and complex Internal Revenue Code provisionsfor which there are only limited judicial and administrative interpretationsand tests regarding various factual matters and circumstances not entirelywithin Arden Realty’s control. The complexity of these provisions and of theapplicable Treasury Regulations that have been promulgated under the InternalRevenue Code is greater in the case of a REIT, like Arden Realty, that holdsits assets through an investment in a partnership. No assurance can be given thatlegislation, new regulations, administrative interpretations or court decisionswill not significantly change the tax laws with respect to qualification as aREIT or the federal income tax consequences of qualification. We are, however,not aware of any pending legislation that would adversely affect Arden Realty’sability to operate as a REIT. Arden Realty’s qualification and taxation as aREIT depends on its 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, theresults of which have not been and will not be reviewed by our tax counsel.

 

If Arden Realty failed to qualify as a REIT in anytaxable year, it would be subject to federal income tax, including anyapplicable alternative minimum tax, on its taxable income at regular corporaterates. Moreover, unless entitled to relief under specific statutory provisions,it also would be disqualified as a REIT for the four taxable years followingthe year during which qualification was lost. If it were disqualified as aREIT, Arden Realty might cause us to distribute adequate amounts so as topermit it to pay its tax liabilities. In addition, Arden Realty’s ability toraise additional capital for us could be significantly impaired. This couldreduce the funds we would have available to service our debt.

 

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Even if Arden Realty qualifies for and maintains itsREIT status, it will be subject to certain federal, state and local taxes onits income and property. For example, if Arden Realty has net income from aprohibited transaction, specifically sales or other taxable dispositions ofproperty held primarily for sale to customers in the ordinary course ofbusiness, that income will be subject to a 100% tax.

 

**OTHERRISKS**

 

*Our general partner may change policies without stockholderor partner approval.*

 

Our investment, financing, borrowing and distributionpolicies and our policies with respect to all other activities, includinggrowth, debt, capitalization and operations, will be determined by our generalpartner. Although Arden Realty has no present intention to do so, thesepolicies could be amended or revised at any time and from time to time at thediscretion of Arden Realty without a vote of its stockholders or approval bythe limited partners. In addition, Arden Realty may change policies withrespect to conflicts of interest provided that the changes are consistent withapplicable legal requirements. A change in these policies could adverselyaffect our financial condition and results of operations.

 

*Losses in excess of our insurance coverage or uninsuredlosses could adversely affect our cash flow.*

 

We carry comprehensive liability, fire, extendedcoverage and rental loss insurance policies which currently cover all of ourproperties with specifications and insured limits that we believe are adequateand appropriate under the circumstances. Some losses, however, are generallynot insured against because it is not economically feasible to do so. Should anuninsured loss or a loss in excess of insured limits occur, we could lose ourcapital invested in the property, as well as the anticipated future revenue fromthe property and, in the case of debt which is recourse to us, we would remainobligated for any mortgage debt or other financial obligations related to theproperty. Any loss would adversely affect our cash flow with respect to theproperty subject to the loss. Moreover, we would generally be liable for anyunsatisfied obligations other than non-recourse obligations with respect to theproperty subject to the loss.

 

*An earthquake could adversely affect our business.*

 

All of our properties are located in SouthernCalifornia which is a high risk geographical area for earthquakes. Dependingupon its magnitude, an earthquake could severely damage our properties whichwould adversely affect our business. We maintain earthquake insurance for ourproperties and the resulting business interruption. We cannot assure you thatour 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, acurrent or previous owner or operator of real estate may be required toinvestigate and clean up hazardous or toxic substances or petroleum productreleases at the property and may be held liable to a governmental entity or tothird parties for property damage and for investigation and clean-up costs inconnection with the contamination. These laws typically impose clean-upresponsibility and liability without regard to whether the owner knew of orcaused the presence of the contaminants, and the liability under these laws hasbeen interpreted to be joint and several unless the harm is divisible and thereis a reasonable basis for allocation of responsibility. These costs may besubstantial, and the presence of these substances, or the failure to remediatethe contamination on the property, may adversely affect the owner’s ability tosell or rent the property or to borrow against the property. Persons whoarrange for the disposal or treatment of hazardous or toxic substances at adisposal or treatment facility also may be liable for the costs of removal orremediation of a release of hazardous or toxic substances at the disposal ortreatment facility, whether or not the facility is owned or operated by thatperson. Some laws create a lien on the contaminated site in favor of thegovernment for damages and costs incurred in connection with the contamination.Finally, third parties may have claims against the owner of the site based ondamages and costs resulting from environmental contamination emanating fromthat site.

 

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

 

In the past few years, independent environmentalconsultants have conducted or updated Phase I environmental assessments andother environmental investigations as appropriate at some of ourproperties.  The environmental siteassessments and investigations have identified a total of 28 properties in ourportfolio, representing approximately 28.35% of the total rentable square feetin the portfolio, affected by environmental concerns. These environmentalconcerns include properties that may be impacted by known or suspected (a)contamination caused by third party sources or (b) soil and/or groundwatercontamination which has been remediated, and (c) those containing undergroundstorage tanks or asbestos.

 

Of these properties, one is believed to be affected bycontamination caused by third party sources and also houses an undergroundstorage tank, four (4) contain friable asbestos, twelve (12) containnon-friable asbestos, and eleven (11) house underground storage tanks only. Theproperty affected by contamination is primarily affected by petroleum andsolvent substances, and a third party has indemnified us for any and allproblems associated with this contamination. With regard to those propertiesaffected by asbestos, asbestos does not pose a health hazard if it is notdisturbed in such a way to cause an airborne release of asbestos. Asbestos is friablewhen it can be crumbled, pulverized or reduced to powder by hand pressure, andnon-friable when hand pressure cannot release encapsulated asbestos fibers.Friable asbestos is more likely to be released into the air than no-friableasbestos. We manage all asbestos in ways that minimize its potential to becomeairborne or otherwise threaten human health. Regarding underground storagetanks, subsurface leakage of the materials contained within the tankconstitutes the primary risk posed by these devices. We comply with allapplicable laws, including double-wall construction, testing protocols,placement of tanks within bermed areas, and the installation of leak and spilldetection equipment, to minimize the risks posed by underground storage tanks.

 

The environmental site assessments and investigationshave not, however, revealed any environmental liability that we believe wouldhave a material adverse effect on our business, assets or results of operationstaken as a whole, nor are we aware of any material environmental liability.Nevertheless, it is possible that our environmental site assessments do notreveal all environmental liabilities or that there are material environmentalliabilities of which we are unaware.

 

We believe that our properties are in compliance inall material respects with all federal, state and local laws regardinghazardous or toxic substances or petroleum products, except as noted above. Wehave not been notified by any governmental authority, and are not otherwiseaware, of any material noncompliance, liability or claim relating to hazardousor toxic substances or petroleum products in connection with any of our presentproperties, other than as noted above. It is possible that future laws willimpose material environmental liabilities on us and that the currentenvironmental condition of our properties will be affected by tenants, by thecondition of land or operations in the vicinity of our properties, such as thepresence of underground storage tanks, or by third parties unrelated to us.

 

**ITEM8.  *FinancialStatements and Supplementary Data***

 

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

 

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

 

None.

 

43

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**PART III**

 

The information required by Part III is incorporatedby reference from Arden Realty’s definitive proxy statement for its 2002 AnnualMeeting of Stockholders.

 

**ITEM10.  *Directorsand Executive Officers of the Registrant***

 

The information contained in the section captioned“Proposal I; Election of Directors” of the proxy statement is incorporatedherein by reference.

 

**ITEM11.  *ExecutiveCompensation***

 

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

 

**ITEM12.  *SecurityOwnership of Certain Beneficial Owners and Management***

 

The information contained in the section captioned“Principal and Management Stockholders” of the definitive proxy statement isincorporated herein by reference.

 

**ITEM13.  *CertainRelationships and Related Transactions***

 

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

 

## **44**

## ****

## ** **

**PART IV**

 

**ITEM 14.  *Exhibits, Financial Statements, and Reports on Form8-K***

 

(a) **Financial Statements**

 

The followingconsolidated financial information is included as a separate section of thisAnnual Report on

Form 10-K:

 
| ARDEN REALTY LIMITED PARTNERSHIP                                                                         | **Page** |
|----------------------------------------------------------------------------------------------------------|----------|
|                                                                                                     |     |
| Report of Independent  Auditors                                                                          | F-1      |
|                                                                                                     |     |
| Consolidated Balance Sheets  as of December 31, 2001 and 2000                                            | F-2      |
|                                                                                                     |     |
| Consolidated  Statements of Operations for the years ended December 31, 2001, 2000 and 1999              | F-3      |
|                                                                                                     |     |
| Consolidated  Statements of Partners’ Capital for the years ended December 31, 2001, 2000  and 1999 | F-4      |
|                                                                                                     |     |
| Consolidated  Statements of Cash Flows for the years ended December 31, 2001, 2000 and 1999              | F-5      |
|                                                                                                     |     |
| Notes to  Financial Statements                                                                           | F-6      |

 

All other schedulesare omitted since the required information is not present in amounts sufficientto require submission of the schedule or because the information required isincluded in the financial statements and notes thereto.

 

(b)**Reports on Form 8-K**

 

We filed thefollowing report on Form 8-K during the quarter ended December 31, 2001.

 
| **Date of Filing** |   | **Items Reported** |   | **Financial Statement** |
|--------------------|--------|--------------------|--------|-------------------------|
| November 9, 2001   |   | 5                  |   | No                      |

 

Form 8-K was filedon November 9, 2001. Under Item 5 — Other Events, we reported that we placed $150million of 7.0% senior unsecured notes due November 2007.

 

(c) **Exhibits**

 
| **Exhibit Number** |   | **Description**                                                                                                                                                                                                                                        |   | **Page  Number** |
|--------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------|
| 3.1*               |   | Second Amended and Restated Agreement of Limited  Partnership of Arden Realty Limited Partnership, dated September 7, 1999,  filed as an exhibit to Arden Realty’s quarterly report on Form 10-Q filed  with the Commission on November 15, 1999. |   | N/A              |
|               |   |                                                                                                                                                                                                                                                   |   |             |
| 3.2*               |   | Admission of New Partners and Amendment to Limited  Partnership Agreement entered into as of the 20th day of December,  2000, by and between Arden Realty Limited Partnership and the persons  identified as the “New Partners” therein.     |   | N/A              |

 

45

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| 4.1*   |   | 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).                                                                                                                                                                                                                                                                             |   | N/A    |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |   |
| 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).                                                                                                                                                                                                                                                                                                                |   | N/A    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |   |
| 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.                                                                                                                                                                                                                                                                                |   | N/A    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |   |
| 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).                                                                                                                                                                                                                                                                                                                                                       |   | N/A    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |   |
| 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.                                                                                                                                                                                                  |   | N/A    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |   |
| 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).                                                                                                                                                                                                                                                                   |   | N/A    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |   |
| 10.6*  |   | Tenant Estoppel Certificate (Exhibit C. to Exhibit  10.4 above).                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   | N/A    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |   |
| 10.7*  |   | Subordination, Non-Disturbance and Attornment  Agreement (Exhibit D. to Exhibit 10.4 above).                                                                                                                                                                                                                                                                                                                                                                                                                  |   | N/A    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |   |
| 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.                                                                                                |   | N/A    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |   |
| 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.                                                                                                                                                     |   | N/A    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |   |
| 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. |   | N/A    |

 

46

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|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |   |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|
| 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.                                                                                                                     |   | N/A    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |   |
| 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.                                                                                                                         |   | N/A    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |   |
| 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.                                                                                                                                                                                |   | N/A    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |   |
| 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.                                                                                                                                                                 |   | N/A    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |   |
| 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).                                                                                                                                                                                         |   | N/A    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |   |
| 10.16* |   | Tenant Estoppel Certificate (Exhibit C. to Exhibit  10.14 above).                                                                                                                                                                                                                                                                                                                                                                                          |   | N/A    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |   |
| 10.17* |   | Subordination, Non-Disturbance and Attornment  Agreement (Exhibit D. to Exhibit 10.14 above).                                                                                                                                                                                                                                                                                                                                                              |   | N/A    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |   |
| 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.                                         |   | N/A    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |   |
| 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.                                             |   | N/A    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |   |
| 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. |   | N/A    |

 

47

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| 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.                                |   | N/A    |
|---------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                   |   |   |
| 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.                                        |   | N/A    |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                   |   |   |
| 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.                                                                                                                                             |   | N/A    |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                   |   |   |
| 10.24*^ |   | Amended and Restated Employment Agreement dated  August 4, 1998, between Arden Realty and Mr. Richard S. Ziman, filed as an  exhibit to Arden Realty’s quarterly report on Form 10-Q/A filed with the  Commission on December 15, 1998.                                                                                                                                                                           |   | N/A    |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                   |   |   |
| 10.25*^ |   | Amended and Restated Employment Agreement dated  August 4, 1998, between Arden Realty and Mr. Victor J. Coleman, filed as an  exhibit to Arden Realty’s quarterly report on Form 10-Q/A filed with the  Commission on December 15, 1998.                                                                                                                                                                          |   | N/A    |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                   |   |   |
| 10.26*^ |   | Amended and Restated Employment Agreement dated  August 4, 1998, between Arden Realty and Mr. Herbert Porter, filed as an  exhibit to Arden Realty’s quarterly report on Form 10-Q/ A filed with the  Commission on December 15, 1998.                                                                                                                                                                            |   | N/A    |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                   |   |   |
| 10.27*^ |   | 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.                                                                                                                                                                                |   | N/A    |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                   |   |   |
| 10.28*  |   | 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).                                                                                                                                                                                                |   | N/A    |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                   |   |   |
| 10.29*  |   | 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.                                                                                               |   | N/A    |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                   |   |   |
| 10.30*  |   | 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). |   | N/A    |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                   |   |   |
| 10.31*  |   | 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.                                                                                                                                                                 |   | N/A    |

 

 48

----

 
| 10.32* |   | 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. |   | N/A    |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|
|   |   |                                                                                                                                                                                                                                                                                                           |   |   |
| 10.33* |   | 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.                                       |   | N/A    |
|   |   |                                                                                                                                                                                                                                                                                                           |   |   |
| 10.34* |   | 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.                                |   | N/A    |
|   |   |                                                                                                                                                                                                                                                                                                           |   |   |
| 10.35* |   | 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.           |   | N/A    |
|   |   |                                                                                                                                                                                                                                                                                                           |   |   |
| 10.35* |   | 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).                                                                              |   | N/A    |
|   |   |                                                                                                                                                                                                                                                                                                           |   |   |
| 10.36* |   | 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).                                                                              |   | N/A    |
|   |   |                                                                                                                                                                                                                                                                                                           |   |   |
| 10.37* |   | Senior Unsecured Credit Agreement between Arden  Realty Limited Partnership and Lehman Brothers Inc. dated July 27, 2000 filed  as an exhibit to Arden Realty’s quarterly report on Form 10-Q filed with the  Commission on November 12, 2000.                                                            |   | N/A    |
|   |   |                                                                                                                                                                                                                                                                                                           |   |   |
| 10.38* |   | Registration Rights Agreement between Arden Realty  Limited Partnership and the initial purchasers set forth therein dated as of  March 17, 2000, filed as an exhibit to Arden Realty Limited Partnership’s  registration statement on Form S-4 (No. 333-35406).                                          |   | N/A    |
|   |   |                                                                                                                                                                                                                                                                                                           |   |   |
| 10.39* |   | Purchase Agreement between Arden Realty Limited  Partnership and the initial purchasers set forth therein dated as of March  14, 2000, filed as an exhibit to Arden Realty Limited Partnership’s  registration statement on Form S-4 (No. 333-35406).                                                     |   | N/A    |
|   |   |                                                                                                                                                                                                                                                                                                           |   |   |
| 10.40* |   | Registration Rights Agreement between Arden Realty  Limited Partnership and Lehman Brothers Inc. dated as of November 20, 2000 as  filed as an exhibit to Arden Realty Limited Partnership’s registration  statement on Form S-4 (No. 333-53376).                                                         |   | N/A    |

 

49

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| 10.41* |   | Purchase Agreement between Arden Realty Limited  Partnership and Lehman Brothers Inc. dated as of November 15, 2000 as filed  as an exhibit to Arden Realty Limited Partnership’s registration statement on  Form S-4 (No. 333-53376).   |   | N/A    |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|
|   |   |                                                                                                                                                                                                                                          |   |   |
| 10.42* |   | 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).          |   | N/A    |
|   |   |                                                                                                                                                                                                                                          |   |   |
| 10.43* |   | 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).  |   | N/A    |
|   |   |                                                                                                                                                                                                                                          |   |   |
| 10.44* |   | 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). |   | N/A    |
|   |   |                                                                                                                                                                                                                                          |   |   |
| 10.45* |   | 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.                   |   | N/A    |
|   |   |                                                                                                                                                                                                                                          |   |   |
| 10.46* |   | 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).        |   | N/A    |
|   |   |                                                                                                                                                                                                                                          |   |   |
| 10.47  |   | Amended and Restated Employment Agreement dated June  2, 1999, between Arden Realty and Mr. Richard S. Davis.                                                                                                                                 |   | N/A    |
|   |   |                                                                                                                                                                                                                                          |   |   |
| 12.1   |   | Statement regarding computation of ratios                                                                                                                                                                                                     |   | N/A    |
|   |   |                                                                                                                                                                                                                                          |   |   |
| 21.1*  |   | Subsidiaries of Arden Realty Limited Partnership as  filed as an exhibit to Arden Realty Limited Partnership’s registration  statement on Form S-4 (No. 333-53376).                                                                      |   | N/A    |
|   |   |                                                                                                                                                                                                                                          |   |   |
| 23.1   |   | Consent of independent auditors.                                                                                                                                                                                                              |   | N/A    |

 

----

(*)     Incorporatedby reference.

 

(^)     Managementcontract or compensatory plan or arrangement required to be identified by Item14(a)3.

 

50

----

 

**SIGNATURES**

 

Pursuant to the requirements of Section 13 or 15(d) ofthe Securities Exchange Act of 1934, the registrant has duly caused this reportto be signed on its behalf by the undersigned, thereunto duly authorized onMarch 29, 2002.

 
|   | ARDEN REALTY LIMITED  PARTNERSHIP                  |
|--------|----------------------------------------------------|
|   |                                               |
|   | By:                                                | ARDEN REALTY, INC. |
|   | Its:                                               | General Partner |
|   |                                               |
|   | By:                                                | /s/ RICHARD S.  ZIMAN |   |
|   | Richard S. Ziman                                   |
|   | Chairman of the Board  and Chief Executive Officer |

 

Pursuant to the requirements of the SecuritiesExchange Act of 1934, this report has been signed below by the followingpersons on behalf of the registrant and in the capacities and on the datesindicated.

 
| **Name**              |   |   | **Title**                          |   | **Date**       |
|-----------------------|--------|--------|------------------------------------|--------|----------------|
| /s/ RICHARD S. ZIMAN  |   |   | Chairman of the Board,  Chief      |   | March 29, 2002 |
| Richard S. Ziman      |   |   | Executive Officer and  Director    |   |           |
|                  |   |   |                               |   |           |
| /s/ VICTOR J. COLEMAN |   |   | President, Chief  Operating        |   | March 29, 2002 |
| Victor J. Coleman     |   |   | Officer and Director               |   |           |
|                  |   |   |                               |   |           |
| /s/ ANDREW J. SOBEL   |   |   | Executive Vice  President          |   | March 29, 2002 |
| Andrew J. Sobel       |   |   | Strategic Planning and  Operations |   |           |
|                  |   |   |                               |   |           |
| /s/ RICHARD S. DAVIS  |   |   | Senior Vice President,  and        |   | March 29, 2002 |
| Richard S. Davis      |   |   | Chief Financial Officer            |   |           |
|                  |   |   |                               |   |           |
| /s/ LARRY S. FLAX     |   |   | Director                           |   | March 29, 2002 |
| Larry S. Flax         |   |   |                               |   |           |
|                  |   |   |                               |   |           |
| /s/ CARL D. COVITZ    |   |   | Director                           |   | March 29, 2002 |
| Carl D. Covitz        |   |   |                               |   |           |
|                  |   |   |                               |   |           |
| /s/ PETER S. GOLD     |   |   | Director                           |   | March 29, 2002 |
| Peter S. Gold         |   |   |                               |   |           |
|                  |   |   |                               |   |           |
| /s/ STEVEN C. GOOD    |   |   | Director                           |   | March 29, 2002 |
| Steven C. Good        |   |   |                               |   |           |

## ** **

51

----

 

## **REPORT OFINDEPENDENT AUDITORS**

 

The Partners

Arden Realty LimitedPartnership

 

We have auditedthe accompanying consolidated balance sheets of Arden Realty LimitedPartnership as of December 31, 2001 and 2000 and the related consolidatedstatements of operations, partners’ capital, and cash flows for each of thethree years in the period ended December 31, 2001. These financial statementsare the responsibility of the management of Arden Realty Limited Partnership. Ourresponsibility is to express an opinion on these financial statements based onour audits.

 

We conducted ouraudits in accordance with auditing standards generally accepted in the UnitedStates. Those standards require that we plan and perform the audit to obtainreasonable assurance about whether the financial statements are free ofmaterial misstatement. An audit includes examining, on a test basis, evidencesupporting the amounts and disclosures in the financial statements. An auditalso includes assessing the accounting principles used and significantestimates made by management, as well as evaluating the overall financialstatement presentation. We believe that our audits provide a reasonable basisfor our opinion.

 

In our opinion,the financial statements referred to above present fairly, in all materialrespects, the consolidated financial position of Arden Realty LimitedPartnership at December 31, 2001 and 2000 and the consolidated results of itsoperations and its cash flows for each of the three years in the period endedDecember 31, 2001, in conformity with accounting principles generally acceptedin the United States.

 
| Los Angeles, California |   | /s/ ERNST &  YOUNG LLP |
|-------------------------|--------|----------------------------|
| January 30, 2002        |   |                       |

 

F-1

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** **

**ARDEN REALTY LIMITED PARTNERSHIP**

 

**CONSOLIDATED BALANCE SHEETS**

**(inthousands, except share data)**

 
|                                                                                                                                                   |   | **December  31,** |      |
|--------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------|-----------|
|                                                                                                                                                   |   | **2001**          |      | **2000** |   |
| **Assets**                                                                                                                                             |   |              |      |   |   |
|                                                                                                                                                   |   |              |      |   |   |
| Commercial properties:                                                                                                                                 |   |              |      |   |   |
| Land                                                                                                                                                   |   | $                 | 447,753   |   | $ | 466,426 |   |
| Buildings and  improvements                                                                                                                            |   | 1,975,427         |      | 1,985,950 |   |
| Tenant  improvements and leasing costs                                                                                                                 |   | 251,201           |      | 225,620 |   |
|                                                                                                                                                   |   | 2,674,381         |      | 2,677,996 |   |
| Less:  accumulated depreciation                                                                                                                        |   | (293,385          | )         | (227,463 | ) |
|                                                                                                                                                   |   | 2,380,996         |      | 2,450,533 |   |
| Properties under  development                                                                                                                          |   | 133,012           |      | 93,384 |   |
| Properties held  for disposition, net                                                                                                                  |   | 108,972           |      | 59,649 |   |
| Net investment  in real estate                                                                                                                         |   | 2,622,980         |      | 2,603,566 |   |
|                                                                                                                                                   |   |              |      |   |   |
| Cash and cash equivalents                                                                                                                              |   | 37,041            |      | 5,432 |   |
| Restricted cash                                                                                                                                        |   | 18,768            |      | 19,367 |   |
| Rent and other  receivables, net of allowance of $3,770 and $1,705   at December 31, 2001 and 2000, respectively                                       |   | 9,685             |      | 13,198 |   |
| Due from general partner                                                                                                                               |   | 2,258             |      | 1,370 |   |
| Mortgage notes  receivable, net of discount of  $1,096  and $1,555   at December 31, 2001 and 2000, respectively                                  |   | 13,495            |      | 13,761 |   |
| Deferred rent                                                                                                                                          |   | 38,989            |      | 31,588 |   |
| Prepaid financing  costs, expenses and other assets, net of accumulated amortization of $8,774  and $5,456 at December 31, 2001 and 2000, respectively |   | 20,485            |      | 18,685 |   |
| Total assets                                                                                                                                           |   | $                 | 2,763,701 |   | $ | 2,706,967 |   |
|                                                                                                                                                   |   |              |      |   |   |
| **Liabilities and Partners’ Capital**                                                                                                             |   |              |      |   |   |
|                                                                                                                                                   |   |              |      |   |   |
| Mortgage loans payable                                                                                                                                 |   | $                 | 573,452   |   | $ | 576,055 |   |
| Unsecured lines of credit                                                                                                                              |   | 180,350           |      | 253,350 |   |
| Unsecured senior notes, net of discount                                                                                                                |   | 497,681           |      | 348,364 |   |
| Accounts payable and accrued expenses                                                                                                                  |   | 43,002            |      | 37,415 |   |
| Security deposits                                                                                                                                      |   | 19,683            |      | 19,470 |   |
| Total  liabilities                                                                                                                                     |   | 1,314,168         |      | 1,234,654 |   |
|                                                                                                                                                   |   |              |      |   |   |
| Minority interests                                                                                                                                     |   | 2,866             |      | 2,911 |   |
|                                                                                                                                                   |   |              |      |   |   |
| **Partners’ Capital**                                                                                                                             |   |              |      |   |   |
|                                                                                                                                                   |   |              |      |   |   |
| Preferred partner,  2,000,000 Series B Cumulate Redeemable Preferred Units outstanding at  December 31, 2001 and 2000                                  |   | 50,000            |      | 50,000 |   |
| General and limited  partners, 65,936,810 and 65,821,144 common OP Units outstanding at December  31, 2001 and 2000, respectively                      |   | 1,405,800         |      | 1,428,275 |   |
| Deferred compensation                                                                                                                                  |   | (9,133            | )         | (8,873 | ) |
| Total partners’ capital                                                                                                                           |   | 1,446,667         |      | 1,469,402 |   |
| Total liabilities and Partners’ Capital                                                                                                           |   | $                 | 2,763,701 |   | $ | 2,706,967 |   |

 

*See accompanying notes to financial statements.*

 

F-2

----

 

**ARDEN REALTY LIMITED PARTNERSHIP**

 

## **CONSOLIDATEDSTATEMENTS OF INCOME**

**(in thousands, except per shareamounts)**

 
|                                                    |   | **For the  Years Ended December 31,** |    |
|---------------------------------------------------------|--------|---------------------------------------|---------|
|                                                    |   | **2001**                              |    | **2000** |   | **1999** |   |
| Revenue                                                 |   | $                                     | 418,525 |   | $ | 384,590 |   | $ | 337,853 |   |
| Property operating expenses                             |   | 122,576                               |    | 110,917 |   | 101,284 |   |
|                                                    |   | 295,949                               |    | 273,673 |   | 236,569 |   |
|                                                    |   |                                  |    |   |   |   |   |
| General and administrative                              |   | 11,083                                |    | 8,306 |   | 6,753 |   |
| Interest                                                |   | 84,195                                |    | 78,406 |   | 60,239 |   |
| Depreciation and amortization                           |   | 101,819                               |    | 87,267 |   | 69,837 |   |
| Interest and other income                               |   | (2,941                                | )       | (3,527 | ) | (2,822 | ) |
|                                                    |   |                                  |    |   |   |   |   |
| Income before gain and minority interest                |   | 101,793                               |    | 103,221 |   | 102,562 |   |
| Gain on sale of property                                |   | 4,591                                 |    | 2,132 |   | — |   |
|                                                    |   |                                  |    |   |   |   |   |
| Income before minority interest                         |   | 106,384                               |    | 105,353 |   | 102,562 |   |
|                                                    |   |                                  |    |   |   |   |   |
| Minority interest                                       |   | (127                                  | )       | (144 | ) | (169 | ) |
|                                                    |   |                                  |    |   |   |   |   |
| Net income                                              |   | $                                     | 106,257 |   | $ | 105,209 |   | $ | 102,393 |   |
|                                                    |   |                                  |    |   |   |   |   |
| Net income allocated to:                                |   |                                  |    |   |   |   |   |
| Preferred units                                         |   | $                                     | 4,312   |   | $ | 4,312 |   | $ | 1,354 |   |
|                                                    |   |                                  |    |   |   |   |   |
| Common units                                            |   | $                                     | 101,945 |   | $ | 100,897 |   | $ | 101,039 |   |
|                                                    |   |                                  |    |   |   |   |   |
| Earnings per common partnership units outstanding:      |   |                                  |    |   |   |   |   |
| Basic                                                   |   | $                                     | 1.55    |   | $ | 1.54 |   | $ | 1.54 |   |
|                                                    |   |                                  |    |   |   |   |   |
| Diluted                                                 |   | $                                     | 1.54    |   | $ | 1.53 |   | $ | 1.54 |   |
|                                                    |   |                                  |    |   |   |   |   |
| Weighted average common  partnership units outstanding: |   |                                  |    |   |   |   |   |
| Basic                                                   |   | 65,872                                |    | 65,568 |   | 65,509 |   |
|                                                    |   |                                  |    |   |   |   |   |
| Diluted                                                 |   | 66,132                                |    | 65,758 |   | 65,565 |   |

 

*See accompanying notes to financial statements.*

 

F-3

----

 

## **ARDEN REALTY LIMITED PARTNERSHIP**

 

**CONSOLIDATED STATEMENTS OF PARTNERS’CAPITAL**

**(in thousands)**

 
|                                           |   | **Preferred  Partner** |   | **Limited  Partners** |   | **General   Partner** |   | **Deferred  Compensation** |      | **Receivable  from General Partner** |   | **Total** |   |
|------------------------------------------------|--------|------------------------|--------|-----------------------|--------|-----------------------|--------|----------------------------|-----------|--------------------------------------|--------|-----------|--------|
| Balance at January 1, 1999                     |   | $                      | — |                  | $      | 71,974                |   | $                          | 1,384,917 |                                 | $      | —    |   | $ | (2,047 | ) | $ | 1,454,844 |   |
| OP Units converted                             |   | —                 |   | (19,241               | )      | 19,241                |   | —                     |      | —                               |   | —    |   |
| Issuance of preferred units                    |   | 50,000                 |   | —                |   | —                |   | —                     |      | —                               |   | 50,000    |   |
| Issuance costs                                 |   | —                 |   | (38                   | )      | (962                  | )      | —                     |      | —                               |   | (1,000    | )      |
| Distributions                                  |   | (1,354                 | )      | (4,629                | )      | (110,394              | )      | —                     |      | —                               |   | (116,377  | )      |
| Contributions                                  |   | —                 |   | —                |   | —                |   | —                     |      | (120                                 | )      | (120      | )      |
| Net income                                     |   | 1,354                  |   | 3,850                 |   | 97,189                |   | —                     |      | —                               |   | 102,393   |   |
| Redemption adjustment                          |   | —                 |   | (8,782                | )      | 8,782                 |   | —                     |      | —                               |   | —    |   |
| Balance at December 31,  1999                  |   | 50,000                 |   | 43,134                |   | 1,398,773             |   | —                     |      | (2,167                               | )      | 1,489,740 |   |
| Issuance costs                                 |   | —                 |   | —                |   | (119                  | )      | —                     |      | —                               |   | (119      | )      |
| Distributions                                  |   | (4,312                 | )      | (3,968                | )      | (118,531              | )      | —                     |      | —                               |   | (126,811  | )      |
| Contributions                                  |   | —                 |   | 550                   |   | —                |   | —                     |      | —                               |   | 550       |   |
| Receivables and  interest from general partner |   | —                 |   | —                |   | —                |   | —                     |      | 2,167                                |   | 2,167     |   |
| Redemption of units                            |   | —                 |   | —                |   | (1,920                | )      | —                     |      | —                               |   | (1,920    | )      |
| Stock compensation                             |   | —                 |   | —                |   | 9,459                 |   | (9,459                     | )         | —                               |   | —    |   |
| Amortization of stock  compensation            |   | —                 |   | —                |   | —                |   | 586                        |      | —                               |   | 586       |   |
| Net income                                     |   | 4,312                  |   | 3,330                 |   | 97,567                |   | —                     |      | —                               |   | 105,209   |   |
| Redemption adjustment                          |   | —                 |   | 11,583                |   | (11,583               | )      | —                     |      | —                               |   | —    |   |
| Balance at December 31,  2000                  |   | 50,000                 |   | 54,629                |   | 1,373,646             |   | (8,873                     | )         | —                               |   | 1,469,402 |   |
| OP Units converted                             |   | —                 |   | (6,586                | )      | 6,586                 |   | —                     |      | —                               |   | —    |   |
| Distributions                                  |   | (4,312                 | )      | (4,182                | )      | (123,234              | )      | —                     |      | —                               |   | (131,728  | )      |
| Stock compensation                             |   | —                 |   | —                |   | 2,533                 |   | (2,533                     | )         | —                               |   | —    |   |
| Amortization of stock  compensation            |   | —                 |   | —                |   | —                |   | 2,273                      |      | —                               |   | 2,273     |   |
| Stock options exercised                        |   | —                 |   | —                |   | 463                   |   | —                     |      | —                               |   | 463       |   |
| Net income                                     |   | 4,312                  |   | 3,283                 |   | 98,662                |   | —                     |      | —                               |   | 106,257   |   |
| Redemption adjustment                          |   | —                 |   | 1,582                 |   | (1,582                | )      | —                     |      | —                               |   | —    |   |
| Balance at December 31,  2001                  |   | $                      | 50,000 |                  | $      | 48,726                |   | $                          | 1,357,074 |                                 | $      | (9,133    | )      | $ | — |   | $ | 1,446,667 |   |

 

*See accompanying notes tofinancial statements.*

## ** **

F-4

----

 

## **ARDEN REALTY LIMITED PARTNERSHIP**

 

## **CONSOLIDATEDSTATEMENTS OF CASH FLOWS**

**(in thousands)**

 
|                                                                               |   | **For the  Years Ended December 31,** |    |
|------------------------------------------------------------------------------------|--------|---------------------------------------|---------|
|                                                                               |   | **2001**                              |    | **2000** |   | **1999** |   |
| **Operating Activities:**                                                          |   |                                  |    |   |   |   |   |
| Net income                                                                         |   | $                                     | 106,257 |   | $ | 105,209 |   | $ | 102,393 |   |
| Adjustments to  reconcile net income to net cash provided by operating activities: |   |                                  |    |   |   |   |   |
| Minority  interests                                                                |   | 127                                   |    | 144 |   | 169 |   |
| Depreciation and  amortization                                                     |   | 101,819                               |    | 87,267 |   | 69,837 |   |
| Amortization of  loan costs and fees                                               |   | 3,568                                 |    | 3,568 |   | 2,868 |   |
| Gain on sale of  property                                                          |   | (4,591                                | )       | (2,132 | ) | — |   |
| Amortization of  deferred compensation                                             |   | 1,938                                 |    | 586 |   | — |   |
| Changes in  operating assets and liabilities:                                      |   |                                  |    |   |   |   |   |
| Rent and other  receivables                                                        |   | 3,775                                 |    | (1,080 | ) | (2,279 | ) |
| Due from general  partner                                                          |   | (888                                  | )       | 1,076 |   | (499 | ) |
| Deferred rent                                                                      |   | (7,401                                | )       | (7,656 | ) | (6,928 | ) |
| Prepaid  financing costs, expenses and other assets                                |   | (4,366                                | )       | (7,480 | ) | (1,456 | ) |
| Accounts payable  and accrued expenses                                             |   | 4,388                                 |    | 11,359 |   | 4,250 |   |
| Security  deposits                                                                 |   | 213                                   |    | 3,397 |   | 2,140 |   |
| Net cash provided by operating activities                                          |   | 204,839                               |    | 194,258 |   | 170,495 |   |
| **Investing Activities:**                                                          |   |                                  |    |   |   |   |   |
| Acquisitions and  improvements to commercial properties                            |   | (161,785                              | )       | (227,707 | ) | (283,574 | ) |
| Proceeds from sales of properties                                                  |   | 45,931                                |    | 11,683 |   | — |   |
| Net cash used in investing activities                                              |   | (115,854                              | )       | (216,024 | ) | (283,574 | ) |
| **Financing Activities:**                                                          |   |                                  |    |   |   |   |   |
| Proceeds from mortgage loans                                                       |   | —                                |    | 45,053 |   | 310,038 |   |
| Repayment of mortgage loans                                                        |   | (2,603                                | )       | (209,804 | ) | (113,259 | ) |
| Proceeds from unsecured lines of credit                                            |   | 140,500                               |    | 238,000 |   | 209,661 |   |
| Repayments of unsecured lines of credit                                            |   | (213,500                              | )       | (273,500 | ) | (217,261 | ) |
| Proceeds from issuances  of unsecured senior notes, net of discount                |   | 149,064                               |    | 348,364 |   | — |   |
| Decrease(Increase) in restricted cash                                              |   | 599                                   |    | (854 | ) | (6,104 | ) |
| Proceeds from issuance of common partnership units                                 |   | 463                                   |    | — |   | — |   |
| Distributions and  redemptions paid to common partnership unit holders             |   | (127,415                              | )       | (122,500 | ) | (115,023 | ) |
| Distributions to  preferred operating partnership units holder                     |   | (4,312                                | )       | (4,312 | ) | (1,354 | ) |
| Distributions to minority interests                                                |   | (172                                  | )       | (186 | ) | (141 | ) |
| Proceeds from issuance  of preferred operating partnership units                   |   | —                                |    | — |   | 50,000 |   |
| Preferred operating partnership units issuance cost                                |   | —                                |    | (119 | ) | (1,000 | ) |
| Net cash (used in) provided by financing activities                                |   | (57,376                               | )       | 20,142 |   | 115,557 |   |
| Net increase (decrease) in cash and cash equivalents                               |   | 31,609                                |    | (1,624 | ) | 2,478 |   |
| Cash and cash equivalents at beginning of period                                   |   | 5,432                                 |    | 7,056 |   | 4,578 |   |
| Cash and cash equivalents at end of period                                         |   | $                                     | 37,041  |   | $ | 5,432 |   | $ | 7,056 |   |
|                                                                               |   |                                  |    |   |   |   |   |
| **Supplemental Disclosure of Cash  Flow Information:**                             |   |                                  |    |   |   |   |   |
| Cash paid during the  period for interest, net of amount capitalized               |   | $                                     | 83,809  |   | $ | 70,139 |   | $ | 58,365 |   |

 

*See accompanying notes to financialstatements.*

 

F-5

----

** **

**ARDEN REALTY LIMITED PARTNERSHIP**

 

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS**

 

**1.      Business**

 

*Description of Business*

 

The terms “us,” “we” and“our” as used in these financial statements refer to Arden Realty LimitedPartnership. The term “Arden Realty” refers to Arden Realty, Inc.

 

*Organization and Formation*

 

We are an operating partnership that owns, manages,leases, develops, renovates and acquires commercial properties located inSouthern California. Arden Realty, a real estate investment trust, or REIT, isour sole general partner and, as of December 31, 2001 and 2000, owned 97.2% and96.7%, respectively, of our common partnership units, or common OP Units. ArdenRealty conducts substantially all of its operations through us and oursubsidiaries. Commencing with its taxable year ended December 31, 1996, ArdenRealty has operated and qualified as a REIT for federal income tax purposes.

 

Arden Realty conducts substantially all of itsoperations through us. As of December 31, 2001 our portfolio consisted of 133primarily suburban office properties containing approximately 18.2 million netrentable square feet and two properties with approximately 566,000 square feetunder development. As of December 31, 2001, our properties were 92.2% occupied.

 

Arden Realty’s interestin us entitles it to share in cash distributions from, and in our profits andlosses in proportion to its percentage ownership. Certain individuals andentities own our remaining common OP Units, including Messrs. Ziman andColeman, our Chairman and Chief Executive Officer and our President and ChiefOperating Officer, respectively, together with other entities and persons whowere issued common OP Units in connection with our acquisition of specificproperties previously owned by those entities and persons. Each limited partnerholding common OP Units is entitled to cause us to redeem the limited partner’scommon OP Units for cash. Arden Realty, however, may, instead of paying cash,elect to exchange those common OP Units for shares of its common stock on aone-for-one basis, subject to certain limitations. With each redemption orexchange of common OP Units, Arden Realty’s percentage interest in us willincrease.

 

As our sole general partner, Arden Realty generallyhas the exclusive power under our partnership agreement to manage us andconduct our business, subject to limited exceptions. Arden Realty’s boardof  directors manages our affairs. Wecannot be terminated until the year 2096 without the approval of a majority ofour partners or in connection with the sale of all or substantially all of ourassets, a business combination, a judicial decree or the redemption of all theOP Units held by our limited partners.

 

We are a Marylandlimited partnership. Arden Realty is a Maryland corporation. Arden Realty’scommon stock is listed on the New York Stock Exchange under the symbol “ARI.”

 

**2.      Basisof Presentation and Summary of Significant Accounting Policies**

 

*Basis of Presentation*

 

The accompanyingconsolidated financial statements include our accounts and our subsidiaries.All significant intercompany balances and transactions have been eliminated inconsolidation.

 

*Risks and Uncertainties*

 

The preparation of financial statements, in conformitywith accounting principles generally accepted in the United States, requires usto make estimates and assumptions that affect the reported amounts of assetsand liabilities and disclosure of contingent

 

F-6

----

 

assets and liabilities at the date of the financial statements and thereported amounts of revenues and expenses during the reporting period. Actualresults could differ from those estimates.

 

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

 

*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 financialinformation related to this principal operating segment.

 

*Commercial Properties*

 

Our properties are statedat depreciated cost. When indicators of impairment exist, write-downs toestimated fair value would be recognized if a property’s estimated undiscountedfuture cash flows, before interest charges, are less than its book value.Properties held for disposition are carried at the lower of depreciated cost orfair value. Based on our assessment, no write-downs to estimated fair valuewere necessary as of December 31, 2001 and 2000, respectively.

 

Costs related to theacquisition, development, construction and improvement of properties arecapitalized.  Interest, real estatetaxes, insurance and other development related costs incurred duringconstruction periods are capitalized and depreciated on the same basis as therelated assets.

 

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

 

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

 

The carrying amount ofall commercial properties is evaluated periodically to determine if adjustmentto the useful life is warranted.  During2001, the useful life of certain building and building improvements wereadjusted to more accurately reflect their estimated usefulness.  The effect of this change in estimate in2001 was an increase to net income of approximately $10.1 million or $0.15 percommon OP Unit.  This change in estimatedid not have an impact on our 2001 cash flows.

 

Costs associated with leasing properties arecapitalized and amortized to expense on a straight-line basis over the relatedlease term.

 

*Cash Equivalents*

 

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

 

*Restricted Cash*

 

Restricted cash at December 31, 2001 and 2000primarily consists of $13.7 million and $13.9 million, respectively, in cashdeposits as required by certain of our mortgage loans payable and $5.1 millionand $5.5 million, respectively, in impound accounts for real estate taxes andinsurance, as required by certain of our mortgage loans payable.

 

*Prepaid Financing Costs*

 

Costs associated withobtaining long-term financing are capitalized and amortized to interest expenseover the term of the

 

F-7

----

 

related loan.

 

*Revenue Recognition*

 

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

 

*Income Taxes*

 

Our taxable incomeis reportable by our partners on their separate tax returns.  Accordingly, no provision has been made forincome taxes in the accompanying statements of operations.

 

*Fair Value of Financial Instruments*

 

Our disclosures of estimated fair value of financialinstruments at December 31, 2001 and 2000, respectively, were determined usingavailable market information and appropriate valuation methodologies.Considerable judgment is necessary to interpret market data and developestimated fair value. The use of different market assumptions or estimationmethodologies may have a material effect on the estimated fair value amounts.

 

Our cash equivalents, mortgage notes receivable,unsecured lines of credit, accounts payable and other financial instruments arecarried at amounts that reasonably approximate their fair value amounts.

 

The estimated fair valueof our mortgage loans payable as unsecured senior notes is as follows (inthousands):

 
|                   |   | **December  31, 2001** |    | **December  31, 2000**    |   |
|------------------------|--------|------------------------|---------|---------------------------|--------|
|                   |   | **Carrying****Amount** |    | **Estimated  Fair Value** |   | **Carrying  Amount** |   | **Estimated  Fair Value** |   |
| Mortgage loans payable |   | $                      | 573,452 |                      | $      | 580,799 |   | $ | 576,055 |   | $ | 576,780 |   |
| Unsecured senior notes |   | $                      | 497,681 |                      | $      | 516,273 |   | $ | 348,364 |   | $ | 367,904 |   |

 

The estimated fair value is based on interest ratesavailable at each of the dates presented for issuance of debt with similarterms and remaining maturities. The estimated fair value amounts of our notespayable above are not necessarily indicative of the amounts that we couldrealize in a current market exchange.

 

*New Accounting Standards*

 

In June 1998, June 1999 and June 2000, respectively,the Financial Accounting Standards Board issued Statement No. 133, “Accountingfor Derivative Instruments and Hedging Activities,” Statement No. 137,“Accounting for Derivative Instruments and Hedging Activities - Deferral of theEffective Date of Statement No. 133,” and Statement No. 138, “Accounting forCertain Derivative Instruments and Certain Hedging Activities - an Amendment ofStatement No. 133.” These statements outline the accounting treatment for allderivative activity.  We adopted onJanuary 1, 2001 Statement No. 133 and its adoption did not have a significanteffect on our consolidated results of operations or financial position.

 

In August 2001, the Financial Accounting StandardsBoard issued Statement No. 144, “Accounting for the Impairment or Disposal ofLong-Lived Assets.” This statement provides guidance in differentiating andaccounting for assets held and used, held for sale and held for disposal otherthan by sale.  We will adopt StatementNo. 144 effective January 1, 2002 and do not expect its adoption tosignificantly impact our consolidated result of operations or financialposition.

 

**3.      CommercialProperties**

 

*Acquisitions*

 

We did not acquire any properties in 2001.

 

F-8

----

 

*Dispositions*

 

The following table setsforth information regarding our disposition activities during 2001.

 
| **Property**                     |   | **County**     |   | **Submarket**       |   | **Date of  Sale** |   | **Property  Type**  |   | **Square  Feet** |   | **Sales  Price**   |   |
|----------------------------------|--------|----------------|--------|---------------------|--------|-------------------|--------|---------------------|--------|------------------|--------|--------------------|--------|
|                             |   |           |   |                |   |              |   |                |   |             |   | **(in thousands)** |   |
| One Venture                      |   | Orange County  |   | South County        |   | May 1, 2001       |   | Office              |   | 43,324           |   | $                  | 8,200  |   |
| Ontario Airport  Commerce Center |   | San Bernardino |   | Ontario             |   | May 1, 2001       |   | Industrial          |   | 213,127          |   | 11,000             |   |
| Rancho Plaza                     |   | Los Angeles    |   | Simi/Conejo  Valley |   | Sept. 28, 2001    |   | Office              |   | 24,057           |   | 3,100              |   |
| Hunter Business Center           |   | Riverside      |   | Inland Empire  East |   | Sept. 28, 2001    |   | Office              |   | 106,782          |   | 4,900              |   |
| Thousand Oaks  Plaza             |   | Los Angeles    |   | Simi/Conejo  Valley |   | Nov. 21, 2001     |   | Office              |   | 13,434           |   | 2,100              |   |
| Temecula  Portfolio(1)           |   | San Bernadino  |   | Temecula            |   | Dec. 20, 2001     |   | Office/  Industrial |   | 172,200          |   | 18,500             |   |
| Total                            |   |           |   |                |   |              |   |                |   | 572,924          |   | $                  | 47,800 |   |

 

----

(1)               Portfoliosold consists of three office properties (Tower Plaza I, Tower Plaza II andTower Plaza III) and two industrial properties (Highlands I and Highlands II).

 

*Properties held for Disposition*

 

As of December 31, 2001 properties held fordisposition consist of eleven properties representing approximately 923,000rentable square feet and at December 31, 2000 it consisted of nine propertiescontaining approximately 551,000 rentable square feet and one land parcel.There were no properties held for disposition in 1999.

 

The table below summarizes the results of operationsfor these properties for the years ended December 31, 2001 and 2000 as follows(in thousands):

 
|                           |   | **2001** |   | **2000** |   |
|--------------------------------|--------|----------|--------|----------|--------|
| Revenue                        |   | $        | 19,638 |     | $      | 8,509 |   |
| Property  operating expenses   |   | (6,361   | )      | (2,491   | )      |
| Net operating  income          |   | 13,277   |   | 6,018    |   |
| Depreciation and  amortization |   | (699     | )      | (319     | )      |
| Interest                       |   | —   |   | (367     | )      |
|                           |   | $        | 12,578 |     | $      | 5,332 |   |

 

Due to market conditions beyond our control, it isdifficult to predict the actual timing and amount of these asset sales. At thetime any such sales proceeds are realized, we expect to redeploy such amountsinto investments that we believe will generate higher long-term value, whichmay include development of office buildings, acquisitions or repurchase of ourcommon stock.

 

*Capitalized Interest*

 

We capitalize interest and taxes related to buildingsunder construction and renovation to the extent those assets qualify forcapitalization.

 

F-9

----

 

Total interest incurred and the amount capitalized forthe years ended December 31, 2001, 2000, and 1999 were as follows (inthousands):

 

 

|                     |   | **2001** |   | **2000** |   | **1999** |   |
|--------------------------|--------|----------|--------|----------|--------|----------|--------|
| Total interest  incurred |   | $        | 93,290 |     | $      | 91,052   |   | $ | 69,826 |   |
| Interest  capitalized    |   | (9,095   | )      | (12,646  | )      | (9,587   | )      |
| Interest  expensed       |   | $        | 84,195 |     | $      | 78,406   |   | $ | 60,239 |   |

 

*Future Minimum Lease Payments*

 

Future minimum lease payments to be received under noncancelableoperating leases existing as of December 31, 2001, are as follows (inthousands):

 

| 2002       |   | $       | 317,399 |   |
|------------|--------|---------|---------|--------|
| 2003       |   | 269,336 |    |
| 2004       |   | 211,827 |    |
| 2005       |   | 153,180 |    |
| 2006       |   | 103,714 |    |
| Thereafter |   | 288,714 |    |

 

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

 

F-10

----

 

We lease the landunderlying the office buildings or parking structures at six of our buildings.Ground lease expense, including amounts netted against parking revenues, wasapproximately $2.9 million, $2.3 million and $1.7 million for the years endedDecember 31, 2001, 2000 and 1999, respectively. Future minimum ground leasepayments due under existing ground leases are as follows (in thousands):

 

| 2002       |   | $       | 1,754  |   |
|------------|--------|---------|--------|--------|
| 2003       |   | 1,754   |   |
| 2004       |   | 1,785   |   |
| 2005       |   | 1,815   |   |
| 2006       |   | 1,840   |   |
| Thereafter |   | 114,666 |   |

** **

**4.     MortgageNotes Receivable**

 

In September 1997, we purchased two mortgage notesreceivable, secured by a single commercial office property, with an aggregatebalance of approximately $17.6 million, for approximately $14.4 million. Thenotes bear interest at the Eleventh District Cost of Funds (as defined) plus3.25% per annum, require monthly payments of principal, interest, andadditional net cash flow from the office property and mature on May 31, 2004.These notes had an effective interest rate of 10.02% at December 31, 2001including the amortization of the purchase discount.

 

F-11

----

** **

**5.     MortgageLoans and Unsecured Indebtedness**

 

A summary of mortgageloans payable, unsecured lines of credit and unsecured senior notes is asfollows:

 
| **Type of Debt**                   |   | **December  31,  2001** |       | **December  31,  2000** |       | **Stated  Annual  Interest Rate  at December 31,   2001** |       | **Rate  Fixed/Floating** |       | **Number of  Properties  Securing Loan** |       | **Maturity  Month/  Year** |       |
|------------------------------------|--------|-------------------------|------------|-------------------------|------------|-----------------------------------------------------------|------------|--------------------------|------------|------------------------------------------|------------|----------------------------|------------|
|                               |   | **(in  thousands)**     |       |                    |       |                                                      |       |                     |       |                                     |       |
| **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)           |   | 110,253                 |       | 112,212                 |       | 6.94                                                      | %          | Fixed                    |       | 12                                       |       | 4/09                       |       |
| Mortgage  Financing VI(3)          |   | 22,036                  |       | 22,241                  |       | 7.54                                                      | %          | Fixed                    |       | 3                                        |       | 4/09                       |       |
| Activity  Business  Center(3) |   | 7,737                   |       | 7,881                   |       | 8.85                                                      | %          | Fixed                    |       | 1                                        |       | 5/06                       |       |
| 145 South  Fairfax(3)              |   | 3,987                   |       | 4,021                   |       | 8.93                                                      | %          | Fixed                    |       | 1                                        |       | 1/27                       |       |
| Marin Corporate  Center(3)         |   | 2,966                   |       | 3,071                   |       | 9.00                                                      | %          | Fixed                    |       | 1                                        |       | 7/15                       |       |
| Conejo Business  Center(3)         |   | 2,911                   |       | 3,017                   |       | 8.75                                                      | %          | Fixed                    |       | (Note 4)                                 |       | 7/15                       |       |
| Conejo Business  Center(3)         |   | 1,262                   |       | 1,312                   |       | 7.88                                                      | %          | Fixed                    |       | (Note 4)                                 |       | 7/15                       |       |
|                               |   | 573,452                 |       | 576,055                 |       |                                                      |       |                     |       |                                     |       |                       |       |
| **Unsecured Lines of Credit:**     |   |                    |       |                    |       |                                                      |       |                     |       |                                     |       |                       |       |
| *Floating Rate*                    |   |                    |       |                    |       |                                                      |       |                     |       |                                     |       |                       |       |
| Wells Fargo(1)                     |   | 105,350                 |       | 172,350                 |       | 3.09                                                      | %          | LIBOR + 1.15% (Note 5)   |       | —                                   |       | 4/03                       |       |
| Lehman  Brothers(1) and (6)        |   | 75,000                  |       | 75,000                  |       | 3.35                                                      | %          | LIBOR + 1.30%            |       | —                                   |       | 7/02                       |       |
| City National  Bank(1)             |   | —                  |       | 6,000                   |       | —                                                    |       | Prime Rate - 0.875%      |       | —                                   |       | 8/02                       |       |
|                               |   | 180,350                 |       | 253,350                 |       |                                                      |       |                     |       |                                     |       |                       |       |
| **Unsecured Senior Notes:**        |   |                    | ** ** |                    | ** ** |                                                      | ** ** |                     | ** ** |                                     | ** ** |                       | ** ** |
| *Fixed Rate*                       |   |                    |       |                    |       |                                                      |       |                     |       |                                     |       |                       |       |
| 2005 Notes(7)                      |   | 199,667                 |       | 199,564                 |       | 8.88                                                      | %          | Fixed                    |       | —                                   |       | 3/05                       |       |
| 2010 Notes(7)                      |   | 49,663                  |       | 49,622                  |       | 9.15                                                      | %          | Fixed                    |       | —                                   |       | 3/10                       |       |
| 2010 Notes(7)                      |   | 99,262                  |       | 99,178                  |       | 8.50                                                      | %          | Fixed                    |       | —                                   |       | 11/10                      |       |
| 2007 Notes(7)                      |   | 149,089                 |       | —                  |       | 7.00                                                      | %          | Fixed                    |       | —                                   |       | 11/07                      |       |
|                               |   | 497,681                 |       | 348,364                 |       |                                                      |       |                     |       |                                     |       |                       |       |
|                               |   |                    |       |                    |       |                                                      |       |                     |       |                                     |       |                       |       |
| Total Debt                         |   | $                       | 1,251,483  |                    | $          | 1,177,769                                                 |       |                     |       |                                     |       |                       |       |   |   |

 

----

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

 

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

 

(3)           Requires monthly payments ofprincipal and interest.

 

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

 

(5)           This line of credit also has anannual 25 bp facility fee on the entire $275 million commitment amount.

 

(6)           This line of credit has a one-yearextension option.

 

(7)           Requires semi-annual interestpayments only, with principal balance due upon maturity.

 

F-12

----

 

*Unsecured Lines of Credit*

 

We have an unsecured lineof credit with a group of banks led by Wells Fargo.  This line of credit provides for borrowing up to $275 millionwith an option to increase the amount to $325 million and bears interest at arate ranging between LIBOR plus 1.15% and LIBOR plus 1.80% (including an annualfacility fee ranging from .20% to .40% based on the aggregate amount of thefacility), depending on our unsecured debt rating.  In addition, as long as we maintain an unsecured debt rating ofBBB-/Baa3 or better, the agreement contains a competitive bid option, wherebythe lenders on this line of credit may bid on the interest rate to be chargedfor up to $137.5 million of the unsecured line of credit.  Under certain circumstances, we also havethe option to convert the interest rate on this line of credit to the greaterof the Federal Funds rate plus 0.5% or Wells Fargo’s prime rate.  This line of credit matures in April2003.  As of December 31, 2001, therewas approximately $105.4 million outstanding on this line of credit andapproximately $169.6 million was available for additional borrowings.

 

This line of credit issubject to customary conditions to borrowing; contains representations,warranties and defaults customary in REIT financings; and contains financialcovenants, including requirements for a minimum tangible net worth, maximumliabilities to asset values, and minimum interest, unsecured interest and fixedcharge coverage ratios, all calculated as defined in the Wells Fargo line ofcredit documentation, and requirements to maintain a pool of unencumberedproperties that meet certain defined characteristics and are approved by thegroup of banks led by Wells Fargo Bank. This line of credit also containsrestrictions on, among other things, indebtedness, investments, distributions,liens and mergers. Proceeds from this line of credit have been used to providefunds for tenant improvements and capital expenditures and to provide forworking capital and other purposes.

 

We also have a $75million unsecured line of credit with Lehman Brothers.  Borrowings on this line of credit bearinterest at a rate ranging between LIBOR plus 1.05% and LIBOR plus 1.70%,depending on our unsecured debt rating. We also have the option to convert the interest rate to the prime rateplus 0.5%.  This line of credit matures inJuly 2002 with an option to extend the maturity date for one year.  As of December 31, 2001, there was $75million outstanding on this line of credit.

 

We also have an unsecuredline of credit with a total commitment of $10 million from City NationalBank.  This line of credit accruesinterest at the City National Bank Prime Rate less 0.875% and is scheduled tomature on August 1, 2002.  Proceeds fromthis line of credit are used, among other things, to provide funds for tenantimprovements and capital expenditures and provide for working capital and othercorporate purposes.  As of December 31,2001, there was no outstanding balance on this line of credit and $10 millionwas available for additional borrowings.

 

*Unsecured Senior Notes*

 

On June 27, 2001,we and Arden Realty filed a Form S-3 shelf registration statement with theSecurities and Exchange Commission, or SEC, providing for the issuance of up to$400 million of debt securities by the Operating Partnership and up to $257.2million of our $.01 par value common stock or our $.01 par value preferredstock. The terms of these securities will be determined at the time of any debtor equity offering.  This registrationstatement was declared effective by the SEC on July 24, 2001.

 

On November 9,2001, we completed a public offering of $150 million, 7.00% unsecured notes due2007, from the shelf registration statement, with interest payablesemi-annually on May 15 and November 15 of each year.  We used the net proceeds to reduce the outstanding balance on ourWells Fargo unsecured line of credit.

 

F-13

----

 

Following is a summary of scheduled principal paymentsfor our total debt outstanding as of December 31, 2001 (in thousands):

 

| **Year Ended December 31,** |   |    | **Amount** |   |
|-----------------------------|--------|---------|------------|--------|
| 2002                        |   | $       | 77,578     |   |
| 2003                        |   | 110,648 |       |
| 2004                        |   | 182,062 |       |
| 2005                        |   | 207,678 |       |
| 2006                        |   | 15,063  |       |
| Thereafter                  |   | 658,454 |       |
|                        |   | $       | 1,251,483  |   |

 

**6.     Partners’Capital**

 

A common OP Unit,and a share of common stock have essentially the same economic characteristicsas they share equally in our total net income or loss and distributions. An OPUnit may be redeemed for cash or, at the election of Arden Realty, for sharesof Arden Realty’s common stock on a one-for-one basis.

 

During 2001 and2000, Arden Realty issued a total of 94,500 shares and 373,000 shares,respectively, in restricted stock awards to several key executive officers. Therestriction on these restricted stock awards prohibits the sale or transfer ofsuch shares.  At the time of theirissuance, these restricted stock awards began vesting equally on theanniversary over four years for 100,000 shares and over five years for 367,500shares. We recorded deferred compensation of approximately $2.5 million and$9.5 million during 2001 and 2000, respectively, based on the market value ofthese shares on the date of award in the accompanying consolidated statement ofpartners’ equity and will amortize such charges on a straight-line basis overthe restriction period for each award. In 2001 and 2000, we recordedapproximately $1.9 million and $586,000, respectively, in non-cash compensationexpense related to these restricted stock awards.

 

On September 7, 1999, wecompleted a $50 million private placement of 85/8%Series B Cumulative Redeemable Preferred operating partnership units, orPreferred OP Units, to an institutional investor. The Preferred OP Units arecallable by us after five years and are exchangeable after ten years by theholder into our 85/8% Series B Cumulative RedeemablePreferred Stock, on a one-for-one basis. The Preferred OP Units have no statedmaturity or mandatory redemption and are subordinate to all debt. We used thenet proceeds from this private placement to repay a portion of our lines ofcredit.

 

In 2001, we madedistributions totaling $1.935 per common OP Unit.

** **

**7.     Commitmentsand Contingencies**

 

*Capital Commitments*

 

As of December 31, 2001,we had approximately $9.2 million outstanding in capital commitments related totenant improvements, renovation costs and general property-related capitalexpenditures.

 

*Litigation*

 

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

 

In December 2001, the owner of the entertainmentcenter at our Howard Hughes Center project asserted a claim against us forindemnification arising out of a Los Angeles Superior Court judgment againstthem, which invalidated a transfer of in-lieu credits that Arden Realty made inAugust of 1999 as part of our sale of the land for the entertainmentcenter.  The value of these in-lieucredits was approximately $6.0 million and were transferred to satisfy certain TransportationImpact Assessment fees related to the entertainment center.  The owner of the entertainment center iscurrently appealing the judgment..

 

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

 

 

F-14

----

 

*Concentration of Credit Risk*

 

We maintain our cash andcash equivalents at financial institutions. The combined account balances ateach institution periodically exceed FDIC insurance coverage, and as a result,there is a concentration of credit risk related to amounts on deposit in excessof FDIC insurance coverage. Management believes that the risk is notsignificant.

 

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

 

**8.     RelatedParty Transactions**

 

*Promissory Notes Receivable from Officers*

 

On July 19, 2001 and September 28, 2001, four officersexecuted promissory notes totaling approximately $416,000 primarily for thepurpose of meeting payroll taxes due upon the vesting of stock grants.  These notes mature between July 19, 2006 andSeptember 28, 2011 and bear interest at an annual rate of between 5.75% and6.00%.  These loans are personallyguaranteed by the respective officers and are included as part of otherreceivables in our balance sheet at December 31, 2001. See footnote 13.

 

F-15

----

 

**9.     Revenuefrom Rental Operations and Property Operating Expenses**

 

Revenue from rental operations and property operatingexpenses for the years ended December 31, 2001, 2000 and 1999 are summarized asfollows (in thousands):

 
|                                 |   | **2001** |    | **2000** |   | **1999** |   |
|--------------------------------------|--------|----------|---------|----------|--------|----------|--------|
| **REVENUE  FROM RENTAL OPERATIONS:** |   |     |    |     |   |     |   |
| Scheduled Rents                      |   | $        | 346,414 |     | $      | 320,383  |   | $ | 285,008 |   |
| Straight-line  Rents                 |   | 9,208    |    | 8,077    |   | 7,680    |   |
| Tenant  reimbursements               |   | 22,732   |    | 16,371   |   | 13,863   |   |
| Parking, net of  expenses            |   | 22,025   |    | 18,348   |   | 14,384   |   |
| Other rental  operations             |   | 18,146   |    | 21,411   |   | 16,918   |   |
|                                 |   | 418,525  |    | 384,590  |   | 337,853  |   |
|                                 |   |     |    |     |   |     |   |
| **PROPERTY  OPERATING EXPENSES:**    |   |     |    |     |   |     |   |
| Repairs and  maintenance             |   | 36,715   |    | 35,390   |   | 32,902   |   |
| Utilities                            |   | 33,894   |    | 29,872   |   | 28,305   |   |
| Real estate  taxes                   |   | 29,404   |    | 26,808   |   | 23,167   |   |
| Insurance                            |   | 5,727    |    | 4,203    |   | 3,993    |   |
| Ground rent                          |   | 1,885    |    | 1,214    |   | 891      |   |
| Administrative                       |   | 14,951   |    | 13,430   |   | 12,026   |   |
|                                 |   | 122,576  |    | 110,917  |   | 101,284  |   |
|                                 |   | $        | 295,949 |     | $      | 273,673  |   | $ | 236,569 |   |

 

**10.  EarningsPer Common Partnership Unit**

 

The following table sets forth the computation ofbasic and diluted net income per common partnership unit for the years endedDecember 31, 2001, 2000 and 1999 (in thousands, except per unit amounts):

 
|                                                 |   | **2001** |    | **2000** |   | **1999** |   |
|------------------------------------------------------|--------|----------|---------|----------|--------|----------|--------|
| Net income  allocated to common partnership units    |   | $        | 101,945 |     | $      | 100,897  |   | $ | 101,039 |   |
| Weighted average  common partnership units - basic   |   | 65,872   |    | 65,568   |   | 65,509   |   |
| Weighted average  dilutive stock options             |   | 260      |    | 190      |   | 56       |   |
| Weighted average  common partnership units - diluted |   | 66,132   |    | 65,758   |   | 65,565   |   |
| Basic net income  per common partnership unit        |   | $        | 1.55    |     | $      | 1.54     |   | $ | 1.54 |   |
| Diluted net  income per common partnership unit      |   | $        | 1.54    |     | $      | 1.53     |   | $ | 1.54 |   |

 

F-16

----

 

**11.  StockOption Plan**

 

We have elected to followAccounting Principles Board Opinion No. 25, “Accounting for Stock Issued toEmployees” (“APB 25”) and related interpretations in accounting for ouremployee and directors stock options because, as discussed below, thealternative fair value accounting provided for under FASB Statement No. 123,“Accounting for Stock-Based Compensation” (“Statement 123”) requires use of optionvaluation models that were not developed for use in valuing employee stockoptions. Under APB 25, because the exercise price of employee and directorstock options we granted equals the market price of the underlying stock on thedate of grant, no compensation expense is recognized.

 

Arden Realty established a stock option plan for thepurpose of attracting and retaining executive officers, directors and other keyemployees. As of December 31, 2001, 6,500,000 of our authorized shares ofcommon stock have been reserved for issuance under that plan.

 

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

 

Pro forma information regarding net income andearnings per share is required by Statement 123, and has been determined as ifArden Realty had accounted for its employee stock options under the fair valuemethod of that Statement. The fair value for these options was estimated at thedate of grant using a Black-Scholes option pricing model with the followingweighted-average assumptions for 2001, 2000 and 1999, respectively: risk-freeinterest rate of 4.39%, 6.13% and 6.67%, dividend yield of 7.60%, 7.75% and5.79% and a volatility factor of the expected market price of Arden Realty’scommon stock of .191, .198 and .245. The weighted average expected life of theoptions ranges between seven and 10 years.

 

The Black-Scholes option valuation model was developedfor use in estimating the fair value of traded options which have no vestingrestriction and are fully transferable. In addition, option valuation modelsrequire the input of highly subjective assumptions including the expected stockprice volatility. Because our employee and director stock options havecharacteristics significantly different from those of traded options, andbecause changes in the subjective input assumptions can materially affect thefair value estimate, in management’s opinion, the existing models do not necessarilyprovide a reliable single measure of the fair value of our employee anddirector stock options.

 

For purposes ofpro forma disclosures, the estimated fair value of the options is amortized toexpense over the options’ vesting periods. Our pro forma information for theyears ended December 31, 2001, 2000 and 1999 follows (in thousands, exceptearnings per share information):

 

|                                     |   | **2001** |   | **2000** |   | **1999** |   |
|------------------------------------------|--------|----------|--------|----------|--------|----------|--------|
| Pro forma net  income                    |   | $        | 99,846 |     | $      | 96,453   |   | $ | 96,903 |   |
| Pro forma net  income per common OP unit |   | $        | 1.51   |     | $      | 1.47     |   | $ | 1.48 |   |

 

F-17

----

 

A summary of ArdenRealty’s stock option activity, and related information for the years endedDecember 31, 2001, 2000 and 1999 follows:

 
|                                            |   | **2001**            |   | **2000**                                |   | **1999**            |   |
|-------------------------------------------------|--------|---------------------|--------|-----------------------------------------|--------|---------------------|--------|
|                                            |   | **Options  (000s)** |   | **Weighted-  Average  Exercise  Price** |   | **Options  (000s)** |   | **Weighted-  Average  Exercise  Price** |   | **Options  (000s)** |   | **Weighted-  Average  Exercise  Price** |   |
| Outstanding,  beginning of period               |   | 4,083               |   | $                                       | 24.40  |                | 3,599  |   | $ | 23.98 |   | 2,899 |   | $ | 24.99 |   |
| Granted                                         |   | 381                 |   | 26.80                                   |   | 1,367               |   | 25.05 |   | 710 |   | 19.27 |   |
| Exercised                                       |   | (21                 | )      | 21.89                                   |   | (373                | )      | 25.17 |   | — |   | — |   |
| Forfeited                                       |   | (32                 | )      | 24.43                                   |   | (510                | )      | 25.38 |   | (10 | ) | 25.94 |   |
| Outstanding at  end of year                     |   | 4,411               |   | $                                       | 24.53  |                | 4,083  |   | $ | 24.40 |   | 3,599 |   | $ | 23.98 |   |
| Exercisable at  end of the period               |   | 3,353               |   | $                                       | 24.61  |                | 2,529  |   | $ | 24.89 |   | 1,617 |   | $ | 24.67 |   |
| Weighted-average  fair value of options granted |   | $                   | 1.49   |                                    |   |                | $      | 2.13 |   |   |   | $ | 3.35 |   |   |   |
|                                                 |        |                     |        |                                         |        |                     |        |  |  |  |  |  |  |  |  |  |  |  |  |

 

Exercise pricesfor options outstanding as of December 31, 2001 ranged from $19.13 to $32.25.The weighted average remaining contractual life of those options is 5.5 years.

 

**12.  EmployeeRetirement Savings Plan**

 

Effective June 12, 1997,we adopted a retirement savings plan pursuant to Section 401(k) of the InternalRevenue Code whereby participants may contribute a portion of theircompensation to their respective retirement accounts in an amount not to exceedthe maximum allowed under the Code. The plan provides for matchingcontributions by us, which amounted to approximately $803,000 in 2001, $517,000in 2000 and $385,000 in 1999. Plan participants are immediately vested in theircontributions and are vested equally over four years in matching contributionsby us.

 

**13.  SubsequentEvent — Unaudited**

 

In January 2002, we made a quarterly distribution of$0.49 per common OP Unit.

 

In February 2002, two ofthe officers with promissory notes totaling approximately $125,000 described inFootnote 8 above repaid their notes in full, including accrued interest.

 

In March 2002, Mr. AndrewSobel, our Executive Vice President - Strategic Planning and Operationsreplaced a note payable to us in the amount of $194,936 with an annual interestrate of 6.56% due on February 18, 2002 with a new note for the same principalamount, bearing annual interest at LIBOR +  1.10% and maturing on February18, 2007.

 

F-18

----

 

**13.  QuarterlyResults**

 

Following is aquarterly summary of our revenue and expenses for the years ended December 31,2001, 2000 and 1999. Revenue and expenses may fluctuate significantly fromquarter to quarter due to our development, renovation, acquisition and salesactivity (unaudited).

 
|                            |   | **For the  Quarter Ended**                |    |
|---------------------------------|--------|-------------------------------------------|---------|
|                            |   | **March 31,  2001**                       |    | **June 30,  2001** |   | **September  30, 2001** |   | **December  31, 2001** |   |
|                            |   | **(in  thousands, except share amounts)** |    |
| Revenue                         |   | $                                         | 103,121 |   | $ | 102,980 |   | $ | 105,831 |   | $ | 106,593 |   |
| Property  operating expenses    |   | (29,842                                   | )       | (29,274 | ) | (32,016 | ) | (31,444 | ) |
| General and  administrative     |   | (2,568                                    | )       | (2,480 | ) | (2,231 | ) | (3,804 | ) |
| Interest expense                |   | (21,158                                   | )       | (21,081 | ) | (20,819 | ) | (21,137 | ) |
| Depreciation and  amortization  |   | (24,146                                   | )       | (24,176 | ) | (25,854 | ) | (27,643 | ) |
| Interest and  other income      |   | 861                                       |    | 764 |   | 706 |   | 610 |   |
| Gain on sale of  properties     |   | —                                    |    | 3,551 |   | 24 |   | 1,016 |   |
| Minority  interests             |   | (50                                       | )       | (33 | ) | (23 | ) | (21 | ) |
| Net Income                      |   | $                                         | 26,218  |   | $ | 30,251 |   | $ | 25,618 |   | $ | 24,170 |   |
| Net income per  Common OP Unit: |   |                                      |    |   |   |   |   |   |   |
| Basic                           |   | $                                         | 0.38    |   | $ | 0.44 |   | $ | 0.37 |   | $ | 0.36 |   |
| Diluted                         |   | $                                         | 0.38    |   | $ | 0.44 |   | $ | 0.37 |   | $ | 0.35 |   |
|                                 |        |                                           |         |  |  |  |  |  |  |  |  |  |  |  |

 
|                            |   | **For the  Quarter Ended**                |   |
|---------------------------------|--------|-------------------------------------------|--------|
|                            |   | **March 31,  2000**                       |   | **June 30,  2000** |   | **September  30, 2000** |   | **December  31, 2000** |   |
|                            |   | **(in  thousands, except share amounts)** |   |
| Revenue                         |   | $                                         | 89,678 |   | $ | 92,856 |   | $ | 99,031 |   | $ | 103,025 |   |
| Property  operating expenses    |   | (25,347                                   | )      | (26,721 | ) | (29,516 | ) | (29,333 | ) |
| General and  administrative     |   | (1,669                                    | )      | (1,625 | ) | (1,890 | ) | (3,122 | ) |
| Interest expense                |   | (17,852                                   | )      | (18,770 | ) | (20,345 | ) | (21,439 | ) |
| Depreciation and  amortization  |   | (20,147                                   | )      | (21,277 | ) | (22,528 | ) | (23,315 | ) |
| Interest and  other income      |   | 855                                       |   | 770 |   | 948 |   | 954 |   |
| Gain on sale of  property       |   | —                                    |   | — |   | — |   | 2,132 |   |
| Minority  interests             |   | (30                                       | )      | (35 | ) | (50 | ) | (29 | ) |
| Net income                      |   | $                                         | 25,488 |   | $ | 25,198 |   | $ | 25,650 |   | $ | 28,873 |   |
| Net income per  Common OP Unit: |   |                                      |   |   |   |   |   |   |   |
| Basic                           |   | $                                         | 0.37   |   | $ | 0.37 |   | $ | 0.37 |   | $ | 0.44 |   |
| Diluted                         |   | $                                         | 0.37   |   | $ | 0.37 |   | $ | 0.37 |   | $ | 0.44 |   |

 
|                            |   | **For the  Quarter Ended**                |       |
|---------------------------------|--------|-------------------------------------------|------------|
|                            |   | **March 31,  1999**                       | ** ** | **June 30,  1999** | ** ** | **September  30, 1999** | ** ** | **December  31, 1999** | ** ** |
|                            |   | **(in  thousands, except share amounts)** |       |
| Revenue                         |   | $                                         | 79,336     |   | $ | 82,712 |   | $ | 86,723 |   | $ | 89,082 |   |
| Property  operating expenses    |   | (23,510                                   | )          | (24,444 | ) | (26,744 | ) | (26,586 | ) |
| General and  administrative     |   | (1,291                                    | )          | (1,578 | ) | (1,715 | ) | (2,169 | ) |
| Interest expense                |   | (13,183                                   | )          | (14,455 | ) | (16,047 | ) | (16,554 | ) |
| Depreciation and  amortization  |   | (16,215                                   | )          | (17,173 | ) | (17,810 | ) | (18,639 | ) |
| Interest and  other income      |   | 670                                       |       | 671 |   | 751 |   | 730 |   |
| Minority  interests             |   | (54                                       | )          | (34 | ) | (49 | ) | (32 | ) |
| Net Income                      |   | $                                         | 25,753     |   | $ | 25,699 |   | $ | 25,109 |   | $ | 25,832 |   |
| Net income per  Common OP Unit: |   |                                      |       |   |   |   |   |   |   |
| Basic                           |   | $                                         | 0.39       |   | $ | 0.39 |   | $ | 0.38 |   | $ | 0.39 |   |
| Diluted                         |   | $                                         | 0.39       |   | $ | 0.39 |   | $ | 0.38 |   | $ | 0.39 |   |

 

F-19

----

** **

**15. Schedule of Commercial Propertiesand Accumulated Depreciation**

**December  31, 2001**

**(in thousands, except square footdata)**

 
|                         |   |                |   | **Initial  Costs** |   | **Basis Step  Up**               |   |     |   | **Total  Costs**                    |   |                                                   |   |     |   |                             |   |      |   |
|------------------------------|--------|---------------------|--------|--------------------|--------|----------------------------------|--------|----------|--------|-------------------------------------|--------|--------------------------------------------------------|--------|----------|--------|----------------------------------|--------|-----------|--------|
|                         |   | **Square  Footage** |   | **Land**           |   | **Buildings  and  Improvements** |   | **Land** |   | **Buildings   and  Improve  ments** |   | **Costs  Capitalized  Subsequent to  Acquisition (2)** |   | **Land** |   | **Buildings  and  Improvements** |   | **Total** |   | **Accumulated  Depreciation (1)** |   | **Encumbrances** |   | **Year  Built/  Renovated** |   |
| Century Park Center          |   | 243,404             |   | $                  | 7,189  |                             | $      | 16,742   |   | $                                   | — |                                                   | $      | —   |   | $                                | 10,376 |      | $      | 7,189 |   | $ | 27,118 |   | $ | 34,307 |   | $ | 6,320 |   | $ | — |   | 1972 |   |
| Beverly Atrium               |   | 59,650              |   | 4,127              |   | 11,513                           |   | 117      |   | 328                                 |   | 3,055                                                  |   | 4,244    |   | 14,896                           |   | 19,140    |   | 3,489 |   | 5,268 | (3) | 1989 |   |
| Woodland Hills               |   | 224,955             |   | 6,566              |   | 14,754                           |   | 365      |   | 880                                 |   | 7,022                                                  |   | 6,931    |   | 22,656                           |   | 29,587    |   | 5,750 |   | 14,564 | (3) | 1972/95 |   |
| Anaheim City Centre          |   | 175,391             |   | 515                |   | 11,199                           |   | 94       |   | 2,075                               |   | 4,850                                                  |   | 609      |   | 18,124                           |   | 18,733    |   | 4,569 |   | 8,914 | (3) | 1986 |   |
| 425 West Broadway            |   | 71,589              |   | 1,500              |   | 4,436                            |   | 305      |   | 918                                 |   | 2,730                                                  |   | 1,805    |   | 8,084                            |   | 9,889     |   | 1,611 |   | 4,734 | (3) | 1984 |   |
| 1950 Sawtelle                |   | 103,106             |   | 1,988              |   | 7,263                            |   | —   |   | —                              |   | 2,199                                                  |   | 1,988    |   | 9,462                            |   | 11,450    |   | 2,163 |   | 6,855 | (3) | 1988/95 |   |
| Bristol Plaza                |   | 84,014              |   | 1,820              |   | 3,380                            |   | 257      |   | 485                                 |   | 2,692                                                  |   | 2,077    |   | 6,557                            |   | 8,634     |   | 1,699 |   | 4,082 | (3) | 1982 |   |
| 16000 Ventura                |   | 174,841             |   | 1,700              |   | 17,189                           |   | 185      |   | 1,929                               |   | 4,622                                                  |   | 1,885    |   | 23,740                           |   | 25,625    |   | 4,824 |   | 11,634 | (3) | 1980/96 |   |
| 5000 East Spring             |   | 163,358             |   | —             |   | 11,658                           |   | —   |   | 424                                 |   | 3,296                                                  |   | —   |   | 15,378                           |   | 15,378    |   | 3,311 |   | — |   | 1989/95 |   |
| 70 South Lake                |   | 100,133             |   | 1,360              |   | 9,097                            |   | —   |   | —                              |   | 2,893                                                  |   | 1,360    |   | 11,990                           |   | 13,350    |   | 2,228 |   | 6,677 | (3) | 1982/94 |   |
| Westwood Terrace             |   | 135,943             |   | 2,103              |   | 16,850                           |   | —   |   | —                              |   | 2,746                                                  |   | 2,103    |   | 19,596                           |   | 21,699    |   | 3,687 |   | — |   | 1988 |   |
| Westlake — 5601 Lindero |   | 105,830             |   | 2,576              |   | 6,067                            |   | —   |   | —                              |   | 2,699                                                  |   | 2,576    |   | 8,766                            |   | 11,342    |   | 1,981 |   | 6,225 | (3) | 1989 |   |
| 6100 Wilshire                |   | 202,704             |   | 1,200              |   | 19,902                           |   | —   |   | —                              |   | 4,980                                                  |   | 1,200    |   | 24,882                           |   | 26,082    |   | 4,910 |   | 11,566 | (3) | 1986 |   |
| Calabasas Commerce Center    |   | 126,771             |   | 1,262              |   | 9,725                            |   | —   |   | —                              |   | 2,182                                                  |   | 1,262    |   | 11,907                           |   | 13,169    |   | 2,442 |   | 8,103 | (3) | 1990 |   |
| Long Beach Airport-DF&G  |   | 272,013             |   | —             |   | 14,452                           |   | —   |   | —                              |   | 501                                                    |   | —   |   | 14,953                           |   | 14,953    |   | 2,331 |   | — |   | 1987/95 |   |
| Skyview Center               |   | 391,675             |   | 6,514              |   | 33,701                           |   | —   |   | —                              |   | 5,906                                                  |   | 6,514    |   | 39,607                           |   | 46,121    |   | 7,502 |   | 27,604 | (3) | 1981/87/95 |   |
| 400 Corporate Pointe         |   | 164,598             |   | 3,382              |   | 17,527                           |   | 75       |   | 390                                 |   | 3,591                                                  |   | 3,457    |   | 21,508                           |   | 24,965    |   | 3,751 |   | 15,583 | (3) | 1987 |   |
| 5832 Bolsa                   |   | 49,355              |   | 690                |   | 3,526                            |   | 15       |   | 80                                  |   | 1,616                                                  |   | 705      |   | 5,222                            |   | 5,927     |   | 843 |   | 2,675 | (3) | 1985 |   |
| 9665 Wilshire                |   | 158,684             |   | 6,697              |   | 22,230                           |   | 139      |   | 473                                 |   | 8,468                                                  |   | 6,836    |   | 31,171                           |   | 38,007    |   | 5,371 |   | — |   | 1972/92/93 |   |
| 701 B Street                 |   | 540,413             |   | 3,722              |   | 35,184                           |   | 64       |   | 625                                 |   | 13,137                                                 |   | 3,786    |   | 48,946                           |   | 52,732    |   | 10,267 |   | — |   | 1982/96 |   |
| 100 Broadway                 |   | 191,727             |   | 4,570              |   | 15,255                           |   | —   |   | —                              |   | 2,017                                                  |   | 4,570    |   | 17,272                           |   | 21,842    |   | 2,979 |   | 15,120 | (3) | 1987/96 |   |
| Norwalk                      |   | 122,175             |   | 4,508              |   | 5,532                            |   | —   |   | —                              |   | 4,302                                                  |   | 4,508    |   | 9,834                            |   | 14,342    |   | 1,626 |   | 7,186 | (3) | 1978 |   |
| 303 Glenoaks                 |   | 175,289             |   | 6,500              |   | 18,132                           |   | —   |   | —                              |   | 3,568                                                  |   | 6,500    |   | 21,700                           |   | 28,200    |   | 3,231 |   | 13,104 | (3) | 1983/96 |   |
| 10351 Santa Monica           |   | 96,251              |   | 3,080              |   | 7,906                            |   | —   |   | —                              |   | 1,386                                                  |   | 3,080    |   | 9,292                            |   | 12,372    |   | 1,359 |   | 5,541 | (3) | 1984 |   |
| 2730 Wilshire                |   | 55,080              |   | 3,515              |   | 5,944                            |   | —   |   | —                              |   | 1,772                                                  |   | 3,515    |   | 7,716                            |   | 11,231    |   | 1,276 |   | 4,770 | (3) | 1985 |   |
| Grand Avenue Plaza           |   | 81,448              |   | 620                |   | 2,832                            |   | —   |   | —                              |   | 4,512                                                  |   | 620      |   | 7,344                            |   | 7,964     |   | 2,020 |   | 5,864 | (3) | 1980 |   |
| Burbank Executive Plaza      |   | 60,395              |   | 1,100              |   | 4,384                            |   | —   |   | —                              |   | 2,219                                                  |   | 1,100    |   | 6,603                            |   | 7,703     |   | 2,009 |   | 4,188 | (3) | 1978/83 |   |
| California Federal Building  |   | 81,243              |   | 1,500              |   | 5,981                            |   | —   |   | —                              |   | 1,710                                                  |   | 1,500    |   | 7,691                            |   | 9,191     |   | 544 |   | 4,188 | (3) | 1978/83 |   |
| Center Promenade             |   | 174,837             |   | 2,310              |   | 9,266                            |   | —   |   | —                              |   | 3,338                                                  |   | 2,310    |   | 12,604                           |   | 14,914    |   | 2,039 |   | — |   | 1982 |   |
| Los Angeles Corporate Center |   | 389,293             |   | 26,781             |   | 15,139                           |   | —   |   | —                              |   | 11,250                                                 |   | 26,781   |   | 26,389                           |   | 53,170    |   | 4,856 |   | 21,043 | (3) | 1986 |   |
| 5200 West Century            |   | 310,910             |   | 2,080              |   | 9,360                            |   | —   |   | —                              |   | 20,923                                                 |   | 2,080    |   | 30,283                           |   | 32,363    |   | 4,789 |   | — |   | 1982 |   |
| 15250 Ventura                |   | 110,641             |   | 2,560              |   | 10,257                           |   | —   |   | —                              |   | 3,413                                                  |   | 2,560    |   | 13,670                           |   | 16,230    |   | 2,171 |   | — |   | 1970/90-91 |   |
| 10350 Santa Monica           |   | 42,292              |   | 861                |   | 3,456                            |   | —   |   | —                              |   | 792                                                    |   | 861      |   | 4,248                            |   | 5,109     |   | 656 |   | 2,280 | (3) | 1979 |   |
| 535 N. Brand Blvd.           |   | 109,187             |   | 1,600              |   | 8,427                            |   | —   |   | —                              |   | 12,793                                                 |   | 1,600    |   | 21,220                           |   | 22,820    |   | 2,391 |   | — |   | 1973/92/2000 |   |
| 10780 Santa Monica           |   | 92,486              |   | 2,625              |   | 7,997                            |   | —   |   | —                              |   | 1,680                                                  |   | 2,625    |   | 9,677                            |   | 12,302    |   | 1,637 |   | — |   | 1984 |   |
| California Twin Center       |   | 155,189             |   | 4,680              |   | 14,877                           |   | —   |   | —                              |   | 2,747                                                  |   | 4,680    |   | 17,624                           |   | 22,304    |   | 2,723 |   | — |   | 1983 |   |
| Whittier                     |   | 135,415             |   | 3,575              |   | 10,798                           |   | —   |   | —                              |   | 2,006                                                  |   | 3,575    |   | 12,804                           |   | 16,379    |   | 1,982 |   | — |   | 1967/82 |   |
|                              |        |                     |        |                    |        |                                  |        |          |        |                                     |        |                                                        |        |          |        |                                  |        |           |        |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

F-20

----

** **
|                         |   |               |   | **Initial Costs** |   | **Basis Step Up**               |   |     |   | **Total Costs**                     |   |                                                 |   |     |   |                             |   |      |   |
|------------------------------|--------|--------------------|--------|-------------------|--------|---------------------------------|--------|----------|--------|-------------------------------------|--------|------------------------------------------------------|--------|----------|--------|----------------------------------|--------|-----------|--------|
|                         |   | **Square Footage** |   | **Land**          |   | **Buildings  and Improvements** |   | **Land** |   | **Building and Improv-ements** |   | **Costs Capitalized  Subsequent to Acquisition (2)** |   | **Land** |   | **Buildings  and  Improvements** |   | **Total** |   | **Accum  ulated  Depre-ciation (1)** |   | **Encum-brances** |   | **Year   Built/ Renovated** |   |
| 6800 Owensmouth              |   | 80,014             |   | 1,725             |   | 5,851                           |   | —   |   | —                              |   | 1,195                                                |   | 1,725    |   | 7,046                            |   | 8,771     |   | 905 |   | — |   | 1986 |   |
| Clarendon Crest              |   | 43,063             |   | 1,300             |   | 3,951                           |   | —   |   | —                              |   | 325                                                  |   | 1,300    |   | 4,276                            |   | 5,576     |   | 577 |   | 3,210 | (3) | 1990 |   |
| Noble Professional Center    |   | 51,828             |   | 1,657             |   | 5,096                           |   | —   |   | —                              |   | 987                                                  |   | 1,657    |   | 6,083                            |   | 7,740     |   | 924 |   | 3,580 | (3) | 1985/93 |   |
| South Bay Centre             |   | 202,830            |   | 4,775             |   | 14,365                          |   | —   |   | —                              |   | 4,167                                                |   | 4,775    |   | 18,532                           |   | 23,307    |   | 2,576 |   | 13,230 | (3) | 1984 |   |
| 8383 Wilshire                |   | 417,463            |   | 13,570            |   | 45,505                          |   | —   |   | —                              |   | 10,148                                               |   | 13,570   |   | 55,653                           |   | 69,223    |   | 8,463 |   | — |   | 1971/93 |   |
| Parkway Center I             |   | 61,333             |   | 1,480             |   | 5,941                           |   | —   |   | —                              |   | 985                                                  |   | 1,480    |   | 6,926                            |   | 8,406     |   | 1,009 |   | 5,029 | (3) | 1992/95 |   |
| Centerpointe La Palma        |   | 597,550            |   | 16,011            |   | 64,400                          |   | —   |   | —                              |   | 6,122                                                |   | 16,011   |   | 70,522                           |   | 86,533    |   | 9,966 |   | 33,831 | (3) | 1986/88/90 |   |
| 299 N. Euclid                |   | 73,522             |   | 1,050             |   | 6,110                           |   | —   |   | —                              |   | 5,522                                                |   | 1,050    |   | 11,632                           |   | 12,682    |   | 1,879 |   | — |   | 1983 |   |
| 2800 28th Street             |   | 103,506            |   | 2,937             |   | 9,063                           |   | —   |   | —                              |   | 2,639                                                |   | 2,937    |   | 11,702                           |   | 14,639    |   | 1,787 |   | — |   | 1979 |   |
| Harbor Corporate Center      |   | 63,925             |   | 870               |   | 3,538                           |   | —   |   | —                              |   | 875                                                  |   | 870      |   | 4,413                            |   | 5,283     |   | 603 |   | — |   | 1985 |   |
| 1000 Town Center             |   | 107,656            |   | 2,800             |   | 11,260                          |   | —   |   | —                              |   | 977                                                  |   | 2,800    |   | 12,237                           |   | 15,037    |   | 1,544 |   | — |   | 1989 |   |
| Mariner Court                |   | 105,436            |   | 2,350             |   | 9,461                           |   | —   |   | —                              |   | 1,847                                                |   | 2,350    |   | 11,308                           |   | 13,658    |   | 1,711 |   | 7,095 | (3) | 1989 |   |
| Pacific Gateway II           |   | 223,731            |   | 6,287             |   | 19,191                          |   | —   |   | —                              |   | 6,091                                                |   | 6,287    |   | 25,282                           |   | 31,569    |   | 3,869 |   | — |   | 1982/90 |   |
| 1821 Dyer                    |   | 115,061            |   | 1,808             |   | 5,474                           |   | —   |   | —                              |   | 4,190                                                |   | 1,808    |   | 9,664                            |   | 11,472    |   | 967 |   | — |   | 1980/88 |   |
| Crown Cabot Financial        |   | 172,900            |   | 7,056             |   | 21,360                          |   | —   |   | —                              |   | 7,753                                                |   | 7,056    |   | 29,113                           |   | 36,169    |   | 3,949 |   | — |   | 1989 |   |
| 120 South Spalding           |   | 60,656             |   | 2,775             |   | 8,544                           |   | —   |   | —                              |   | 6,014                                                |   | 2,775    |   | 14,558                           |   | 17,333    |   | 2,446 |   | 8,461 | (3) | 1984 |   |
| South Bay Tech               |   | 104,815            |   | 1,600             |   | 4,782                           |   | —   |   | —                              |   | 1,552                                                |   | 1,600    |   | 6,334                            |   | 7,934     |   | 1,137 |   | — |   | 1984 |   |
| 1370 Valley Vista            |   | 84,081             |   | 2,698             |   | 8,141                           |   | —   |   | —                              |   | 1,450                                                |   | 2,698    |   | 9,591                            |   | 12,289    |   | 1,232 |   | 5,532 | (3) | 1988 |   |
| Renaissance Court            |   | 61,245             |   | 1,580             |   | 5,477                           |   | —   |   | —                              |   | 1,307                                                |   | 1,580    |   | 6,784                            |   | 8,364     |   | 473 |   | — |   | 1981/92 |   |
| Foremost Professional Plaza  |   | 60,534             |   | 2,049             |   | 6,196                           |   | —   |   | —                              |   | 844                                                  |   | 2,049    |   | 7,040                            |   | 9,089     |   | 951 |   | — |   | 1992 |   |
| Northpoint                   |   | 104,235            |   | 1,800             |   | 20,272                          |   | —   |   | —                              |   | 1,545                                                |   | 1,800    |   | 21,817                           |   | 23,617    |   | 2,993 |   | — |   | 1991 |   |
| Pennsfield Plaza             |   | 21,202             |   | 800               |   | 2,383                           |   | —   |   | —                              |   | 422                                                  |   | 800      |   | 2,805                            |   | 3,605     |   | 232 |   | — |   | 1989 |   |
| Conejo Business Center       |   | 69,017             |   | 2,489             |   | 7,359                           |   | —   |   | —                              |   | 986                                                  |   | 2,489    |   | 8,345                            |   | 10,834    |   | 534 |   | 4,173 |   | 1991 |   |
| Marin Corporate Center       |   | 51,360             |   | 1,956             |   | 5,915                           |   | —   |   | —                              |   | 713                                                  |   | 1,956    |   | 6,628                            |   | 8,584     |   | 407 |   | 2,965 |   | 1986 |   |
| 145 South Fairfax            |   | 53,994             |   | 1,825             |   | 5,551                           |   | —   |   | —                              |   | 1,338                                                |   | 1,825    |   | 6,889                            |   | 8,714     |   | 703 |   | 3,988 |   | 1984 |   |
| Bernardo Regency             |   | 47,916             |   | 1,625             |   | 4,937                           |   | —   |   | —                              |   | 919                                                  |   | 1,625    |   | 5,856                            |   | 7,481     |   | 798 |   | — |   | 1986 |   |
| City Centre                  |   | 302,519            |   | 8,250             |   | 24,951                          |   | —   |   | —                              |   | 3,800                                                |   | 8,250    |   | 28,751                           |   | 37,001    |   | 3,224 |   | — |   | 1982 |   |
| Wilshire Pacific Plaza       |   | 100,122            |   | 3,750             |   | 11,317                          |   | —   |   | —                              |   | 3,477                                                |   | 3,750    |   | 14,794                           |   | 18,544    |   | 2,186 |   | — |   | 1976/87 |   |
| Glendale Corporate Center    |   | 108,209            |   | 2,750             |   | 12,734                          |   | —   |   | —                              |   | 1,640                                                |   | 2,750    |   | 14,374                           |   | 17,124    |   | 1,839 |   | — |   | 1985 |   |
| World Savings Center         |   | 469,115            |   | —            |   | 110,382                         |   | —   |   | —                              |   | 12,664                                               |   | —   |   | 123,046                          |   | 123,046   |   | 15,227 |   | — |   | 1983 |   |
| Beverly Sunset Medical Plaza |   | 139,711            |   | 7,180             |   | 21,666                          |   | —   |   | —                              |   | 7,385                                                |   | 7,180    |   | 29,051                           |   | 36,231    |   | 3,306 |   | — |   | 1963/92-95 |   |
| Sunset Point Plaza           |   | 58,105             |   | 2,075             |   | 6,362                           |   | —   |   | —                              |   | 952                                                  |   | 2,075    |   | 7,314                            |   | 9,389     |   | 952 |   | 3,452 | (3) | 1988 |   |
| Activity Business Center     |   | 167,045            |   | 3,650             |   | 11,303                          |   | —   |   | —                              |   | 1,218                                                |   | 3,650    |   | 12,521                           |   | 16,171    |   | 1,455 |   | 7,737 |   | 1987 |   |
| Westlake Gardens I           |   | 49,639             |   | 1,831             |   | 5,550                           |   | —   |   | —                              |   | 2,123                                                |   | 1,831    |   | 7,673                            |   | 9,504     |   | 1,141 |   | — |   | 1998 |   |
| 9100 Wilshire Boulevard      |   | 326,227            |   | 16,250            |   | 48,950                          |   | —   |   | —                              |   | 7,913                                                |   | 16,250   |   | 56,863                           |   | 73,113    |   | 7,499 |   | — |   | 1971/90 |   |
| Westwood Center              |   | 313,000            |   | 3,159             |   | 24,920                          |   | —   |   | —                              |   | 77,289                                               |   | 3,159    |   | 102,209                          |   | 105,368   |   | 3,525 |   | — |   | 1965/2000 |   |
| 1919 Santa Monica            |   | 43,796             |   | 2,580             |   | 7,772                           |   | —   |   | —                              |   | 616                                                  |   | 2,580    |   | 8,388                            |   | 10,968    |   | 896 |   | 3,724 | (3) | 1991 |   |
| 600 Corporate Pointe         |   | 273,339            |   | 8,575             |   | 35,325                          |   | —   |   | —                              |   | 5,196                                                |   | 8,575    |   | 40,521                           |   | 49,096    |   | 4,592 |   | 17,692 | (3) | 1989 |   |
| 150 East Colorado            |   | 61,168             |   | 1,988             |   | 5,841                           |   | —   |   | —                              |   | 1,715                                                |   | 1,988    |   | 7,556                            |   | 9,544     |   | 926 |   | 4,937 | (3) | 1979/97 |   |
| 5161 Lankershim              |   | 178,317            |   | 5,016             |   | 25,568                          |   | —   |   | —                              |   | 3,471                                                |   | 5,016    |   | 29,039                           |   | 34,055    |   | 3,807 |   | 13,573 | (3) | 1985/97 |   |

 

 

F-21

----

** **

** **
|                              |   |                 |   | **Initial Costs** |   | **Basis Step Up**                 |   |     |   | **Total Costs**                    |   |                                                |   |     |   |                                   |   |      |   |
|-----------------------------------|--------|----------------------|--------|-------------------|--------|-----------------------------------|--------|----------|--------|------------------------------------|--------|-----------------------------------------------------|--------|----------|--------|----------------------------------------|--------|-----------|--------|
|                              |   | **Square   Footage** |   | **Land**          |   | **Buildings  and  Improve-ments** |   | **Land** |   | **Buildings   and  Improve-ments** |   | **Costs Capitalized Subsequent to Acquis-tion (2)** |   | **Land** |   | **Buildings   and**

**Improve-ments** |   | **Total** |   | **Accumu-l  ated Deprec-iation (1)** |   | **Encumb-rances** |   | **Year  Built/  Renov-ated** |   |
| 1501 Hughes Way                   |   | 77,060               |   | 1,348             |   | 4,058                             |   | —   |   | —                             |   | 3,301                                               |   | 1,348    |   | 7,359                                  |   | 8,707     |   | 1,006 |   | — |   | 1983/97 |   |
| 3901 Via Oro                      |   | 53,195               |   | 692               |   | 2,081                             |   | —   |   | —                             |   | 1,729                                               |   | 692      |   | 3,810                                  |   | 4,502     |   | 1,045 |   | — |   | 1986/97 |   |
| Huntington Beach Plaza I & II |   | 52,186               |   | 1,109             |   | 3,317                             |   | —   |   | —                             |   | 686                                                 |   | 1,109    |   | 4,003                                  |   | 5,112     |   | 517 |   | 1,509 | (3) | 1984/96 |   |
| Fountain Valley Plaza             |   | 107,252              |   | 2,949             |   | 9,377                             |   | —   |   | —                             |   | 2,300                                               |   | 2,949    |   | 11,677                                 |   | 14,626    |   | 1,688 |   | 4,833 | (3) | 1982 |   |
| 3300 Irvine Avenue                |   | 74,224               |   | 2,215             |   | 6,697                             |   | —   |   | —                             |   | 1,478                                               |   | 2,215    |   | 8,175                                  |   | 10,390    |   | 1,087 |   | 3,244 | (3) | 1981/97 |   |
| Von Karman Corporate Center       |   | 451,477              |   | 11,513            |   | 34,783                            |   | —   |   | —                             |   | 9,167                                               |   | 11,513   |   | 43,950                                 |   | 55,463    |   | 5,984 |   | 19,108 | (3) | 1981/84 |   |
| 1503 South Coast                  |   | 60,605               |   | 1,570             |   | 4,731                             |   | —   |   | —                             |   | 648                                                 |   | 1,570    |   | 5,379                                  |   | 6,949     |   | 571 |   | 2,262 | (3) | 1979/97 |   |
| 625 The City                      |   | 139,806              |   | 4,792             |   | 14,470                            |   | —   |   | —                             |   | 2,246                                               |   | 4,792    |   | 16,716                                 |   | 21,508    |   | 2,166 |   | 7,055 | (3) | 1985/97 |   |
| Orange Financial Center           |   | 305,439              |   | 10,379            |   | 34,415                            |   | —   |   | —                             |   | 7,193                                               |   | 10,379   |   | 41,608                                 |   | 51,987    |   | 5,386 |   | 18,184 | (3) | 1985/95 |   |
| Lambert Office Plaza              |   | 32,807               |   | 1,095             |   | 3,296                             |   | —   |   | —                             |   | 643                                                 |   | 1,095    |   | 3,939                                  |   | 5,034     |   | 561 |   | — |   | 1986/97 |   |
| Carlsbad Corporate Center         |   | 125,000              |   | 3,722             |   | 15,061                            |   | —   |   | —                             |   | 3,129                                               |   | 3,722    |   | 18,190                                 |   | 21,912    |   | 1,807 |   | 9,327 | (3) | 1996 |   |
| Balboa Corporate Center           |   | 69,890               |   | 2,759             |   | 8,303                             |   | —   |   | —                             |   | (126                                                | )      | 2,759    |   | 8,177                                  |   | 10,936    |   | 842 |   | 5,944 | (3) | 1990 |   |
| Panorama Corporate Center         |   | 133,149              |   | 6,512             |   | 19,593                            |   | —   |   | —                             |   | 351                                                 |   | 6,512    |   | 19,944                                 |   | 26,456    |   | 2,065 |   | 12,963 | (3) | 1991 |   |
| Ruffin Corporate Center           |   | 45,059               |   | 1,766             |   | 5,315                             |   | —   |   | —                             |   | (36                                                 | )      | 1,766    |   | 5,279                                  |   | 7,045     |   | 546 |   | 3,547 | (3) | 1990 |   |
| Skypark Office Plaza              |   | 202,164              |   | 5,733             |   | 21,608                            |   | —   |   | —                             |   | 2,327                                               |   | 5,733    |   | 23,935                                 |   | 29,668    |   | 2,667 |   | — |   | 1986 |   |
| Governor Park Plaza               |   | 104,065              |   | 3,382             |   | 10,177                            |   | —   |   | —                             |   | 2,270                                               |   | 3,382    |   | 12,447                                 |   | 15,829    |   | 1,768 |   | 5,026 | (3) | 1986 |   |
| 5120 Shoreham                     |   | 37,759               |   | 1,224             |   | 4,073                             |   | —   |   | —                             |   | 188                                                 |   | 1,224    |   | 4,261                                  |   | 5,485     |   | 650 |   | 3,092 | (3) | 1984 |   |
| Morehouse Tech Center             |   | 181,207              |   | 6,841             |   | 21,067                            |   | —   |   | —                             |   | 3,162                                               |   | 6,841    |   | 24,229                                 |   | 31,070    |   | 2,821 |   | — |   | 1984 |   |
| Torreyanna Science Park           |   | 81,204               |   | 5,035             |   | 15,148                            |   | —   |   | —                             |   | 352                                                 |   | 5,035    |   | 15,500                                 |   | 20,535    |   | 1,610 |   | 9,500 | (3) | 1980/97 |   |
| Waples Tech Center                |   | 28,119               |   | 1,010             |   | 3,027                             |   | —   |   | —                             |   | 746                                                 |   | 1,010    |   | 3,773                                  |   | 4,783     |   | 546 |   | — |   | 1990 |   |
| 10251 Vista Sorrento              |   | 69,386               |   | 1,839             |   | 7,202                             |   | —   |   | —                             |   | 204                                                 |   | 1,839    |   | 7,406                                  |   | 9,245     |   | 772 |   | 3,882 | (3) | 1981/95 |   |
| Camarillo Business Park           |   | 154,216              |   | 3,522             |   | 10,602                            |   | —   |   | —                             |   | 3,610                                               |   | 3,522    |   | 14,212                                 |   | 17,734    |   | 2,075 |   | 8,628 | (3) | 1984/97 |   |
| Centrelake Plaza                  |   | 110,763              |   | 1,570             |   | 9,473                             |   | —   |   | —                             |   | 3,094                                               |   | 1,570    |   | 12,567                                 |   | 14,137    |   | 1,840 |   | — |   | 1989 |   |
| Chicago Avenue Business Park      |   | 47,482               |   | 1,223             |   | 3,687                             |   | —   |   | —                             |   | 453                                                 |   | 1,223    |   | 4,140                                  |   | 5,363     |   | 510 |   | — |   | 1986 |   |
| Havengate Center                  |   | 80,557               |   | 1,913             |   | 5,759                             |   | —   |   | —                             |   | 2,289                                               |   | 1,913    |   | 8,048                                  |   | 9,961     |   | 1,007 |   | — |   | 1985 |   |
| HDS Plaza                         |   | 104,178              |   | 2,604             |   | 7,838                             |   | —   |   | —                             |   | 1,134                                               |   | 2,604    |   | 8,972                                  |   | 11,576    |   | 1,147 |   | — |   | 1987 |   |
| 5702 Bolsa                        |   | 27,731               |   | 589               |   | 1,775                             |   | —   |   | —                             |   | 87                                                  |   | 589      |   | 1,862                                  |   | 2,451     |   | 199 |   | 941 | (3) | 1987/97 |   |
| 5672 Bolsa                        |   | 11,968               |   | 254               |   | 767                               |   | —   |   | —                             |   | 177                                                 |   | 254      |   | 944                                    |   | 1,198     |   | 152 |   | 330 | (3) | 1987 |   |
| 5632 Bolsa                        |   | 21,568               |   | 458               |   | 1,381                             |   | —   |   | —                             |   | 41                                                  |   | 458      |   | 1,422                                  |   | 1,880     |   | 150 |   | 845 | (3) | 1987 |   |
| Huntington Commerce Center        |   | 67,551               |   | 992               |   | 2,997                             |   | —   |   | —                             |   | 339                                                 |   | 992      |   | 3,336                                  |   | 4,328     |   | 413 |   | 1,555 | (3) | 1987 |   |
| Savi Tech Center                  |   | 341,446              |   | 8,280             |   | 24,911                            |   | —   |   | —                             |   | 3,537                                               |   | 8,280    |   | 28,448                                 |   | 36,728    |   | 3,045 |   | 14,728 | (3) | 1989 |   |
| Yorba Linda Business Park         |   | 167,142              |   | 2,629             |   | 7,913                             |   | —   |   | —                             |   | 664                                                 |   | 2,629    |   | 8,577                                  |   | 11,206    |   | 1,004 |   | 4,170 | (3) | 1988 |   |
| Cymer Technology Center           |   | 155,612              |   | 5,446             |   | 16,387                            |   | —   |   | —                             |   | 2,498                                               |   | 5,446    |   | 18,885                                 |   | 24,331    |   | 1,810 |   | 10,918 | (3) | 1986 |   |
| Poway Industrial                  |   | 112,000              |   | 1,876             |   | 5,646                             |   | —   |   | —                             |   | 178                                                 |   | 1,876    |   | 5,824                                  |   | 7,700     |   | 614 |   | 3,492 | (3) | 1991/96 |   |
| 10180 Scripps Ranch               |   | 43,560               |   | 1,165             |   | 3,507                             |   | —   |   | —                             |   | 175                                                 |   | 1,165    |   | 3,682                                  |   | 4,847     |   | 386 |   | 1,997 | (3) | 1978/96 |   |
| Via Frontera                      |   | 77,920               |   | 1,792             |   | 5,391                             |   | —   |   | —                             |   | 1,060                                               |   | 1,792    |   | 6,451                                  |   | 8,243     |   | 894 |   | 2,875 | (3) | 1982/97 |   |
| Westridge                         |   | 48,955               |   | 1,807             |   | 5,591                             |   | —   |   | —                             |   | 693                                                 |   | 1,807    |   | 6,284                                  |   | 8,091     |   | 740 |   | 2,972 | (3) | 1984/96 |   |

 

F-22

----

 
|                               |   |                |   | **Initial  Costs** |        | **Basis Step  Up**                 |   |          |   | **Total  Costs**                   |      |                                                      |   |      |   |                                 |        |      |   |
|------------------------------------|--------|---------------------|--------|--------------------|-------------|------------------------------------|--------|---------------|--------|------------------------------------|-----------|-----------------------------------------------------------|--------|-----------|--------|--------------------------------------|-------------|-----------|--------|
|                               |   | **Square  Footage** |   | **Land**           |        | **Buildings   and  Improve-ments** |   | **Land**      |   | **Build-  ings and Improve-ments** |      | **Costs  Capita-lized  Subseq-uent to  Acqui-sition (2)** |   | **Land**  |   | **Build-ings    and  Improve-ments** |        | **Total** |   | **Accumu-lated  Depre-ciation (1)** |   | **Encu-rances** |   | **Year  Built/  Reno-vated** |   |
| Tower Plaza Retail                 |   | 133,481             |   | 4,531              |        | 13,660                             |   | —        |   | —                             |      | 181                                                       |   | 4,531     |   | 13,841                               |        | 18,372    |   | 1,638 |   | — |   | 1970/97 |   |
| 6060 Center Drive                  |   | 241,928             |   | 1,990              |        | —                             |   | 2,303         |   | —                             |      | 59,623                                                    |   | 4,293     |   | 59,623                               |        | 63,916    |   | 2,043 |   | — |   | 2000 |   |
| Howard Hughes — Spectrum Club |   | 36,959              |   | 2,500              |        | 7,500                              |   | —        |   | —                             |      | 36                                                        |   | 2,500     |   | 7,536                                |        | 10,036    |   | 713 |   | — |   | 1993 |   |
| Howard Hughes — Univision     |   | 161,650             |   | —             |        | —                             |   | 1,529         |   | —                             |      | 42,294                                                    |   | 1,529     |   | 42,294                               |        | 43,823    |   | 185 |   | — |   | 2001 |   |
| 11075 Santa Monica                 |   | 35,696              |   | 1,225              |        | 3,746                              |   | —        |   | —                             |      | 1,475                                                     |   | 1,225     |   | 5,221                                |        | 6,446     |   | 689 |   | — |   | 1983 |   |
| Continen-tal Grand Plaza           |   | 235,926             |   | 7,125              |        | 40,451                             |   | —        |   | —                             |      | 4,698                                                     |   | 7,125     |   | 45,149                               |        | 52,274    |   | 5,330 |   | 27,707 | (3) | 1986 |   |
| Calabasas Tech                     |   | 273,526             |   | 11,513             |        | 34,591                             |   | —        |   | —                             |      | 4,891                                                     |   | 11,513    |   | 39,482                               |        | 50,995    |   | 4,460 |   | — |   | 1990 |   |
| Oceangate Tower                    |   | 210,907             |   | 3,080              |        | 20,386                             |   | —        |   | —                             |      | 2,782                                                     |   | 3,080     |   | 23,168                               |        | 26,248    |   | 2,796 |   | — |   | 1971/93/  94 |   |
| Lyons Plaza                        |   | 61,203              |   | 2,078              |        | 6,267                              |   | —        |   | —                             |      | 895                                                       |   | 2,078     |   | 7,162                                |        | 9,240     |   | 802 |   | — |   | 1990 |   |
| Genesee Execu-tive Plaza           |   | 155,820             |   | 6,750              |        | 20,178                             |   | —        |   | —                             |      | 3,089                                                     |   | 6,750     |   | 23,267                               |        | 30,017    |   | 2,848 |   | 16,945 | (3) | 1984 |   |
| Solar Busi-ness Center             |   | 125,132             |   | 4,250              |        | 12,770                             |   | —        |   | —                             |      | 1,088                                                     |   | 4,250     |   | 13,858                               |        | 18,108    |   | 1,523 |   | — |   | 1982 |   |
| 91 Free-way Center                 |   | 93,277              |   | 2,900              |        | 9,179                              |   | —        |   | —                             |      | 1,319                                                     |   | 2,900     |   | 10,498                               |        | 13,398    |   | 1,179 |   | — |   | 1986/97 |   |
| 601 S. Glen-oaks                   |   | 72,524              |   | 2,450              |        | 7,519                              |   | —        |   | —                             |      | 523                                                       |   | 2,450     |   | 8,042                                |        | 10,492    |   | 748 |   | 5,896 | (3) | 1990 |   |
| Tourney Pointe                     |   | 219,991             |   | 6,047              |        | 21,334                             |   | —        |   | —                             |      | 9,026                                                     |   | 6,047     |   | 30,360                               |        | 36,407    |   | 2,219 |   | — |   | 1985/98/  2000 |   |
| Mini Suites                        |   | —              |   | —             |        | —                             |   | —        |   | —                             |      | 353                                                       |   | —    |   | 353                                  |        | 353       |   | 96 |   | — |   | N/A |   |
| Hillside Corpo-rate Center         |   | 59,876              |   | 2,213              |        | 7,336                              |   | —        |   | —                             |      | 2,069                                                     |   | 2,213     |   | 9,405                                |        | 11,618    |   | 830 |   | — |   | 1998 |   |
| Westlake Gar-dens II               |   | 48,874              |   | 1,832              |        | 5,493                              |   | —        |   | —                             |      | 1,887                                                     |   | 1,832     |   | 7,380                                |        | 9,212     |   | 740 |   | — |   | 1999 |   |
| Howard Hughes Tower                |   | 313,833             |   | 5,830              |        | 47,170                             |   | —        |   | —                             |      | 5,882                                                     |   | 5,830     |   | 53,052                               |        | 58,882    |   | 4,594 |   | — |   | 1987 |   |
| 2001 Wil-shire Blvd.               |   | 101,125             |   | 5,007              |        | 14,893                             |   | —        |   | —                             |      | 645                                                       |   | 5,007     |   | 15,538                               |        | 20,545    |   | 1,011 |   | — |   | 1980 |   |
| Howard Hughes Hotel Parcel         |   | —              |   | 1,663              |        | —                             |   | —        |   | —                             |      | 1,402                                                     |   | 1,663     |   | 1,402                                |        | 3,065     |   | — |   | — |   |   |   |
|                               |   | **18,246,900**      |   | **$**              | **467,892** |                               | **$**  | **1,738,599** |   | **$**                              | **5,448** |                                                      | **$**  | **8,607** |   | **$**                                | **576,506** |      | **$**  | **473,340** |   | **$** | **2,323,712** |   | **$** | **2,797,052** |   | **$** | **307,082** |   | **$** | **573,452** |   |   |   |
|                                    |        |                     |        |                    |             |                                    |        |               |        |                                    |           |                                                           |        |           |        |                                      |             |           |        |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

----

(1)               Thedepreciable life for buildings and improvements ranges from ten to forty sevenyears. Tenant improvements and leasing costs are depreciated over the remainingterm of the lease.

 

(2)               Amountsshown net of write-offs of fully depreciated assets and include totalcapitalized interest of $45.6 million.

 

(3)               Allof these properties are collateral for Arden Realty’s $554.6 million mortgagefinancings. The encumbrance allocated to an individual property is based on therelated individual release price.

 

F-23

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**ARDEN REALTY LIMITED PARTNERSHIP**

 

**16.Schedule of Commercial Properties and Accumulated Depreciation**

 

The changes in our investment in commercial propertiesand related accumulated depreciation for each of the periods in the three yearsended December 31, are as follows (in thousands):

 

 
|                                             |   | **Arden  Realty Limited Partnership** |       |
|--------------------------------------------------|--------|---------------------------------------|------------|
|                                             |   | **For the  Years Ended December 31**  | ** ** |
|                                             |   | **2001**                              | ** ** | **2000** | ** ** | **1999** | ** ** |
| **Commercial  Properties:**                      |   |                                  |       |   |   |   |   |
| Balance at beginning of period                   |   | $                                     | 2,741,681  |   | $ | 2,453,370 |   | $ | 2,198,580 |   |
| Improvements                                     |   | 78,580                                |       | 159,163 |   | 122,127 |   |
| Disposition of property                          |   | (44,773                               | )          | (10,078 | ) | — |   |
| Write offs of fully depreciated assets           |   | (21,412                               | )          | (13,723 | ) | (591 | ) |
| Acquisition of properties                        |   | —                                |       | — |   | 89,800 |   |
| Transfers from (to) properties under development |   | 42,976                                |       | 152,949 |   | 43,454 |   |
| Balance at end of period                         |   | $                                     | 2,797,052  |   | $ | 2,741,681 |   | $ | 2,453,370 |   |
|                                             |   |                                  | ** ** |   | ** ** |   | ** ** |
| **Accumulated  Depreciation:**                   |   |                                  |       |   |   |   |   |
| Balance at beginning of period                   |   | $                                     | (231,499   | ) | $ | (157,608 | ) | $ | (88,863 | ) |
| Depreciation for period                          |   | (100,789                              | )          | (87,126 | ) | (68,203 | ) |
| Disposition of property                          |   | 3,794                                 |       | 531 |   | — |   |
| Write offs of fully depreciated assets           |   | 21,412                                |       | 13,723 |   | 591 |   |
| Transfers to (from) properties under development |   | —                                |       | (1,019 | ) | (1,133 | ) |
| Balance at end of period                         |   | $                                     | (307,082   | ) | $ | (231,499 | ) | $ | (157,608 | ) |

 

 

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